Pricing for grocery profits
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine. A long-time Harris Teeter executive, Mr. Harris is a former chairman of the National Frozen & Refrigerated Foods Association and a member of the Refrigerated Foods Hall of Fame.
Pricing can be a real pain in the butt. If you want to stay out of trouble, the most important thing is to get a clear understanding from top management of what they want in the way of pricing strategies and tactics.
They may tell you, "This item is to be priced the same as the competition." But you’d best find out right away whether they mean Competitor A, B or C. Then they may say you can’t be more than X percent above the rest of the competition.
It can get messy pretty quickly. Do yourself a favor and learn all you can about what your objectives are supposed to be. (At least for this month.) Naturally, you always have to be competitive when it comes to milk, bread and eggs and such.
Broad price-cutting takes some finesse, and sometimes lowering prices against a new competitor isn’t worth it. Some people are willing to pay a bit more because they like a store’s service and selection. Cutting prices with a new competitive entry in those circumstances is just giving away profit — you’re probably not going to be losing customers to the new competitor anyway. This isn’t always true, but people don’t take it into consideration enough.
Besides having good communication with your top management, it’s also wise to work closely with the pricing department. I might sit with a vendor and negotiate a lower cost or a better deal and commit to keeping an item at an agreed-upon price point. But a few weeks later, the pricing department may jack the price up by 30 cents and all hell breaks loose with the vendor. When you make deals like that, be sure to tell the pricing department and remind them if necessary.
I love temporary price reductions — they’ll often work when an ad doesn’t. There are plenty of items not worth running ads on because there’s no lift. But some folks just like pocketing vendor money.
For private label, I always started at around 10 percent lower than national brands in most categories. But don’t go too low — if a customer sees a Velveeta knockoff that is $2 below Velveeta, they’ll think the quality isn’t there.
Lots of times, I’d shield my private label against the brands. I might have been making 35 percent to 50 percent on my private label but only 10 percent on the brand, so there’s room to promote there.
What advice do you have for grocery category managers around pricing? What specific pricing strategies are more effective in today’s market?