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.