The Washington Post has a story following up on the recent piece saying that Whole Foods is pushing suppliers to lower their prices, arguing that this is an appropriate move as manufacturing costs come down.
"Many retailers are telling their vendor partners they need to make their case for keeping prices high," the Post writes. "Otherwise, they risk discontinued orders or unfavorable placement on shelves." And Bobby Gibbs, a partner in the retail and consumer goods division of the marketing consulting firm Oliver Wyman, tells the Post, “In the last few months, we’ve seen the shift away from trying to fight cost increases to pushing for [vendor] cost decreases."
The rationale for the retailers is simple. First, they're concerned that consumers are changing their behavior, either buying less or purchasing less expensive products with thinner margins, which puts pressure on the retailers' bottom lines. Second, they're concerned that shoppers are moving to more price-centric formats - think dollar stores, or the likes of Aldi and Lidl, or Grocery Outlet; the worry is that this opens the door for these formats to keep the customers even when inflation subsides.
Either way, retailers worry, consumers will perceive retailers as being the problem, not manufacturers.
In a related story, CNBC spells out the degree of the pain: "Although the consumer price index, an inflation gauge that measures the cost of a broad basket of goods and services, started to ease as of the latest reading, food prices were up yet again, the U.S. Department of Labor reported.
"Over the past year, food prices overall have risen more than 10%. Egg prices, alone, soared 60%, butter is up more than 31% and lettuce jumped 25%, according to Labor Department data through December.
"As a result, consumers are looking for any — and all — ways to save. For some, that means shopping at their local dollar store."
And, the Post writes:
"Economists and policymakers are closely tracking consumer spending, which makes up more than 70 percent of GDP, for any sign of diminishing demand. Even though the U.S. economy grew by 2.1 percent last year, fears of a recession still linger, especially in tech, which has seen companies announce thousands of layoffs.
"Although inflation is moderating — it fell to 6.5 percent in December from its peak of 9.1 percent in June — weary American shoppers are changing their habits to adjust to high prices. Many are savvier and more thoughtful — hunting for discounts, clipping coupons, prioritizing kitchen staples and opting for in-house brands, which are cheaper and have improved in quality."
- KC's View:
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What strikes me when I read these stories is the degree to which, while retailers and suppliers may be going back and forth, consumers are relegated to the position where they're learning about whatever negotiations may be taking place from the media.
To me, retailers need to be directly communicating with their shoppers to explain the pricing landscape, letting them know where the challenges and soft spots are.
I know I use this retailer as an example a lot, but this weekend I got my regular email from Stew Leonard's "Around the Store with Stew," in which prices were one of the things being addressed.
Some examples of what I, as a customer, was told:
• "Meat prices seem to be easing. Ground beef (80/20) was $3.49/lb. last year and it’s $2.99/lb. this year. Chicken wings last year were $4.99/lb. and this year they’ll be a dollar cheaper. We’re riding the market prices."
• "Naked salmon and our Naked Gulf shrimp are the biggest sellers here. Shrimp was $12.99/lb. last year and is $9.99/lb. this year. We left our Bay of Maine Naked Salmon at $9.99 and haven’t changed the price all year. We’re testing a new Naked salmon from Faroe Island (near Norway) starting this week at $12.99/lb. Our fish departments are hosting Real Deal lobster roll events over Super Bowl weekend, which is a hot and fresh buttered lobster roll for $14.99."
• "Vegetables are coming from Florida and Arizona. Lettuce is tight due to the weather and prices have jumped. Last year, lettuce was $4.99 and this week we have on sale 3/$5 or $1.99/each. Berries remain stable (be sure to try Driscoll’s Sweetest Batch variety), but strawberries are getting very tight as we get closer to Valentine’s Day. We will have long stem strawberries at a lower price than last year."
• "It’s been 8 months since we switched from Boar’s Head to our Stew’s Gold Reserve. Cold cut sales are up but, there are some die hard Boar’s Head customers that quit Stew’s. Why are they up? First of all, you are saving $2-3 a pound. Secondly, we are able to promote Stew’s Gold pre-sliced and shaved (a big trend and Boar’s Head wouldn’t allow us to do that)."
• "The cheese markets seem to be easing. Transportation costs are coming down since last year. This especially helps with our brie from France and Parmigiano Reggiano from Italy. Most of our domestic cheeses come from Wisconsin (incredible green grass and the cows produce amazing milk)."
• "Record high egg prices, but they are coming down. Our Stew’s Naked Cage Free brown eggs are still a great value at $3.99 a dozen. As our chicken farmers recover from their own form of Covid lock down, they’re raising new flocks of hens. You’ll see prices drop over the next few months. Milk prices have stabilized and so has butter. We had some supply issues with the production of our Stew’s Almond Milk, but we have the issues resolved."
• "FLOUR, WATER, YEAST, AND … These are our biggest ingredients, but packaging costs are killing us. Both for the package (we’re 99.9% recyclable in the bakery and kitchen). A package for our cookies used to cost 15 cents and now they are 24 cents per package. Multiply that by 40,000 packages a week and you’re looking at real money."
In every way, Stew Leonard Jr. is letting me know where the relative bargains are, why some prices may remain high, and where some product innovations may be. The bottom line is this - the retailer (Stew Leonard's) is involving the customer (me) in the situation, and the end result is that Stew's is positioning itself as an advocate for the shopper, not a sales agent for the manufacturer. (That's really clear in the Boar’s Head comments.) I think this is exactly the right way to approach these issues.
