Never Mind The Talk About Price Controls. Keep An Eye On ‘The Promotions Race’

If you have been following the news you may have noticed that high grocery prices may be on the ballot this year.  And there’s concern that Washington – whichever way things go politically – may be thinking of interventionist policies that economists describe as harmful and/or unnecessary, now that the Federal Reserve is set to lower interest rates in September. As The Wall Street Journal observed, there’s a “thin line between gouging and normal market forces.”  The real question is, how will the market react to persistent high food prices that have people up in arms? 

From our perspective, the market is already reacting to consumers who are “fed up” with rising food prices. In an article earlier this summer, The New York Times wrote about how consumer pushback has triggered a promotions war. “If retailers and restaurants can’t profit by raising prices, they need to get more people in the door.” This summer Target, Walmart and Amazon Fresh slashed prices on thousands of items while shoppers were regaled by new value meals from McDonald’s, Burger King and Wendy’s. Now that we are approaching the Fall, it will be interesting to see if these wars continue and with what intensity. In the meantime, lower inflation may in fact play a part in these wars.

There are a few  things to look out for in the coming months.  First is whether the promotions war begins to sort winners and losers. With EOY earnings reports looming, big names like Walmart and McDonald’s – the latter which has shoppers who have experienced sticker shock to the 25% price increase to the Big Mac this year – will be closely watched. Second, as the Times notes, we should be concerned about indiscriminate price slashing.  A battle between Walmart and Albertsons helped set up a period of widespread grocery deflation beginning in 2016.  That could trigger an adverse market reaction of another kind, which might take years from which the US economy will recover.

It appears that promotions have taken center stage in the ongoing battle to win customers in the age of inflation.  It behooves grocers to up their game and ensure that promotions work for and not against the bottom line. A few Grocers might be better positioned and more willing to endure the promotions wars indefinitely – most though, are looking to be more intentional with every dollar and the way that they create value for their shoppers. In earlier blogs, we illustrated how a well conceived promotions infrastructure can help grocers design for those “magic moments” that is the foundation of repeat business and customer loyalty. Likewise, a poorly conceived promotions infrastructure can lead to not-so-magical moments. But an important thing to look out for in the ongoing promotions war is creativity.  The New York Times piece featured a promotion that shows great ingenuity … and a deep understanding of the customer.  Named “You Tip, We Tip,” Dominoes offers a three-dollar coupon when the customer tips their driver three dollars or more.  This magic moment has three parts – it’s designed to increase customer loyalty with a bounce-back offer, reward the shopper with cash savings, and create the feel-good moment of doing right by the driver. That plus the customer gets a coupon for a future order. This helps to create loyalty and revenue. In the end, the goal of promotions ought to be to compete in the market where all kinds of innovations fuel the promotions race.