by Michael Sansolo
We all know the old saying about how failing to study history will only lead to repeating it. While a style from the past can suddenly be hip again (consider vinyl records!), other past trends should serve as a warning rather than an encouragement.
Take, for example, the sudden resurgence of inflation, which is rearing its head again after nearly 30 years of quiet.
One of the benefits of being around a long time (hopefully you saw the retrospective video Kevin and I did last Friday on MNB) is you have personal memory of what happened before and those memories may actually provide some insights. So in hopes of separating past problems from nostalgia, here are some thoughts on the current state of the economy.
When I joined Progressive Grocer in 1983, it was just a few years after the onslaught of double digit inflation and the double whammy of rising prices and slowing economic growth, painfully known then as stagflation.
Interestingly enough, back then industry executives responding to our research surveys actually favored an annual inflation rate of 5 or 6 percent (pretty much what we have now minus the labor shortage and supply chain crimps). The reason was simple: some measure of price inflation pretty much guaranteed a gentle - if illusory - boost in annual sales, which would help give company annual reports a nice appearance of growth.
But to everyone’s surprise, inflation remained at stunningly low levels from the 1980s until covid-time, creating an era of slow growth and price stability. And now inflation is back (with completely different causes than in the late 1970s), which makes it an apt time to revisit some of the lessons and strategies, many of which are best avoided.
One of the most visible, memorable and mocked price cutting efforts of the stagflation era was the advent of plain labeled, generic products that were widely mocked for spotty quality and their comically simple appearance. In the 40 years since, store brands have taken on an entirely new profile in terms of quality and differentiation. Today store brands are frequently featured in many tiers ranging from bargain level to highest quality.
Clearly retailers will look for tools to help shoppers combat rising prices, but we have to hope the revival of generics isn’t among them. After all, not everything retro is a good idea.
The wild inflation of the late 1970s also triggered massive shifts in industry buying efforts and supplier pricing plans, as companies looked for any ways possible to first cope with government mandated price controls and then to obtain lower cost goods and potential competitive advantage. It’s instructive that the focus on forward buying to load up on temporary price cuts, diverting goods between different regions and complex deals, produced some short-term gains, but also led to widespread inefficiency in the industry.
That inefficiency in turn left the industry vulnerable to incursions from more efficient competitors such as Walmart and Costco, which at lightning speed went from non-factors to industry dominance, as companies that had been dominant - A&P is the prime example - collapsed.
Needless to say, there were many other efforts made during that period to help shoppers stretch their budgets and it remains to be seen if the age of double and triple coupons are coming back. History is always an important teacher and perhaps this time the lessons of an inflationary spiral not that long ago could help companies chart a more creative and hopefully successful path to surviving these challenges.
Remember, those who don’t consider history usually end up repeating it. Forty years, really isn’t all that long ago, but hopefully the lessons from the last bout of inflation won’t be forgotten.
Michael Sansolo can be reached via email at firstname.lastname@example.org.
His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available here.
And, his book "Business Rules!" is available from Amazon here.