Mercadona has decided to bring out the heavy artillery in the price war and commercial promotions that the most popular chains in the Spanish market, such as Lidl, Aldi or Carrefour, have been waging for months. In the midst of a decline in inflation, the chain led by Juan Roig has decided to invest close to 150 million euros, thus adding more than 1,000 discounted products to its shelves this year, in addition to the price reductions implemented in February.

It matters because of its data. And it matters because of its context.

Thousands of discounted products. That’s the idea (and the number) that Mercadona wants to convey: more than 1,000 discounted products in 2024. On Tuesday, the company released a statement saying it was proud of its pricing policy, announcing that it would invest $150 million to improve it even further. and a round number slips in: if the cuts it just made and the discounts it implemented in February are added, it will have more than a thousand discounted products on its shelves.

Which products? Mercadona doesn’t need it. Neither does it, nor the extent to which the price of each product for which the RRP has been revised has been reduced. It is stated that the discounted products include “foods such as fish, pasta, olive oil”. The only case where it goes further is with “liquid gold”: the company announced yesterday that it has applied a discount on its Virgin and Extra Virgin ranges, which are added to the others launched so far this year.

“In addition to the work carried out since January with its three varieties, Light/Intense, Extra Virgin and Virgin, Mercadona has reduced the prices of olive oil in its supermarkets by an average of 14%,” the company adds.

How do you set prices? Roig’s company provides two keys. First, it has dedicated $150 million to “optimizations” that will allow its customers to save up to 150 euros a year on their shopping carts. In the same vein, the “work” of its 104,000 employees and 3,000 suppliers stands out.

“Only in this way can it be sustainable for the entire chain to reduce prices without affecting quality,” says the company’s management. The second message it emphasizes is that it wants to “transfer the reductions in cost prices to the RRP.”

It matters how much… And when is (very) important. Beyond Mercadona’s investment figures, internal “optimizations” and savings for consumers, its announcement is interesting because of the context. After all, its announcement is preceded by two key pieces of information. The first is the CPI. The INE’s latest balance sheet shows that inflation slowed by two-tenths last month to 3.4%, while the rise in food costs also softened to 4.2%, its lowest since December 2021.

Another important point is the Government’s decision to extend the VAT reduction on staple foods including milk, oats, flour, fruit, vegetables, pulses, cereals, tubers, cheeses and eggs to 0% until the end of September. From October to December VAT will be 2%.

A few weeks ago, the Administration also announced its decision to reduce the olive oil tax to 0% from July 1 and include it in the group of essential goods at a super-reduced rate. A 198.5% increase in price compared to 2021.

Paying attention to the price. Mercadona is not the first chain in the sector to announce aggressive price reductions. Moreover, it has implemented similar policies in the recent past. In April 2023, the chain benefited from a discount on 500 products, which according to calculations would mean savings of 200 million euros for its customers. At the beginning of this year, there was talk of another ambitious price reduction affecting more than 400 products.

The aim is to gain traction in the controversial fight with other supermarket chains; between these two characteristics Mercadona can boast: a valuable market share (26.2%), largely achieved through its promotional strategy; and a firm commitment to its private label, which accounts for around 74.5% of the business, a percentage exceeded only by Lidl with its own brands.

Beyond MercadonaIn April, Aldi announced that it was cutting the cost of more than 400 products in a bid to save customers around 105 euros, again according to its own calculations. The same month, the German company claimed its prices were 14% lower than the industry average.

Carrefour has also increased the pressure by slashing prices on food, fresh produce and cleaning products from its own private labels and some external producers. After increasing its discounted products catalogue several times, it boasts that it has already accumulated around 2,000 items on its website with permanent discounts.

The list of chains boasting about sales, promotions or greater commitment to their private labels is growing. Alcampo added around 300 new products from its brand in 2023, HiperDino revised around a thousand items, Lidl announced a “permanent campaign” in February focusing on more than 200 products and last year Eroski reduced the cost of hundreds of items in an initiative it called “The Basket That Makes You Fall in Love.”

Images | Mercadona and INE

On Xataka | Brands ranked the supermarkets least committed to their new products. They give 0% to Mercadona