What to Do When Market Fluctuations Affect Prices

Apr 16, 2020

“Your stores are price gouging...shame on you all!” 

"Can't believe you raised the price of ground beef at this time!"

"How do u take advantage of people like this? Because you know they will buy it because they really need it. What a disgrace."

Scroll through the social media pages of independent grocers these days and you're bound to see a number of posts just like this—related to rising prices for milk, meat, toilet paper, eggs, and more. For retailers and associates who are already stretched thin with long hours, safety concerns, and rising operational costs, accusations of price gouging can be particularly hurtful. 

And yet, months of coronavirus concerns have created the perfect storm of mental, emotional, and economic stress for people all over the world, meaning when prices on staples they need to feed their families go up, stressed shoppers understandably respond emotionally, looking for someone to blame. And often that someone will be the retailer they see as being in control of the prices. 

What’s the issue?

Simply put, the basic economic theory of supply and demand is affecting some products more than others. As Brandon Scholz of the Wisconsin Grocers Association summarizes, “Prices have been a struggle depending on the product and commodity. But we have heard and seen that prices, depending on the product or supplier or the vendor, have gone up, independent grocers have had to absorb or pass the price increase on—it’s just that simple.”

In a March 29, 2020 letter to Secretary of Agriculture Sonny Perdue, the National Grocers Association wrote, “Our members are reporting egg prices that have increased nearly $2.00 a dozen over the last thirty days.” The letter goes on to say, “Customers are also struggling to understand these price increases and in turn are filing price gouging complaints against retailers.”

The dramatic increase in egg pricing has been widely covered in the media. A Google search for “egg prices” yields pages of reports from the L.A. Times and Wall Street Journal to small, local papers in virtually ever town in America. The Wall Street Journal reports that, “Wholesale egg prices have more than tripled as consumers’ coronavirus-driven buying clears supermarket shelves, piling up costs for grocers as they struggle to keep the staple in stock and affordable.”

But despite the wide media coverage, shoppers continue to accuse retailers of price gouging and file complaints with their state attorneys general, which can be timely and costly for retailers to address. So what is a retailer to do with rising prices and an increasingly frustrated customer base? 

Watch IGA CEO John Ross' video below for insights into pricing strategies for long-term loyalty—especially on in-demand commodities like eggs—and read on to learn what independent grocers across the country are doing to combat price gouging accusations and to serve their communities for the long haul. 

 
One solution: Pricing consistency.

Across the board, many retailers agree: remain consistent on pricing, even if that means taking a loss in the short-term.  

"In an environment like this, it's easy for outsiders to suggest you take a lower margin. However, previous history in wildly fluctuating commodity markets shows retailers who do their best to maintain their price to shoppers—even if they end up with a lower margin in the short term—grow margin over the long haul," Ross says in his video. 

And while he stresses that lowering prices is an individualized decision that requires the retailer to assess both the marketplace and the bottom line, one way to look at it is as a marketing investment in growing shopper loyalty, meaning if you've reduced your advertising in the last month, you could consider using that saved money to cover lower profit margins for these commodity items. 

“If you can maintain consistent pricing throughout the crisis, shoppers will recognize that you took care of them as best you could and in return, will continue to shop you when there are other choices," Ross says. 

Maxwell Rule, the president, COO, and CFO at Hames Corporation, which owns Sea Mart Quality Foods and Market Center in Sitka, Alaska, agrees, saying it’s part of the business. “We’re probably losing money on eggs and some of our dairy products are probably break even or marginal profit for us at best,” he shares. “But that’s the grocery business. It’s all a blended gross and you try to hit those target gross numbers.”

Gerry Kettler of Niemann Foods, which runs employee-owned County Markets with just under 50 stores in Illinois, Missouri, and Indiana, says the role of a community grocer goes beyond providing food. “Not only do we have to provide for our associates, we have to be the backbones of our communities. They look to us for answers, not just for food,” Kettler elaborates. “They’re looking to us right now for consistency, for still being a part of the community and understanding what’s relevant to them right now, and money and prices are relevant.”

