This article originally appeared on Supermarket News.
U.S. grocery chains face intense price pressures due to the rise of competition from new entrants with discount-heavy business models and from mass merchants and online channels. Aldi from Germany has made inroads, with Lidl hard on its heels, along with Save-A-Lot, Dollar General, mass merchant Walmart and other homegrown firms touting low prices.
Consumer preferences reinforce the trend. “Best value” and “lowest prices” are the first and third most important factors in choosing a grocer, according to a recent survey of nearly 2,200 consumers in Atlanta and Washington, D.C., by Bain & Company and ROI Consultancy Services.
And it’s easier than ever for consumers to spread their spending among different grocers. Almost half of monthly grocery spending, on average, goes to stores that are not the consumer’s primary store, with many shoppers buying from three or more retailers, Bain’s survey found.
Many chains have made huge investments to slash prices broadly. But some grocers face sticker shock, as they aren’t getting much of a return on their price-reduction investment. They may act hastily, without the same rigor they apply to investments elsewhere. Knowing how to invest to gain share of wallet among current customers, and attract new customers, has become critical. A key part of that process is to embed a favorable price-value image in consumers’ minds.
When grocery managers make decisions on pricing, two fundamental questions sometimes go unasked: Will customers notice? And will the retailer get an attractive return on the investment?
Sandeep Heda, Stephen Mewborn and Stephen Caine are partners with Bain & Company’s Customer Strategy & Marketing and Retail practices. Mewborn leads Bain’s global pricing work and is based in Chicago. Heda and Caine are based, respectively, in Atlanta and Chicago.