On Tuesday Coles fired the latest bread discount broadside by cutting prices for leading brands Abbott’s Village Bakery (down 34% from $5.19 to $3.40), Tip Top and Wonder White, while Woolworths will today cut the price of Sunblest from $2.88 to $2.50.
The move followed discounts in January that marked Coles’ response to Woolworth’s move late last year to cut the price of its ‘homebrand’ white bread from $1 to $0.85 and Helga’s from $5.39-$3.50.
Dr Gary Mortimer, from Queensland University of Technology’s QUT Business School told BakeryandSnacks.com that he fears a race to the bottom that conditions shoppers to expect rock bottom prices and risks squeezing out smaller niche brands, while consumer choice suffers.
To what extent did Mortimer feel that such a tactic risks long-term effects in terms of driving down value in the category, even if it is only a short-term tactic from grocers to increase footfall?
“Supermarkets promotions have changed dramatically over that past 30 years. We have moved from a period where once competing grocers would run weekly catalog specials. Short discounts, lasting no more than a week, then moving back up to full price,” he told this site.
“Throughout the 1990’s, the Walmart effect drove supermarket retailers to offer an EDLP [Everyday Low Price] strategy. The promise made was consistently low prices on brands you know and trust.
“As the growth of discount food retailers like Lidl and Aldi took hold, a fundamental error made by traditional full-line supermarkets, was to match these very low prices,” Mortimer added.
“As a result of selectively targeting key products within categories and deeply cutting prices permanently, unintentionally, grocers conditioned shoppers to expect very low prices.”
Short-term promotional discounting creates excitement and urgency, Mortimer said, but long-term and permanent discounting creates unrealistic reference pricing. Shoppers eventually refuse to pay more and competing retailers are resistant to move up.
“In Australia, dairy departments are now dominated with cheap milk; meat departments, cheap minced meat and sausages, and now bakery departments – cheap bread,” Mortimer said.
"As sales volumes of these lines increase, economies of scale are actualised, and deeper discounting continues. But cannibalisation of sales takes place, as shoppers move from other brands, to the lower priced variants. Smaller niche brands withdraw and consumer choice suffers,” he added.
“It becomes a race to the bottom. The line between full-line, traditional supermarkets and discount food stores, blur and shoppers have no reason to remain loyal to any retailer, as the deeply discount price of key products are the same across all retail brands.”
If your core retail strategy is quality, range or choice, Mortimer advises you to stick with it, pointing a cautionary finger at the UK market, where discounting has led to Tesco being fed its own lunch by Aldi and Lidl.
“Taking a retail business ‘downmarket’ is risky, as you alienate your core shopper and expose yourself to increased competition from food discounters,” Mortimer said.
“Lidl and Aldi, attain low prices through maintaining small ranges, limited proprietary brands, reduced operational expense and economies of scale,” he added.
“The overhead costs of running a Waitrose, Sainsbury’s or Tesco, is substantially higher than running a small food discounter. Short-term foot traffic gains won’t provide long-term sustainable revenue.”
Yesterday, Mortimer told The Daily Mail Australia that the country’s meat and dairy lobbies had proven themselves sufficiently powerful to counter further price cuts threat posed by Coles’ and Woolworths’ pricing strategy – but he told us the retail house was still a far from happy one.
“This really becomes a question of ethical shopping. While shoppers [in Australia] have endured long campaigns from primary industries lobby groups, they still buy cheap milk, cheap mince and sausages and will undoubtedly buy cheap bread,” he said.
“The deep discounting will ultimately create a splintering in the market, dominated by food discounters at one end, and emergent premium grocers, like US chain HEB and UK chain Marks & Spencer, at the other. Stuck in the middle will be the rest, and ultimately, that’s not a place you want to be,” Mortimer added.
“A supermarket, stuck in the middle, offering both very low discounted groceries and premium, higher priced brands, only confuses their core shopper and exposes themselves to more competition.”