Consumer Behavior

Unintended Consequences: The Price Race to the Bottom

RR mysupermarketConventional supermarket retailers can’t catch a break — even sometimes.

Conventional operators — Kroger, Safeway and the like — face a vast array of competition developing on all sides. That includes food purveyors such as deep discounters, mass merchants, membership clubs and restaurants, just to cite a few. Competition is always evolving with new strategies and new players, but one constant is that shoppers demand good value for low prices, and are quick to change stores if they think that’s not happening.

Regrettably for supermarkets, the battle for the low-price prize isn’t in their favor, and not just because of increased competition. The looming threat is really information: thanks to increasingly sophisticated online price-comparison websites and mobile apps, it’s getting easier for shoppers to take a look at several retailers’ price lineups before leaving home, or while in the supermarket.

Up to now, most online services compared prices among competing supermarkets in a defined geographical area so shoppers could make a convenient shopping choice or decide to patronize more than one local store in their quest for low prices.

Online Agentry

That may be changing. Not long ago, a new pricing model opened for business at online mysupermarket.com. That service offers side-by-side prices of individual products offered by eight retailers, each with substantial online fulfillment capability. They are: Amazon, Walmart, Target, Costco, Walgreens, diapers.com, soap.com and drugstore.com.

Mysupermarket displays several of the lowest-priced individual products available, grouped by category with each retailer’s prices displayed. Total-package prices are displayed along with unit prices to facilitate the comparison of dissimilar package sizes.

To use Mysupermarket, the shopper selects the item and retailer, presumably selecting the lowest price. The cost of the selected goods are then shown to the shopper, including the delivery fees. The shopper can then tweak the order to, say, take advantage of a certain retailer’s lower delivery fees. The shopper makes the final decision about which retailers are patronized, and after payment is tendered, the total order price is displayed, including shipping fees. Acting as an agent, Mysupermarket then dispatches the order; fulfillment and shipping are executed by the selected individual retailer.

Mysupermarket has been operating since 2006 in the U.K. and claims to attract four million monthly users there. Is this a big threat to brick-and-mortar supermarkets? We’ll see.

As innovative as it is, Mysupermarket isn’t terribly evolved, yet. Only commodities such as canned goods, snacks, cereal and paper are offered. No fresh product, including produce or milk, is available. Only national brands are listed; none of the frequently cheaper store brands can be found.

In short, Mysupermarket may be fine for consumers wanting to do some large-scale pantry loading, but it’s nowhere near sufficient to persuade anyone to give up the local supermarket. This is of some comfort to supermarkets, but it may be cold comfort. After all, we can only assume it’s just a question of time before conventional supermarkets and perishable-delivery trade channels will be folded into Mysupermarket’s mix of retailers. And if that doesn’t happen, a competitor will see the opportunity and pounce on it.

Spin to Win

The greater hazard to supermarkets may be the price listing featured by Mysupermarket. Shoppers can use the list to check to see if their favorite supermarket’s prices are out of line, even if they have no interest in using the site’s ordering capability.

Mysupermarket and similar price-comparison services are bound to accelerate the long-simmering race-to-the-price-bottom among supermarkets, and that sets up a strange paradox. The supermarket that wins the price race may reduce margins to the point that continuing to operate at all makes less and less sense. At what point will it become more profitable to cash out of the business and invest in the stock market with the proceeds?

Manufacturers don’t get off lightly either. As retailers press them for price discounts so they can stay in the game, what will happen to manufacturers’ ability to improve and innovate products?

Once again, the law of unintended consequences proves itself. As brick-and-mortar stores entered the world of online retailing in an effort to protect their business, they unwittingly helped promote the ubiquity of price information, opening a new front in the price wars. They’ve also handed quite a problem to their manufacturing partners.

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