Grocers fret over how to pass higher costs onto customers
Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.
Thanks to record inflation, price sensitivity at the grocery channel is back. With a vengeance. And all indications suggest it’s only going to get worse.
Grocers, however, have been reluctant to pass on recent manufacturer price increases because they know from experience that when a product consumers want is unavailable — or in this case, too expensive — shoppers will happily switch brands or, worse yet, stores. But grocers can only hold off for so long. What can they do to prevent a devastating drop in volume when prices go up? Lance Goodridge of IRI’s Global Analytics & Insights Solutions practice has a few ideas, outlined in a recent report “Managing Price During Turbulent Times.”
- Monitor volume and be prepared to switch on promotions or a new pricing strategy the moment you see things start to go south.
- Whether new packaging or better quality ingredients, invest in product innovation now so that when you do raise prices, you can justify it to consumers.
- Develop new package sizes, both larger value packs and single portions, so consumers have more affordable alternatives. Package downsizing is also an option.
- Consider eliminating low-margin offerings, and be prepared to increase prices on select items while holding the line on the highest-value, most-price-sensitive products.
- Only promote products you know you can supply. Promotions will make a comeback because manufacturers know consumers would rather find a deal on a preferred brand than switch to a lower-priced one. But it’s a moot point if you can’t keep the product in stock.
- Leverage your consumer database to create different offers for the same product based on shoppers’ price sensitivity. That’s why you’re collecting that information. So use it!
Price increases are already happening in categories such as frozen dinners, beef, bacon and eggs. But that doesn’t mean steep volume losses are inevitable. “You have a great opportunity right now to capture market share from competitors who would prefer to keep their heads in the sand and hope for the best,” said Mr. Goodridge.
DISCUSSION QUESTIONS: What suggestions do you have for managing prices at the grocery level in inflationary times? How does grocery differ from other channels in handling inflationary pressures?