5 things you must know about EDLP when you are going for growth
Tesco, ASDA and Morrisons are all talking to their suppliers about going to EDLP. Retailers do this because they believe (or at least they tell you they believe);
1. The only thing shoppers care about is price
This is, of course, entirely untrue. What shoppers care about is feeling they are not being ripped off.
However, most retailers, except Waitrose, have never been accustomed to delivering value. So the way they will look to increasing basket size is via a continuation of current promotions. Of course, we have been here before – at intervals ASDA has focused on EDLP as part of their parent companies raison d’etre. At the time they said, as they say now, take the margin you are using for your discounts, and give it to us, you won’t need to run promotions with us in future. As you can see when you walk through any ASDA supermarket, what they say, is a long way from what they do.
On top of this, the discounters also further discount and promote special offers. They realise that shoppers like to be given deals.
Moreover, just being well known simply for being cheap has not helped Poundland. They have seen profits fall in the year to 27 March in what chairman Darren Shapland said had been a “challenging” year for the discounter. Pre-tax profits were down 83.7% to £5.9m, with total sales up 18.7% to £1.3bn. The company said that excluding the 99p Stores acquisition, comparable profits were down 13.5% to £37.8m, with sales up 9.3% to £1.2bn.
Basically, the extreme EDLP of having a shopper pitch based solely on price has failed to deliver more profits. Highlighting the truth that depending solely on low margins is a precarious business.
Obviously, retailers also feel (or at least they tell you they feel) that;
2. Lower prices will increase your sales
The KANTAR summary for the period to the 28th June was “Supermarket sales down as prices continue to fall”. Over the next 12 months, the focus shoppers for a branded business are declining in the core supermarkets.
What are the chances that, if you drop your price these incrementally fewer shoppers will consume incrementally more of your products next year than this?
If you believe they will, where will this additional consumption come from? Obviously from your competitors, who are also on EDLP. Under EDLP it would be true to say that you will need to increase your competitive edge just to stay still. Without help whatever you got last year, you will get less next year unless you go out of your way to becoming more competitive in your category.
Will EDLP do this for you? Of course not. It is designed to get people through the doors of the supermarket, what they do when they arrive is frankly left to chance. We have just completed a comprehensive study of the British shopper for and with the Grocer, and without giving too much away, it agrees exactly with recent reports from Mintel and Nielsen that shows the biggest gripe shopper have with the majors is not being able to find product they expected to be able to buy.
Retailers fail to understand that;
3. Shoppers like promotions
They like them a lot. In fact research I did with the IPM and iMotions (a groundbreaking eye tracking company who measure emotional involvement alongside where people look) revealed that;
On pack promotions had the same impact on they eye as low grade pornography leading to pick up and purchase when messaging was added to packs.
The research was carried out with IPM prize winning promotions. They proved to be very easy on the eye, and opened the purse strings of those people for whom shopping is a chore lightened by finding something more on the shelf than they expected.
Nielsen research reveals that 51% of shoppers report that having a range of promotions on offer is important to them. What does this mean? – well retailers focus on price as a means of getting shoppers in the door. When they reach this objective they will rapidly realise that they then need to add excitement to the visit to avoid falling into the Poundland trap of finding it really hard to improve the basket size for the average visit. Typically the way they do this is with special discounts. Special discounts are there to create a distinction from the run of the mill, and this distinction is badly needed. Whatever, if you want to reach half the shoppers, you know how to do it.
For the majors, a Mintel report in May 2016 found 59% agreed that “Sainsbury’s, Morrisons, Tesco and Asda all have similar prices”. Only 20% disagreed with the proposition. Clearly the ASDA intention of getting within 5% of the discounters, and under the rest is having little or no traction at all. Meanwhile, the same report highlighted that 51% of these shoppers said that a “range of promotions and offers” was part of their selection for where to choose to shop.
Special discounts appear right across the spectrum. Lidl does special discounts. Waitrose does special discounts, M&S do special discounts, in fact, they advertise them. What marks these retailers out to the shopper, though, is that their brand image is well understood, so shoppers have visited knowing what to expect. They stay to buy more because they are stopped down the aisle by a range of offers that persuades them to be more adventurous.
