Grappling with Price Challenges

With price pressures greater today than they ever have been in the grocery industry, retailer-manufacturer collaborations often fall short of expectations as each side focuses on its individual business strategy.

To increase revenue, retailers are placing increased emphasis on consumer experience, cleanliness, store innovation, new products and loyalty programs.

At the same time, manufacturers are focusing on product innovation, data mining and analysis, logistics and inventory control, and store and product customization.

Each strategy has its own merit but doesn't necessarily further a collaborative approach. Nor do they get to the heart of the matter: Who pays for collaboration and at what price?

And further complicating matters are differing research findings on what drives shopper purchases. Consumers are more savvy than at any time in history thanks to the Internet. But is price the driving motivation to buy?

A recent NPD study revealed "85 percent of U.S. consumers said price will be an extremely important factor in deciding where to shop in the near future, more important than sales and special deals, customer service and convenience." But a study by Brick Meets Click contradicts this with research that indicates, "23,000 digitally engaged shoppers indicated that price isn't the sole driver of trips to retailer websites. They find non-price value in scanning recipes (71 percent) and building online shopping lists (58 percent)."

A Consumer Reports survey of 24,000 magazine readers supports the Brick Meets Click research. When rating supermarket retailers, the survey suggests service, cleanliness and product selection were of equal or more importance than price. In fact, eight supermarkets with average or higher prices were among the 25 selected as top supermarket retailers.

Still, retailers and manufacturers agree that the price challenge is real and resides equally between them. Among the many solutions being explored, these two fundamental principles generally seem to surface:

• Retailers need to improve internal communications among operations, sourcing and merchandising departments so pricing and cost analyses align with corporate goals and can be conveyed to manufacturers with openness and consistency.
• Manufacturers need to approach retailers with programs focusing on a point of difference such as packaging, claims, quality and promotions. If a retailer perceives a manufacturer's product to be the same as one from its competitors, then it will be viewed as a commodity and be priced as one.

What's still to be determined, however, is who will pay and how much.