Why can't grocery retailers and manufacturers raise prices?
Even though the economy is continuing to improve, unemployment is down, consumer attitudes are becoming more positive and inflation is creeping up, grocery chains still aren't keen to raise prices, according to Bloomberg.
The reasons have to do with big grocery competitors, namely Amazon and Walmart, which are fighting each other for every consumer, plus the price-cutting impact of the Aldi and Lidl chains. Meanwhile, fickle shoppers looking for bargains are willing to forego brand loyalty to save money.
“Retailers took advantage of lower food costs to push down prices, and customers became acclimated to that environment,” Jennifer Bartashus, an analyst at Bloomberg Intelligence, told the website. “Now that inflation is returning, not only is competition in play, but customers are no longer used to seeing marginal price increases come through.”
There may not be a whole lot retailers and manufacturers can do about the overarching reasons for low prices, but they likely have more leeway when it comes to rebuilding brand loyalty. One method for retailers is to adopt premium private-label brands and make sure the products carrying the store's name are both high quality and a good deal.
According to a recent Nielsen report, sales of private-label brands have recently grown faster than those from manufacturers. The key to this success, analysts told Food Navigator, is to offer products nobody else is carrying.
Besides their low prices, Aldi and Lidl have both focused on their in-store brands to harness sales, differentiate themselves, and, perhaps most important in today's hyper-competitive retail environment, build customer loyalty.
Transparency is another way to earn customer trust and keep shoppers coming back. This is especially true for millennials and Gen X consumers who may have gotten used to saving money with private labels and may not be quick to return to big brands. These consumers want clean labels, ingredient lists they can understand, more information about how a product was grown and processed, its nutritional aspects, and what the manufacturer or retailer is doing to reduce their environmental footprint. Social media channels can be helpful in sharing this information. It can also tell consumers about the backstory behind a brand, who are the people involved, and recipes and suggestions to use the product at home. Establishing a relationship with shoppers is the most important reason to take these steps.
Add in rewards programs, fresh produce, helpful technology, prepared foods and an easy store layout — all things shoppers say they want in a grocery store — and loyalty may very well follow, even if price hikes do not.
The situation is tougher for manufacturers as they try to build in price increases to accommodate higher ingredient, transportation and labor costs. Bloomberg reported that General Mills' efforts to raise prices on Progresso soup and Yoplait yogurt ended up backfiring. Recently reported earnings from Nestle and Unilever noted the same pressures impacting retailers were holding them back from instituting price hikes: online competition, weak inflation and cost-cutting from discount retailers.
On the positive side, consumers have numerous options to choose from and good deals around every corner as this competitive scenario intensifies, meaning it may be easier to get shoppers inside different store doors. But that's cold comfort for those in the food, beverage and retail sectors.