Special offers exist simply because shopper look forward to finding them, and, as a result, they buy more than they might have otherwise. ‘Which’ may feel this is a bad thing. But for brands and retailers, purchase outside of the standard shop is what turns a shopper journey into profit.
In a period when shoppers are buying in more varied outlets than ever before, closing out at least some of the larder to the next makes increasing sense. Except of course, right at the moment when buyers are promising no calls on promotion monies. Anyone believing them needs to remember the words of George Santayana;
Those who cannot remember the past are condemned to repeat it
4. There are other ways to add value and build sales in store
They have been around for years, but have typically been ignored since it was just so easy to simply do what retailers asked. With retailers basically driving branding out of sight, brands need to find ways to standout that are not driven by the Sales function, but by Marketing.
Stand Out on the Shelf in ways that are not controlled by the retailer in the knowledge that over half of the shoppers walking past you can be easily stopped if you make them an offer.
Extra Value FREE
Loyal shoppers will queue for this, and those simply browsing will appreciate the additional value. On top of this, the larger pack offers a greater standout, as well as value.
On Pack Messaging and Promotions
You only have to look at the way people shop to see that they are drawn to the new, and the different. Often a changed message does not need to cost you anything, perhaps even just highlighting a product change that is a benefit. In the new tomorrow, product benefits will be really important. Don’t sneak them onto the shelves, shout them there.
On pack sales promotion messaging is still really important – an example being the Mars promotion – but there are a number more on the “In Place of Price” white paper you can access from the bottom of this blog.
Mars Chocolate UK announced it is bringing back its Sweet Sundays promotion for the fifth year running in 2016, offering consumers the chance to get hold of free cinema tickets for Sunday screenings.;”bringing back its Sweet Sundays promotion for the fifth year running, offering consumers the chance to get hold of free cinema tickets for Sunday screenings.” They also announced that “Sweet Sundays has been proven to drive bitesize category growth, increasing incremental value of the bitesize category by 13% last year. Returning bigger and better than ever, we’re confident the promotion will continue to increase in popularity with consumers so retailers are advised to maximise the opportunity for increased awareness in store, using our new range of POS solutions to capture their attention.”
Successful techniques haven’t gone away, they have just been forgotten.
Local Marketing, Signage and Supply initiatives
You can define your core by the shoppers – and core stores (the 80/20) for you will have the following characteristics;
- They will sell 30% or better than the average store from the same space
- They will sell 60% or more the moment you go on promotion (and you will)
- They will struggle, and fail to cope with sales from the space that catman has allocated.
There is an opportunity to multiply the value of your sales in 20% of stores simply by identifying these, and making sure the store has enough product, and targeting your marketing support so they are able to consistently over-perform their peers.(Remember the store manager is competing with other managers in the same group, not other groups nearby).
You can do a really surprising amount in and around your core stores. For the store manager getting their local assortment right is more than simply useful.
Nielsen report that; “Only about half (53%) of global respondents believe that retailers always or mostly understand their grocery requirements, meaning that nearly half of those surveyed feel somewhat underserved. A core element in increasing share of wallet is understanding and responding to local consumer needs (my italics).”
It makes sense then, that differentiation from your competition could be an important way to build a competitive advantage. So what are consumers looking for? Mintel says; “40% of shoppers nationally complain the biggest issue they have with all their normal supermarkets is that products they want are not always available normally or on promotion – and that this issue is bigger than their concern about price now.”
Looking after your local consumer is inexpensive, gives fast returns, and offers a stable way to invest independently of what retailers may choose to do to your brand.
5. You have a choice – should you choose to accept it.
Brexit has forced a re-evaluation of what being British means. The actions of the retailers forces brands to decide whether they really are a brand, and investing behind brand values and margins OR simply selling on price. There is no middle course.
If you want to change your fortunes in just one day, then join us on the 29th September 2016 at the CIM in Cookham for our seminar – Overnight change without pain.
Resources: You can download a white paper reviewing the options from here.