DAVIS, CA - It may be platitudinous to point out: price competition in fresh produce can be—and frequently is—intense. But after a year of tumult in grocery retail that saw Lidl enter the United States, Amazon acquire Whole Foods, Aldi and Target invest in comprehensive expansion and remodel programs, and Walmart rush headlong into e-commerce, it bears repeating. Perhaps now more than ever, insights into pricing strategy are key to successfully competing in a crowded market.
I recently had the opportunity to converse with Edris Bemanian, Chief Operating Officer for Engage3. As COO of a company dedicated to helping retailers and brands improve pricing performance and compete more profitably through data science and analytics, Edris had a number of shrewd observations to share with me on pricing pressures, strategy, and the state of the market.
Q: We’ve seen some reports of Wegman’s lowering prices for the first time in well over a year. What can you tell me about Wegman’s recent bout of cuts? Can you speculate on what prompted those cuts?
Edris Bemanian: Historically, most retailers changed prices when they received a cost increase to manage against a margin target. These margin targets would be managed down to an item-level. Now that retailers are under attack from all directions and by all formats (club, specialty, ethnic, e-commerce pure players, deep discounters, etc.), retailers are increasingly paying attention to their local competition in each of their markets. They are beginning to take a total category, total department, and total store perspective on profitability and sales versus managing down to an item-level. Wegmans is a widely-respected and highly-regarded operator so their pricing actions will always draw attention. Wegmans is slowly expanding into new markets like Washington D.C. to capture additional market share. At the same time, as with all other grocers, it needs to focus on protecting their market share from both conventional and existential threats while continuing to gain share from their loyal customers’ wallets.
Q: What do retailers like Wegmans stand to gain/lose from cutting prices?
EB: There’s a delicate balance retailers need to strike. These are some steps any retailer can take to gain when setting prices:
- Make sure that you’re priced “right" on an item. This means that you’re pricing consistently with your strategy while taking local competition into consideration.
- Manage the activity cost associated with changing too many prices.
- Make sure that you aren’t missing out on any margin opportunities.
- Ensure that your customers don’t feel taken advantage of, which can happen if the cadence of the price changes and their price changes are not aligned to how they communicate their value proposition to their customers.
Q: Are there ways in which a retailer who is unable to compete with the likes of Amazon or Lidl in terms of pricing can work to alleviate pricing pressure?
EB: Rather than engaging in a direct pricing war, retailers should take a step back and thoughtfully align on their strategy based on 4 things: 1) who their most loyal customers are, 2) who their local competitors are, 3) what tools they have at their disposal (e.g., loyalty programs or pricing systems), and 4) what their differentiators are. Once they’ve done this, they can develop a pricing strategy to help them find the right balance of competitiveness and profitability.
Q: What kinds of general trends in pricing are you seeing right now? What do you think are some of the biggest factors affecting pricing trends?
EB: The biggest trend is that pricing and assortments are becoming more dynamic and localized. E-commerce is now becoming a fundamental part of retailers’ strategies versus a “me too” approach (for example, Target’s acquisition of Shipt, discussions with Boxed, and Instacart’s explosive growth since). Consumers are paying much more attention to product attributes and have varying perceptions of value associated with these product attributes. In produce, these are factors like a product’s country of origin, if it’s conventional or organic, non-GMO, gluten-free, etc.
Q: Are major developments from last year like Lidl’s entry into the U.S. market and Amazon’s acquisition of Whole Foods—complete with subsequent price cuts—continuing to affect pricing?
EB: Absolutely. At a macro-level, Lidl’s entry into the U.S. market resulted in massive investments by Aldi into their own store experience. Amazon’s acquisition of Whole Foods will continue to keep retailers wary. Walmart’s doubling down on their EDLP commitment to their customers and their e-commerce ambitions will also continue to affect pricing through 2018 and beyond.
Ultimately, Edris explained well-informed retailers with a grasp of competitors pricing strategy and insights into local competition will be most apt to survive and thrive as retail continues to evolve.
“Retailers who have clean, precise, and comprehensive visibility into their competitors’ pricing and assortment strategies will be able to use an informed strategy that focuses on their local competition,” Edris noted. “Programs that identify opportunities to go on the offensive will be crucial. They can then re-invest their winnings back into their programs so that they can be well-positioned not only to weather the storm, but to gain ground as well.”
Retailers can hear more insights into pricing from Engage3’s COO at the C&S Wholesale Grocers' 10th Annual Tech Expo on April 18th at the Thunder Valley Resort in Lincoln, California. At noon in an educational session held in Pano hall, Edris will discuss how retailers may enhance pricing performance through data science and analytics.
For more insights into retail strategy and breaking news on the produce industry, keep reading AndNowUKnow.
