June 30, 2008
Ralphs Lowers Prices
By Tom Ryan
Ralphs Grocery Co. has lowered prices on thousands of staples in what it said was a response to rising food and gasoline prices facing its Southern California consumers. But it’s also an apparently company-wide strategy across many Kroger units to gain market share.
The 262-unit operator has also beefed up its rewards card. In addition to the regular discount, participants get one point for every $1 spent. When they reach 500 points, they get a $5 rebate.
According to an article in the Los Angeles Times, Ralphs is facing heightened competition from new entrants such as Sprouts Farmers Market and Fresh & Easy Neighborhood Market. At the same time, discounters such as Target and Wal-Mart continue to push deeper into the packaged and frozen food market.
The move has apparently proved successful in helping win market share for its parent, Kroger Co., in other regions. Same-store sales at Kroger grew 5.8 percent in the first quarter versus a two percent gain at Safeway.
According to the article, Ralphs has some work to do to overcome its reputation as one of the higher-priced traditional grocers in the region.
Recently, Terry Supple of Woodland Hills, CA, compared prices for nine name-brand items – including Cheerios and Kraft mayonnaise – and found that Target charged 36 percent less than Ralphs after factoring in promotions at both stores.
“Target’s grocery department is limited, no meat or produce, but their prices on name-brand staples are great,” Mr. Supple said. He still said he does “shop at Ralphs for meat and produce and will look at their new prices.”
“I think it’s just another gimmick,” added Rodney Becnel of Lincoln Heights,
CA, regarding Ralphs new low-price push.
“People are going to go where you get
the best deal no matter what,” Mr. Becnel said. “Prices are hurting, and if they
lower them, it might help a little. You have to try to buy where it’s cheap.”
Somewhat mitigating these moves to lower prices is that Ralphs capped its double coupon program. Shoppers can now double a coupon with a redemption value of only 50 cents or less. But Teri Gault, founder of The GroceryGame.com, an online-coupon provider, said prices for most items were the same now as before under the old double-coupon policy, and overall prices appear to be lower.
“Obviously, lower prices are a benefit for people who don’t use coupons, and for the ones that do, they won’t see a lot of differences in what they are paying,” said Ms. Gault.
Discussion Question: How much louder is the “value” message resonating these days? In general, do you think supermarkets still have to do a better job promoting value to compete with discount chains, dollar stores, limited assortment grocery and others touting consumer savings? Do you think Ralphs’ “price” and “value” messages will differentiate it from the competition or make it seem more like its competitors in the minds of consumers?
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This message at this time, seems like a “me too” communication late in the game. In terms of communications, I think this may be too little, too late.
Sure they need to compete on price in this economy, but where’s the real value? What’s the point of difference? Until they answer that compellingly to a group of shoppers, this message isn’t going to move the needle much.
Traditional grocery chains like Kroger and Safeway are likely to lose share over the long haul to alternatives like supercenters, warehouse stores and specialists (think Whole Foods and Trader Joe’s). The reasons run the gamut from price to convenience to service to assortment. The traditional stores are certainly not in a position to watch their share bleed away in a tough economic climate without taking aggressive steps to be more price-competitive. This is usually the case, but never more so than right now when consumer spending is strapped by the high cost of gas.
As the economy continues to weaken, value becomes the most important factor (price) of a marketing message. People have less to spend as their dollars are consumed by other products in the market (oil driven products like gasoline and heating oil) thus fulfilling your daily needs becomes more difficult. Finding a solution for their customers as more of them have fewer dollars to spend is the smart way to either keep or grow your business.
Value products become more important, as does offering them to your customers. This is a great strategy by Ralphs, since the first one out will grab the greater share of the consumer pie. Others are certain to follow, so Ralphs needs to keep on anticipating and protecting their market gains.
From time to time, in just about every market, some chain comes out with the banners stating that thousands of prices have been lowered. Still they don’t even come close to Wal-Mart’s pricing. Consumers wonder why they were charging so much before. Then there are the double coupon games, cash rebates, and gas discounts. All just gimmicks to hide the fact that the stores cannot and will not compete with Wal-Mart and the other true value operators such as Aldi.
