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Knowing a store's pricing strategy can save you money

Faye Henderson shops for produce at Sweetbay at 7491 Fourth St. N in St. Petersburg on Monday afternoon. She said she loves shopping at Sweetbay because, “I know the quality is always good.”

JAMES BORCHUCK | Times

Faye Henderson shops for produce at Sweetbay at 7491 Fourth St. N in St. Petersburg on Monday afternoon. She said she loves shopping at Sweetbay because, “I know the quality is always good.”

So, who sells groceries at the lowest prices?

That depends on what you buy and the store where you're most comfortable.

Food retailers base pricing strategies on a blend of prices spread across tens of thousands of items. Working on an overall profit margin of 1.5 to 2.8 percent, Tampa Bay grocers shave pennies off hundreds of the most commonly bought items like liquid Tide in the 32 load size to tack the pennies back on items less burdened by price resistance like Cheer in the 64 load size.

Grocers don't like to talk publicly about pricing strategies for competitive reasons and to avoid price fixing accusations. But more importantly it's because their job is enticing shoppers to spend more. So the subject runs counter to their low price marketing messages.

These days computers and scanner data have made pricing less of an art and more of a science anchored in finding the price that moves the most product for the most profit. These days food prices can change daily and within a few years stores will be equipped with hardware to adjust them hourly if they wish.

Nonetheless, grocers cringe over price comparison surveys that use a small basket of items. Not that they fear comparisons but because such a handful of prices can mislead in a business that manages pricing over tens of thousands of items in hundreds of stores.

And thanks to zone pricing, prices can vary from store to store depending on neighborhood competition. Publix, just as an example, could declare a price war with a nearby Winn-Dixie and sell items for less than at another Publix.

Even industry consultants price a minimum of 50 to 70 items found in multiple stores, but they only use the results to spot patterns that become meaningful within the larger context of the industry's basic pricing formulas.

So if you have been watching the game without a program, here are the pricing formulas.

High/low. The traditional supermarket strategy followed by Publix and Winn-Dixie. Competitive on the most frequently bought items, they employ a carnival of coupons, promotional deals good for a few days, buy-one-get-one-free offers and deep discounts only for loyalty card holders. Their profits come not just from selling groceries but from vendors who pay for shelf space, warehousing, special displays and price cuts to drive their own sales volume. Offers the widest selection, up to 40,000 items, plus more perishables, delis, fresh seafood and bakeries in the most stores. Can be cheapest if you load up on deep discount deals. Winn-Dixie, for example, often hands $10 coupons to rewards card holders at checkout if they spend $50 there within two weeks.

Everyday Low Prices. Discount stores like Walmart and Target. They only make money selling groceries, not by charging vendors. So they tell vendors to forget the coupon and promotion come-ons and sell to them only at their best price. The stores also have less overhead because they deal in bigger volume and their state of the art distribution networks operate more efficiently than supermarkets.

Independent studies comparing prices on their 25,000 grocery items find Target and Walmart priced about 15 percent below traditional supermarkets.

Everyday low pricing variations. Sweetbay Supermarket aims to be the lowest priced among the traditional supermarkets (but not the discount stores) on 3,000 items most commonly bought by target customers plus a dozen "Sweet Deals" on high-profile perishables and dry groceries.

"We're an everyday low price hybrid," said John Barnette, Sweetbay pricing director. "We had to reinforce that a few years ago when research found we had a high price perception."

Wholesale clubs like BJ's Warehouse, Costco and Sam's Club. All profits are from membership fees. Goods are marked up about 12 percent to cover overhead versus about 24 percent in a discount store. Selection limited to 1,300 items, all in giant sizes like chicken drumsticks by the dozen in a barren warehouse.

Limited assortment such as Aldi or Save-A-Lot. Only 1,300 items in normal sizes. But everything is one size and a store brand, so overall priced about 20 percent below Walmart or Target.

Dollar stores like Family Dollar, Dollar General and Dollar Tree. Less than 1,000 items, often at a sharp discount thanks to opportunistic buying, but usually popular brands packaged to sell at $1 to $2 apiece. So compare unit prices to be sure of the best deal.

"The fact is you can actually do well buying from any format," said Neil Z. Stern, a partner at McMillan & Doolittle, a Chicago consulting firm that specializes in the industry. "You just have to pay attention."

Mark Albright can be reached at albright@sptimes.com or (727)-893-8252.

Keep in mind the grocers' strategies

Understanding the trade-offs of pricing strategy is the key to saving money:

. It pays to shop around for the best prices at traditional supermarkets if you are willing to clip coupons, wait for promotional deals or join loyalty programs.

. By spurning coupons and special deals, discount stores like Walmart and Target sell at the same prices day in and day out yet typically cost about 15 percent less to fill a cart than a traditional supermarket. However, the selection of brands, sizes and perishables is much narrower than a supermarket.

. You can save big at Costco, Sam's Club or BJ's Warehouse, but be prepared to pay for membership, buy in quantity, be satisfied with a fraction of the selection, and likely drive a little farther to find one.

. Limited assortment grocers like Aldi and Save-A-Lot can be the cheapest choice, but you have to like a store brand that comes in one size.

. Dollar stores have plenty of deals especially on paper products and party goods, but pay attention to unit prices.

Knowing a store's pricing strategy can save you money 02/08/10 [Last modified: Tuesday, February 9, 2010 2:51pm]
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