Banana discounting

British supermarkets – and in particular the in-vogue Aldi and Lidl discounters – use both bananas and milk as huge loss leaders. And in the process are driving all but the biggest producers of both out of business.

“To industry observers, bananas demonstrate how low European hard discount pioneers will go to secure their customers’ loyalty,” says Alistair Smith, International Coordinator, Banana Link.

“The banana business model they have adopted is uncompromising and the impacts of the strategy on people and the environment are very serious.”

In the UK supermarkets like Asda – and retailers who only offer Fairtrade-labelled bananas, like J Sainsbury – have been selling loose bananas at or below cost for several years, making up some or all of the ‘sacrificed’ margins on bagged fruit. Unlike in France or Germany, below-cost selling in the British market is not illegal.

“This allows the major retailers in the UK who, with the exception of The Co-operative Group, all sell loose bananas at or below cost to argue legitimately they are not breaking any law and it is their own sovereign decision to fund this near-permanent rock-bottom price,” claims Smith.

“And so, led by Aldi and Asda, the race to the bottom in the European banana market is fuelled by the belief that cheap bananas are what everybody needs or wants.”

Even more serious for those trying to construct a sustainable future for the industry is that all attempts to reverse this race in Europe’s two biggest markets are frustrated.

Tesco, Sainsbury and Waitrose have all attempted to raise the loose banana retail price since the permanent price war set in four or more years ago in the UK.

“But every time the Asda price-setters have sat it out – safe in the knowledge, from their point of view, that every kilo sold at £0.68 (0,87 euro at 5 January 2015 rates) hurts their competitors’ margins more than it hurts their own,” says Smith.

And it seems that as long as customers prefer a ready-bagged ‘Pack of 10’ that costs £1.00 a kilo in Asda, there are still profits to be recouped.

More worrying for the competitors of Aldi and Lidl is it seems bananas may be helping bring people through the doors of the hard discounters as consumer change their shopping habits.

According to Smith, complexity lies behind such a simple statement and Aldi’s banana retail prices per kilo for conventional bananas in the UK are even harder to work out than in other retailers.

First, the retailer does not deal in loose bananas (where prices per kilo are posted for customers to see). They sell packs of three in a plastic tray at £0.39, a seven ‘Funsize’ pack at £1.09, or Organic Fairtrade at £1.39 per kilo.

Second, however, a truth that is of great concern to their UK competitors is that Aldi and Lidl both sell more than double the volume of bananas than their overall food market share would indicate.

Intriguingly for banana-watchers, it seems this high banana volume is not based on price, especially as the Aldi per kilo retail price works out at well above the £0.68 the other major retailers espouse.

“The lack of visibility of a price per kilo reinforces the theory that, actually, the great majority of banana consumers do not look at the price; they just know they are cheap,” says Smith.

A full version of this article by Clive Simpson can be found on The Lighthouse Keeper blog

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