What’s not to like about low prices on the things you buy most often at the grocery store? Apparently Food Lion customers found plenty not to like. The grocery chain is ending an “everyday low pricing” test and raising prices – so it can have more sales instead.
The East Coast chain, one of the largest in the country, has been working to refresh its stores and lower prices. But it admitted today that it may have lowered some prices a little too much.
Back in October, Food Lion slashed prices significantly in its dairy and frozen food sections. The idea was to test whether customers liked everyday low prices better than the traditional high-low pricing, in which items have a higher shelf price but often go on sale for much less.
It didn’t work. The test “has not been compelling and will not be extended,” said Pierre Bruno Charles Bouchut, the Chief Financial Officer of Food Lion’s Belgian-based parent company, Delhaize.
“We lowered our shelf pricing and used a lot less promotion,” added Roland Smith, the U.S.-based CEO of Delhaize America. “We saw some nice customer response,” but “not to the level that we were hoping for.”
So does that mean customers actually like higher prices? Couponers certainly prefer high-low pricing. If you hold onto your coupons until an item is on sale, you can get it at its rock-bottom price. But if the item has an “everyday low price”, which falls somewhere between the highest and lowest possible price, you’re not going to save as much.
To stores, though, the main potential drawback of everyday low pricing is that there’s nothing to promote, other than the promise of low prices. You can’t fill a sales circular with sale prices if nothing’s on sale. It works for Walmart, but grocery stores have never seemed to be able to settle on a consistent strategy.
In Milwaukee, for instance, Pick ‘n Save is currently testing an everyday low pricing strategy to better compete with Walmart (read: “Supermarket Surrenders to the Walmart Challenge”). Kroger has rolled out “new lower prices” in two regions, one of which no longer offers double coupons as a result (read: “Kroger Offers New Lower Prices! Oh, And No More Double Coupons”). And a recent study confidently predicted that nearly everyone would offer everyday low pricing within the next few years (read: “Pundits Predict Lower Grocery Prices”).
But Food Lion’s move bucks that trend. And another grocery chain, based clear on the other side of the country, is probably not surprised. “Historically, in this business, competitors indicate that they’re going to invest this massive amount of money in pricing,” Safeway President Robert Edwards said yesterday. “But in reality, it doesn’t happen that regularly or consistently, or for an extended period. They may announce something and actually do a bit of that for a short period of time but then quickly come back.” And plenty of studies, and history, show that he’s right (read: “When ‘New Low Prices’ Are Neither New, Nor Low (For Long)”).
That’s just what some shoppers in southwestern Ohio and northern Kentucky have been suspicious of, after Kroger promised lower prices there. In order to fund the price investment, it did away with double coupons. Wary customers worry that prices will eventually go back up – while doubles are gone for good.
Delhaize says it’s all about striking a balance. The company is also lowering prices at its Hannaford supermarket chain in New England. But those price reductions, says Smith, “will not be nearly to the level of Food Lion.” Food Lion’s everyday low pricing test was designed to see how low they could go, and still make money.
Turns out everyday low prices were too low – so dairy and frozen foods will cost a little more at Food Lion now. But at least there will be more sales. And, as every good couponer who’s grown to love high-low pricing knows, that’s a price worth paying.