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[11 comments]

Study Finds Candy Retailers Avoiding Price Competition

November 9, 2012

Using the candy category as a reference, a university study recently concluded that food specialty stores do not have to compete with supermarket prices to increase sales.

Researchers from the University at Buffalo School of Management analyzed data from 225 households, comparing candy sales in supermarkets to sales in specialized confectionery stores. They found that consumers preferred buying premium items, like boxed chocolates, from the specialty stores and were not averse to paying higher prices for them in comparison to similar items at supermarkets.

Consumers were also found to be more likely to buy additional premium candies when at confectionary stores than they were to buy such related items at supermarkets.

Finally, the researchers found that promotions featuring sale prices at the specialty stores did not have as great an effect on increasing sales as similar lower-price promotions at the larger chains. Instead, consumers responded more favorably to promotions featuring seasonal or holiday themes, such as Valentine's Day or Easter items at specialty stores.

The researchers concluded that specialty food retailers can benefit by "adjusting their sales strategy to focus on premium selection, cross-category items and holiday promotions, rather than price cuts, to increase sales."

Discussion Questions:

Are confectionery stores one of the few food specialty formats largely immune to price competition from supermarkets, or are there other examples you can name? Do you think supermarkets could change their merchandising or promotional tactics to de-emphasize price in their specialty departments?

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Instant Poll:

Generally, should niche food specialty stores avoid promoting value options within their stores?

Comments:

It's interesting that the other RW discussion talks about how customers are newly empowered by tech to get bargains, discounts and coupons while this shows, at least for candy, that doesn't really juice sales.

Premium is still premium and presentation is everything. Now if we could get premium retailers to again embrace that idea by training their retail sales help, we'd have a lot healthier retailers.

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Bob Phibbs, President/CEO, The Retail Doctor

Candy stores are far from unique in being able to charge a bit more for products than supermarkets. Meat and fish markets routinely charge more than supermarkets, as do many ethnic food retailers and floral shops and bakeries. In fact, anywhere there is more intensive labor associated with the service aspect of engaging the shopper, there will almost always be some disparity in price.

On the question of supermarkets changing their tactics to de-emphasize price in specialty departments, there are great examples of this today at Stew Leonard's, Lund's, Dorothy Lane Markets and others.

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Ron Margulis, Managing Director, RAM Communications

When you care enough to pamper your own "sweet tooth" or when you want to impress with a candy gift -- then you buy the very "best" candy and are willing to pay a higher price.

The marketplace's current mindset is that lower-cost and multi-packed candies are for kids, well, mostly. There may be other examples where stores or products are immune to price competition -- other than in new exclusive technologies -- but not many.

Supermarkets, loaded as they are today with an endless variety of fast-consumption candies and also engulfed in a viscous price-competitive environment, are not an ideal environment to blend-in much premium-priced merchandise. Customers, buying in a cost-emphasized store, aren't drawn to premium priced items in that venue.

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Gene Hoffman, President/CEO, Corporate Strategies International

No one is "immune" to price competition in today's world of omnipresent information access. The question is for what value is a shopper willing to pay more or disregard price overall. Impulse categories like candy have an advantage here. If I want good chocolate now, I want it now at almost any price!

Across food categories examples abound of shoppers paying more for high quality specialty items. Think everything at Whole Foods. Or Starbucks coffee. Even retailers with more mixed pricing see the differences in their own stores. In New York's Fairway Market I can get fair everyday prices on basic items like Barilla pasta and meatball makings or I can pay a lot more for a fully cooked, yummy dinner that impresses all. And on the same trip I might do both.

Shoppers are willing to pay for quality, service and new ideas.

Alison Chaltas, EVP, GfK

Successful, profitable retailers have a few things in common. Great products at fair prices, really good employees who know how to sell, great service after the sale, and a decent economy with folks who don't mind paying a little extra for the great service.

You can still be successful in rural less affluent areas on some scale, by doing the same thing, but it will not bring the same results as other higher income areas, due to less money to buy the higher-end goods.

You won't find a Wegmans store in my town, as they could not turn a profit. Just sayin'....

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Um, coffee. Starbucks proved decisively that you can charge a premium price for quality (or at least the perception of quality) and a valued experience. And within grocery, don't Whole Foods and HEB's Central Market prove that you can expand that beyond specialty departments? Central Market's entire store is a specialty department.

It comes down to what Bob Phibbs said: if retailers could get back to a place where they understand how it all has to come together -- presentation, product selection, customer service -- engagement & experience -- then we could talk about value instead of price. Very few retailers understand all sides of the equation these days.

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Nikki Baird, Managing Partner, RSR Research

Specialty formats generally offer something you cannot buy at a supermarket. Either you can't buy the same brand, the same flavors, or the same arrangements. In addition, in some consumers' minds, items purchased at some specially stores carry a certain cachet. These points of differentiation allow them to price accordingly.

This is true whether it is candy, coffee, or any item/brand/store that has been able to create the perception of difference. This is far more difficult for a supermarket to do, simply because it is a supermarket.

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Steve Montgomery, President, b2b Solutions, LLC

There are many other varieties of food specialty stores that seem to be immune from supermarket price competition such as butcher shops, bakeries and ethnic food markets. Consumers do not mind paying more for quality items. Supermarkets should stick to their merchandising and promotional tactics, focus on their core business and leave the specialty items to the specialty stores. If consumers want something special, for example: chocolates for Valentine's Day, they are more likely to visit Jacques Torres and pay a higher price for quality than pick up a Whitman Sampler at Gristedes or D'Agostino.

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Zel Bianco, President, founder and CEO, Interactive Edge

I was going to go snarky on this ("specialty stores can charge more if they actually specialize in something...gee") but I realized there really is a certain amount of complexity in the issue; specifically why do some kinds of specialty retailers do well, while others are engulfed by discounters? Take toys: that KB was overrun by TRU isn't surprising because the latter was just a bigger -- and cheaper -- version of the former; but that FAO would flag wasn't as predictable (to me, at least). Obviously there is a certain threshold above which your core products have to be price-inelastic, but I don't know how to predict that other than empirically.

'notcom'

There are loads of other models where "premium" means full price -- fragrances, handbags, even $5 cups of coffee. If companies can flourish while charging more, they should.

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Cathy Hotka, Principal, Cathy Hotka & Associates

This is not limited to specialty retailers or products. The key here is unique products which in many cases are premium or super premium products. Discounting only reduces the product life cycle for these products. If a store is the only location where the product can be purchased, there is little need to reduce price or run promotions (i.e. price discounts). This does not mean the retailer can charge whatever they want, nor does it mean they don't need good service and a maybe a loyalty program.

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W. Frank Dell II, CMC, President, Dellmart & Company

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