Two cents blog

Battle to the Bottom

by Lisa Neighbour on 13 April 2014

As our two supermarket giants dig themselves deeper and deeper into a murky and one dimensional battleground where price is perceived to be the only weapon of choice, Australian consumers continue to finely hone their own battle skills in skepticism and the “art of shopping around”.

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Whilst the price battle rages on the front, the big two retailers have been investing heavily in creating what appears to be an added value layer of quality to their own brand offer. But is this another dimension of brand differentiation or just another prettier and more scenic layer of the price war? Isn’t the real purpose of getting down and dirty, cuddling farmers and snapping asparagus to build credibility for their own cheaper private label offers through the higher order cues of source and provenance? Basically, they want to make consumers feel good about paying less (for the moment) for their private label products. So it’s still all about the money.

And when you make it too much about the money, it’s hard to dig yourself out of that hole with retailers dragging both primary producers and manufacturers down with them. As raw material costs increase, manufacturers are reporting limited success in passing on these increases to their retail customers. With the exception of a few of the more powerful iconic branded products, manufacturers and primary producers are having to absorb the real costs of doing business in Australia as retailers use the threat of parallel imports and other tactics to push back on wholesale costs.

This downward spiral of cost cutting not only has implications on making a sustainable return for Australian businesses. The pressures on margin constrains the ability of manufacturers to invest in innovation and new product development with the AFGC (Australian Food and Grocery Council) reporting that the industry as a whole is under-investing in R & D. Lack of R & D limits the ability of manufacturers to maintain a long term leading position with brands that offer consumers a competitive point of difference, beyond price. Without this, our local manufacturers and their brands will continue to be highly exposed to retailer power and import competition. And ultimately consumer choice will be limited.

Recently I watched some research groups of white collar skewed supermarket shoppers. Refreshingly they revealed a healthy cynicism about not only the supermarket price discount strategies, but also about the supermarket’s “real relationship” with farmers and growers vs. the TV version. They also had some awareness, albeit limited, of the impact the price war of local growers and manufacturers. Along with this was a genuine preference for trusted and familiar brands.

But they are also opportunistic, fickle, demanding and absolutely unforgiving if something doesn’t ring true, is over complicated or “over marketed”. You still have to work very hard to get into their shopping trolley, prove you are worth your price and win their loyalty.

Only 16% of Australian consumers claim they are loyal to one supermarket. And although more than half of all Australians aged 14+ now have a supermarket “loyalty” card, these loyalty programmes are in reality just another price discount vehicle. Money, money, money….

I love a bargain as much as the next Coles Flybuys, Woolworths Everyday Rewards, Costco Club, “I need a bigger wallet” member. But is the collateral damage of this war going to be consumers losing sight of what real value is as we continue to get down, down, deeper and down?

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This unprecedented focus on affordability at the expense of everything else, is drawing in both cash strapped and cash comfortable consumers as everyone now shops around seeking out the cheapest price, best bargain and biggest bang for their buck.

Australian brand owners and their communication partners need to pull themselves out of and away from the discount pit with meaningful value, differentiation and a meaningful and relevant brand experience.

Lisa Neighbour is a Group Account Director at BCM

- Gillian Tucker on April 14

Thanks for the insightful post Lisa.

- Jo Stone on April 14

Great post Lisa. I've always thought it crazy to position your brand around 'lowest prices', it just challenges your competitor to go lower. Sadly it is the manufacturers and primary producers who have paid the cost. For us, the consumer, the price is lack of choice. Many of my favourite brands have disappeared forever off the supermarket shelves. Shame...

- Kev on April 14

Lisa Great post. Its interesting that as these two giants battle it out to go even lower, Aldi and the likes of the Metcash branded IGA are doing a great job positioning themselves and taking increasing share as a result.

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