Price-marking has been shown to drive sales, but who is really benefitting - independents or the multiples? Siân Harrington reports
Back in 1999 Mars was forced on to the defensive over its strategy of price-marking packs. The company met a barrage of criticism from independent retailers, who believed suppliers should not dictate the price stores sold to consumers. Six years later and the issue is as contentious as ever, only this time it is Dairylea-to-Kenco food giant Kraft facing independents’ wrath.
Last year the company unveiled a series of initiatives for independents. These included introducing price-marked packs, pulling together its best-selling lines into one single box to make it easier and cheaper for independent retailers to buy, launching smaller case sizes for its fastest selling stock-keeping units and de-listing some lines seen as inappropriate for independents.
At Convenience 2005 last month, channel and communication manager Sarah Petts said the measures were developed to help independents “keep their dream alive”.
“Independents’ strength is the ability to respond to local needs, but they must get the core, staple offer right first,” she says.
Key to this, Petts believes, is the need for a consistent, clear, branded core offer across the independent sector, rather than inappropriate ranging and inflated and inconsistent pricing that suggests poor value.
“Kraft is focused on base-building initiatives to drive absolute cash margin for retailers,” says Petts.
According to data unveiled at the Convenience conference, one symbol retailer selling price-marked dairy products, including Dairylea, Philadelphia and Lunchables, increased its total cash margin by 21% when comparing the 12 weeks prior and post the launch of price-marked packs.
Another has increased year-on-year volume on Kraft’s core coffee range, including Kenco and Maxwell House, by 31%. Data from delivered wholesalers shows dramatic uplifts on ready to eat products such as Dairylea Dunkers and Triangles, with values up as much as 447% on the former comparing the 16 weeks prior and post the price-marked packs launch.
The figures are impressive, perhaps not surprisingly.“Inflated retail prices must be reduced as they have a negative impact on rate of sale and perceived value,” says Petts.
Andy Thornton, MD of specialist independent retail consultant Srcg, says research backs this up. “Our shopper work shows that in c-stores, if retailers don’t clearly price products, shoppers assume they are being ripped off. On the other hand, if prices are really clear, it shows the retailer has nothing to hide. Price-marked packs provide shoppers with reassurance.”
So why is it that Kraft’s initiatives have “not been welcomed with open arms” in some quarters, as Petts concedes? Why have “some retailers not wanted to share our approach”?
Rodney Hunt, managing director of the Today’s Group, says it’s because it is “sheer hypocrisy” on behalf of Kraft, which he says has a “love affair with the multiples”.
“Kraft is doing nothing to help keep the independent dream alive,” he says. “At one time it was very supportive of our sector but in the last four years it has demonstrated nothing of the kind.”
Hunt is not alone in this view. Martin Williams, managing director of Landmark Cash & Carry, says there is “no evidence at all of Kraft working with our sector”.
The source of their ire is the very strategy that has proved so successful in symbol retailers: price-marked packs. This is not the first time Kraft has introduced price-marking. Back in 1999 it, like Mars and Nestlé, launched price-marks on Dime, Toblerone and Terry’s chocolate orange.
At the time the company said: “We are not trying to start World War III with our retail partners. We are not forcing the special packs into the trade but simply making them available as an attractive option.” It said it would ensure standard, unmarked packs were also available and that this would remain its policy for any future initiatives.
The problem this time, say independents, is that Kraft is forcing these packs on them.
“Price-marked packs are fine as long as the price is equitable in the marketplace and you offer choice. Some customers don’t want price-marked packs,” says Mark Collier, marketing director at Booker.
He adds that Kraft is not the only supplier to restrict choice. “There are other examples where suppliers have only put price-marked packs in independents yet are happy to make straight packs available to multiples. It is unfair,” he says. He points to Coca-Cola as an example of good practice as it makes both straight and price-marked packs available in cash and carries.
Where such choice is maintained, many independents back the concept of marking. “Price marking engenders trust among consumers,” says Collier. “Retailers will take price-marked product if the balance is right between making them extra margin and offering value to the consumer.”
Williams adds: “It is a proven mechanic if pitched at the right level. We are prepared to take reduced margins in such a case because of the higher sales it generates.”
In the case of Kraft, Williams says margins need to be discussed and he believes problems have arisen from marketers not talking to traders. Landmark does not stock the price-marked packs.
While everyone appears to agree that price-marked packs for independents are beneficial in principle, they only work if prices are not too far removed from those sold by the multiples and the independents actually stick to it. A premium of around 10-15% is thought to be acceptable, although Srcg’s Thornton says the arrival of the big box retailers in convenience means this figure should be nearer the 5-8% mark.
According to Hunt, when Kraft introduced Kenco at £2.29, the multiples were selling the same line at £1.69 - over 26% cheaper.
