R&FF Retailer: Don’t Be a Turkey This Year!

Discussion
Nov 11, 2008

By R&FF Retailer
Editorial Staff

Through
a special arrangement, presented here for discussion are excerpts of a
current article from Refrigerated
& Frozen Foods Retailer
magazine.

As Bubba once said, we
feel your pain. Every year, you buy a gazillion turkeys, price ’em low
and stack ’em high in the display cases. You
pray they’re all gone by Thanksgiving. And every year, you wonder if you
could have made more money on the deal. So what’s the best method?

Kevin Janiga, president of Winsights Marketing,
urges stores to “do the math,” creating ‘what if’ scenarios
for taking the turkey margin below cost alongside the expected gains on
the items such as stuffing, pie mix, sweet potatoes, milk, cranberries.
Research has shown that retailers make the same profit whether they use loss-leader pricing or not, and that the practice does not
significantly increase traffic long term.

“A retailer might
gain 15,000 more shoppers with a loss leader investment of $80,000, but
ultimately make about $25,000 less profit,” said Mr. Janiga.

Hoss Tabrizi, managing partner of Strategic Price Advisors, urges
retailers to always assume a competitor will match a lower everyday or
a promoted price, and should gauge whether a respectable margin can be
achieved under the new pricing structure. Poorly thought-out promotions
have lowered the
“reference price” that shoppers expect to pay for turkeys, and
it takes significant time and investment to re-establish it at a profitable
level.

“It’s important
to tell shoppers why the price of a promoted product is so low and that
the price drop is temporary,” noted Mr. Tabrizi.
“This lets them understand not only the savings they are getting, but
what the true (and higher) reference price is. That helps them adjust to
higher prices more quickly in the future.”

If using turkeys as traffic
generators, Mr. Tabrizi said retailers should
consider setting a reference price of $50 (around $2.79/lb), and giving
shoppers a $30 coupon if they spend at least $250 in the month before Thanksgiving.

“This is very different
from just offering $20 turkeys, and it will raise their value in the minds
of shoppers,” said Mr. Tabrizi.
“The communication mechanism is as important as the discount itself
in setting the reference price. Very few retailers or manufacturers effectively
communicate the non-price features of a product and instead focus consumer
attention primarily on discounts and giveaways. Above all else, base your
pricing decisions on careful analytical measurement and a sound pricing architecture.”

Mr. Janiga said
most retailers could dramatically increase holiday sales by doing a better
job of cross-merchandising and encouraging one-stop shopping. A $5 gas
card or free turkey-basting pan could be offered to shoppers who buy enough
items.

“Don’t just blindly
give it away,” said Mr. Janiga. “There are a lot of dollars involved here, and
you should plan it out carefully.”

Discussion Questions:
Do you think food retailers have become “turkeys” for giving
away or deeply discounting turkeys around Thanksgiving? Why or why not?
If so, what are some smarter promotions around Thanksgiving?

Please practice The RetailWire Golden Rule when submitting your comments.

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11 Comments on "R&FF Retailer: Don’t Be a Turkey This Year!"


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Max Goldberg
Guest
13 years 6 months ago

Consumers are looking for value, while cutting the number of shopping trips they undertake each week. Retailers want to increase store traffic. This looks like the perfect formula for a promotion. The key is to create a promotion that is a win/win proposition.

Free turkeys might not be the best idea, but the word “free” associated with a seasonal must-have product works. Alternatives could include offers tied to ongoing retail loyalty programs and deeply discounted turkey pricing with a minimum purchase.

Promotions are not going to go away. They need to be well thought out, measured and evaluated.

Doron Levy
Guest
Doron Levy
13 years 6 months ago

The turkey is the icon of the holiday loss leader. An idea that we came up with is stationing a ‘holiday entertaining expert’ in and around the turkey case during peak traffic. Their sole job is to engage turkey shoppers with great (read high margin) meal and entertaining ideas. These associates have extensive product knowledge and are very customer-enthusiastic.

I look at it strategically. Let’s combat the cherry pickers on their own turf and use customer service to build a better, more profitable basket. My clients will be fully deployed by next weekend and if anyone is interested in initial results, feel free to drop me a line.

Steve Bramhall
Guest
Steve Bramhall
13 years 6 months ago

A balance of good customer service, knowing your numbers and effective pricing in line with your competition is the easy answer. It is proving a lot more difficult for many retailers to achieve this competitive edge.