The value of being a trusted resource in the community might mean taking a loss on some items during a crisis, but as Kettler says, consumers will not forget or forgive if their local retailer is inflating normal margins during these times of crisis.

“We have to be at our best when times are at their worst,” Kettler says. “We have to maintain the same type of integrity with pricing now that we did three months ago, because once you lose that, you lose your focus, you lose your path towards the future, and you lose the sustainability of your organization. Your customers have to be able to trust you through times of crisis and in good times, so for us, the pricing questions are not questions. This is day-to-day business that we have to maintain.”

Another solution: Compare apples to apples.

An additional issue that industry insiders have noticed is a lack of consumer understanding on pricing. Specifically, which products they are using to compare pricing. 

Dana Mullen Graber, regulatory counsel at FMI, notes that often the consumer complaints filed about price gouging turn out to be for products where the price hasn’t even increased. “Buyers just aren’t used to buying Fiji water when [the] store brand is sold out or buying 12 packs of paper towels when the packs of two are sold out, etc.,” she writes.

These misunderstandings seem to happen most often with shoppers new to independent retailers. For example, Kettler’s stores received complaints about the price of ground beef when the pandemic first started. After talking to customers, his team realized they had been buying beef in a tube at Walmart, so when they saw the price of freshly ground beef at an independent grocer, they didn’t realize they weren’t comparing the same product. Kettler used that as an educational opportunity for staff so that the team could speak to the differences in quality and educate shoppers when needed.  

A third solution: Communication. Lots of it.

With many people flocking from big box stores to community grocers to support local and feel safer, independent retailers have an opportunity to shine and earn loyalty from these new shoppers.

“The role of community grocer—that’s where we can differ ourselves from Walmart—is to let our customers know, ‘Hey, we get it. We’re one of you. We’re elbow to elbow. We understand,’” says Kettler. “Now, if the price of eggs goes up and you need to raise it a bit, I get that. But that takes communication."

He recommends communicating with customers on social media and in-person, especially through cashiers. When customers are at check-out and ask about pricing, the cashiers should have an answer ready, as they are your biggest advocates, he says, and are essentially the first line of defense in easing a shopper’s concerns.  

Rule also suggests increasing communication at the store level to customers. His stores released two press releases via social media about what they were doing to prevent the spread of COVID-19. “It was very well-received by the community,” he says. 

Talk to your local associations about messaging. Scholz says the Wisconsin Grocers Association put a radio PSA out to address price gouging, which you can hear in the video below. The message helped educate consumers on the issue, which in turn led to a greater understanding of the pricing structures they saw in stores. 

 

And don’t forget to use the the IGA signage on eggs and commodity price increases—print and post them near the items referenced to better educate shoppers. 

Egg Pricing_IGA egg-040920-260w

A fourth solution: Connect with local businesses. 

Price gouging may be an unforgivable sin for shoppers, but being out of stock of key commodities is also a big issue. "Wherever possible, we should remain in stock," Ross advises. "To be out of stock on a high-demand commodity like eggs or milk or ground beef, that would be a disservice. We wouldn't be giving shoppers a choice." 

If your supplier is low or out of key items, many retailers are having luck working with local farmers, restaurants, and hotels that have commodities they need to move. For example, Rivertown IGA in New Richmond, Ohio reached out to a local hotel who had too many eggs and sold them directly to their shoppers with no markup. 

Gary & Leo's Fresh Foods IGA in Havre, Montana secured local cage-free eggs at a reasonable price from a nearby farm, with Co-owner John Malisani saying, "[Cool Spring] Colony is doing a great job keeping up with demand, really helping our community out, and earning some serious good will."

Mt. Plymouth IGA in Sorrento, Florida has also tapped local sources for affordable eggs, passing the savings along to customers while ensuring a strong supply. 

One of the best parts of being an independent grocer is the ability to make your own choices on how to best serve your customers. While the COVID-19 pandemic has been a stressful time for retailers and shoppers alike,  IGA retailers are stepping up and doing what's best for their communities. There are many options to combat price gouging concerns and accusations, so remember to think about your customers, community, and business when determining your path forward.

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