It's tough to be an independent grocer these days – particularly with mega-retailers like Wal-Mart as neighbors. Some retailers are embracing the cost-plus format, where goods are priced at cost and the “plus” is a 10% markup on a basket's total price, according to an article in Supermarket News.
Major wholesaler Supervalu has a licensed cost-plus format caller Shoppers Value Foods. According to the wholesaler, there were about 511 cost-plus stores in the U.S. at the end of last year. The 83 locations supplied by Supervalu generated sales of about $800 million.
Retailers told Supermarket News that shoppers like the cost-plus format because they can easily compare costs of goods that they purchase.
The cost-plus concept in food-retailing is simple to explain. Some retailers get it right away. Others ask about the margins. The answer is that it's made up in volume. Labor costs are cut and volume — when customers get used to the concept — is up. That flat 10% adds up faster than many would imagine.
Wal-Mart is a particularly tough competitor because it can game prices, virtually loss-leading on staples like eggs (last summer's 88-cent dozen is a dollar plus now), milk and bread (up from last summer's 88-cent loaves to $1.10 or so now). It can also kick up the price where shoppers might not notice an extra 15-to-25 cents, on products like bottles of wine.
Kroger can get shoppers with the prices of its store-prepared foods because there is nothing to compare them to.
Cost-plus strategies are winning over more small, independent retailers because they make sense. With them, they can survive. Without them, they do a distressed inventory sale.