54% of Supermarket Products are on Promotion

This week, market research firm IRI Group has announced the results of their research shows that 54% of products sold by the supermarkets and major retailers were on promotions such as ‘multi-buys’ and Special Offer promotions.

This compares with 28% in Europe overall, making the UK the country with the highest number of promotions in Europe. The impact for manufacturers is immense, as the promotions are no longer having the big impact on sales they once had, and the manufacturer is no longer seeing the uplift on promotions that are subsidised at the retailers. That combined with the misleading promotions means that something has to be done to tackle this problem, perhaps by introducing a cap or percentage of products that can be promoted by a retailer or supermarket on promotion.

So how does this fair in the wholesale sector?

The wholesalers all have their own ‘Special Offers’ for the week and also for the month and these are usually the most popular products to help bring the customers in through the door with seasonal variations. So soft drinks may be on ‘Special Offer’ in the summer, and alcoholic drinks in the winter close to the Christmas period. This product range is usually limited and no more than 10% of the range of products the wholesaler will sell.

Most wholesalers also feature a ‘multi-buy’ offer where if you’re buying 2, 3 or 4 products then you will receive a discounted price. This is prevalent and a ‘multi-buy’ is available on almost all products. Indeed, Start Catering and JJs Food Service offer a ‘multi-buy’ on more than 80% of their product range.

With our analytics software, a wholesaler can keep track of the ‘Special Offers’ and ‘multi-buy’ prices charged by competitors and so that they can time their own ‘Special Offers’ accordingly.

We will be looking in more detail at the ‘Special Offers’ and ‘multi-buys’ offered to customers to see if these really work and will report back with our findings!

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The Living Wage Standards – How will this affect the Wholesale market?

The big four supermarkets have all announced varying responses to the Living Wage Standards which will come into affect next year, but have been trumped by the discounters Aldi and Lidl (again!).

Aldi said that it would pay its employees £8.40 an hour or £9.45 in London and Lidl has said that it will be paying at least £8.20 in England, Wales and Scotland and £9.35 for those in London.

Both Aldi and Lidl have been able to offer this as they already pay their employees a higher hourly rate than the supermarkets, and so it’s not so much of a big jump for them. Its also great publicity and advertising for them too, showing that they are the best paying retailers in the market today and looking after their staff. But essentially it’s also a business decision, as paying higher wages for staff reduced staff turnover and the costs that come with it.

So far, the supermarkets haven’t had much of a response with Sainsbury’s saying its employee wages are £7.20 for the workers over the age of 25 from April 2016. Tesco’s are at £8.80 and Morrison’s at £8.20 and so still behind the discounters but this could change.

With the wholesalers employing vast numbers of staff then what is their position? Well, Charles Wilson, CEO of Booker plc mentioned at the last AGM that they constantly monitor pay against retail sector standards and although they are keeping an eye on the situation they feel that they offer a fair wage.

So far, no other wholesalers have come out to comment on their current wage structure and the new Living Wage Standard and whether they will be increasing employees’ hourly pay to reflect this.

However, there is another big factor to consider here. With the rise of the Living Wage Standard then a large number of cafes, restaurants, bars etc. will be affected and the increased employee cost will hit the bottom line. Many of these bars, cafes etc will not survive and go bust, which in turn mean that wholesalers who supply them will be affected too.

So it would be interesting to see the affect on the wholesaler market next year, once the Living Wage Standard is live!

Tesco Faces Brand Guarantee Anger – Could this happen in Wholesale Too?

This week, Tesco has come under pressure from the Advertising watchdog on its Brand Guarantee campaign, which is said to flout the ruling that Tesco originally put in place itself. Tesco referred Sainsbury to the ASA over its brand match promotion three years ago and is getting the same treatment towards its own Brand Guarantee scheme now, how ironic!

The other supermarkets have complained the Tesco promotion is not clear – that the promotion is valid if you buy 10 branded goods or more, and that it only matches against its Big Four rivals and not the others. If it’s cheaper, you can get the saving on the till straight away.

This is Tesco’s attempt to turn around its worst year in history and get the shoppers coming back into its stores. It’s interesting to see that both Tesco’s and Sainsbury’s have used a ‘price comparison’ strategy to lure the shoppers back with both their Brand Match and Brand Guarantee promotions. So could this every happen in wholesale too?

So far, no wholesaler has been offering a ‘Brand match’ of their product prices versus a competitor in the same way as the supermarkets do. The main reason for this is that the wholesaler offers a range of prices for the products – there is a standard price and a ‘multi-buy’ price where a different price is offered if you purchase more than 3 items of the product. Hence, it can become quite difficult to compare the prices on an ‘apples to apple’s basis.

That coupled with the large number of products and difficulty in matching one product to another, makes the process very complex. However, we at ‘Improve That Price’ have been able to match wholesale products accurately using our propriety algorithms and compare the prices from each wholesaler on a like for like basis. Indeed, many of the wholesalers use our analytics to help set their prices in the marketplace too.

So a ‘brand match’ or pricing promise by the large wholesalers could eventually become a reality in the near future, as this data becomes more transparent and easy to understand.

Wholesalers – How to Get the Price of your Products Right

Over the last month, we’ve been having a look at how to help wholesalers to get the selling price of their products right. Typically the selling price has always been a fixed mark-up on the price of a product.

So if a wholesaler bought a product for 80p, then he would be adding a 25% mark-up and selling the product for £1 which should have enough margin to cover the overheads of storing the product, handling and delivery etc.

