What Happened When One Chain Abandoned Tradition 2007-01-22 (1)

David Merrefield VP, Editorial Director [email protected]

It takes a strong stomach to apply the strategy implicit in the thought that “the intelligent loss of business” can be an intelligent course of action. But occasionally, losing business does have an upside.

The aphorist credited for the “intelligent loss” concept is Sol Price, originator of the membership club. His idea was that instead of operating a store open to all, it would be better to restrict the shopping pool to those that meet certain qualifications and who would pay a fee to shop.

Counter-intuitive as that concept was a generation ago, it proved to have advantages sufficient to form the pillar upon which an entire channel of trade was built. Those advantages included restricting shoppers to those most likely to be interested in the style of product offered and most likely to have the wherewithal to buy product in large quantities.

Are there other situations that require the “intelligent loss” principle? There are, and one was discovered during the most recent Thanksgiving-holiday period by A&P. Unlike most of its competitors, A&P eschewed the time-honored but logically indefensible practice of giving turkeys away during the holiday period. (This was reported on the front page of last week's SN.) Granted, there is a little complexity associated with turkey giveaways: Most chains tie the free turkey with a certain shopper expenditure level during the pre-holiday period. Plus, spending on other product may increase, mitigating the loss taken by giving away turkeys. Finally, the turkeys given away are low-end product. But, the fact remains, a core product is given away.

That practice makes as little sense as it would to give away umbrellas during a rainstorm: It eliminates the possibility of a sale at just the moment the potential for making a sale is at its apex. More than that, forcing low-end turkeys down shoppers' gullets eliminates the possibility that those same shoppers might make another decision. They might have decided to buy a larger bird or an organic one. Maybe they would have broken with tradition and selected a different and high-end center-of-the-plate option.

Regrettably, it must be mentioned that A&P's action didn't come to a totally happy ending. Sales during its third quarter, which ended Dec. 2, were down 2.3%. It's possible that the lack of free turkeys drove away shoppers. As it appears, then, A&P made money on turkeys, but lost business overall at least in part for want of the giveaway program.

Nonetheless, A&P made the right decision when it decided to promote turkeys at 49 cents per pound while most of its peers were busy giving product away. That's because all change needs a champion. Someone needs to exhibit enough courage to be the first one to change with the hope that others will follow.

There's no telling what will happen next year. Maybe A&P will capitulate and return to giving away free turkeys. Or maybe its competitors will see the logic inherent in stopping the free-turkey loss and cease the giveaways themselves. In a broader context, there are a number of industry practices that could use a champion willing to change them. Let's hope that day is dawning. In the meanwhile, A&P wins the “intelligent loss” award for the Thanksgiving period.