Disruptors: Playing the price game
Editor's note: Disruption isn’t a bad thing. It can be positive — causing retail grocers to get out of their comfort zones. Disruption, even when there’s upheaval, can force retailers to go back to the drawing board to implement new strategies to preserve their businesses. Disruption is challenging, but to discount it is to put your proverbial head in the sand. In the next several weeks, Store Brands identifies five current disruptors impacting private brands. Part five of the series.
Wegmans lowered prices on many of its store brands in March. The Rochester, N.Y.-based retailer also lowered prices on private brands in 2016 and most of those prices remain unchanged.
Wegmans lowered prices on its store brands because that is where it has the most leverage to reduce prices. Simply put, Wegmans lowered its private brand prices to stay competitive in a grocery retail market that remains ultra-competitive.
Lowering prices to stay competitive in grocery is not new, but is reaching unprecedented levels. Just ask the major grocery chains that have seen revenues grow but profits dwindle. The price game is a disruptor that may not be going away anytime soon, especially as deep-discount chains Aldi and Lidl continue to expand in the United States and their competition continues to react to stay competitive. It’s a great time to be a consumer.
“For a large majority and still growing number of Americans, value grocery retailers are where it’s at when it comes to grocery shopping,” according to Packaged Facts’ recent report, “The Future of Food Retailing: Value Grocery Shopping in the U.S.” “The value grocery industry is heating up for what may be the hottest contest since the advent of Walmart supercenters.”
While Lidl’s growth has slowed since it debuted in the U.S. last summer, the deep-discount chain, which touts a 90 percent assortment of private brands, is impacting prices in the markets it serves. Lidl, which will open only 20 stores in 2018 to give it 68 U.S. stores (Lidl originally planned 100 stores by mid-2018), commissioned an independent study early this year reporting that grocery chains with stores near Lidl’s stores lowered their prices for private brand staple products an average of 9.3 percent lower in those markets compared to their stores in markets that do not have Lidl stores.
The study, led by Katrijn Gielens, an associate professor of marketing at the University of North Carolina Kenan-Flagner Business School, evaluated the competitive price effect of Lidl’s entry into the U.S. grocery market and the reaction of key competitors including Aldi, Food Lion, Kroger, Publix and Walmart. Gielens analyzed prices in six markets where Lidl operates and six control markets without a Lidl store — in Virginia, North Carolina and South Carolina. The study looked at 48 grocery products, which were collected on store visits.
“The level of competitive pressure Lidl is exerting on leading retailers to drop their prices in these markets is unprecedented,” Gielens said.
As Lidl continues to grow — and it will, even if slower than planned — it will continue to impact prices.
According to Daymon’s recent “Private Brand Intelligence Report 2018,” shoppers will come to expect “high-quality private brand items at super-low prices no matter where they are.” Dave Harvey, Daymon’s vice president of global thought leadership, says this could be good and bad for private brands.
“But I would say it’s more about opportunities [for retailers] than challenges,” he adds.
Because consumers are more open to buying private brands, high-quality private brand items at low prices could lead to more innovation and new product offerings in categories that might have been traditionally dominated by more expensive national brands, Harvey explains, which would allow private brands to capture more momentum.
“Of course the danger is retailers offering products at lower prices but without delivering the quality,” he adds