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May 13, 2024
Do Price Cut Announcements Pay Off?
ALDI and Giant Foods both recently announced new rounds of price cuts as food prices remain significantly above pre-pandemic levels.
ALDI said it was reducing prices “amid stubborn inflation” on more than 250 “summer essentials” that support picnics, barbeques, and travel. Price reductions called out include Black Angus sirloin steak, to $6.99 a pound from $8.49 a pound; organic granola bars, to $3.49 from $3.99; and French baguette; to $1.49 from $1.59.
The program, expected to deliver $100 million in savings through Labor Day, builds on a price-cut program announced in May 2023 that reportedly saved shoppers more than $60 million.
“With more experts warning of persistent inflation, the time was right to deliver even greater discounts on our already low prices for the second year in a row,” said Dave Rinaldo, president at ALDI U.S., in a statement.
Giant Food lowered prices on “hundreds of items” within its private brand while expanding its Flexible Rewards loyalty program, offering 2x the points for every dollar spent across its private brand range.
“At Giant Food, we have always offered great savings to our customers through our weekly Bonus Buy promotions,” said Ira Kress, president of Giant Food, in a press release. “With our new program, we aim to introduce more shoppers to our lower-cost store-brand items, which deliver the same quality as national brands.”
Among other grocers, Giant Eagle last year announced a plan to “reduce and control” prices for almost 800 grocery products by an average of nearly 20%, while Lidl dropped prices on more than 100 items at all U.S. stores in 2022 as inflationary food prices began drawing attention.
In 2019, Whole Foods introduced a third round of price cuts in a bid to reduce its “wholesale paycheck” reputation.
However, price-cut programs and price investment call-outs aren’t a regular occurrence across major U.S. chains, particularly compared to a price war that has broken out among grocers in the U.K. Tesco, ALDI, Sainsbury’s, Waitrose, Lidl, Ocado, and Marks & Spencer in the U.K. market have steadily been announcing rounds of price cuts, investments in price reductions, and price locking and price matching schemes as inflation has become a hot-button issue.
Walmart, which in 2010 broadcast a major “rollbacks” campaign lowering prices on roughly 10,000 items, hasn’t played up price cut rounds in advertising as much in recent years, although lowering prices remains a core strategy. On its fourth-quarter analyst call, Walmart officials said the number of products getting rollbacks is up roughly 50% compared to last year.
Discussion Questions
How would you rate the pros and cons of grocers broadcasting rounds of price cuts or major price investments?
Why have such schemes become so popular among U.K. grocers and remain rare among U.S. grocers?
Poll
Loading …BrainTrust
Georganne Bender
Principal, KIZER & BENDER Speaking
Brad Halverson
Principal, Clearbrand CX
Perry Kramer
Managing Partner, Retail Consulting Partners
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Announcements draw attention and, if significant enough, help to drive foot traffic. However, that traffic only sticks and remains loyal if the hype of announcements translates into tangible savings. The problem in grocery is that there is so much noise around price that consumers are skeptical and somewhat deaf to it unless it is really delivered upon.
Pricing strategy also depends on retailer position. Chains like Aldi and Walmart are price leaders. They absolutely have to deliver on everyday low pricing to remain true to that consumer promise. Comparatively, a chain like Marks & Spencer isn’t trying to be the cheapest on everything, its Remarksable Value campaign is about rolling back prices on everyday staple items so that consumers can shop with confidence for those things alongside the premium treats they visit M&S for. That’s incidentally a lesson that Whole Foods needs to learn: many branded items are inexplicably way more expensive there than at rivals.
As for the more intense focus on price from the UK: this is simply because the market is way more consolidated and competitive than the US – and the big chains like Tesco and Asda are trying to defend share against value-focused Aldi and Lidl. Plus, Aldi and Lidl themselves have very aggressive campaigns comparing prices for baskets of goods (which are not always accurate as they compare their own brands to national brands at grocers like Tesco).
