99¢ Only Starts Milk War in Dallas
By Tom Ryan
Eight 99¢ Only stores in the Dallas-Fort Worth area are selling
a gallon of milk for 90 cents for an indefinite time. The promotion reportedly
came in response to Aldi cutting its price on a gallon of milk from $1.10 to
99 cents.
In announcing the promotion, 99¢ Only CEO Eric Schiffer, said, "Unlike
some other retailers, you don’t have to be a loyalty or club card customer
to get in on the savings."
He added that 99¢ Only stores offer fresh
fruit and vegetables, including a five pound bag of potatoes or a pound and
a half of peaches, plums or nectarines, each for $1.00. (The ticketed price
is 99.99 cents.)
"We don’t lower our prices on some items and raise the prices on others
to make up the difference, said Mr. Schiffer. "We work hard to provide
our customers with great values on dairy, produce, deli, frozen food, as well
as other household items for about a buck. We invite all Dallas Fort-Worth
residents to visit our stores and look forward to having them as regular customers."
99¢ Only
Stores, based in City of Commerce, CA, operates 279 stores consisting of 208
stores in California, 34 in Texas, 25 in Arizona, and 12 in Nevada.
Discussion Questions: What do you think about such single-item statement
promotions as a competitive response? How much of a threat are dollar stores
and limited assortment grocers to mainstream supermarket operators?
Any store regularly selling food items for less than supermarkets is a competitive threat. While price is the magnet for most people, single item promotional responses appeal primarily to a selected audience.
It’s actually shrewd marketing for dollar stores to promote milk for Aldi-like prices on an everyday commodity such as a gallon of milk. The promotion will not necessarily take any core customers away from Aldi, however, it will call more attention to the dollar store channel and remind consumers that these stores are in the neighborhoods and worthy of a visit.
There is a new consumer today, based upon the recent economic climate changes. That consumer spans a wide range of demographic segments, including income. Everyone wants a good deal these days, and this single promoted item, as a staple in most families, is a huge draw for any retailer, and this will prove to be a formidable force in driving market share in the region.
Establishing a popular commodity like milk as a loss leader is a good short-term competitive practice, but hard to sustain long-term. 99 Cents Only may be able to convert some shoppers before raising the price, but it’s hard to imagine continuously losing a significant amount of money on every unit of milk sold, even if it boosts store traffic and overall sales/market-basket size.
While I realize this is a simplistic statement, all retailers who sell food compete with each other for the consumer’s share of their food spend. The dollar and limited assortment stores may not be part of the competitive set when the consumer is considering where to do their weekly shopping.
However, if they shop one of these retailers and see items they need, I am sure those same consumers make purchases. This is spending that will not then occur at a more mainstream supermarket. All of these purchases decrease the supermarket spend. This type of threat is more the “death by a thousand cuts” rather than by blunt force trauma.
We have a bunch of different questions floating around here:
1) Are price wars a good thing and do they have any lasting value? I remember them when I was a kid…milk and bread were the common ‘war items’. Even as a 10 year old, I was kind of bemused by the whole thing. We’d buy our obligatory items, but when the war was over, things went back to normal. I can’t believe a price war win creates any remote kind of customer loyalty.
2) Will this price war create more long term customers for the 99 Cents Only stores? Maybe…if the shopper sees other interesting items when she stops in for her 89 cent milk. However, if it doesn’t “feel right” she won’t come back.
3) Who is meant to be the “victim” in this war? Maybe the stated target is Aldi, but I think it’s all about nipping at Walmart’s coattails and grabbing some share from the other stores with “Dollar” in their name, who actually have a price strategy.
Sometimes I think there are still too many retailers.
I know I’m stating the obvious here, but 99¢ Only needs to watch carefully to see what else gets purchased in the same baskets with milk, and do everything they can to encourage shoppers to throw other items in their carts.
