Price freezes are not new

October 21, 2022
/ SKUBlog
/ By Peter Chapman

This week there has been a lot in the news about the No Name price freeze at Loblaw. At the beginning of the year, we made a list of industry terms that we believed would be beneficial for people to understand. Price freeze was not on our initial list but it should be there as an industry term that does impact many in the value chain.

To be honest it drives me nuts when I read some of the things in the media. So called experts commenting when they really do not understand our industry. I am sure many of you know most retailers will not accept any cost changes from November 1st until sometime in January. This model has been in place for many years. Whether it is an excuse or not retailer’s rationale is they do not want to focus resources on negotiating costs when the holiday selling period is so important. They need to keep the focus on maximizing the sales opportunity. Loblaw put a good promotion spin on this NN price freeze (which has been done before) during a time when food inflation is in the news.

Price freeze is a consumer promotion to drive traffic into stores and reinforce a retailer’s price image. The retailer declares the prices on an absolute number of products will not change for a pre-determined amount of time.

Retailers will negotiate and confirm there will be no product cost changes with suppliers during the promotion and essentially ‘lock in’ the prices. Price freezes can drive sales and bring stability to margins for the retailer.

The price of food is a hot topic

There is a lot of conversation, rightfully so, about food prices. We have seen food and beverage inflation driving our national inflation numbers. Some categories are really high compared to the same time last year. Some of the increases:

1) Are justified with increases in commodity costs or other inputs,

2) Some could be suppliers trying to get a little more,

3) Some could be retailers trying to get a little more.

The only way to really determine if it is 2 and/or 3 is to look at retailer and supplier margins year over year. I really wish people who do not understand the industry would stop making statements about it. Sorry, did I already say that?

Certainly, Loblaw are in the middle of it so they have developed this promotion to help their business. Now we see Metro have responded and will freeze prices as well. Retailers are in the business of selling food and they will use different promotions and tactics to do this.

Unfortunately, issues like the bread pricing scandal gives the industry a bad reputation. People should be watching, but we should use the facts, not uninformed opinions.

Retailers like this type of promotion

Retailers need to drive sales and deliver margin. A price freeze can accomplish both of these things.

There are a number of reasons retailers like a promotion such as the No Name price freeze:

1) This will drive sales. People are focused on finding options to reduce their grocery bill. They will look for these items and if they perceive the value to be good, they will stock up.

2) The interest in saving money will drive traffic into Loblaw stores. Retailers always believe when they win the battle to be the first choice for consumers, they will win the week. Once they get them in the door, they will sell them products. They might not all be No Name price freeze products, but they will sell them something.

3) A promotion such as this will bring some stability to margins. They have been planning this and with a good sales forecast, they can predict the amount of units at the margin they have locked in. Yes, they probably went to some suppliers and pushed them to deliver a cost or perhaps just a commitment to no increases.

4) A long promotion like this will save labour dollars in the stores. They can build No Name product displays with POS and rotate in different items. They have also reduced the number of price changes and new labels required on all of these items. These things cost money in retail.

Why Loblaw would like the No Name price freeze

There are a number of reasons Loblaw would be excited about the No Name price freeze:

1) Loblaw are generating a ton of free publicity for this event. When was the last time a grocery retailer had their weekly promotion debated in the national news. A lot more consumers know about a No Name price freeze than they did about last week’s themes.

2) This promotion will build brand awareness for No Name and drive private label penetration for Loblaw. They see this as a win because people have to go to their stores for No Name and usually, they make more margin than they do on national brands.

3) It is very difficult for other retailers to match this. The private label programs at other retailers are not as strong and it would be very ‘me too’ at this point. If Loblaw had used national brands like Heinz Ketchup or Campbells Soup it would have been very easy for competitors to match or even beat the prices.

4) Loblaw can implement this across all of their formats. The same advertising dollars can be leveraged from coast to coast. If they used national brands the pricing is different and it would have been much more complicated.

5) They are probably celebrating the fact they were first.

6) Momentum in the food industry is important. The 4th quarter is key for sales. Loblaw will get people into their stores and they probably see that momentum continuing right through until the holidays.

What does this mean for suppliers?

Any time a major retailer implements a large program it will have an impact on the market. This program has the potential to impact suppliers who work with Loblaw and those who do not:

1) If you supply No Name to Loblaw and your items are in the program you will probably see increased sales. This should be a good thing for you. I would expect there is a commitment to maintain the same cost through the program dates. Hopefully it was fair and you will get new people into your items.

2) If you supply Loblaw and your branded item is a direct competitor for one of the No Name items in the freeze you might see a volume decrease. It might be advisable to explore instore program or loyalty program options to protect your volume.

3) If Loblaw does win more shoppers with this and you supply them other products you might see a slight increase.

4) If Loblaw does win more shoppers and you do not supply Loblaw stores you might see a decrease in volume, especially in the first weeks when people are checking it out.

5) Metro has already responded and perhaps other retailers will too. Be ready for the question as to whether you can lock in your selling price and what it will be.

Price freeze is a promotion…

Whether you like Loblaw or not, you have to admit they did generate a lot of interest in this promotion.

If you have any questions or require help working with your customers, you can always send me an email peter@skufood.com or call me at (902) 489-2900.

Peter

Beyond Meat reduces staff

We have experienced the growth of plant-based protein but it appears some companies might have overestimated the staff they need or can afford to support the brand. Last week we shared an article about Nestle continuing in the category. One big difference is Nestle can leverage the staff they have across so many categories. Beyond Meat was limited to a small number of SKUS in retail and food service.

It is very challenging to manage rapid growth in this industry. Credit to Beyond Meat for putting the effort behind the sales and marketing. It is unfortunate for the employees and the brand they are not able to sustain the efforts.

Beyond Meat lays off 200 employees and slashes its revenue outlook

Be careful what you say…

Different markets bring different challenges. Obviously, some U.S. consumers felt they were mis lead by the claims or promotion being used by Barilla pasta. Not sure the legal system in all countries would result in this decision, but the company is now faced with the issue.

Export is great and can open up new opportunities. You have to make sure you are aware of the unique issues in the market. You might be able to say one thing in one market but not in another.

Is Barilla really 'Italy's No. 1 brand of pasta?' A lawsuit says no

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