Is there a type of price promotion that hasn't been tried in the past few months?
We've seen discounts meant to support communities, such as Michigan-based Spartan Stores offering breaks to unemployed auto industry workers. We've witnessed activity around freebies, including Kroger giving away cell phone minutes in a loyalty card promotion. At least one retailer even promised consumers a free ride: Whole Foods Stores in June drove Manhattan shoppers home using a fleet of pedicabs.
More comprehensively, a number of retailers, including Safeway and Supervalu/Albertsons, are retooling their pricing structures and rolling out new strategies by market. They are embracing versions of everyday low pricing that follow to some degrees in the successful footsteps of Kroger Co. and Ahold USA. (See Page 6 for a story on a new promotion from Ahold-unit Stop & Shop.)
To be fair, the industry's promotional activity began long before this summer, but it seemed to accelerate in the past few months. Now the question is where things are headed as we move into the last part of 2009.
I contacted two highly respected financial analysts for feedback on this question: Mark Wiltamuth of Morgan Stanley, New York, and Andrew Wolf of BB&T Capital Markets, Richmond, Va.
Wiltamuth forecasts “a year of price adjustments yet to go” as consumers continue to demand value. He pointed out that Safeway and Supervalu have been battling declining identical-store sales and not yet getting the desired results from their promotional programs. “The big question is when will the same-store sales trend start to improve?” he said. “It will be in 2010, but it's not clear when. Ahold did its Value Improvement Program in 2006-07, and it took more than nine months until its same store sales trend started to turn positive, in an environment where others were not discounting.”
Wolf said he believes Safeway and Supervalu eventually can be successful if they stick to their strategies and execute them efficiently. However, he added, a clearer industrywide picture will emerge in the fall when retailers face easier year-to-year comparisons, most importantly for real sales minus inflation.
He elaborated, “Real sales will either stay negative — in which case promotions won't stop — or real sales growth will become less negative and even flatten out — in which case retailers can back off [promotions] somewhat as these begin to work.”
I would particularly pay attention to Wolf's assessment of which priorities and measures are important in this economy.
“Maintaining the customer franchise trumps everything” for retailers, he said.
As a result, he explained, traditional barometers, such as same-store sales, need to be balanced with measures such as transaction counts and basket sizes.
These are good guidelines to keep in mind. Also note that you'll read a lot more about this and related topics in the Sept. 14 issue of Supermarket News, our annual Financial Analyst Roundtable.
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