Gene Hoffman
Guest
Gene Hoffman
13 years 6 months ago
If retailers are the dumbest “turkeys” in the world, why do we focus so much of our wisdom and attention on food retailers? Re: competition…While thou shalt not covet, selling tradition approves all forms of rational and irrational competition. In a world of “you gotta do what you gotta do,” food retailers do try to balance off financial info about their customer base and the needed customer inflow against anticipated income. Some retailers are, of course, better than others at doing this…and for some upscale retailers, this might be a smaller problem. But if a store is supported mostly by low-to-average-income folks, then at Thanksgiving, its turkey prices should be in sync with what their main competition is offering. A turkey purchase is related to a few holidays. Thus a “diversionary” trip to another store occasioned by a lower turkey price is easy to rationalize in order to save several bucks on a turkey as well as buying other holiday necessities at the competitor. One wonders if the turkeys themselves (no, not food retailers) haven’t… Read more »
J. Peter Deeb
Guest
13 years 6 months ago

Most retailers have “done the math” and understand the importance of maintaining their loyal customers and getting the “switchers” during the high-volume weeks of the year. The ability to cross merchandise higher-margin items and insure that the overall basket is profitable are the keys.

Kevin Graff
Guest
13 years 6 months ago

Everyone should read Doron Levy’s comments above. This is exactly what every smart retailer should be doing! We often talk about ‘shielding’ loss leaders through cross merchandising, but the impact of combining that with an expert who can provide service, knowledge and credibility is terrific. Forget the ‘price first and only’ argument that seems to be getting so much play during these tougher times. Consumers still want, and are willing to pay for, a great shopping experience.

Tonia Key
Guest
Tonia Key
13 years 6 months ago

I’m not paying $50.00 for a turkey! Not going to happen ever!!! I don’t even pay $20.00 for a turkey. There are too many substitutes for turkey and too much of it goes to waste every Thanksgiving. I would suggest leaving things as they are or you’ll quickly find yourself digging out of these birds.

Ken Wagar
Guest
Ken Wagar
13 years 6 months ago
While I understand a retailer taking a net loss on turkeys in order to build traffic, I don’t believe the strategy is sound for two reasons. First is the fact that most retailers not only take a loss on the turkey but also significantly discount all other products key to a traditional Thanksgiving dinner including brown and serve rolls, cranberry sauce, yams, stuffing ingredients, pumpkin pie etc. The margin loss on the Turkey is not offset by the other products but is in fact compounded by discounting all of the elements of the holiday meal. Secondly, the market competitiveness results in all retailers being super aggressive on turkey prices which severely moderates any gain from switching. The reason the madness continues is the fear of being judged non competitive on Turkey prices potentially resulting in a poor holiday week and a loss of any low price impression for the store. Once in this mode of operation it is very tough to ever get out without a major change in strategy and a long term rebuilding… Read more »
M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
13 years 6 months ago
Some thoughts on Thanksgiving turkey sales based on messing with them for a few decades. First, there is no magic formula for maximizing their value during the season, but leading with innovative consumer offerings nearly always wins the day. In other words, simple pricing is less engaging for customers than bundled offerings, purchase rewards, etc. Make it fun and interesting. Second, the practice by some retailers of pricing the larger (Tom) turkeys at less per pound than the smaller (Hen) turkeys pushes customers toward the bigger birds and maximizes the retailer’s loss. When will they figure this out? Third, frozen turkeys are fresher than fresh turkeys. The fresh turkey bidness is all well and good–and profitable–but it’s a hoax. Flash-freezing turkeys seconds after they’re processed produces a bird that has far, far less bacteria than fresh birds. Helping customers understand this moves their turkey purchase to an earlier date–allowing for thawing time–rather than their relying on the purchase of a fresh bird at the last minute. It also gives shoppers an additional few days to… Read more »
Dave Lueken
Guest
Dave Lueken
13 years 6 months ago

As a retailer, we tend to require a certain dollar purchase to get the aggressive turkey or ham price. Typically this is $25 or $50. Is requiring a purchase a turn-off to most consumers? If not, what is the correct amount?

I also read a mention of using cross-promotions in terms of offering something else with the purchase of a turkey, thus taking emphasis off the turkey price. What cross-promotions in the weekly ad have you seen to be effective and why?

I have tried various ways of promoting the holiday without sacrificing profit, but it seems to keep coming back to the price of the darn turkey.

Justin Time
Guest
13 years 6 months ago

Great A&P offers the best of both worlds.

They guarantee not to be undersold on turkey prices. And for the past 6 weeks, they also have been offering $10 off any meat purchase through Thanksgiving with a $40 purchase of various qualifying items. The qualifying items change weekly and all items are specially priced.

Just can’t beat that!!!

wpDiscuz

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