The pricing shake-up

The pricing moves between retailers and manufacturers being played out very publicly in the press this last month has not been caused by the big companies, but by individual shoppers like you and I.

And while it’s front of mind for more of us than usual, because it is in the press, it is part of the normal cycle of challenging existing practices that take place every day between companies.

I’ll try to keep this brief and normalise the process we’re reading about in the press, and then explain why it’s not the big retailers, the big food companies or the big brewers who are picking public fights with each other over pricing. It is actually us, the shoppers, who are gently but constantly leaning on all of them to lower our cost of living. And the greatest irony is that all of us shoppers want lower prices, even if we work with or for these big companies.

To begin the normalisation, here are two statistics and anecdotes around what we are seeing, but from outside of Australia.

Last year one of the biggest retailers in the world, Costco, delisted the products of one of the largest food and drink companies in the world, Coca-Cola. It was played out very publically in the US and world press; Costco wanted lower prices, Coca Cola didn’t want to offer lower prices. After a one month standoff, during which shoppers couldn’t buy Coca-Cola in Costco but did buy Pepsi, Dr Pepper, Schweppes and Costco’s own brand of soft drinks, Coca-Cola was returned to the shelf.

Within the UK, US and many parts of Europe, 20% of all shelf space within a retailer is taken up by the retailer’s own brands. Within Australia, while we don’t have public access to retail store scan data to quite the same level as the US, we are probably at around 12 to 15% as a maximum in any one ‘commodity’ category, for example, milk. Beer is low at around 5%, but will continue to grow as more “own label” beers are directly imported by retailers.

To put this in perspective my own company CROSSMARK processes six billion lines of sales data per week for every single item sold in the top 60,000 grocery, pharmacy, hardware, convenience, technology, mass merchants and liquor stores in the US. This data is also available to the suppliers of each of these stores, providing them with the opportunity to decide where and how each individual item should be sold in each store. And if the shopper doesn’t want the item and chooses not to buy it, perhaps it is because it’s too expensive in their mind, it is de-listed.

So back to Australia.

Last year was the first in the lives of most of us when food and drink costs stood still. They have actually declined in the US and Europe for many of the last 10 years due to the rise of lower priced, high quality retailer own brands and the lowering of cost, and thus prices from major manufacturers of higher priced, high quality brands.

None of these retailers or manufacturers have become less profitable, and we the shopper have been able to enjoy lower prices for staples, allowing us to spend more money on things like holidays.

These benefits of lower prices at shelf have been derived by retailers, manufacturers and all of their suppliers, my company included, by looking within their own business and removing “bad costs” – and we all have them! This flows through to lower prices or stable prices. And that’s good news for everybody.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.