From the Publisher: Taking the offensive

Dramatic increases in fuel prices, plus skyrocketing commodity costs, are putting a whammy on consumers. Retailers had better be prepared to offer more creative promotions.

By Seth Mendelson

High energy costs, specifically skyrocketing gas prices, are going to drive the American economy back into a recession. If they cannot do it alone, higher commodity costs are helping to fuel an increase in prices of products that will push the economy off a cliff. Unfortunately, that is not a bold prediction. It is a fact.

Economists and everyday people agree that gas prices above $4 a gallon (as of this writing they are closing in on $5 a gallon in some areas) will cause consumers to dramatically curtail their discretionary spending and also their shopping trips. It does not take a brain surgeon to figure out what is going to happen next. We went through the same exercise three years ago when oil hit nearly $150 a barrel and gas prices reached the same levels we are at today.

There is some good news for the grocery industry. As people cut back on discretionary spending, they seem to be much more willing to use the supermarket to make sure they get what they need for their families. The old saying that “people have to eat” has never been more appropriate than today, especially given the state of the economy and the fear in the consumer’s mind that they cannot make end’s meet. Choosing a shopping trip to the food store to stock up on groceries for the week appears to be a sound alternative to paying $100 or more for a quick bite to eat for the family. The supermarket may be the last line of defense for many people.

But grocery stores are not immune to higher fuel costs and higher costs for products. In fact, supermarket retailers can take it on the chin as much as anyone else. Consumers can always find some place less expensive, and if things truly get bad, grocers will have to hold the line on prices increases and maybe even cut price-points to keep consumers coming in.

Of course, retailers can also try other things to keep shoppers shopping and some are already putting these promotions into play. For example, on New York’s Long Island and perhaps elsewhere, Stop & Shop has introduced a gas rewards program that offers consumers a savings of 10 cents per gallon for every 100 points earned by using their Stop & Shop card. According to an advertisement, including the legal mumbo jumbo on the bottom of the page that could confuse just about anyone, shoppers can redeem the points at participating Shell stations.

Other retailers are offering loyal shoppers special promotions to get them to continue to come to the store as often as they did in the past. Those events include store loyalty programs that offer discounts if consumers purchase a certain amount of product during a given week or buy a specific amount of a product.

The point is that retailers have to lessen the pain for their shoppers. Doing so will make the shopper more comfortable coming into your store during these very difficult economic times. Failing to do so will leave shoppers more distressed than ever. That will not help them balance the checkbook and will lead to fewer sales at your stores.

As a retailer, it’s your choice on how to react, but in the end it really remains the consumer’s choice.

Seth Mendelson can be reached at 646-274-3507, or smendelson@groceryheadquarters.com.

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