Supermarkets Will Choke on Price Cuts
In the News
September 27, 2009
The feedback they’re hearing from shoppers goes like this: If stores could afford to lower prices as they are now, have they been plundering us for so many years? Why do we only get fair prices when retailers seem desperate for sales? Are they discounting as deeply as they can to help us out in a tough time?
Call them penny-pinching skeptics if you like, but all shoppers are doing is calling chains out on a dubious pricing strategy – one which we feel carries only short-term potential and long-term risk. We understand it, however. Commodity prices have fallen and chains want to compete. Retailers that think price is dominating shopper decision making today are pounding this message hard – and in the process they’re perverting their hard-won value image.
The four components of store value include quality, service, relationships and price. Depending on the demographic, price will come first at some (such as Aldi, Save-A-Lot and ShopRite, for instance), but it’s certainly not an exclusive factor, even in extreme-value stores. By contrast, price might be the last consideration for a Wegmans or Whole Foods shopper.
SG suggests that chains moderate their price messages and keep longer-term customer retention strategies in mind (witness the heat Albertson’s is catching for its reductions on 3,000 items). There’s a huge difference between productive shoppers who come to a store for years and the cherrypickers that aggressive discounting tends to attract.
SG also urges retailers to seek an appropriate balance between branded and private label sales in their stores. There’s a difference between brands that build categories and the store brands (as good as they might be) that build margins off of their backs. While PL sales are growing, there are plenty of shoppers sticking with the name brands they trust – especially in this tough economy when households are eliminating vacations and eating out less. They at least want the certainty of performance and the pleasure they get from brands they’ve been buying regularly.
SG adds, "Don’t make the mistake of thinking that price sensitivity wipes other shopper concerns off the boards. Some retailers are learning this the hard way."