Food price promotions rule, for now

Articles
April 01, 2009

Following the uphill ride of food prices in 2008 (a 6.4% rise, says the Bureau of Labor Statistics), food retailers have gotten an earful from consumers who want to pay less since commodity costs plunged. Retailers’ response: promote more food and beverage staples that people continue to buy in the recession. Temporary price reductions do help stores deliver some of the savings people seek, build traffic and keep certain shoppers from Walmart. But retailers want more give on the list prices of brands, and they’re turning up the heat on CPG suppliers. A salvo by Ahold threatened brands with the prospect of more private labels on the shelf. Until that frustration was aired publicly, brands were holding firm on their everyday prices, while funding trade events to establish their own price image. Now we’ll see. Research by BMO Capital Markets shows how promotion-heavy the retail food channel has become in recent months. A survey of 75 food retailers in 21 states—including Safeway, Publix, Walmart, Kroger and Albertson’s—shows that nearly three-quarters indicated higher promotional levels, and described the events as heavily weighted toward staples such as dairy, cereal and soup.

Following the uphill ride of food prices in 2008 (a 6.4% rise, says the Bureau of Labor Statistics), food retailers have gotten an earful from consumers who want to pay less since commodity costs plunged.

Retailers’ response: promote more food and beverage staples that people continue to buy in the recession.

Temporary price reductions do help stores deliver some of the savings people seek, build traffic and keep certain shoppers from Walmart. But retailers want more give on the list prices of brands, and they’re turning up the heat on CPG suppliers. 

A salvo by Ahold threatened brands with the prospect of more private labels on the shelf.  Until that frustration was aired publicly, brands were holding firm on their everyday prices, while funding trade events to establish their own price image.  Now we’ll see.

Research by BMO Capital Markets shows how promotion-heavy the retail food channel has become in recent months. A survey of 75 food retailers in 21 states—including Safeway, Publix, Walmart, Kroger and Albertson’s—shows that nearly three-quarters indicated higher promotional levels, and described the events as heavily weighted toward staples such as dairy, cereal and soup.

Half of survey participants feel prices are “at or near a bottom”; the other half expect further promotions or price reductions. Most in the latter camp believe “heightened promotional activity will last for at least 12 months or until the economy recovers,” reported BMO.

The BMO study shows the extent to which retailers will go to compete on price while consumers are extremely sensitive to savings. A few examples:  A major California retailer sold Campbell’s soup for 88 cents, down from $3. A major Arizona retailer sold yogurt at two for $1.  A major Texas retailer gave more weekend discounts, particularly in produce and meat products. A major Michigan retailer sold milk for $1.99 per gallon.  It’s unclear if these dramatic price drops were funded entirely by CPG, or were shared or borne entirely by retailers.

People have always loved bargains. The difference today is people need bargains to make ends meet. SupermarketGuru.com feels both sides share blame for persistently high food prices, and this dynamic will change only if CPG and retailers could possibly learn to trust one another more. Unfortunately, consumers are the consistent losers in these battles, and that doesn’t help any brand or store earn their confidence.