Our recent blog on price increases and the impact on shared margin proved to be very popular with our readership, so we followed up with a piece highlighting the need for a price differential in convenience. Some of our readers argue that this price difference is no longer the best tactic, given that the ‘grocery shopper’ and the ‘convenience shopper’ are increasingly the same person since lockdown and, therefore, the customer expects price parity.
Whilst we don’t disagree with this perspective, our underlying argument about differentiated pricing related to the shared margin aspect of this debate. The watch out of focussing on the price differential – and arguing it doesn’t exist – is that then we simply drive convenience retail prices down, creating a race to the bottom on RSP which directly squeezes the margin which must be shared between a retailer and a wholesaler.
Any good wholesaler – and retailer – knows that their success, and the viability of the channel, cannot be built solely on being cheapest on display. There is an increasing acknowledgement of the importance of adding value and offering a breadth of products and services, as well as providing a shopping experience that ensures customers return time and again.
A race to the bottom should be avoided to ensure retail and wholesale businesses remain profitable, and therefore viable. It is notable how many wholesalers we are now talking to – even those who are renowned for the keenest prices in town – recognise that they need to secure the loyalty of the very best retailers so that they can continue to grow in a disrupted market that is facing stiff competition from good fascia operators at one end and Amazon and delivery platforms at the other.
Building a sustainable business model has been further illustrated recently with Booker’s decision to introduce a delivery fee for its cash and carry customers. Whilst an unpopular decision, it makes business sense due to rising costs and a need to offer price parity to all its customers – fascia or not. In the short term it is an open goal for competitors but, as we have seen in B2C, covering delivery costs is an essential part of a delivered business’s sustainability.
So, instead of asking suppliers to lower the RSPs on price mark packs, which will squeeze margin, wholesalers need to prioritise buying product at the best possible cost price, at least on par with the biggest operators. This way, the whole of the convenience sector – independent, multiple owned or fascia/franchise is competing fairly.
The 10% price mark premium is there to provide consumer confidence at the point of purchase, AND ensuring a fair margin for the supplier, the wholesaler AND the retailer.