The U.S. Department of Agriculture Economic Research Service has misfired by issuing its retail food prices study, called How Much Lower Are Prices at Discount Stores?
The U.S. Department of Agriculture Economic Research Service has misfired by issuing its retail food prices study, called How Much Lower Are Prices at Discount Stores?
The Lempert Report isn’t quibbling over the processes used to compile this 51-page report. Nevertheless, we do feel strongly that any food and beverage retailers that might base price and promotion strategies, even in part, on the extensive figures just released would be misled and could be hurt.
Why? It is so out of date as to be dangerous. Perhaps in less volatile economic periods, arrears of several years in issuing research wouldn’t render a study irrelevant. But with The Great Recession having occurred between the research period (the report largely analyzes 2004-2006 Nielsen Homescan data) and the report’s release (October 2010), America’s retail landscape and shoppers’ price sensitivity have changed significantly.
In our view, this study should have come with a caution label that it exceeded its ‘use by’ date. No longer can blanket statements be made like this one in the study: “Comparisons of identical items, at the Universal Product Code (UPC) level, show an expenditure-weighted average price discount of 7.5%, with differences ranging from 3% to 28% lower in nontraditional stores than in traditional stores.”
Supermarkets have made price image a priority over the past two years; everyday prices have been cut on thousands of items, and promotions are often deeper and more frequent. Moreover, low-price operators such as Bottom Dollar, Grocery Outlet and Save-A-Lot have grown their followings in more zip codes. Throughout the supermarket channel, private label shares have risen not only due to lower prices, but also due to consumers’ frequent acceptance of item quality.
For these reasons, The Lempert Report hopes the next version of this USDA report will be timed more appropriately – and carry a warning label if needed.
For now, we feel that the competitive tensions between mass merchants (supercenters, discount stores, dollar stores, drug stores, wholesale clubs) and supermarkets over food and beverage are escalating, and the precision of price and promotion strategies to attract shopper trips couldn’t be more pivotal to a retailer’s success. It is therefore ludicrous that one of the stalwart authorities in the food world, the USDA ERS, issues such an outdated report while the economy continues to stumble.
Like the rest of us who closely observe food matters, the USDA ought to recognize that supermarkets are no longer easy marks for Walmart; a look at Walmart’s recent comp figures would confirm that. Supermarkets increasingly use technology and insights into their frequent shopper databases to become savvier about pricing and promotions that will offset competitors’ actions and appeal to targeted customer groups within their trading areas.
We’ll say this for the USDA report: it provides helpful background for people in the trade who want to learn the pre-recession story. But pricing influences and shopping behaviors have changed so radically in a short time that the USDA is compelled to move into this decade.