It would be even better if they could track individual shoppers over time to see if the average basket size or trip frequency increased. To do that well, they would need a loyalty program, which the CEO explicitly mentions as a point of differentiation from other retailers. Alternatively, they might use payment information to get some level of shopper individuation, which has worked well for other retailers.
In any case, with careful analysis, they should decide quickly whether this program pays for itself or costs more than it’s worth. After all, when you lose money on each unit, you can’t make it up in volume.
The question that 99¢ asked itself is whether new customers will buy only the milk, or whether they will purchase a few other items, or whether they will have a Eureka moment and wheel a cart through the whole store. Given the consumer mindset these days, it is probably the latter. Customer reaction to this fearless experiment will probably be hugely positive…unless they just don’t care that their home supermarket charges $3.99.
There’s no doubt that 99¢ Only will be successful in attracting some new customers in the short term, but I think this comes down to being able to meet a customer’s larger need for convenience and value. The value factor is there for milk (and apparently 5 pound bags of potatoes). But if a customer needs to do their weekly shopping for the family are they really going to buy milk at 99¢ Only, then go to the supermarket for everything else? Or if they need gas, are they going to hit the dollar store, before filling up? Or would they opt for the one-stop shop convenience stores offer?
Again, I think the 8 stores will see a sharp increase in milk sales based on the promotion and the attention the sale is getting, but I don’t think this is going to lead to long-term sustainable growth. I don’t think a quarter or even a dollar off of one item is enough of a discount to get time-pressed customers to alter their shopping patterns.
While it may seem to be a short-term advertising stunt to most, building perceived value is what consumers respond to. The below market priced product will eventually creep up (just like it does in most retail venues), but the consumer is hooked and has become familiar with the retailer and the products they offer. Remember, they are not loyal, just lulled into that sense of safety.
So as marketers have learned, it is all about the here and now (and the not so distant future), so put on your strategic thinking caps and design a long-term advertising campaign and business strategy to win them back and keep them interested.
Eddie Murphy’s character, Reggie Hammond, in the movie 48 Hours said “There’s a new sheriff in town.” That new “sheriff” in today’s town is price. Show the consumer a significant savings enticing them to your store will bring them running. Coming back is another issue altogether. Once they purchase what you enticed them with; there has to be a reason for them to buy more and/or return another day.
Frankly, how much have you really saved with that $0.19 when you take into account travel costs and time? There has to be more than that to make the trip once and then want them to return.
Having just paid $3.29 for a half-gallon of “Wild Organic 2% Milk” on the way into the office this morning, this sounds like a heck of a deal for sure. But the question of “is single item pricing a sound marketing ploy?” is obviously more complex than perceived value alone.
Kmart used to run this strategy very successfully to drive traffic. Common items featured were shelf-stable foods like Coke and Lay’s Potato Chips. At the time, Kmart was just looking for feet in the door, it was not looking to convert the shopper to Kmart for the weekly grocery shop. The strategy was to get them in the door and then “sell just one more item.” It worked well for a long time.
So, to answer the question of effectiveness of single item promotion we have to look at several key criteria:
1) Objective? Foot traffic = good. Permanent shop conversion = slim chance.
2) HH penetration of the item? Milk/Bread/CSD/Snacks = good.
Avocados and asparagus = bad idea.
3) Retailer positioning? 99 Cents Only = good (probably). Whole Foods = disaster (almost certainly).
In several states this would be illegal, such as California, Louisiana, and Pennsylvania among others. By some twisted logic, selling milk below a state minimum or below cost is thought to be detrimental to dairy farmers. But lower retail pricing will certainly increase the consumption of milk which is good for dairy farmers. As for Aldi, I think selling milk for 99 cents, even for a limited time, gets them more notice than would the same amount spent on advertising.
The least creative way to sell something is to pay customers to buy it. That’s pretty much the level of selling at most self-service retailing. However, profits remain anchored in value, not cost, and without a paradigm shift on cost such as Sam Walton did, it’s hard to be truly “competitive” on a commodity. Unless by competitive you mean meeting the rest of the crowd, satisfied with doing as well as the crowd. Good grief!