Unless a chain intends to take on Wal-Mart and the other value operators on price, stores will need to find a more compelling reason to attract customers. Value is more than price. Value includes the experience. When I go to stores such as Stew Leonard’s or Wegmans, I have an experience that takes my mind off of price. When I go to Wal-Mart, I am only concerned with price. Conventional stores’ market shares are shrinking because they can neither provide a Wegmans type experience nor Wal-Mart pricing.
The price and value message is loud and clear to consumers who are trying to balance their budget with soaring prices hitting them everywhere. The challenge is promoting this campaign and convincing the consumer that this is not just a loss leader gimmick but a strategy to help patrons with their budget and to gain long term loyalty.
This can be a differentiator if executed well. Stir the emotion and make it a conscious strategy instead of a short term promotion.
One point that was not mentioned is that Ralphs is significantly altering its coupon acceptance strategy. So, on one hand they claim to be lowering prices, while the other hand is taking away value derived from some coupons.
People living in Southern California have many options when purchasing food. Ralphs and the other major grocery chains never fully recovered from the strike a few years ago. At that time, many shoppers turned to alternatives like Trader Joe’s or Costco. When combined with the grocery push from Target and Wal-Mart, Ralphs has a ways to go to return to pre-stike sales levels and consumer preference.
I’m not sure it’s a “value” message as much as a “price” message and a recognition that the cost of living is rising faster than usual. With its still higher prices, promoting low prices alone should be a losing proposition. Promoting LOWER prices along with selection and service, however, could well be a positive move for Ralphs. It’s not the absolute price, it’s that they’ve lowered their prices that should play.
In the face of higher gasoline prices and higher grocery prices and shortages in some food areas, value and price become more important. Certainly there is a lot of competition for Ralphs here in Southern California. However, price is not the only change at the Ralphs near my house. The store is also being renovated to have a new look, feel, and assortment of merchandise.
Of course messages resonate better when they are timely–but this is where consistency of message pays off. Ralphs/Kroger will be hard-pressed to convince anyone currently shopping a supercenter to switch based on price. What they may do, however, is keep some current Kroger shoppers from defecting to Wal-Mart for lower prices. Maybe.
It is a good move for any retailer to announce ‘lower prices’. Consumers are facing an onslaught of negative media reports regarding the economy on a daily basis so any positive news from a retailer can really go a long way in bringing traffic in. Whether it actually gives value to the customer is a different story.
My experience with Ralphs in SoCal is that they are more expensive than Vons or Smart and Final, so any price decrease just puts them in the same price points as their competition. There really is no value to the prudent shopper. The coupon deal gets a collective nay from my camp. Come on guys! Let’s see some explosive campaigns to counteract the negative psychology that the media has created.
Maybe Ralphs’ move signifies a trend in the making? Here in Arizona, where Kroger’s Fry’s unit is a major contender, local favorite Bashas’ also launched a price message this week.
In a postcard promotion that hit mailboxes last Wednesday, Bashas’ announced a new shelf tag program that it says would help shoppers locate advertised weekly specials, in-store specials and store brand values.
These messages seem to be timely, if not downright obvious, plays to the current consumer consciousness. With both food and fuel prices charging upward, supermarkets should feel pressure to emphasize their price competitiveness. They should be careful, however, to avoid messages that make shoppers feel manipulated.
Data point of one: I live in SoCal, and was completely unaware that this strategic tactic had been implemented. Given that I don’t watch a great many television commercials, but I do scan the direct mail circulars, and I DO shop Ralphs on at least a once a week basis. And no idea this was going on. Not what Ralphs probably wants to hear.
As to the Rewards card…you have to sign up for an entirely new card. It’s not as simple as just getting extra benefits for the existing loyalty card. This is irritating. I have yet to complete the new application…never really had the time on my visits. I would have encouraged Ralphs to make this automatic–either in the mail, or at the register. As soon as the customer uses the old card, set up the POS so that a swipe can activate the new one.
Value will resonate for a sustained period of time. However, as with any value play, delivery on the promise is critical. Value plays which require specific competition as the benchmark can be very difficult to create credibility around. Particularly in the mid-market. Grocery operators in the mid-market actually do compete in both directions, as well as with Target and WM. In SoCal, remodeled Ralphs legitimately compete with Gelsons and Pavilions. Others compete with Vons and Albertsons. Different markets, different “delivery” of the value.
