PRICING EXPERIMENT REVIVES AISLE'S SALES

DAVID MERREFIELD

WHITE SULPHUR SPRINGS, W.Va. -- Significant gains in the sales of Center Store items can be won simply by persuading customers already in the store to shop the aisle, O'Neill McDonald, Supervalu's senior vice president, distribution, food companies, told a session of the Grocery Manufacturers of America's Executive Conference here earlier this month. In one experiment, McDonald said, sales gains of more than 38% were achieved and profit increases of 77% obtained for a marketbasket of 20 Center Store categories. He defined the department as consisting of grocery, dairy, frozen foods and nonfood. McDonald pointed out the gains were made in the face of sharp declines in Center Store that have been at work for a decade or more. The gains came about largely by eliminating "insult pricing," the price-point spread between supermarkets and mass merchandisers. Supervalu's surveys of the Center Store categories show that in 1990, the supermarket channel possessed a 76% market share of such categories, which, by last year, had dropped to a slim 53%.

And, he said, unless action is taken to stem the flood, Center Store will continue to shed 2.3% of its sales per year.

"As a business trend, this is very serious," McDonald observed.

In a bid to find out where sales were going, he said, Supervalu researchers conducted a number of focus-group sessions with supermarket shoppers in cities where Supervalu does business, and where it does not.

Results were simple: "Consumers told us retail price was the issue and that, secondarily, variety was also an issue."

Supermarket price points were a sticking point for supermarket shoppers to the degree that many in the focus groups said they generally went to a mass merchant to pick up items such as laundry and paper, then shopped the supermarket. Many didn't even walk some of the Center Store supermarket aisles at all.

"That was shocking news," McDonald said. "What we thought they did was go to the grocery store then went to the mass merchants, but only on occasion."

Finally, to determine what kind of price disparities were forcing customers from grocery aisles into mass merchants, Supervalu conducted a pricing study at several grocery chains.

"What we found was that the grocery chains were competing well on price with each other. But they weren't looking at mass retailers, where there was a significant difference."

How significant? A marketbasket of 11 Center Store items produced a price differential against mass that ranged from $7 to $20.

"We insult consumers by our pricing of these kinds of items. What we're saying to customers is 'don't you love us so much you'll pay a lot more to shop with us?"'

McDonald said he has realized that although the independent supermarkets supplied by Supervalu have many strengths, sharp pricing, sophisticated category management, well-designed shelf schematics and a 52-week merchandising strategy were not among them.

Supervalu then selected 10 stores and tracked sales of 20 categories for 24 weeks to determine what would happen if these deficiencies were eliminated. As a result, sales went up 38.7% and profit up 77% in the categories.

Perhaps chief among the changes made was to attack the price problem by identifying Known Value Items, products that most customers know the prices of at mass. Supervalu matched those prices so they were close to those of mass. To demonstrate the new prices, end-aisle displays of KVIs were built. It was found that fronting KVIs projected a favorable price image, drawing shoppers down aisles they had long ignored. And it was done without additional price promotions.

"No new advertising strategy was needed," McDonald said. "The customer is already in the store.

"The problem is with them buying these categories elsewhere. We know that if we get our prices within 3% to 5% of mass, our customers will buy from us, and will return."