However, today using this pricing strategy has its limitations, and why is that? Firstly, there are competitors in the marketplace and each competitor is setting their own price of the product based on their own specific cost structures e.g. storage, distribution and how much they bought the product for in the first place. The larger the purchasing power of the wholesaler the better discounts the wholesaler can get from the manufacturer.

Hence, to be able to set your own price, you’ll need to see how much the competition is selling in the marketplace for. If you’re price is too high, then the customers will go to the competition. If you’re too low then you’re throwing away good margin. Hence, getting the price right is essential and the first step to doing this is to know what your competitors sell at.

Secondly, there will be products which are bring customers in e.g. Coca Cola cans, Red Bull etc. which are very popular products and can be promoted at a special price to lure customers into buying. These products will be on promotion and typically loss leaders.

However, you will also want to see what the competitors have on promotion and whether you can beat or compete with that price. It may be the case that a competitor has such a low price on a promotional product, that you cannot compete with the price and so best to promote a different product or wait until the competitors promotional period is over.

This is what our ‘Improve That Price’ analytic’s product does.

A wholesaler can see the competitor pricing for all products, and then decide how to price their own products. They can also download variance reports which will show which products are 5%, 10%, 20% etc higher priced than a competitor and make changes accordingly. The can do this instantly for all of their product range, and even against the closest match of a competitor.

This is a great piece of software and now used by some of the largest wholesalers in the UK. So if you want to see how this works, then email faisal@improvethatprice.com and he would be very happy to give you a demo!

Supermarket Price Wars Affect on Food Producers and Wholesalers

It’s been no secret that there’s a price war going on at the moment between the major supermarkets due to the attack from the discounters. This may be good news for consumers, with lower prices in store and deflation of food and drink prices, but not so good news for the food producers.

Research from Moore Stephens has shown that 146 food producers went into administration this year, compared to 114 last year, which is a worrying sign.

With the supermarkets putting added pressure on supplier costs, this has meant that the margins made by the supplies are far less than before, and can tip the supplier into administration. This coupled with the long payment terms of the supermarkets means that the suppliers have a cashflow problem, and end up running out of cash.

Are we due to see the effects of this in the wholesale market? At the moment, there may not be a price war waging between the wholesalers, but the food suppliers also supply to wholesalers and food service companies too. Thus, with fewer suppliers in the market and less competition, this may lead to higher prices in the future too.

It will be interesting to see how prices will be affected in 2015 with fewer food suppliers, and the impact of the discounters moving into the convenience store sector too. 2015 will certainly be an interesting year in the wholesale market!

Lidl and Aldi Enter Convenience Store Market – a New Threat for Retailers?

Both Aldi and Lidl have announced that they will be opening up convenience stores to compete with  Tesco Metro and Sainsbury Local which is big news in the convenience store market.

Aldi trialled their first store in Kilburn which has proved to be a great success, and Lidl is to follow with a store in Kentish town. The convenience store market has been one of the few growth areas for the supermarkets, with all keen to continue expansion too.

However, this could come to a pre-mature end with the emergence of the discounters into this market space. How will this affect the current crop of independents and retail outlets already there, and in turn affect the larger wholesalers too?

With the emergence of cheaper goods from Aldi and Lidl in a convenient format, this will have an impact on the current crop of Sainsbury and Tesco convenience stores, as well as all other independents. Customers are going for convenience and a cheaper price, and hence the new Lidl and Aldi stores will experience more customers which will be taken at the expense of the existing independents and supermarket chains.

As the independents buy their goods at the large wholesalers e.g. Bestway and Booker then the sales of these wholesalers could drop too, as they are dependent on the convenience store trade. Those wholesalers who have a large food service offering will see less of an impact than those who rely on convenience stores.

It’s interesting times for the retail and wholesale market and there could be some major changes happening over the next ten years in this market place.

Scotland Voted ‘No’ to Independence, what is the Impact on Wholesale Prices?

It was a big day for the UK on Friday morning, with the results of the Scottish Referendum. With Scotland voting ‘No’ on leaving the UK, it was one of the biggest days in the last 300 years in the history of the United Kingdom, and not to be repeated for a long time too!

So how does this affect wholesales prices of your food and drink items, I hear you ask? Well, we can look at it both in terms of a ‘Yes’ and ‘No’ to Scottish Independence and see what the affect’s on the wholesale prices would have been.

Today, all trade freely moves between England and Scotland in the UK. The big wholesalers have their headquarters in England, and run their Scottish stores usually as a subsidiary of their UK branch and so the stores are just treated exactly the same as the English stores with the same products, similar prices and the same distribution network.

However, if Scotland had decided to go independent, there would be a new border created between England and Scotland, with a new currency too, as the pound most likely would not have been allowed to continue as a currency in Scotland. This would have had a large implication on the prices charged to customers and the transfer of goods between the two countries.

Prices would be open to a foreign exchange rate, and we forecast that prices would have increased in relation to those in the UK, with the exchange rate fluctuating with the new independent status of the country. Additionally, transferring stocks to the ‘new Scotland’ would have incurred further charges with import duties going up, especially for Tobacco and Alcohol as the ‘new Scotland’ tries to raise funds to support their new independent country.

Additionally, the cost of distribution may be affected too. As Scotland is a separate country, they would be able to choose which taxes to apply to petrol prices in the country, making distribution to stores more expensive if petrol prices were to rise with the higher taxes.

All in all, it was a beneficial result for all wholesale businesses up and down the country that Scotland did not vote ‘Yes’ to independence and with this uncertainty removed, small businesses can now get back to working on improving their own sales, profitability and growth – the real issues that they face today, rather an issues brought about through decisions outside of their control.