The Kroger overall marketing approach across nameplates and regions is extremely admirable: I believe that the remodeling programs continue unabated, and in many cases, service levels are increasing, not decreasing. So with prices potentially dropping, and costs increasing, this HAS to produce market share. What better time to do it, though? Loyalties created during tough economic times tend to last the longest. Look at how long it took Sears to squander all the equity?
This “message” can actually be a double edged sword. If, in the wake of widely publicized higher gasoline (transportation/delivery) prices and higher wholesale prices Ralphs can concurrently “lower” their retail prices–then this will suggest and reinforce to some consumers that they previously may have been being gouged by unnecessarily high prices at this grocery chain.
The driving force behind the Ralphs move, which also is a Kroger Co. move at other divisions in the U.S., is due far more to soaring food price inflation than any threat from Tesco’s Fresh & Easy or Sprouts, in my analysis and opinion.
Neither of these chains have enough stores in the market yet to have built up enough critical mass to hurt Ralphs in any fundamental way.
However, if you follow Safeway’s Vons in the region, say over the last 90 days, you will observe a big change in the retailer’s value message: much more competitive prices both everyday, in their weekly ads, and in-store (promotions.)
Ralph’s also wanted to eliminate its double coupons, which its doing as part of this change. Word is they were getting eaten up by them as consumers are using them big time now, compared to the past.
But the key is the value proposition; it’s something near every retailer must do at present.
Even within Whole Foods Market one of the key topics at executive meetings currently is how to create a strong value proposition without eroding image–and margin. WF just initiated a program where they are positioning team members in-store who do nothing but help shoppers find “values” in-store, for example.
Lastly, Wal-Mart is also making a big play in Southern California. For example, because it’s had such a hard time getting approval for Supercenters in the market, it’s in the process of converting the first of 15-to-25 Wal-Mart discount stores into Supercenters, adding 25-50,000 square feet to them; all dedicated to food and groceries, making them hybrid Supercenters.
Kroger (Ralphs) and Safeway (Vons) are well aware of this and know the value proposition ante will go up as these hybrid Supercenters–plus those new ones Wal-Mart can get approved–continue to come online.
Unfortunately, food price inflation isn’t going away soon either. Probably a smart–and needed–move on Ralphs’ part.
This move by Ralphs is the right move for the current economy. I don’t see this as gimmick any more than any other retailer who is looking to keep their loyal customers happy. If you don’t stay out in front of a growing economic concern you’ll find yourself and the bottom of the market-share barrel. Today’s grocery consumer is far more focused on “price” and “convenience” than anything else. The issue of customer experience is an entirely different topic. If you’re looking for a great customer experience, then Wegmans is your place…but this would be for the more affluent shopper who doesn’t go there expecting to save money.
Ralphs has a fairly aggressive remodel program by which they are attempting to put a positive spin on the experience factor and balance the price/value issue. One has to be concerned that consumers don’t get the feeling that the cost of that new “experience” just got past down to them via higher food prices.
How ever you look at it, something has to be working at same store sales are up.
About 20 years ago, one local supermarket chain put its price as well as its lowest competitor’s price on every shelf label. This went on for a couple of years, updated every week for price changes, and the chain that did it went from losing money to a bit better than breakeven. (And they adjusted their prices weekly to be no more than the lowest competitor.) To my knowledge, no one’s had the guts to copy this tactic since.
A great chunk of supermarket shoppers know their prices well. The great supermarket owner conundrum: to serve the cherry-pickers and get the volume (but no profit) or ignore the cherry-pickers and ignore the volume lost. Market share does not equal profit in the supermarket racket. In fact, the two can be inversely proportional.
One thing’s for sure: unionized supermarkets have permanently higher costs than nonunion places like Wal-Mart or Target or Trader Joe’s or Dollar General. In a low-margin struggle, those extra costs take their toll relentlessly. Eventually, the cheap leases that subsidize this toll come up for renewal. And that is the beginning of the end.
