Independent supermarket retailers are facing significant challenges in today’s increasingly competitive retail environment. Retailers should not feel comfortable that while their dollar sales may be increasing modestly, sales growth rates are lower than current inflation, and unit sales are declining. It’s never been more important for independents to understand their price position in markets in which they compete and artfully neutralize their price vulnerabilities. This will allow them to win on other components of the value equation for which independent operators often thrive, e.g., quality, friendliness, customer service, connection to the community, etc.
Applying Competitive Pricing Data
Success, future growth, and in some cases even survival, will require independent supermarkets to address two key questions relative to their pricing, i.e.,
· How do I compare?
· How can I improve?
Capturing and analyzing competitive pricing data is the foundation to successfully answering these questions and driving profitable growth. Grocery pricing cannot be managed in a vacuum; it requires visibility into prices at competing retailers. Independent supermarket operators must harness the power of competitive pricing data to effectively manage their price offerings, or risk losing business to competitors that do.
Let’s dive into question #1: How Do I Compare? (Benchmarking)
The best way for retailers to benchmark and continually monitor their prices/price position versus competitors is to have access to comprehensive, timely, and relevant competitive pricing data.
· Comprehensive – Competitor prices for key items across the store, e.g., prices for at least 400-500+ of the most important items across departments and categories.
· Timely – Up-to-date competitor prices (base prices and promotional prices). Too many retailers rely on dated competitive pricing data, e.g., prices that were captured up to three-to-six months earlier. Instead, retailers need to procure and analyze current competitor prices.
· Relevant – Prices at specific competitor locations against which independent operators compete. Many independent operators rely on competitive data that’s from other markets which are not necessarily indicative of prices in their own marketplaces. Competitor pricing data from specific markets and neighborhoods in which retailers compete is the only sound source of information to influence important decision-making.
The benchmarks retailers should examine include:
· Base prices – Comparing everyday base prices to those of key competitors and indexing at the total store-, department-, category-, and item-levels.
· Promotional offering – Determining the impact of promotional prices on a retailer’s overall price position vs. key competitors, e.g., competitive indices with and without promotions. Also comparing and analyzing the breadth and depth of promotions to those at competitors. These data points help to uncover competitor promotional strategies and isolate how they can be neutralized.
· Known-value item (KVI) prices – KVIs are the sub-set of items that disproportionately impact price-value image. Consequently, once they’re identified, their prices must be actively monitored to ensure that independent retailers are not “overpriced” on these high-profile products.
· Value offering – Competitive pricing data are also required to assess a retailer’s “value offering”, i.e., how the best value in each category regardless of brand (lowest price per oz/lb across category items) at an independent operator’s stores compare to the best values at competitor stores. Knowing your “value offering gap” is extremely important when assessing strengths of non-traditional competitors, e.g., Aldi, Walmart Supercenter, etc.
Come back next week as we dive into Question #2 grocers should be asking about their pricing strategy.
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