How can grocers prevail in inflationary times without winning on price?

Discussion
Photo: RetailWire
Oct 18, 2022

Grocers not foremost known for rock-bottom prices can minimize the damage in competing against low-price leaders  — and potentially strengthen bonds with customers — by keeping price gaps tight while using best practices in executing mass promotions, communications, personalization and private brand, according to recent analysis by dunnhumby.

A survey of 18,000 grocery shoppers conducted by dunnhumby found that during inflationary times, the “Save Me Money” customer driver is five times more important than the next-most important drivers, “Save Me Time” and “Make It Better.”

That offers a big tailwind for “Base Price Leaders” in the grocery space such as Grocery Outlet, Aldi and Save-a-Lot as well as budget cross-shopped competitors like Walmart and Dollar General.

However, dunnhumby identified a number of grocers — “Lead Conductors” — who, though not market leaders in price, can hold their own in an inflationary period because “they’re better than the rest at conducting the mix of ‘Save Me Money’ levers.”

Lead Conductor examples included Kroger, Food Lion, BJ’s Wholesale, Weis Market and Shop Rite.

Where Lead Conductors demonstrate the biggest advantage over Base Price Leaders are in delivering relevant promotions and savings through loyalty programs. Lead Conductors also possess a slight edge in mass promotions. Importantly, Lead Conductors outperform base price market leaders on driving awareness of messaging that supports their price savings efforts.

Finally, Lead Conductors’ private brands rival those of Base Price Leaders in their ability to save customers money.

Among the pitfalls for traditional grocers unable to establish themselves as Lead Conductors are failing to leverage enough data science to understand which products to promote or competitors to benchmark against, as well as not coordinating execution across organizational functions well enough, according to dunnhumby.

On its second-quarter analyst call last month, Kroger’s CEO Rodney McMullen cited the benefit of Kroger’s promotional approach, aggressive fuel rewards, personalized discounts and private brands in helping manage inflation. He further noted that Kroger is doing everything possible to minimize inflationary pressures on consumers while tracking price gaps across multiple competitors regularly. He said, “We feel good about the everyday price gap.”

DISCUSSION QUESTIONS: How can traditional grocers best compete in inflationary periods against low-priced leaders? What levers cited in the article (mass promotions, personalized discounts, loyalty programs, private labels) promises to be the best differentiator as consumers seek out savings?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"During inflationary times price obviously becomes the prime driver for consumers, however it is price perception that is important rather than actual price."
"The quick answer is to promote their quality store brands. To that, add what low-price leaders typically don’t have — excellent customer service."
"At a time when loyalties are at an all-time low, shoppers are paying attention and rewarding the retailers who focus on them and will continue to do so in the months to come."

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29 Comments on "How can grocers prevail in inflationary times without winning on price?"


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Mark Ryski
BrainTrust

Managing inflation is old hat for grocers, but it doesn’t make the challenges they face today any easier. Traditional grocers need to play to their strengths and be especially mindful of pricing of the essentials shoppers need. Focusing on private brands is one way to maintain some margin while dropping prices on fast moving essentials. A major grocery retailer in Canada recently announced that they will hold the price on all their private label products – not only does this provide a strong pricing message, but it bolsters trial/use of their private brands.

Neil Saunders
BrainTrust

It is hard for mainstream grocers to compete directly on price with value players like Aldi: not just because value player prices are incredibly low, but also because their offer is one dimensional and it is hard to overspend. By contrast, a mainstream grocer has complex range tiers which tempt people to trade up which can result in register shock. This makes signposting the best deals and offers – on store, in apps, and online – essential. Of course, not everyone is looking for the lowest price: during difficult economic times many want indulgences and treats, and others are looking for great food as they cut back on dining out. This is also an opportunity for grocers.

Dr. Stephen Needel
BrainTrust

In high-inflation times, lots of people are looking for value as much as they are low prices. If you can’t match low prices, play the better value game. Emphasize the quality of your private labels and the better services you can offer. An example: Publix has put up signs in their meat departments that they will happily split larger packages into smaller ones, so less outlay. And they smile while they do it.

Dick Seesel
BrainTrust

Just like mid-tier general merchandise retailers, middle-market grocers need to understand the difference between “lowest price” and value. For some customers, it’s all about price — but for others, the quality of the fresh produce and meat departments is critical. Breadth of assortment matters, too, especially for companies like Kroger; their robust private brand selections help drive home a promotional message.

