More market share and shoppers, but with which margins?

14 Nov 2022

Retailers are increasingly stunting with low sales prices and promotions to attract shoppers. A smart tactic or a dangerous approach? Read it in our blog!

To keep attracting consumers regardless of the inflation, retailers are using smart strategies. A well-known option is focusing on volume, also known as ‘more for less’. Retailers such as Dutch Dirk van den Broek attract customers with competitively priced basic products– according to research agency the Consumentenbond, even 11% cheaper than their competitors – as well as with specials deals. Nevertheless, solely focusing on a low selling price is not advisable.

Retailers are fully focused on volume discounting and low selling prices

Due to inflation and exploding energy costs, consumers have less money to spend. Trying to attract customers with product discounts is a logical step for retailers. According to the Consumentenbond, Dutch retailer Dirk van den Broek offers basic products at the lowest price. Albert Heijn introduced its Prijsfavorieten (Price Favourites) in 2020 – basic products with a competitive price – to prevent price-conscious consumers from shopping at its competitors. Jumbo in turn, presented its Everyday low price for basic products and Everyday low cost as purchasing concept.

Growing market share not always sustainable in the long term

Even though Jumbo saw a 36% increase in sales between 2017 and 2021 – twice the industry’s average of 17% – resulting from fully focusing on low pricing, this growth is not sustainable in the long term, says an article by Distrifood, published on 4 November 2022. In this article, Jeroen Lustig of A-Insights explains, ‘Our data shows that Jumbo has actually been ‘buying’ its growth in the past years, by introducing low selling prices which eventually hollowed out their margins.’ This margin slowly declined from 3.5% in 2017 to 2.6% in 2021. A-Insights shows that Jumbo’s margins are well below the average of other retailers, set at 3% in 2021. In comparison, Albert Heijn had a margin of 5% in 2021.

Prime focus on discounting, slows down innovation at large retailers

Through primarily focusing on a low selling price, retailers put their innovation under pressure. Jeroen Lustig of A-Insights comments in the article by Distrifood, ‘I think we have come to a turning point, due to the heavy emphasis on price competition between retailers and the excessive scale-up in our food chains. Consumers do not accept this world view any longer. After years of bigger is better, space appears for new concepts creating value in a differ way; online retailers focusing on local fresh food for example, and sustainable (vegan) brands with innovative ideas. This should be an eye opener for the established order.’

Focusing on multiple tactics to keep making a profit

How can retailers keep attracting consumers without hollowing-out their margins? Through presenting a wider range of products and flexible pricing. Albert Heijn for example, remains focused on high-quality and luxury products, including convenience products, next to its Prijsfavorieten and weekly discounts. This division allows Albert Heijn to create a more substantial margin on its high-quality and luxury products as well as an optional smaller margin on its volume discounting. Because the higher priced products still appear to be in demand while providing bigger margins.

Retailers should understand their shoppers, to keep attracting them to their stores. Only with a product range that appeals to their target market and with competitive pricing, will consumers keep coming back for more. As once they feel the need to start visiting other retailers too, it proves very difficult to get them back. Therefore, retailers should do everything within their power to retain their primary shoppers.

Moving with the market remains important for the fruit and vegetable sector

For many retailers, their fruit and vegetable section proves to be a destination category. This means consumers will visit specific retailers, primarily for their fruit and vegetable products. In the Netherlands, Lidl has been chosen best supermarket in this category for many years in a row. But Albert Heijn too, is also frequently visited for its fruit and vegetable selection, including convenience products.

The fruit and vegetable sector is perfectly capable of meeting the market’s current demands. Prominent for example, delivers products that can be used for volume discounting, think of our popular vine tomatoes, as well as for a high-quality and luxury range, think of mini cherry-plum tomatoes. It is important for the fruit and vegetable sector to remain competitive and keep moving with the current market.

Growers United / Prominent is keen to help meet the market’s demands. Curious to learn more about our extensive range, from volume discount to magin-rich products? Do not hesitate to get in touch with Wim van den Berg of Growers United / Prominent: of +31 (0)6 5756 4346.

Prominent is a brand of Growers United UA. This organisation is responsible for the sales, marketing, and quality control of the product.

Activate the shopper to consume tomatoes at unexpected moments

With breakfast, for example. Curious about the positive effects?