FMI 2010: What the Industry Isn’t SPEAKING About
Commentary By George Anderson
It didn’t come as a surprise that a good portion
of yesterday’s FMI SPEAKS 2010 session on industry trends was focused on the "changing
their mission to find value (aka save money). As was made clear by various
members of the panel, the grocery industry has come through the "Great Recession" understanding
that shoppers are much more deliberate in their shopping: creating lists
that they stick to once they get to the store, making greater use of coupons
(print, online and, increasingly, mobile) and purchasing store brands that allow
them to buy a similar volume of goods, but at a lower ring.
Leslie Sarasin, president
and chief executive officer of the Food Marketing Institute, said, "The
psychology of the shopper has changed. These economic times have been unsettling
for customers and companies alike. We’re now at a point of separating myth
from the reality about about how the recession will affect consumer behavior."
Sarasin went on to ask, "How long will consumers be cautious? Without
question, people are becoming more accustomed to being more frugal. Now one
knows where or how people will undo that sense of caution … You will see
unmistakable signs that the economic downturn has caused new shopping and eating
behaviors. Everyone has been affected. Price is a key value driver today."
findings of the SPEAKS research were generally well-presented on the pricing
front, we came away thinking that there were some important things not being
said. The "elephant in the room" was the lack of discussion on what makes supermarkets
generally more expensive than competitors in other channels, specifically dollar
stores, limited assortment grocers, club operators, mass merchandisers and
supercenters. That in a nutshell is a (grocery) business model that is focused
on making money in buying goods versus selling them.
As Jamie Tenser, principal
of VSN Strategies and a RetailWire Braintrust
panelist, pointed out in a conversation (Note: Jamie was ball-parking to make
a point so let’s not quibble over the precise number), supermarkets are expecting
to lose one percent on the sale of actual products in their stores with the
expectation that various upfront fees will generate a positive two percent
bump to let stores arrive at their roughly one percent (give or take) net profit.
why the rehash of what we already know? Isn’t it time that supermarkets become
more price competitive across-the-board on an everyday basis by switching to
We know of a couple of cases where chains, in cooperation with
price optimization firms, are testing net pricing in key categories to determine
if it works. At least in one instance that we are aware of, initial results
are promising, particularly because they are in categories where weekly promotions
are the rule.
As one hi-lo retailer involved in one of these tests that focused
on everyday prices recently told us, nearly 70 percent of total sales were
on promotion before the test. That number was cut by something
like 60 percent with an actual increase in units moved. Perhaps it’s time for
grocers to understand that to get to the low price that their shoppers are
looking for requires something other than hot deals run one week while prices
jump up on other items to cover margins. Maybe it’s time for grocers to stop
complaining about others, such as Wal-Mart, that are selling goods at everyday
prices below what they can offer at a promoted price and question how they’re
going to market. Perhaps it’s time for a whole new approach to buying and selling
goods. Maybe, the time to start is now.
Discussion Questions: Is it time for grocers to change from a business
model that focuses on making money from manufacturer funds to a net pricing
model? Should industry associations engage in an intervention of sorts
and try to get members that are hooked on upfront fees off the habit?