BALTIMORE -- Valu Food here has shunned everyday low pricing with its move this month to implement a high-low philosophy in health and beauty care.
Valu Food's change to high-low pricing takes place in the aftermath of a nationwide trend toward EDLP strategies that had been implemented to challenge mass merchandisers. While many retailers said EDLP increased their sales and stopped customers from switching to other classes of trade, the resulting low margins often resulted in decreased net profits.
The 17-store chain also will boost its HBC advertising, add bonus packs and offer more in-store circulars, displays and coupons in a series of "dramatic" changes, according to Allen Karpe, director of pharmacy and HBC.
"We believe 80% of the HBC business is done with 20% of the items. On those 20% we'll beat anybody in the market," said Karpe of Valu Food's high-low philosophy. "But on that other 80% of the [HBC] items, we're going to make up our gross."
Valu Food had been on an EDLP program, but Karpe said the low, across-the-board margins did not offer the profitability of high-low.
"We feel that gross margins made on EDLP don't warrant us giving away the products. Meaning that we think it's much more profitable to be a high-lower," he said emphatically.
"I think people are getting out of EDLP," said Karpe.
But one industry analyst who wished to remain anonymous said the nature of the Baltimore-Washington market, and of Valu Food's large chain competitor
Giant Food, Landover, Md., may have made the retailer's change to a high-low philosophy easier than it would be for supermarkets in other regions.
"Giant's prices are not cheap. The prices in the whole marketplace in Washington-Baltimore are not cheap," said the analyst. He explained that zoning laws in Valu Food's area restrict new businesses from opening in prime retail locations, which has given existing retailers the leisure of less competition and higher prices.
The analyst also said EDLP has previously worked very well for many chains, including Albertson's, Boise, Idaho, and Food Lion, Salisbury, N.C.
Karpe said the aggressive advertising campaign that will accompany the pricing switch is an essential part of the store's new attitude toward HBC.
"Most of the HBC in a grocery store is driven by ads in the paper and the merchandising of the product," said Karpe, who added some of Valu Food's upcoming ads will promote only HBC products.
"Most people don't really go to a grocery store to buy HBC, but if we can feature some ads with really hot specials it will enable us, by getting out of that EDLP mode, to promote hotter specials," he added. "We're going to take our bill-back money and go out on real hot retail, hotter than we've ever done before."
Along with these advertised specials, Karpe hopes to lure customers by matching mass merchandisers on 20% of his products.
"Those are the ones that are featured in Towne-Oller reports or Nielsen ratings as the top 200 movers. It's usually one or two [brands] in each category. Like in oral-dentifrice you'd have a lot of them, like Crest or Colgate," Karpe said. "On the items for which most people shop, we're going to be just as low as [mass merchandisers] are," he added.
Valu Food's new HBC philosophy will also see the chain implement more bonus-pack and deal-sensitive items.