Too many facts mean don't try and guess what's coming next'

We can read lots into Warren Buffett telling CNBC that he made a mistake in investing in Tesco.

“I am going to make mistakes,” he said. “But not because I buy businesses that I like as they go down in price but I am just going to be wrong sometimes on the facts.”

The interview that we can see does not go on to examine what these facts might be. What I would suggest is that Buffett is saying that Tesco is a well-run business for the world of shopping that used to exist when he bought into Tesco in 2007. The supermarket retail world has changed beyond recognition since then.

Morrisons under Dalton Philips claims it will be the first retailer in the world to price match Aldi and Lidl with its Match & More initiative (based on its mid-range own brands, not its value range). If he reads Dieter Brandes' BareEssentials Philips will see this is not the case. History is littered with retailers who have tried to beat Aldi on price and failed.

But is the Aldi UK model still the same as the legendary Aldi model based on “our competitive edge must be retained by applying the principle of economy in its extreme form”?

While we generally refer to Aldi as a discount retailer, perhaps in its pure form it would be better described as a disciplined retailer.

Key to that discipline is the tight range. When Brandes wrote his book Aldi sold 700 lines with an average turnover of £63m. Walmart sold 100,000 with an average turnover of £3m. If Aldi UK is selling 1400 lines, is it halving its advantage?

Clive Black of Shore Capital says Aldi and Lidl will find the period of their “free lunch” is coming to an end. A question for independent retailers may be at what cost.

Chris Blackhurst of the London Evening Standard quotes a study of a price war in Holland in 2003 that resulted in an 8.2% reduction in food prices and the loss of 30,000 jobs.

The authors provide an eight point guide for managers faced with the situation:

1. Make the first strike (I suspect that the UK public won’t be able to tell who went first anymore)

2. Beware if you are high-end that the tactic may backfire as you cannot cut your prices

3. The price war may actually benefit the discounters (as it puts the focus of shoppers on price)

4. Initial upsurge in customer numbers may not be a good sign

5. Check what shoppers do before jumping in (do some numbers)

6. Market leaders with big market shares can pressure suppliers to support their initiatives

7. Focus your marketing on savings for the shopper

8. Ask yourself are people going to buy any more (if you cut prices and people buy more then you grow your market; if they buy the same your market shrinks).

For independent retailers, the issue is whether the price war affects top up baskets at all. How much time do shoppers want to spend finding the best deals? How many times will they forego their favourite brand to avail of the discounter’s cheap baskets?

Because if we go back to Walmart’s 100,000 lines, what is that about? The average shopper only buys from a repertoire of around 250 items.

I think the 100,000 lines is because in order to sell to everyone you have to include more and more products that shoppers only buy every now and then. You do this because you don’t want your shoppers ever going anywhere else. And if you are Aldi UK you start to nudge up your range to hold on to the shoppers who try out visiting your store.

Mike Coupe, the new Sainsbury chief executive, briefed the City on its figures saying the supermarket had hit a perfect storm with customers choosing to shop around more, falling food prices and consumers eating out more.

Lex in the FT compares what’s going on to the 30 years’ war from the 17^th century which lasted because whenever one competitor was too tired to go on with fighting someone else would pop up and start it all over again until finally they all ran out of money.

C-stores account for 10% of Sainsbury’s £20bn sales and that is OK, Lex muses. But buying all those stores was really expensive and net debt could be has high as four times. Which may make a franchise option attractive, as with Tesco's OneStop? Or not?

There are lots of facts. Independent retailers need to ask hard questions of their supply chain and focus on winning the battle locally. It is never going to be an easy business.

Three secrets of great merchandising

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Sticks and stones do hurt

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