A good retailer will play the hand he holds as best he can. Consider these three factors: #1 – 262 stores is fair coverage in S. California so Ralphs is “fairly” convenient to a large number of consumers. #2 – Gasoline costs about $4.50 a gallon there so you no longer want to drive a long way to a store these days. #3 – Then throw in lots of reduced prices, hoopla and promotional schemes (even if Ralphs is still a higher priced store) and some folks will rationalize that, on balance, “nearby” Ralph’s stores represent an “aggregate” value–all present-day things considered.
This isn’t the way Wegmans does its wonderful thing, or match Wal-Mart’s low prices, or overshadow Trader Joe’s unique appeal, but remember this–Kroger’s like stores sales were up 5.8% on last read.
Ralphs is giving out a broad brush message on staple items to give a perception of competitiveness and retain the existing customers and sway opinion of others. Cheaper products will be displayed to easily catch the eye. It will price target so some staples will be lower in some stores and higher in others and displayed differently, depending on the demographic of the specific store customer. Teasing out customers who will pay more is the target. Teasing out customers which have a perception that Ralphs is fair priced and who are cavalier about price is the target.
Value to the customer is entirely different.
I give them credit for making some huge improvements in assortments and pricing along with their remodels. As someone mentioned, their real estate is strong in SoCal, and as a whole offering, I think they’ve become much more appealing and competitive. They’ve essentially given us fewer reasons to drive somewhere else!
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This message at this time, seems like a “me too” communication late in the game. In terms of communications, I think this may be too little, too late.
Sure they need to compete on price in this economy, but where’s the real value? What’s the point of difference? Until they answer that compellingly to a group of shoppers, this message isn’t going to move the needle much.
Traditional grocery chains like Kroger and Safeway are likely to lose share over the long haul to alternatives like supercenters, warehouse stores and specialists (think Whole Foods and Trader Joe’s). The reasons run the gamut from price to convenience to service to assortment. The traditional stores are certainly not in a position to watch their share bleed away in a tough economic climate without taking aggressive steps to be more price-competitive. This is usually the case, but never more so than right now when consumer spending is strapped by the high cost of gas.
As the economy continues to weaken, value becomes the most important factor (price) of a marketing message. People have less to spend as their dollars are consumed by other products in the market (oil driven products like gasoline and heating oil) thus fulfilling your daily needs becomes more difficult. Finding a solution for their customers as more of them have fewer dollars to spend is the smart way to either keep or grow your business.
Value products become more important, as does offering them to your customers. This is a great strategy by Ralphs, since the first one out will grab the greater share of the consumer pie. Others are certain to follow, so Ralphs needs to keep on anticipating and protecting their market gains.
From time to time, in just about every market, some chain comes out with the banners stating that thousands of prices have been lowered. Still they don’t even come close to Wal-Mart’s pricing. Consumers wonder why they were charging so much before. Then there are the double coupon games, cash rebates, and gas discounts. All just gimmicks to hide the fact that the stores cannot and will not compete with Wal-Mart and the other true value operators such as Aldi.
Unless a chain intends to take on Wal-Mart and the other value operators on price, stores will need to find a more compelling reason to attract customers. Value is more than price. Value includes the experience. When I go to stores such as Stew Leonard’s or Wegmans, I have an experience that takes my mind off of price. When I go to Wal-Mart, I am only concerned with price. Conventional stores’ market shares are shrinking because they can neither provide a Wegmans type experience nor Wal-Mart pricing.
The price and value message is loud and clear to consumers who are trying to balance their budget with soaring prices hitting them everywhere. The challenge is promoting this campaign and convincing the consumer that this is not just a loss leader gimmick but a strategy to help patrons with their budget and to gain long term loyalty.
This can be a differentiator if executed well. Stir the emotion and make it a conscious strategy instead of a short term promotion.
One point that was not mentioned is that Ralphs is significantly altering its coupon acceptance strategy. So, on one hand they claim to be lowering prices, while the other hand is taking away value derived from some coupons.
People living in Southern California have many options when purchasing food. Ralphs and the other major grocery chains never fully recovered from the strike a few years ago. At that time, many shoppers turned to alternatives like Trader Joe’s or Costco. When combined with the grocery push from Target and Wal-Mart, Ralphs has a ways to go to return to pre-stike sales levels and consumer preference.