Dion Kenney
BrainTrust
1 month 8 days ago

There are a lot of dimensions to competition, price being just one. Perhaps the two that are most obvious are: quality (offer premium products), and customer experience (offer a differentiated shopping experience). Many grocers will have a difficult time creating a premium persona if they have been known, up until now, as low price providers. But we have seen many retailers announce a “grand re-opening” with some change in their operational profile. Premium breads, cheeses, meats, and seafood will always attract a certain kind of buyer. But everyone likes to be treated well. And in the current competitive environment where paper bags can’t hold their contents without ripping, cashier staff is cut back causing long checkout lines, the same five kinds of fish, etc., are the normal MO, creating a differentiated customer shopping experience should be easy to imagine and implement.

Shep Hyken
BrainTrust

In tough economic times, price becomes more important. Yet our research shows that people are still willing to pay for a better experience. That doesn’t make price irrelevant. It makes price less relevant. The key is to deliver the experience that is not only good, but also builds relationships. Personalization, loyalty programs, and an easy/convenient experience will become more important than ever.

Lisa Goller
BrainTrust

Reliability, through quality assortments, omnichannel excellence and product availability, can protect grocers against inflation. Adding membership value and adapting private labels to consumers’ needs keeps price-conscious consumers coming back.

Ken Morris
BrainTrust

The “failing to leverage enough data science to understand which products to promote or competitors to benchmark against” is bigger than most grocers realize. They don’t know what they don’t know, and they use a set-it-and-forget-it approach to planograms. Not good enough.

These lead conductors know shopper psychology very well. The missing ingredient is usually the missing SKU: stockouts. Doubling down on customer service and using tech and talent to keep items in stock will keep their customers loyal.

Jeff Weidauer
BrainTrust

Traditional grocers have created their own problems by trying to compete on price when they should be competing on service, selection, and in-stock conditions.

Jeff Sward
BrainTrust

Differentiation. There is a huge range of CPG product where it is difficult for the grocer to differentiate themselves. And then there is private label, an immediate differentiator if executed well. In my case it’s sourdough bread. Stop & Shop has the best sourdough in my area. I’ve tried Whole Foods and Trader Joe’s. Not even close. So I am relying on old fashioned competition to keep prices down on most center aisle product and I will continue to treat myself to my daily morning helping of sourdough toast. Which by the way has gone from $3.99 to $5.99 over the course of the last 18 months.

Dave Bruno
BrainTrust

Best-in-class pricers know that winning during inflationary periods requires strategic price perception management. And times like these are tailor-made for the data scientists. Understanding which items drive price perception, by category, customer segment and by location, is the key to being perceived as a store that “saves me money.” It’s far too much data for humans to process and analyze without the help of AI, but solving this problem is made much more manageable with the help of AI.

Andrew Blatherwick
BrainTrust

During inflationary times price obviously becomes the prime driver for consumers, however it is price perception that is important rather than actual price as few consumers actually know all the prices in comparative stores. In the last 12 months Aldi in the UK raised prices by more than their leading competitors, but if you ask consumers Aldi are still their most price conscious shop. Tesco are competing with this by providing loyalty card customers lower prices than everyone else, building loyalty as well as price perception. Iceland Foods are offering buy now pay later schemes to show they care about and want to help their customers. Another retailer uses point of sale cards very successfully to highlight prices even when they are not on promotion. Perception is what matters, not necessarily reality.

Gene Detroyer
BrainTrust

The non-price grocer must understand why their shoppers come in the first place. It is the value they offer: service, selection, quality, and everything in the store other than price.

How to compete? Double down on those non-price values. Double up on the private label. Don’t promote at the risk of margin.

Gary Sankary
BrainTrust

It all goes back to their value prop. What differentiates them from the low-price players, and how important are their differentiators to their customers? They will be fine if they understand what their customers are about and leverage it to defend market share.

Christine Russo
BrainTrust

The question is, how do they compete during regular times? I think it’s the same business strategy and nothing changes — there is just more margin pressure across the board.

Mark Self
BrainTrust

Do not compete on price. Food quality, merchandise mix and the “small things” like the cleanliness of the store, etc., will help grocers continue to differentiate from low priced leaders. Aldi is Aldi, and good at it — others are not going to suddenly become Aldi or Lidl in this environment. So stick with what you are good at and look for opportunities to lower prices where and when you can.