The announcement of price reductions, especially for supermarkets, is a short-term fix for angry and broke consumers who cannot afford food and other necessities.
It appears that nearly half of all Americans are struggling with grocery costs, as they manage their lives from paycheck to paycheck.
Like everything these days, statistics vary, and politics play a role in influencing the data.
President Biden likes to tell the public that inflation is under control, but consumers still see prices rising week to week.
Since inauguration, Bidenomics have caused 20% inflation for consumers, and the same is true for retailers. Retailers are having to work around, accelerated credit card debt for consumers, fast-rising interest rates for consumers and retailers, skyrocketing retail costs for food, non-food, supplies, logistics, transportation, liability insurance, utilities, salaries, operations, extra supply chain costs, packaging, paper, cleaning supplies, equipment, new costly government regulations, new taxes on businesses, and much more.
The cost of doing business has risen quickly, and sharply, so the difference in cost is passed along.
Because consumers lack an understanding of the retail cost chain, they blame retailers for inflated prices, resulting in retailers slashing prices. In my research on consumer attitudes, I can tell you for sure that the public is very stupid in that regard.
Retailers are struggling to meet sharply rising salary demands, and until more employees are replaced with robots, the salary demands are a financial burden.
Another key factor is that when Retailer “A” announces a price drop, then Retailer “B” needs to do the same, and often Retailer “C” jumps in a few days later with even lower prices than both “A” and “B.” That scenario seems good for the consumer, but only in the short run, as it will actually escalate greater inflation down the road.
Rapidly rising inflation, as we have experienced since January of 2021, has a trickle-up effect. Consumers blame retailers, so retailers panic and announce price reductions, and place pressure and demand on suppliers to absorb the difference.
Suppliers start losing profits, which they cannot do because they have rising costs of their own, so suppliers must act on either reducing their own cost of doing business, or demand that their own suppliers drop costs for manufacturing, packaging, shipping, etc. etc. And the painful chain effect continues all the way to the end.
One option is reducing the number of Skittles in the bag, (just a hypothetical) which triggered Biden last month to go on TikTok and accuse brands of what he naively referred to as “shrinkflation.” His inference was that its corporate greed, which of course is a misinformed lazy assessment.
No one is in business to lose money, so when its all said and done, the consumer will pay one way or another.
Retailers are dropping prices, and suppliers are sharing the losses by holding prices, offering steep promotions, and offering constant cost reductions to retailers. Guess what that does? That’s right, it causes greater inflation. Db
Well, killing a million people due to pandemic mismanagement, and closing off most legal immigration, on top of existing Baby Boomer retirement trendlines, leading to significant wage increases, plant shutdowns, crops rotting in the field, etc., will do that to ya. Cannot blame the Biden Administration for this when the US is doing better in inflation and employment than every other major economy in the world.
Agreed. Political and quasi-political responses are unhelpful. What would be helpful is some cooperation across the value chain. Some people may see this as a political problem. I see it as greed. We must put up some guardrails on our economic strategies. Must.
Announcing price cuts can help discounters like ALDI stand out and inspire price-conscious customers to visit or switch grocers. Giant Food communicates its private labels’ affordable pricing as an incentive for consumers to try its exclusive products, which can improve loyalty.
However, focusing on low prices can sacrifice the quality of both products and the customer experience, which can harm loyalty. Lowering prices threatens slim grocery margins and increases pressure on operations to remain efficient.
Absolutely. Something will “give” in these scenarios if they don’t do it right. Playing with fire on brand loyalty.
Good point — thanks, Brad.
The old saying that any press is good press still holds true. That said, Consumers are continuing to look for bargains and are more willing than ever to divide their grocery shopping into multiple trips. These marketing announcements have high probably of bringing in new clients. Keeping them coming back is always a trick but it is usually easier than getting that first trip.