“This is actively encouraging the consumer to buy from the multiples,” says Hunt. “All Kraft is doing is telling consumers that independents are expensive and encouraging them to think the independent sector needs a greater amount of profit.”
A quick check on the multiples’ websites shows Kenco decaffeinated marked at £2.89 for independents available for £1.98 in Tesco (91% cheaper) while Dairylea eight thick slices are marked £1.25 for independents but on sale for £1.05 at Sainsbury and 99p in Tesco (21% cheaper).
But it is not just prices that have angered wholesalers. Kraft’s programme to de-list inappropriate products has gone down like a lead balloon. “It has dictated what packs should and should not go to independents,” says Hunt. “Wholesalers should be allowed to buy any line. If products are available to multiples but not allowed into our sector, you are driving consumers to the multiples.”
Petts hits back at accusations that it is imposing its strategy on retailers. “We are encouraging retailers to delist products but not forcing them,” she says. However, Kraft will not be promoting products it does not think are appropriate for independent retailers to stock. Petts insists non-price-marked packs will still be available to buy.
Kraft may have come in for criticism but other suppliers are held up as models of best practice when it comes to price-marking.
Heinz introduced price-marked packs 12 months ago. According to customer marketing manager Louise Turner, the company worked with independents to define the price point. The result is a core range of products price-marked all year round and supplemented by price-marked promotions. So a single tin of baked beans costs 45p in Tesco and 49p in independents - a difference of 8%. Salad cream in 285g jars is 89p in multiples and 99p in independents, a 10% premium and within the 10-15% range cited in Heinz’s research.
The introduction of price-marked packs brings an element of complexity to production lines, points out Turner, and for this reason only Heinz’s major core lines, such as beans and ketchup, are marked all year round. But the benefits are said to outweigh the extra cost.
“Rates of sale have been positively impacted and we know we have reduced out-of-stocks,” Turner says. “Prior to launching price-marked packs some cash and carries were buying on promotions, stockloading and then remaining out-of-stock until the next promotion, so independents were unable to buy core lines.”
Although price-marking is a valuable tool for helping change consumers’ perceptions of overpriced independents, it is surprising that six years after Mars introduced it, it can still generate such vitriolic views.
Independent wholesalers and retailers are right to question whether suppliers should determine their profit margins but the two sides need to collaborate if they are going to offer value to the consumer. Heinz’s Turner says: “I have been in independent retailers where a can of beans is priced 89p.” Ultimately, prices like that are not helping retailer, wholesaler, supplier or consumer.
Back in 1999 Mars was forced on to the defensive over its strategy of price-marking packs. The company met a barrage of criticism from independent retailers, who believed suppliers should not dictate the price stores sold to consumers. Six years later and the issue is as contentious as ever, only this time it is Dairylea-to-Kenco food giant Kraft facing independents’ wrath.
Last year the company unveiled a series of initiatives for independents. These included introducing price-marked packs, pulling together its best-selling lines into one single box to make it easier and cheaper for independent retailers to buy, launching smaller case sizes for its fastest selling stock-keeping units and de-listing some lines seen as inappropriate for independents.
At Convenience 2005 last month, channel and communication manager Sarah Petts said the measures were developed to help independents “keep their dream alive”.
“Independents’ strength is the ability to respond to local needs, but they must get the core, staple offer right first,” she says.
Key to this, Petts believes, is the need for a consistent, clear, branded core offer across the independent sector, rather than inappropriate ranging and inflated and inconsistent pricing that suggests poor value.
“Kraft is focused on base-building initiatives to drive absolute cash margin for retailers,” says Petts.
According to data unveiled at the Convenience conference, one symbol retailer selling price-marked dairy products, including Dairylea, Philadelphia and Lunchables, increased its total cash margin by 21% when comparing the 12 weeks prior and post the launch of price-marked packs.
Another has increased year-on-year volume on Kraft’s core coffee range, including Kenco and Maxwell House, by 31%. Data from delivered wholesalers shows dramatic uplifts on ready to eat products such as Dairylea Dunkers and Triangles, with values up as much as 447% on the former comparing the 16 weeks prior and post the price-marked packs launch.
The figures are impressive, perhaps not surprisingly.“Inflated retail prices must be reduced as they have a negative impact on rate of sale and perceived value,” says Petts.
Andy Thornton, MD of specialist independent retail consultant Srcg, says research backs this up. “Our shopper work shows that in c-stores, if retailers don’t clearly price products, shoppers assume they are being ripped off. On the other hand, if prices are really clear, it shows the retailer has nothing to hide. Price-marked packs provide shoppers with reassurance.”
So why is it that Kraft’s initiatives have “not been welcomed with open arms” in some quarters, as Petts concedes? Why have “some retailers not wanted to share our approach”?
Rodney Hunt, managing director of the Today’s Group, says it’s because it is “sheer hypocrisy” on behalf of Kraft, which he says has a “love affair with the multiples”.
