HOW LOW CAN YOU GO?

CAROL ANGRISANI

Everyday low pricing, or at least some form of it, continues to be a prominent industry trend. But an increasing number of retailers have not seen the positive impact on sales they expected and, consequently, may reassess their efforts, according to an industry consultant.

“A hybrid EDLP strategy won't be effective unless other elements of price image are addressed,” Jon Hauptman, vice president at Willard Bishop, Barrington, Ill., told SN.

Doing so may require developing not only a strong main private label, but also a quality second tier to appeal to shoppers looking to get the lowest prices possible in a given category.

A variety of other efforts should also supplement EDLP, Hauptman said.

Among them are ensuring that endcaps truly offer values; in-store signage that defines how shoppers can save; and shelf tags that highlight either EDLP or promotions so that the store gets full credit for what it's doing.

“Without this kind of holistic approach to managing price image, a hybrid EDLP strategy alone won't be effective enough to drive sales necessary to compensate for the investment required,” Hauptman said.

The reason for this is that EDLP pricing is only one trigger to get shoppers to spend more in the store.

“Retailers are beginning to realize that hybrid EDLP programs are only one part of the solution,” he said. “It's not enough to drive sales growth. Equal time has to be spent on other elements.”

Over the past few years, an increasing number of retailers have moved to hybrid, or modified, EDLP to prevent sales erosion to Wal-Mart, warehouse clubs and other alternate formats that keep prices consistently low. The strategy incorporates low prices on hundreds or thousands of items, but also promotions in select categories. The combination is thought to enhance a retailer's price image by offering value prices, while also providing a fun shopping experience.

Retailers like Hannaford Bros. and Wegmans have selectively leveraged EDLP in Center Store, while relying on high-low merchandising in their areas of strength, particularly the perimeter, said Hale.

“Based on the growth of Wal-Mart, price and value are of much greater importance in retailing today than they have been in the past,” said Todd Hale, senior vice president, Consumer & Shopper Insights, Nielsen Co.

Price Sensitivity

The importance that consumers place on price and value varies by income level. Eighty percent of households with incomes below $20,000 rated “good value” as fifth on their list of top food-store attributes, according to Nielsen. “Good value” was also rated fifth by nearly three-quarters (73%) of households with income greater than $100,000.

“Wal-Mart has leveraged its EDLP strategy to drive strong loyalty among lower- and middle-income households,” Hale said.

EDLP retailers benefit in terms of the reduced costs associated with running weekly ads and making frequent changes to their in-store signage and price files.

But traditional high-low retailers are becoming more efficient, so much so that the gap between high-low and EDLP retailers isn't as great as it used to be, Hale stressed.

Last year, Ukrop's, Richmond, Va., cut prices on more than 8,000 national-brand and private-label items while reducing the number of weekly specials to about 60 from 175. The price cuts last for at least 13 weeks and vary depending on product line and category. Participating items are identified with black-and-white shelf tags.

While Ukrop's says it's seeing good results from the move, others haven't been as fortunate.

The problem is that certain retailers have slashed prices on too many items, said Hauptman.

“They cut prices on items that don't need to be cut, thereby leaving money on the table,” he said.

Consequently, he expects many will fine-tune their EDLP assortment to make sure they have the right items at the right prices.

Some retailers have methods in place to address such issues. For Stop & Shop, Quincy, Mass., the answer is a multiphase rollout of lower prices, rather than instituting an EDLP initiative all at once.

Stop & Shop's “Value Improvement Program” began in the fall when it lowered prices in its produce department. The retailer has since expanded the effort in several other phases to cover select categories including cereal, baby, pet, cleaning supplies, paper products, water and juice. The program will continue until the entire store is EDLP.

“By rolling out VIP in a deliberate, aisle-by-aisle fashion, we have the opportunity to fine-tune the program while it's in mid-rollout, making it the best it can be — customer tested and approved — by the time it's completed storewide,” said Stop & Shop's spokesman, Rob Keane. “As opposed to a one-night revolution, we view VIP as an evolution of our supermarkets.”

The price cuts represent the retailer's most important project in 25 years, and preliminary response has been positive, said Keane.

“VIP is a sweeping, companywide initiative that will redefine how we do business and strengthen our position in the marketplace,” he said.

Increased competition prompted Stop & Shop's new pricing structure, said Keane. As consumers have more choices on where they do their weekly shopping, retailers are fighting to woo them with an emphasis on either price or quality, he said. VIP is designed to provide both.

“The VIP initiative will give customers more of what they want, when they want it, without having to wait for a sale or use their bonus card,” he said.

To maintain in-store excitement, Stop & Shop beefed up the quality of its perishables. It also continues to run a few loyalty card promotions that provide additional savings on select items.

Promoting EDLP

Other retailers have also taken steps to complement their EDLP strategy with other price-image elements. Rochester, N.Y.-based Wegmans, for instance, emphasizes its “Consistent Low Prices” strategy with unified signage throughout the store.

While the retailer still runs some multiweek discounts and occasionally one-week specials, it no longer has major price promotions such as buy one, get one free or 10 for $10.

It doesn't think consumers mind, because now “they don't have to run around town chasing deals and stocking up when the price drops,” vice president of consumer affairs Mary Ellen Burris wrote in a consumer newsletter last year.

Green Hills Farms, Syracuse, N.Y., has enhanced its circular in response to its new EDLP program. Now, recipes and “fun facts” take the place of the numerous weekly specials that once filled the pages. Both components are designed to give shoppers a reason to pick up each issue.

“Our circular is becoming more like a newsletter,” said Dan Piron, Green Hills' grocery/frozen/dairy manager.

Green Hills switched to hybrid EDLP last year because much of its competition went the same way. Prices were slashed on about 2,000 items, from Cheerios, which now cost $2.49, down from $2.99, to bananas, now 5 for $2, from 59 cents a pound.

While Piron admits that EDLP is not as exciting as the high-low approach, it did help sales.

“Consumers like that they don't have to buy into a certain promotion,” Piron said. “They know they can come in and a product will be the same price week after week.”

The program is designed to complement Green Hills' new SmartShop initiative, a technology that provides customized savings based on individual buying habits.

Participants receive about 20 personalized offers each week once they sign up with the store's free biometric finger-scan identification system. This enables shoppers to identify themselves at the checkout and at in-store SmartShop kiosks by placing the tip of their index finger in a scanning device.

Once registered, members can create and access a personalized shopping list via email, a dedicated Green Hills Web page or a SmartShop kiosk. Averaging about $1, savings are electronically delivered into the shopper's transaction when she makes a qualifying purchase. Green Hills touts the fact that its store provides both low prices and personalized discounts.

“Everyday low prices on the items you need … Personalized savings on the products you want,” its circular reads.