From left: Chris Pecot of Raley’s, and Arthur Dmitruk and Scott Yamada, both of NIQ.
How should grocers be fine-tuning their pricing and promotions strategies amid decreasing consumer confidence, persistent inflation and increased pressure on P&Ls?
"Retailers are under a lot of pressure," said Raley's Supermarkets Senior Director of Merchandising Operations Chris Pecot, who spoke at NIQ's Consumer 360 conference in Los Angeles last week. "It doesn't matter whether there's a near-recession or recession, units are declining, and to a grocery retailer, we know that consumers are going to mass and to other value retailers. So now that you have the data, what are you going to do with it?"
That's where innovation in pricing and promotions comes in, with a bit of omnichannel analytics too.
Pecot participated in a panel session with Scott Yamada, SVP retail analytics at NIQ, and Arthur Dmitruk, VP retail analytics at NIQ, who dived deep into the macro environment affecting both shoppers and companies. Pecot said inflation is here to stay, for the consumer and the retailer.
"When I think of the inflation that's coming in terms of cost increases or the decrease in trade funding, some people think you need to only optimize prices when you have money to invest. But when you think of a category where everyone's passing along 8% to 10% price increases, it's really a chance to optimize with the price increases coming in. Maybe taking a super KPI and holding that down for a longer period of time while passing that 8% to 10% cost increase higher among the other non-KPI products. You don't necessarily need a price investment to optimize your pricing portfolio."
Pecot mentioned his company is finding that the most loyal customers are shopping both in-store and online.
"We definitely have seen a little stabilization in our online business since post-COVID, but what we're finding is the shoppers that do shop us both, and most of our shoppers do shop us in-store and online, those are some of our most loyal shoppers," he said. "Investing in that online experience will bring back benefits to the brick and mortar side."
Competing With Restaurants
Yamada of NIQ said more retailers should be trying to grab share from restaurants.
"When it comes to taking dollars that consumers have from a retail perspective, you're still competing for that business, and it means that the retail channel needs to be paying attention to try to attach it back to those dollars," Yamada said.
Pecot agreed, and talked about a new initiative at Raley's focused on value meal solutions.
"One of the things that we've done to help combat the urge to go back to restaurants as well as play on the value theme is we started a program called Dinner Under $20," he said. "'Hey, you can get a complete meal for your family at our store for under $20.' We run it on two-week cycles and we try to have a new meal, a new theme, and bring those products together not just in-store physically located together, but we bring it together in the email marketing as well as on our website platform, so trying to tell the consumer, 'We've got value, you can feed your family for under $20, have a healthier meal, and it's going to be a lot more affordable than taking them out to Chipotle.'"
Private Label Potential
NIQ's Dmitruk discussed how shoppers are not only switching to value retailers but also to private label products.
"We've seen switching behavior into the value channel, as well as promotions. Private label is outpacing the total growth of CPG," Dmitruk said. "Private label is an easy trade-off for consumers, and something that retailers are going to have to consider for retaining trips as well as exciting buyer acquisition."
Pecot thinks private label growth is actually higher than what the data show.
"I think private label growth is being stymied," he said. "We're seeing higher levels out of stocks on private label versus branded products. While out of stocks are higher than pre-COVID, it's particularly higher among our private label products, at least at a regional level."
Pecot said Raley's has had some key categories – pizza, cereal, pasta – where it has lost a private label partner, "and to me that opens up a lot of opportunity on the branded CPG side. When a private label category goes empty, there's an opportunity for entry level brands and to really change the pricing structure in that category. Maybe it's six months, maybe it's nine months I've got suppliers out, but there's an opportunity there, and so making sure you have the people and processes in place to want to identify that opportunity and act on it."
Dmitruk agreed, and stressed that in this hyper-competitive environment, suppliers and retailers have to work together more than ever.
"There's certain players that are going to have a natural gravitational force for consumers to switch into, so it's going to be imperative for you to set a value-based strategy and communicate that value to your customers, as well as work with suppliers in order to achieve that outcome," he said.
Migrating to Digital Circulars?
Part of that value-based strategy at Raley's includes a printed circular – for now.
"Print and delivery costs of the circular ad are going through the roof, so it's quickly becoming unaffordable to distribute," Pecot said. "We have adjusted our ad delivery weeks and are thinking strategically about what zip codes to distribute to. We continue to try to migrate our customers over to a more digital world. I'd say 60% of our front page is now digital only deals where you have to go into our app or to the website to be able to click and get that deal. What we're trying to do is bring those customers along with us so when, whether it's one year or two year, three years, five years, when the print ad goes away, we're prepared and we'll keep those customers loyal."
NIQ's C360 event in Los Angeles this month attracted more than 600 attendees from across the world and featured Erik Qualman, five-time bestselling author and former sitting professor at Harvard’s & MIT’s edX labs; Ian Somerhalder, Paul Wesley and Vincent Hanna, co-founders of Brother’s Bond Distilling Co.; and David Zucker, chief marketing afficer and SVP, e-commerce, Perdue Farms, among others.