“Kraft is doing nothing to help keep the independent dream alive,” he says. “At one time it was very supportive of our sector but in the last four years it has demonstrated nothing of the kind.”
Hunt is not alone in this view. Martin Williams, managing director of Landmark Cash & Carry, says there is “no evidence at all of Kraft working with our sector”.
The source of their ire is the very strategy that has proved so successful in symbol retailers: price-marked packs. This is not the first time Kraft has introduced price-marking. Back in 1999 it, like Mars and Nestlé, launched price-marks on Dime, Toblerone and Terry’s chocolate orange.
At the time the company said: “We are not trying to start World War III with our retail partners. We are not forcing the special packs into the trade but simply making them available as an attractive option.” It said it would ensure standard, unmarked packs were also available and that this would remain its policy for any future initiatives.
The problem this time, say independents, is that Kraft is forcing these packs on them.
“Price-marked packs are fine as long as the price is equitable in the marketplace and you offer choice. Some customers don’t want price-marked packs,” says Mark Collier, marketing director at Booker.
He adds that Kraft is not the only supplier to restrict choice. “There are other examples where suppliers have only put price-marked packs in independents yet are happy to make straight packs available to multiples. It is unfair,” he says. He points to Coca-Cola as an example of good practice as it makes both straight and price-marked packs available in cash and carries.
Where such choice is maintained, many independents back the concept of marking. “Price marking engenders trust among consumers,” says Collier. “Retailers will take price-marked product if the balance is right between making them extra margin and offering value to the consumer.”
Williams adds: “It is a proven mechanic if pitched at the right level. We are prepared to take reduced margins in such a case because of the higher sales it generates.”
In the case of Kraft, Williams says margins need to be discussed and he believes problems have arisen from marketers not talking to traders. Landmark does not stock the price-marked packs.
While everyone appears to agree that price-marked packs for independents are beneficial in principle, they only work if prices are not too far removed from those sold by the multiples and the independents actually stick to it. A premium of around 10-15% is thought to be acceptable, although Srcg’s Thornton says the arrival of the big box retailers in convenience means this figure should be nearer the 5-8% mark.
According to Hunt, when Kraft introduced Kenco at £2.29, the multiples were selling the same line at £1.69 - over 26% cheaper.
“This is actively encouraging the consumer to buy from the multiples,” says Hunt. “All Kraft is doing is telling consumers that independents are expensive and encouraging them to think the independent sector needs a greater amount of profit.”
A quick check on the multiples’ websites shows Kenco decaffeinated marked at £2.89 for independents available for £1.98 in Tesco (91% cheaper) while Dairylea eight thick slices are marked £1.25 for independents but on sale for £1.05 at Sainsbury and 99p in Tesco (21% cheaper).
But it is not just prices that have angered wholesalers. Kraft’s programme to de-list inappropriate products has gone down like a lead balloon. “It has dictated what packs should and should not go to independents,” says Hunt. “Wholesalers should be allowed to buy any line. If products are available to multiples but not allowed into our sector, you are driving consumers to the multiples.”
Petts hits back at accusations that it is imposing its strategy on retailers. “We are encouraging retailers to delist products but not forcing them,” she says. However, Kraft will not be promoting products it does not think are appropriate for independent retailers to stock. Petts insists non-price-marked packs will still be available to buy.
Kraft may have come in for criticism but other suppliers are held up as models of best practice when it comes to price-marking.
Heinz introduced price-marked packs 12 months ago. According to customer marketing manager Louise Turner, the company worked with independents to define the price point. The result is a core range of products price-marked all year round and supplemented by price-marked promotions. So a single tin of baked beans costs 45p in Tesco and 49p in independents - a difference of 8%. Salad cream in 285g jars is 89p in multiples and 99p in independents, a 10% premium and within the 10-15% range cited in Heinz’s research.
The introduction of price-marked packs brings an element of complexity to production lines, points out Turner, and for this reason only Heinz’s major core lines, such as beans and ketchup, are marked all year round. But the benefits are said to outweigh the extra cost.
“Rates of sale have been positively impacted and we know we have reduced out-of-stocks,” Turner says. “Prior to launching price-marked packs some cash and carries were buying on promotions, stockloading and then remaining out-of-stock until the next promotion, so independents were unable to buy core lines.”
Although price-marking is a valuable tool for helping change consumers’ perceptions of overpriced independents, it is surprising that six years after Mars introduced it, it can still generate such vitriolic views.
Independent wholesalers and retailers are right to question whether suppliers should determine their profit margins but the two sides need to collaborate if they are going to offer value to the consumer. Heinz’s Turner says: “I have been in independent retailers where a can of beans is priced 89p.” Ultimately, prices like that are not helping retailer, wholesaler, supplier or consumer.
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