Monday, January 12, 2009

What Your Supermarket Won't Tell You

by Jim Rendon
Thursday, January 8, 2009

1. “Feel the squeeze? Actually, so do we.”

Citi Investment Research analyst Deborah Weinswig forecasts falling same-store sales growth at many of the major chains in 2009; for one, she sees top performer Kroger experiencing a decline in same-store sales growth, from about 5 percent in 2008 to 4 percent in the coming year. Meanwhile, supermarket chain Supervalu forecasts its own flat sales growth through 2009.

Even the big-box stores—now established contenders in the grocery industry—are facing tough headwinds in the wake of the market meltdown. Weinswig says she expects dips in same-store sales growth for BJ’s Wholesale Club, from 11 percent in 2008 to under 7 percent in 2009, and a drop from 8 to 6 percent growth over the same period for Costco. Bottom line, “it’s tough to pass through higher costs when consumers have such a laser-like focus on price,” says Mitchell Corwin, a senior equity analyst for Morningstar.

2. “You’re getting less for the same price.”

When Linda Edwards, a nurse in East Windsor, N.J., picked up her usual $4.99 jug of orange juice at Shop Rite this summer, she was surprised to discover that it contained 7 ounces less than it normally did. A few months later she noticed her Skippy peanut butter and chicken strips were also lighter but not any cheaper. “Everything seems to be shrinking, but my family hasn’t shrunk,” says the single mother of five boys.

3. “We jack up prices where you’re least likely to notice.”

So how do markets deal with rising food costs? They tinker with the price of the roughly 45,000 items people don’t buy regularly enough to have a fixed idea of their cost—tacking on 3 to 4 percent to specialty products like, say, gourmet pasta sauce or fresh-squeezed juices, without consumers noticing. “There’s an opportunity to make some margin back on those items,” says Jim Hertel, managing partner of Willard Bishop, a consultant for the industry.

But don’t expect the savings to be passed on to you when costs come down. Many manufacturers lock in prices well in advance, and they often hold off on bringing prices back down to make up for the resulting losses, says Howard.

10. “We’re experts in human behavior.”

Marketers know a lot about how you shop and what’s likely to make you pick up a product. For example, stores have discovered that shoppers are more comfortable staying to the right as they move through a store, says Ron Larson, associate professor of marketing at Western Michigan University. How much difference does it make? According to market-research firm Sorensen Associates, shoppers moving counterclockwise spend $2 more per trip than those who go the opposite direction.

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