I’m not sure it’s a “value” message as much as a “price” message and a recognition that the cost of living is rising faster than usual. With its still higher prices, promoting low prices alone should be a losing proposition. Promoting LOWER prices along with selection and service, however, could well be a positive move for Ralphs. It’s not the absolute price, it’s that they’ve lowered their prices that should play.
In the face of higher gasoline prices and higher grocery prices and shortages in some food areas, value and price become more important. Certainly there is a lot of competition for Ralphs here in Southern California. However, price is not the only change at the Ralphs near my house. The store is also being renovated to have a new look, feel, and assortment of merchandise.
Of course messages resonate better when they are timely–but this is where consistency of message pays off. Ralphs/Kroger will be hard-pressed to convince anyone currently shopping a supercenter to switch based on price. What they may do, however, is keep some current Kroger shoppers from defecting to Wal-Mart for lower prices. Maybe.
It is a good move for any retailer to announce ‘lower prices’. Consumers are facing an onslaught of negative media reports regarding the economy on a daily basis so any positive news from a retailer can really go a long way in bringing traffic in. Whether it actually gives value to the customer is a different story.
My experience with Ralphs in SoCal is that they are more expensive than Vons or Smart and Final, so any price decrease just puts them in the same price points as their competition. There really is no value to the prudent shopper. The coupon deal gets a collective nay from my camp. Come on guys! Let’s see some explosive campaigns to counteract the negative psychology that the media has created.
Maybe Ralphs’ move signifies a trend in the making? Here in Arizona, where Kroger’s Fry’s unit is a major contender, local favorite Bashas’ also launched a price message this week.
In a postcard promotion that hit mailboxes last Wednesday, Bashas’ announced a new shelf tag program that it says would help shoppers locate advertised weekly specials, in-store specials and store brand values.
These messages seem to be timely, if not downright obvious, plays to the current consumer consciousness. With both food and fuel prices charging upward, supermarkets should feel pressure to emphasize their price competitiveness. They should be careful, however, to avoid messages that make shoppers feel manipulated.
Data point of one: I live in SoCal, and was completely unaware that this strategic tactic had been implemented. Given that I don’t watch a great many television commercials, but I do scan the direct mail circulars, and I DO shop Ralphs on at least a once a week basis. And no idea this was going on. Not what Ralphs probably wants to hear.
As to the Rewards card…you have to sign up for an entirely new card. It’s not as simple as just getting extra benefits for the existing loyalty card. This is irritating. I have yet to complete the new application…never really had the time on my visits. I would have encouraged Ralphs to make this automatic–either in the mail, or at the register. As soon as the customer uses the old card, set up the POS so that a swipe can activate the new one.
Value will resonate for a sustained period of time. However, as with any value play, delivery on the promise is critical. Value plays which require specific competition as the benchmark can be very difficult to create credibility around. Particularly in the mid-market. Grocery operators in the mid-market actually do compete in both directions, as well as with Target and WM. In SoCal, remodeled Ralphs legitimately compete with Gelsons and Pavilions. Others compete with Vons and Albertsons. Different markets, different “delivery” of the value.
The Kroger overall marketing approach across nameplates and regions is extremely admirable: I believe that the remodeling programs continue unabated, and in many cases, service levels are increasing, not decreasing. So with prices potentially dropping, and costs increasing, this HAS to produce market share. What better time to do it, though? Loyalties created during tough economic times tend to last the longest. Look at how long it took Sears to squander all the equity?
This “message” can actually be a double edged sword. If, in the wake of widely publicized higher gasoline (transportation/delivery) prices and higher wholesale prices Ralphs can concurrently “lower” their retail prices–then this will suggest and reinforce to some consumers that they previously may have been being gouged by unnecessarily high prices at this grocery chain.
The driving force behind the Ralphs move, which also is a Kroger Co. move at other divisions in the U.S., is due far more to soaring food price inflation than any threat from Tesco’s Fresh & Easy or Sprouts, in my analysis and opinion.
Neither of these chains have enough stores in the market yet to have built up enough critical mass to hurt Ralphs in any fundamental way.
However, if you follow Safeway’s Vons in the region, say over the last 90 days, you will observe a big change in the retailer’s value message: much more competitive prices both everyday, in their weekly ads, and in-store (promotions.)
