Skip to main content

- Advertisement -

Inflation has put us in a risky pricing situation

By
Ron Pelger

I don’t know about you, but we just recently received an email from our telephone and utility companies alerting us of monthly increases in the next bill. Grocery price increases only add more complications for the family budget, which is starting to go up in flames. This annoying inflation trend continues like a parade marching straight to our front door with no end in sight. Every family is feeling this same pain.

Produce buyers are seeing increased costs from suppliers.
Produce buyers are seeing increased costs from suppliers.

Grocery shopping is no longer just a common luxury of purchasing favorite items on a regular basis. Now it’s become a pursuit to find more affordable food items that will allow paying for the electric bills and high-priced gasoline to be able to drive to and from the store.

The troublesome word today is “inflation.” In other words, the raising of prices on economic trickled-down costs of goods and services. Increasing prices puts a burden on consumers, which lowers their shopping value. It adds to the many frustrations the consumers have within their home finances.

Everything in the food industry that takes place within sight or hearing reflects on profit. In today’s stressful environment, grocery companies are no longer just working hard to meet the budget, they are working hard to survive.

Shoppers hate price increases. This is mainly because it’s associated with their personal expenses of food, utilities, gasoline, clothing and many other items that have sharply risen. Therefore, shoppers have tightened their belts on spending and are no longer loyal to one particular grocery store — and its produce department.

Consumers are very sensitive to the slightest price increase. They are more meticulous during this inflation crisis. The majority of shoppers are searching for lower prices and will go to stores where items are within their economical spending plan.

On the retail side of inflation, produce directors are feeling the pain of rising product costs — some item prices have risen 10 to 20 percent. And to make matters worse, the transportation costs have gone up extensively to a point that puts competitive pricing in a quandary. To raise or not to raise is the challenge. That is the most sensitive risk we take in trying to protect the profit margin.

A number of retailers passed their cost increases to consumers by raising their produce prices. Others shared the costs by only increasing prices moderately. Some major players made a bold decision to withstand any increases and eat the costs in fear of losing customers to their competitors.

Raising prices across the board is certainly not the answer. And riding out the costs is the most dangerous decision to make. It’s the same as choosing not to make a profit.

Inflation has disrupted merchandising strategies at the store level and especially the budget commitments. Advertising programs and selling methods have to fit in line with adjusted purchasing behaviors of the shoppers. They will seek more reasonably priced items that deliver more value for their money.

Focus on accuracy pricing based on a variation of customer profit levels:

High Profit Shopper — This level consists of about 20 percent of the wealthier shoppers who will make purchases of items regardless of the price. Inflation will not stop them from spending for what they want.

Average Profit Shopper — The midway shoppers make up 50 percent of the average profit purchases and primarily follow the weekly ad flyers for their choices. They will shop the entire department and select other items outside of the flyer ad. These customers generate most of the gross profit dollar mix.

Low Profit Shopper — This level consists of mostly 30 percent cherry pickers hopping store to store seeking out the lowest priced bargains. They will buy the front page ad items and pass by the non-advertised line of products that operators rely on for their profit mix.

Companies that choose to hold the line on raising retails rather than passing on higher costs to their customers are simply dodging reality. Every cost that goes up comes off the bottom line profit. Hedging to save the customer base may only keep a small percentage while sacrificing profit that can never be replaced.

I could just see this discussion in a weekly staff meeting. The CEO wants to go softly on raising retails in order to “protect the customer base.” Then two weeks later that same CEO asks, “What happened to the produce gross profit?”

This absolutely makes no sense — but it’s the real world and does occur. Just ask any produce director.

Ron Pelger is a produce industry adviser and industry writer. He can be contacted at 775-843-2394 or by e-mail at [email protected].

- Advertisement -

June 12, 2024
The spring is shaping up very well at D’Ottavio Farms, thanks to a combination of cooler weather earlier in the season and warmer weather later on. Officials at D’Ottavio, which was founded in 1903… Read More

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -

- Advertisement -