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Supermarket wars: Coles slashes prices – again

In some potentially good news for shoppers, Coles is slashing the prices on loads of its private label products. Included are an 8% reduction on bread, 13% on juices, 27% on meat pies and 32% on vegetable oil.

From today, the ‘Down Down’ campaign will be expanded by more than 100 products, with discounts guaranteed for six months – although several products added in July last year still remain at sale prices. More than 1,000 products are now part of the Down Down campaign.

Related: Coles and Woolies walk a fine line

Coles – owned by Wesfarmers Limited (ASX: WES), is taking the fight further with its main rival and fierce competitor, Woolworths Limited (ASX: WOW), but the addition of new sale items is also designed to woo shoppers back to private label brands. Theses brands tend to be more profitable for the supermarkets than name-brand products, as the companies have more control over pricing, and therefore gain higher margins.

Market research group, Nielsen found last year that growth in private label sales has stalled and shoppers appear tired of home branded products, for the first time in five years. After private label’s share of sales was forecast to reach 40% by 2015, they were now stuck at around 23.6%.

Both Coles and Woolworths have flooded their stores with private label brands and squeezed the margins of name-branded companies such as Heinz, Goodman Fielder (ASX: GFF) and even Coca Cola Amatil (ASX: CCL) has not been immune.

Now it seems that Coles’ ‘My5’ promotion last year, where shoppers could nominate 5 products that they would receive 10% off, has pushed consumers back into name-brand products, and the company is finding it increasingly hard to get them back buying private label brands.

The Foolish bottom line

Coles and Woolies may find that consumers don’t want their private label brands as much as the companies hope. The continued replacement of branded products with home brands may have hit a sour note with shoppers. Whether the new promotion works remains to be seen, but I wouldn’t bet my bottom dollar on it.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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