Ralph’s also wanted to eliminate its double coupons, which its doing as part of this change. Word is they were getting eaten up by them as consumers are using them big time now, compared to the past.
But the key is the value proposition; it’s something near every retailer must do at present.
Even within Whole Foods Market one of the key topics at executive meetings currently is how to create a strong value proposition without eroding image–and margin. WF just initiated a program where they are positioning team members in-store who do nothing but help shoppers find “values” in-store, for example.
Lastly, Wal-Mart is also making a big play in Southern California. For example, because it’s had such a hard time getting approval for Supercenters in the market, it’s in the process of converting the first of 15-to-25 Wal-Mart discount stores into Supercenters, adding 25-50,000 square feet to them; all dedicated to food and groceries, making them hybrid Supercenters.
Kroger (Ralphs) and Safeway (Vons) are well aware of this and know the value proposition ante will go up as these hybrid Supercenters–plus those new ones Wal-Mart can get approved–continue to come online.
Unfortunately, food price inflation isn’t going away soon either. Probably a smart–and needed–move on Ralphs’ part.
This move by Ralphs is the right move for the current economy. I don’t see this as gimmick any more than any other retailer who is looking to keep their loyal customers happy. If you don’t stay out in front of a growing economic concern you’ll find yourself and the bottom of the market-share barrel. Today’s grocery consumer is far more focused on “price” and “convenience” than anything else. The issue of customer experience is an entirely different topic. If you’re looking for a great customer experience, then Wegmans is your place…but this would be for the more affluent shopper who doesn’t go there expecting to save money.
Ralphs has a fairly aggressive remodel program by which they are attempting to put a positive spin on the experience factor and balance the price/value issue. One has to be concerned that consumers don’t get the feeling that the cost of that new “experience” just got past down to them via higher food prices.
How ever you look at it, something has to be working at same store sales are up.
About 20 years ago, one local supermarket chain put its price as well as its lowest competitor’s price on every shelf label. This went on for a couple of years, updated every week for price changes, and the chain that did it went from losing money to a bit better than breakeven. (And they adjusted their prices weekly to be no more than the lowest competitor.) To my knowledge, no one’s had the guts to copy this tactic since.
A great chunk of supermarket shoppers know their prices well. The great supermarket owner conundrum: to serve the cherry-pickers and get the volume (but no profit) or ignore the cherry-pickers and ignore the volume lost. Market share does not equal profit in the supermarket racket. In fact, the two can be inversely proportional.
One thing’s for sure: unionized supermarkets have permanently higher costs than nonunion places like Wal-Mart or Target or Trader Joe’s or Dollar General. In a low-margin struggle, those extra costs take their toll relentlessly. Eventually, the cheap leases that subsidize this toll come up for renewal. And that is the beginning of the end.
A good retailer will play the hand he holds as best he can. Consider these three factors: #1 – 262 stores is fair coverage in S. California so Ralphs is “fairly” convenient to a large number of consumers. #2 – Gasoline costs about $4.50 a gallon there so you no longer want to drive a long way to a store these days. #3 – Then throw in lots of reduced prices, hoopla and promotional schemes (even if Ralphs is still a higher priced store) and some folks will rationalize that, on balance, “nearby” Ralph’s stores represent an “aggregate” value–all present-day things considered.
This isn’t the way Wegmans does its wonderful thing, or match Wal-Mart’s low prices, or overshadow Trader Joe’s unique appeal, but remember this–Kroger’s like stores sales were up 5.8% on last read.
Ralphs is giving out a broad brush message on staple items to give a perception of competitiveness and retain the existing customers and sway opinion of others. Cheaper products will be displayed to easily catch the eye. It will price target so some staples will be lower in some stores and higher in others and displayed differently, depending on the demographic of the specific store customer. Teasing out customers who will pay more is the target. Teasing out customers which have a perception that Ralphs is fair priced and who are cavalier about price is the target.
Value to the customer is entirely different.
I give them credit for making some huge improvements in assortments and pricing along with their remodels. As someone mentioned, their real estate is strong in SoCal, and as a whole offering, I think they’ve become much more appealing and competitive. They’ve essentially given us fewer reasons to drive somewhere else!