This is an extreme value retailer so I think one of the ways they draw shoppers into their stores is to have “extreme values,” which this is. And it’s on an item that is in nearly every household and one that consumers all know the price of as well.
From the looks of their annual report, they have some nice stores, and are making a lot of money.
At some point when inflation eventually kicks back in, one has to wonder if they will be able to sell everything for 99.99 cents or less. But, at that point I guess they do a name change to ‘$1.99 or less’ or something similar and point out that 90% of their items are still under a buck.
At Kroger stores in Dallas back in the early 90s, we outfitted all employees in bright yellow T-shirts printed with this message front and back: 99¢ lb. Ground Beef. Worked like a charm in building cart item counts and average rings. I don’t know what it cost, but was surprised that we only did it once more with 59¢ French bread. I thought it was great. Perhaps the T-shirts cost too much.
Here’s the litmus test: Are you trying to increase traffic or to sell more stuff to your existing cross-shoppers? Most would say, “both,” but that’s when focus and measurement take leaves of absence. Treat this milk promotion like a test, evaluating the use of all the knobs, switches, and dials on the big ol’ marketing machine. Use it to decide how best to affect existing customers vs. new customers vs. cross-shoppers. This promotion should be just the first step in a series of tests to make your marketing more efficient. Don’t just react to competitors. Instead, measure, measure, measure the results. Then, you’ll be able to field more refined and sophisticated marketing efforts in the future based on knowledge, not reaction.
If the only value you present to your customer is in a lowered price, you cannot complain when your customer has no loyalty.
Price wars are great…but nothing but a consumer novelty.
Now, if 99¢ Only REALLY wants to beat Aldi at their own game, dazzle your new customers with service while they are picking up your loss leader.
Otherwise, your customers only come into the store when you pay them to do so.
I think it’s great! Keeps focus on promotion in the customer’s mind and look at all that free publicity. It’s not about selling milk, but getting the customers into the stores!
In other parts of the country where I have seen Aldi get into price wars on milk, I’m seeing sales per unit of about $20,000 per week higher compared to those in higher priced milk markets. In Dallas, with Aldi being a new entry, this is a good way for them to get their name out. The last chain I would ever want to get into a price war with is Aldi. I fear them more than Wal-Mart.
First 99 cents gallons of milk, then 89 cents gallons of milk. Next, how about 19 cents a pound bananas?
Consumers win. I do think 99 Cents Only customers will buy more than just milk. After all, it is a 99 cents store. Consumers are less rational in these types of stores.
Hispanics index very high in the milk category, and I suspect this is largely an attempt to draw more of this increasingly coveted demographic.
The only winner in this war is the consumer. Having a gallon of milk at prices not seen since the 1960s benefits the consumer; retailers are shooting themselves in the foot. Milk has a 96% household penetration, so why lose money on every unit you sell? As a retailer you also lose on gallon milk because no one will buy those SKUs and you end up dumping that milk since it goes out of code. Retailers may gain short-term foot traffic, but if the rest of the store doesn’t live up to expectations, then consumers will go back to their normal shopping outlet.
As a supermarket owner, it boggles my mind that the milk wars still create the buzz they do. Anyone can give something away at a huge loss, and the bottom line usually suffers.
I’m glad that the marketing strategy I’ve chosen involves great perishables, at super prices–BUT–with a decent profit margin built in. Nobody ever went broke making a profit, but many have gone broke giving away the farm.
You just can’t buy business today, unless your total store merchandising is run the right way. I wonder if the 99¢ Only store wants to sell turkeys at Thanksgiving for 29¢lb. They’ll have lots of customers, and no money to pay the vendors for the other goods they bought.
Are we over stored??? Absolutely!! Be smart, and offer a unique experience in your market, with exceptional service, and chances are you’ll come out further ahead.