They can draw attention, but more so if there is a private label equivalent, you could get new customers switching to the private label option (if of course, it is same as or better) if you lower the price at the same time as lowering the national brands. You have to be careful to lower private label too much, because then the customer thinks it’s cheaply made and not equivalent or better. The switch would help your margins and hopefully give you some leverage in negotiating cost on the national brands.
Cons?? Well, let’s think.(1) Too much of a price cut might make customers suspicious you’re profiteering (“Why didn’t you do this before?”) (2) If you’re a retailer that tries to emphasize other than price, you’re potentially sabotaging those efforts by emhasizing what you normally try to avoid discussing. So it’s not completely without risks….nevertheless, most will likely find it a risk worth taking.
Right now buying groceries is a struggle for many families. Why shouldn’t grocers do what they can to ease that pain? Shout it loud and often. Consumers will appreciate the help.
This is more complicated than it sounds at first. As a grocery shopper I am a creature of habit. And my grocery shopping behavior is tied to loyalty points that turn into savings at the gas pump. And I can’t find good sourdough bread anywhere but Stop & Shop. I’ve tried. So just because Aldi down the street runs an ad touting price reductions doesn’t mean I’m changing my shopping behaviors. My grocery shopping behavior is tethered to several anchors, and I suspect that’s just what Stop & Shop wants. Many years and several states ago, my grocer also housed my bank and my dry cleaner. It just didn’t matter what price promo was running at the grocer down the street.
Price cuts inside Stop & Shop are a very different conversation. My buying habits have changed on several fronts when I actually experimented with private label offerings and found the quality to be equal and the value to be superior to the national brands. Pricing matters. It’s a big deal. But there are multiple points of customer acquisition and customer retention to be considered.
Grocers of shapes and sizes continue to feel downward price pressure to some degree, but new strategies and tactics should vary depending on format.
Chain stores can work their CPG relationships to find additional couponing, temporary price cuts or even take a long-term approach to lowering private label products across the board. But the trade-off will strain the bottom line unless somehow greater sales and customer counts adjust to offset. The cons are, in the US market, reporting to Wall St won’t be fun if it misses.
Quality driven stores and smaller independents don’t need to broadcast price cuts so much as show value for the money, in that customers are getting deals. By focusing on a mix of great tasting foods at temporary deals, and showing customers how to cost effectively meal plan with better ingredients, they are making an effective play in what they do.
Depends on the announcement — price cut announcements that are interesting enough to get a little bit of the news cycle and are smart enough to not eat away at future sales are a great both business and marketing-wise. However, identifying those opportunities requires connected systems – something that many retailers lack.
Depends what your brand messaging is. I think that when promotions and lower pricing is part of your mission and the reason customers are loyal to a brand ie Aldi & Walmart, it’s super helpful & appreciated. People need that help more than ever today. But for a brand like Whole Foods, not so much.
Mergers and consolidation have resulted in “because we can” price gouging of consumers by manufacturers and grocers alike. When an egg costs fifty cents, consumers will either refuse to purchase, or will go elsewhere. Kudos to Giant, Aldi and others for offering real savings.
It’s Whole Paycheck, but no worries. Definitely it’s important to announce price cuts. Especially coupled with reasssurance of quality.
I’d actually prefer to see retailers put pressure on their product vendors. All indications are that’s the source of persistently high prices. As a group, they should have tremendous power. I’d like them to work together to make that happen.
The pros include attracting more customers, boosting sales, and improving brand loyalty, especially during tough economic times. However, the cons are significant: it can squeeze profit margins, create unsustainable price expectations, and trigger price wars that hurt the industry.
Such schemes are more popular among U.K. grocers may be due to the intense competition and consumer price sensitivity in a smaller market. U.S. grocers operate in a larger and more diverse market, focusing on everyday low prices and promotions rather than frequent price cuts. They prioritize long-term strategies over temporary price slashes to maintain profitability and stability.