Tag Archives: recession

True value is found in being true to your value proposition

As the author of Fresh & Easy Buzz says in a recent article about Tesco Neighborhood Market, “value is in across all grocery formats and it’s not just a fad.”

Many experts are calling the current economic climate a “perfect storm” of inflation, government debt, reduced consumer spending, weak dollar and intense foreign competition. It’s enough to make retailers reach for the red pen to start marking down prices faster than you can say, “Dollar General.”

Even the staunchest niche and aspirational retailers, including Whole Foods and Safeway, among others, are trying to find ways to fit the square peg of their specialty brands and products into the round hole of extreme price sensitivity.

Whole Foods has become known as “whole paycheck” because of the “high” prices consumers are willing to pay for the products and experience of the organic and natural foods retailer. But now the grocer is putting an extreme emphasis on its private labels, and its leadership has promised consumers it will find a way to make products less expensive.

But is this the right strategy? The right reaction?

Only time will tell. But there are certainly two retailers who will tell you that pairing another key brand attribute with low prices is a potentially profitable way to go: Target and Wal-Mart.

Wal-Mart has put up big numbers in the past year, going from $43 to $59. Target stock is down about 10 points from this time last year.

Target sort of pioneered “get more, pay less,” but as the economy has worsened, Wal-Mart has performed exceedingly well. That might be-and this is conjecture, of course-because Wal-Mart “owns” low prices, making it better suited to be recession-ready while injecting a bit of style as its business model allows.

Everyone else, from Whole Foods to Safeway to Tesco, would be playing catch-up to Wal-Mart’s EDLP proposition at this point.

Remember, Wal-Mart fared none too well when it tried to water down its EDLP concept with style and name-brands that strayed from its core value proposition. Today’s batch of niche and aspirational retailers would do well to remember to stay true to themselves.

That doesn’t mean they can’t graft a cost-savings aspect onto their existing strengths and points of differentiation, but it does mean they shouldn’t shift away from what makes them successful.

Furthermore, they had better be ready to do things operationally and within the supply chain to reduce costs as much as possible to fund any kinds of discounts they want to use to entice consumers. Because shoppers are happy to pay less, but they don’t want to sacrifice quality, and that money has to come from somewhere.

Profiting from inflation: What does Wall Street tell us?

Wondering how gas prices are affecting dining habits in the US? Let’s take a look at stock performance in the quick service restaurant (QSR) sector, compared with family casual/grill and bar.

McDonald’s stock has nearly doubled in price since this same week in 2005, going from $30.99 a share to $60.16 as of Wednesday’s close.

Interestingly, unleaded gasoline prices have done the same, going from $2.32 a gallon this week in 2005 to a record US average price of $4.11 yesterday, according to AAA. Pretty strong correlation. Not causation, but consider some additional evidence.

Over that same period, Brinker International (owner of Chili’s) stock has fallen from $27 to $18. DineEquity, the parent company of IHOP that acquired Applebee’s last year has fallen even more precipitously.

The Street tends to price value appropriately. There are exceptions, but these performances seem to line up with fundamentals.

That is, fast and cheap is better when most-not all, but most-people are on tight budgets and tight schedules that are tightening daily due to inflation and our culture of busy-ness.

The plight of Chili’s, et al, is a reminder that food marketers must react quickly to unanticipated changes.

We can all learn from watching these two markedly different parts of the foodservice sector. It’s a good lesson in finding opportunity within challenges. We can’t just throw up our hands and say, “Well, it’s just tough. Our business model isn’t built for this kind of market.” We have to find ways to compete.

We can do it. Let’s talk about it.