1- Promoting inexpensive, higher margin products
(lower cost to consumer, higher profit for retailer)
For grocers, this means private label / generic products.
- Private label product sales in supermarkets have grown 10% in the past year.
- Private label accounts for 18% of a supermarkets sales dollars.
"Nielsen: Huge Growth Opportunities for Private Label in Convenience Stores," October 2, 2008. Staff writer. Business Wire.
"Branded for Savings," September 14, 2008. Wayne T. Price. Florida Today, 1C.
"Store Brands Feed on Bargain Hunger," August 22, 2008. Rachel Tobin Ramos. Atlanta Journal-Constitution, 1G.
For manufacturers, it might look like this:
“Food companies hope to capitalize on the slumping economy by steering consumers to cheaper, high-margin products. … Kellogg Co. is beginning a new advertising push for staple cereals such as Corn Flakes and Rice Krispies, while Campbell Soup Co. is about to launch a multimedia campaign to trumpet its condensed soups as a bargain buy. Kraft Foods Inc. has begun advertising its Kool-Aid powdered beverages on national radio for the first time in 11 years… [L]ower-priced ‘value’ products can also have wide margins because they're cheaper to make.”
"Food Marketers Cook up 'Value' Campaigns," September 29, 2008. Julie Jargon. Wall Street Journal.
2- Offering targeted sales/coupons via customer rewards programs.
"Many in the grocery business, including Stop & Shop, Kroger, Shaw's and others are actively marketing their supermarkets' loyalty programs and now include gasoline price rewards, which are very appealing to shoppers."
“Energy, Food Prices Rise – So Do Food Merchandising Opportunities,” July 21, 2008. Progressive Grocer.
"Heinen's Tasteful Rewards Recognizes Loyalty," September 16, 2008. Janet H. Cho. Cleveland Plain Dealer, C3.
3- Offering fuel discounts to loyal customers
Kroger, Price-Chopper, Safeway, Shaw's, Stop & Shop and Winn-Dixie, among others, offer gas discounts at their own fuel centers or they partner with local gas stations.
"Price Chopper's 'Fuel AdvantEdge' Program Expands," October 10, 2008. Progressive Grocer.
"Groceries that Feed Your Car," October 1, 2008. Anne Sowa. The Bend Bulletin.
"Winn-Dixie Teams with Gas Stations on Reward Program," September 17, 2008. Staff writer. Jacksonville Business Journal.
4- Offering smaller packages for the same price
Some of the product packages that have shrunk this year include: "Starkist tuna (from 6-ounce cans to 5 ounces); Best Foods mayonnaise (from 32-ounce jars to 30 ounces); Cheerios (from 14 ounces to 12.5)."
"Honey, They Shrunk the Snack Chips and the Cookies, the Coffee and the Ice cream (but not the Prices)," September 21, 2008. Shelley Shelton. Arizona Daily Star.
"Food manufacturers are taking action in price-sensitive categories by opting to downsize packages—a less for more philosophy. Consumers find that 12 ounce bags of potato chips are now 10 ounces. Nineteen ounce cereal boxes are now 18 ounces. Sixty sheet paper towel rolls are now 52 sheets—the list goes on."
“U.S. Consumers Tighten Belts & Spending,” July 2008. James Russo. Nielsen’s Consumer Insight, Issue 9.
5- Substituting cheaper ingredients
“Hershey Co. is substituting vegetable oil for a portion of the cocoa butter traditionally used in some of its chocolates. Spice maker McCormick & Co. is now supplying food companies with cheaper spices and new flavor blends, such as Mexican oregano instead of pricier Mediterranean oregano, and garlic concentrate instead of heavier (and costlier to ship) garlic cloves.”
"Food Makers Scrimp on Ingredients in and Effort to Fatten Their Profits," August 23, 2008. Julie Jargon. Wall Street Journal, p. A1.
All of the above information is presented as evidence of research and public opinion. We do not claim to list all of the strategies used by food manufacturers and retailers to manage inflation. Nor do we endorse any specific strategy.
