Offsetting Deflation with Competitive Pricing
Farmers are struggling. Dairy farmers are dumping milk in fields and the U.S.D.A. is buying $20 million worth of cheese for food banks, while commodities like eggs and corn also continue to drop in price. As the Wall Street Journal reports the worst deflation in food prices in years, Grocers have to find ways to increase margins. As an August article stated:
“Falling costs are taking a toll on many food retailers. Grocery stores already have thin profit margins and deflation tends to reduce the value of their inventory. To stay competitive, they must cut prices on existing goods before lower-priced staples land on the loading dock, and have fewer opportunities to raise prices.
At least six national food retailers, including Costco Wholesale Corp. and Whole Foods Market Inc., and four of the five largest publicly traded food distributors, including Sysco Corp. and US Foods Holding Corp., have reported that their margins suffered in the last quarter because of food deflation, the first time analysts can recall so many grocers singling out deflation as a big problem.”
Reassess Your Current Pricing Strategy
A September Wall Street Journal article predicts the deflationary price cuts are at about the halfway mark, according to William Kirk, U.S. food retail analyst at RBE Capital Markets. So retailers and CPG companies, as well as others, have to find ways to weather the storm. The most efficient way to start is to use data to tighten your pricing strategy and maximize your margins:
- Pay close attention to your top sellers and knowing when sales shift
- Relentlessly identify and reduce profit drains through poor category pricing
- Focus on promotion pricing with the greatest likelihood of success in a given market
- Become dynamic and active regarding your pricing strategies.
With customers able to get low prices anywhere, you have to be smart about what your competitors are doing and make tactical decisions about where to cut prices and where to balance your pricing out across other products. Companies like RW3 provide competitive pricing data that uses in-store validation technology that didn’t exist until very recently. Our Competitive Pricing Data teams collect hundreds of thousands of SKUs in the store and online and can help you make real-time decisions that can eke out a better return. When you multiply that return across thousands of SKU’s and markets, it can mean the difference between being crushed by the current deflationary cycle, and riding it out towards the top.
While Competitive Pricing Data Solutions can address some of the specific problems of the current environment, though, they’re not just a short-term fix. This is where the CPG and retail industries are going. In fact, every industry is learning how to use big data to increase efficiencies, save money, become more competitive and identify the niches where they’re most likely to succeed.
Pricing Technology is Here to Stay
The deflationary price of food will shift. Prices will rise again. But the reality of big data as the way business is done is just going to continue to build. Now’s the time to adopt optimal data services that will allow you to input accurate and timely data right into your streamlined pricing system and create the optimal Omni channel pricing strategy.
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