Ryan Mathews
BrainTrust

Is it really possible that we have a generation of managers who have never had to deal with inflation in their careers? The short answer is, yes. You aren’t going to win on radical price discounts during inflationary periods or, quite frankly, any other time. When times get tough cash-strapped consumers want to eliminate “surprise” pricing. Put another way they don’t want to go to the store to find out last week’s hot price is this week’s margin enhancer. The best way to approach pricing in this period is some modified form of EDLP combined with respectful, deep service. Treat people right, don’t play pricing games, and you’ll have much more loyal shoppers over time. And speaking of time, the time to have begun thinking about this question was four or five years ago when the economy began to be artificially super-heated. Hot markets are great until they aren’t, and just because the sun is shining for months on end doesn’t mean you won’t need an umbrella down the line.

Ron Margulis
BrainTrust

Can’t compete on price alone? Then come close to parity on price for essential items so value is clear to the shopper and compete on customer service and product assortment. That means understanding the profitable customer even better, engaging her at contact points where she’s most receptive to your messaging and rewarding her often.

One more thing. Surprises are especially useful in marketing during challenging times. Grocers need to provide shoppers with fodder for their daily communications and if it isn’t something positive like a free entry into a sweepstakes then it’s likely to be negative like the out-of-stocks.

David Spear
BrainTrust

Traditional grocers should double down on value and assortment while offering price breaks for shoppers with private labels. With prices up for nearly every food category, all grocers face a real challenge with consumers’ shrinking disposable incomes, where they’re constantly making trade-offs between gas, groceries, and household bills.

Doug Garnett
BrainTrust

Do we know at this point that this is the key challenge? Low price is hard to determine and nearly impossible to maintain as a competitive edge.

I don’t expect traditional grocery to have problems. Most customers will change their spending habits rather than seek bargain basement goods which don’t satisfy their expectations.

Matthew Pavich
BrainTrust

During inflationary times, price perception is the most important thing that grocers should strive for and the ones that are doing so can actually turn the challenge of inflation into a great opportunity to grow share. Although there are many ways to drive great price perception during inflation, the answer is relatively simple: offer the right prices in the right location and through the right channels at all times to your consumers. In order to do this, the best retailers are using advanced analytics and pricing platforms to surgically balance pricing moves across all markets to ensure that consumers are getting the best prices on the right products. It also doesn’t hurt to have a great private label assortment and find the delicate pricing balance between those items and their national equivalents. At a time when loyalties are at an all-time low, shoppers are paying attention and rewarding the retailers who focus on them and will continue to do so in the months to come.

Rich Kizer
BrainTrust

Like it or not, we have created the most savvy partners on earth. They know what the prices will be and they will not be fooled. However they will respond heavily to promotions such as bounce-back coupons and such promotions. It’s a new day.

Ananda Chakravarty
BrainTrust

As with many concepts, there has to be a pricing mix. Understanding what drives the customer to the store, the key value items, and pricing these low while pricing other items a bit higher will allow grocers to compete. Ideally full fledged AI based pricing solutions are imperative during these times, despite the typical uptick for grocers during challenging times. Managing across tens of thousands of product items and SKUs requires strong analytics and all of the levers cited must be used holistically. See my price optimization reports (behind a paywall) if you’re a subscriber on idc.com for more depth.

John Karolefski
BrainTrust

The quick answer is to promote their quality store brands. To that, add what low-price leaders typically don’t have — excellent customer service. Finally, juice up their loyalty programs.

Craig Sundstrom
Guest

“Price” is a merciless and one dimensional criteria, and a conventional grocer is never going to be able to compete on that basis if the differential becomes too large; indeed, promotions and private labels seek to close the gap. But there are, of course, other ways to compete than price — i.e. being a better grocer — and it seems curious that none of them seem to merit even a mention.

Brian Numainville
BrainTrust

When we asked shoppers what they did to deal with food price inflation in the last few months, only 9% said they didn’t do anything. The rest were engaged in a variety of strategies. The one with the most responses was buying more store brands instead of national brands (mentioned by four out of ten shoppers). And today, Loblaw announced a price freeze on more than 1,500 no-name brand items, showing one way a retailer can take this opportunity and run with it.

Brad Halverson
Guest

Conventional grocers are caught in the middle when it comes to the best inflationary response tactics, because they have positioned themselves to be all things things to most shoppers. Rather than competing with low price leaders, they have multiple paths to draw in shoppers with promotional deals, target offer products and use private label brands to communicate value (also — what can they learn from Costco, rated the best in private label). Everyone wants a deal no matter the price-middle-quality format they shop. Making the effort to show shoppers how they’re saving money and time should help retain their core customer base.