Shoppers think you’re using inflation as a cover
Retailers, you have a problem. Consumers think you’re using inflation as an excuse to raise prices. According to a recent Attest survey, four out of five believe brands are guilty of “greedflation” — no surprise when companies like Nestlé readily admit that price increases are driving strong growth. But shoppers think you’re in on the scam, too.
“Americans believe that grocery retailers are earning a 35.2% net profit margin, 14 times higher than grocers’ actual net profit margin average of 2.5,” reports dunnhumby in its February Consumer Trends Tracker. Among the 6,000+ consumers it surveyed, 46% believe grocery stores increased their profits in the last year.
That’s a kick in the teeth to retailers like Walmart, Target and Kroger that have reportedly sacrificed profit margins to keep prices in check. But like they say, perception is reality.
As volumes tumble and consumers consider switching to cheaper brands, several large CPGs have put the brakes on price increases recently. However, retailers already operating on razor-thin margins don’t have that same luxury.
One solution to this problem — and to many of the problems facing our industry — is transparency. While visiting Costco to research this month’s cover story, I ran across this notice above the frozen meat set: “The price increases on beef and pork reflect the cost we are charged by our suppliers. Our profit margins have not increased. As costs subside we will lower prices accordingly.” For no more than the cost of a piece of paper, the chain managed to explain the price increase, sidestep any blame for it and reassure members that it’s not profiting from it. In fact, the retailer comes out looking pretty good. Well played, Costco! (There’s a reason it’s one of our Retailers of the Year.)
Consumers are not unreasonable. But they can’t understand what you haven’t explained. So don’t just ignore the elephant in the room. Deal with it. Point-of-sale signage is an easy and effective way to address pricing challenges, but retailers have other tools at their disposal as well: your website, your mobile app, your in-store magazine, etc.
INFLATION IS SLOWING
The good news is food inflation is slowing. Although food prices were 8.4% higher in March than they were a year ago, the U.S. Bureau of Labor Statistics’ March Price Index showed food-at-home prices were down 0.3% from the month prior— the first decrease since September 2020.
Does that mean retail prices will start to come down as well? CPGs don’t do that very often. But at least shoppers will know you’re doing your part.