Consumers are tightening their belts once again. But steep volume declines can be prevented — if retailers are proactive.
The pandemic had a strange effect on price elasticity. During its peak, consumers were saving money at historic rates, and they had stimulus cash to burn. So even though prices of their favorite foods kept going up, they bought them anyhow. (You only live once, right?) But thanks to record inflation, those days are over.
Price sensitivity is back. With a vengeance. And all indications suggest it’s only going to get worse.
However, retailers have been reluctant to pass on recent manufacturer price increases because they know from experience that when a product consumers want is unavailable — or in this case, too expensive — shoppers will happily switch brands or, worse yet, stores. But they can only hold off for so long. What can they do to prevent a devastating drop in volume when prices go up? Lance Goodridge of IRI’s Global Analytics & Insights Solutions practice has a few ideas, outlined in a recent report “Managing Price During Turbulent Times.”
1. Monitor volume and be prepared to switch on promotions or a new pricing strategy the moment you see things start to go south.
2. Whether new packaging or better quality ingredients, invest in product innovation now so that when you do raise prices, you can justify it to consumers.
3. Develop new package sizes, both larger value packs and single portions, so consumers have more affordable alternatives. Package downsizing is also an option.
4. Consider eliminating low-margin offerings, and be prepared to increase prices on select items while holding the line on the highest-value, most-price-sensitive products.
5. Only promote products you know you can supply. Promotions will make a comeback because manufacturers know consumers would rather find a deal on a preferred brand than switch to a lower-priced one. But it’s a moot point if you can’t keep the product in stock.
6. Leverage your consumer database to create different offers for the same product based on shoppers’ price sensitivity. That’s why you’re collecting that information. So use it!
Price increases are already happening in categories such as frozen dinners, beef, bacon and eggs. But that doesn’t mean steep volume losses are inevitable. “You have a great opportunity right now to capture market share from competitors who would prefer to keep their heads in the sand and hope for the best,” says Goodridge.
IDDBA SHOW IS BACK, TOO
After a two-year hiatus, the International Dairy Deli Bakery Association (IDDBA) is putting on an in-person show once
again. IDDBA 2022 will run from June 5 to 7 at the Georgia World Congress Center in Atlanta.
The event is expected to attract more than 10,000 attendees and 800 exhibitors. In addition to the usual general sessions, the New Product Showcase and What’s In Store Live, this year’s show will feature a Visionary Pavilion to introduce new companies, products and ideas.
For more information or to register, go to iddba.org.
See you in Atlanta!