Barrington, IL – To win against Aldi and Lidl, supermarkets need to change their traditional approach to competing against hard discounters and embrace new strategies that leverage their strengths, according to Bill Bishop, Chief Architect of Brick Meets Click. Bishop presented this guidance last month at the 2019 NGA convention in San Diego, CA. “Supermarkets must stop lowering their prices and eroding margins in response to hard discounters – it’s a price battle they just can’t win,” Bishop explained.
The hard discounter business model allows those retailers to charge prices 30% to 40% below the regular price of branded products sold in supermarkets. And when supermarkets lower their prices in response, they destroy their margins – and they still don’t win the “price battle.” It’s a losing strategy that is unsustainable
Bishop laid out a new and better strategy for grocers to consider that focuses on two things: 1) leveraging the store’s weekly specials, which often beat the prices offered by Aldi and Lidl, and 2) identifying the specific products and prices that store’s individual shoppers actually care about – not overall price perception.
“Supermarkets already have the necessary tools in their arsenal in the form of loyalty data and the weekly circular. By combining them in the right way, they now have the opportunity win the shopper and the sale – without destroying their margins and their profitability,” says Bishop.
“The first step in this new strategy is to focus on a retailer’s weekly circular – it’s a secret weapon for supermarkets that’s an often-overlooked source of price advantage,” Bishop explained. Price data collected by Circular Logic, LLC showed that a supermarket’s weekly advertised prices are frequently lower than everyday prices offered by Aldi and/or Lidl. For example, based on one week in February 2019, a retailer in the Southeast had the price advantage for 8 out of 11 (72%) of its front-page features based on comparable or same items.
The second step is to make this price advantage relevant to each shopper by personalizing the ad. Circular Logic helps retailers accomplish this key step by cross-matching data from the retailer’s loyalty program with its weekly promotions to identify the items that are most relevant to each household, and then sends a personalized email highlighting the 10 most relevant items to the shopper each week.
Retailers currently partnering with Circular Logic find that the personalized emails are more likely to be opened, and Bishop outlined three things these personalized emails do: 1) reinforce the grocer’s price reputation in the mind of that shopper, 2) sell more product, and 3) accomplish all this without increasing markdowns.
“Grocers have to adapt to Aldi and Lidl’s impact on pricing in the market, but lowering prices to fight the competition on general price reputation is counterproductive,” explained Bishop. “Shifting the goal to winning the individual shopper can be a much more effective and profitable strategy, and the good news is that now there’s a way to do it,” Bishop told the audience. He encouraged any retailer who wants to protect their margins and profitability to give it a try.
For more detail on how this strategy shift can strengthen a retailer’s price reputation versus any EDLP competitor – including Walmart – go to this recent interview with Circular Logic’s founder and President, Ken Wyker.
About Brick Meets Click
Brick Meets Click is a strategic advisory firm with unparalleled experience and perspectives on the US grocery industry. It was founded in 2011 to focus specifically on how technology and new competitors are changing food marketing and sales. Today, its guidance helps retailers and manufacturers adapt and find new sources growth. Visit www.brickmeetsclick.com to learn more about its expertise, services, and thought leadership.