Pricing for the middle class gets tougher

August 20, 2013

More consumers in the middle curb spending than did so in the recession, while more food sellers seek their business.

Supermarkets still ache for growth because the middle class continues to gasp for air.

In nearly a year since the Pew Research Center documented middle-class struggles, the prices of food and other essentials have only gone higher. For the record, Pew showed in its 138-page report, The Lost Decade of the Middle Class, that:

  • Eighty-five percent of self-described middle-class adults say it’s more difficult now than a decade ago to maintain their standard of living.
  • Middle-class incomes have shrunk in size over the past four decades. In the past decade alone, the middle-class median income fell five percent, but median wealth (assets minus debt) fell 28% to $93,150.
  • The middle class includes 51% of adults who bring in 45% of the nation’s income—down from 61% in 1971 who brought in 62% of income.
  • Sixty-two percent of middle-class Americans said they had to reduce household spending in the past year because money was tight, up from 53% who said the same in the recession year of 2008.

Financial problems of the middle class are part of a long-term wealth distribution shift in America, not simply an outcome of the slow recovery from the recession.  

Pricing will therefore continue to be a highly sensitive issue for food retailers. So far operators such as Aldi, Save-A-Lot, dollar stores, and clubs have taken share from traditional supermarkets. The pricing challenge will mount as online food sellers bring new efficiencies and conveniences to shoppers, often for a nominal difference of delivery fees—which Millennials and time-stressed households often willingly pay.

The Lempert Report urges retailers and CPG to find their own pricing sweet spots with consumers—the fair value they can charge while yielding the margins and sales growth they need. RSR Research shows interest in markdown forecast and planning (24% of retailers surveyed), promotion optimization (23%), inventory management (23%), regular price optimization (20%) and price intelligence software (18%).

There’s less interest in using price to drive top-line sales (39% in 2013, down from 58% in 2010), and continued greater interest in using price to improve margins (60% in 2013, albeit down from 82% in 2010), finds RSR.

Domestic and international retailers could further fine tune their retail prices, using insights from a Smartling column in the Harvard Business Review. It describes how people from different cultures see some numbers as lucky or unlucky. For example, the Chinese like 666, but many Asian cultures repel from 4, 9, 13 and 17.