Food Lion’s Goal to Become Low Price Leader
Wal-Mart’s shadow usually looms large whenever grocers start
talking about establishing a stronger price position in the markets they serve.
Grocers, even when they don’t mention Wal-Mart by name, can’t get away from
the fact that many consumers compare what they pay at the local Supercenter to
the supermarkets where they shop.
It’s become popular over the past couple
of years for supermarkets to engage in store-wide cuts as a means to establish
their own price credentials. Cathy Green, the new president of Food Lion, came
into the position in February as her company was rolling out its own lower
price initiative.
She told The State, "The most important thing
I had my eye on was our price positioning, especially given the economic situation.
(Price) is now number one in the consumer’s mind."
Ms. Green said
her goal was to make Food Lion the "low price leader" in
the markets it serves.
"We are working hard to transform business processes
to invest in price. It’s about running our business more efficiently. It
has nothing to do with just cutting costs. A small example of that is in our
distribution centers right now. In an aisle where a selector is not selecting,
the lights are off," she
told the paper.
Discussion Questions: Is Food Lion in any better or worse position to cut
costs than any of its traditional grocery competitors? What will it take
for supermarkets to truly be price competitive with Wal-Mart, Target and
other big box stores?
Food Lion is probably in no better or no worse position than its competitors. However, to presume to get costs down to Wal-Mart levels, or to get shoppers to believe their prices are Wal-Mart prices, is going to take more than turning off the lights at the DC. I wouldn’t bet on either piece, cost or convincing shoppers.
This sounds like the same old song and dance every other retailer is saying. Even Whole Foods is saying they lowered prices. So if all grocers lower their prices, then still none of them has set themselves apart.
I think it’s unlikely that Food Lion or any other plain-vanilla, conventional grocer can go head to head with Wal-Mart on pricing. Even Wal-Mart can’t get as low as Aldi. I’ve only seen three grocers get down and dirty with Wal-Mart on pricing–employee owned Woodmans in Wisconsin with their 200,000 plus sq. ft. stores, employee owned WinCo on the West Coast, and Crest in Oklahoma City. SuperTarget I’m hearing is hanging right in with Wal-Mart. Of course Aldi will always be one step ahead of all of them. I think for Food Lion, this is just bold talk for the press release.
Sad and futile. It would be so much better to devote the time and energy (that will ultimately be wasted here) to finding key differentiation points and really building on them. Most everyone else is finally trying to work their way past the idea of commoditizing themselves and their offerings.
I am a Lion and I want to roar
That I’ve got lowest prices in my store.
My plan is not just about cutting costs
Efficiencies are not overlooked or lost.
My objective is clear: intent without fears,
We will be more productive than our peers.
If Wal-Mart or Aldi are listening
This Lion intends to be glistening.
‘Tis true somebody said it couldn’t be done
Even though pursuing my goal can be fun.
But I, with a chuckle, calmly replied
“How can this Lion know if he doesn’t try?”
Walmart focuses on “lowest price” and it is a tough position to beat. Cathy Green may be better positioned to focus on something for example a “Best Value” message to shoppers. Low price is one thing, best value is another. If Walmart has low price image locked up, find your own marketing message that you can own.
Some ideas include:
Best Value
Best fresh salad bar
Best fresh meal solutions
Best produce
Best USA raised meat department
Best USA caught seafood selection
Biggest healthy choice department
Best private brand selection
There can’t be two lowest price leaders and Wal-Mart will win 100% of the “my prices are lower than yours” arm wrestling matches.
Food Lion entered the Richmond VA market almost 30 years ago. By persistence in store building and acquiring a lot of supermarket locations from former competitors like Safeway and SuperFresh, it now has the lion’s share of that market’s food business.
So, it seems that Food Lion is indeed returning to its roots, but what about its spinoff banners, Bloom and Bottom Dollar? Are they doomed? Bottom Dollar locations might just be holding former Food Lion locations until sales stabilize, and be converted back to the Food Lion banner. The upscale Bloom concept, like Sweetbay, may survive as a concept to hold on to a particular market share that Food Lion locations originally occupied.
Having numerous banners seems to work, especially for Kroger and Safeway, But when several banners compete in the same market area like Pathmark, A&P, Food Basics and Super Fresh do in parts of New Jersey and to some extent, the Philly market, maybe too much of a good thing isn’t always a good thing.
There’s staking a flag in the sand and being unique and then there’s this–another ill-advised race to be cheaper than Wal-Mart. This assumes every customer scans every price in every store with the Red Laser app, compares it to a spreadsheet and shops for the “lowest price” they find.
Shoppers are creatures of habit. If all any retailer can tout is how cheap they are–where are they going to make up that difference to be profitable and still be there in 3 years? Turn off the lights in the parking lots?
In the history of Food Lion, how many times have they decided to become the “low price leader? It seems to me I have heard this song before. For that matter, how many times have almost every grocery chain decided to become the “low price leader”? This positioning comes with much fanfare and always trickles away. This is an old trick that has never worked.
The only successful “low price” chains are the ones who are built from the ground up to be low price leaders. Read that as Aldi and Wal-Mart. It is not a matter of turning lights off. It is a matter of managing the operations in a way to assure margins are met despite having the lowest prices in the market.
As a first step, until a conventional chain can distribute their goods with the same efficiency as Wal-Mart, the conventional retailer will lose the battle and the war every time.
I am hoping the “lights out in the DC area where there is no selection taking place” is taken out of context. First, why should there be an area where the selection process is not active if Food Lion wants to become the low priced leader in their market place? I agree with the earlier comment that if this is how Food Lion is cutting costs; they have a long way to go.
This is some of the same rhetoric we have been hearing recently from other grocers. However, Food Lion is primarily in the southeastern region where they have built a strong following because of price already. Can they capitalize more? I doubt it especially when Wal Mart decides to flex their muscle and be more competitive.
But there are actions Food Lion can take to attract more consumers while waiting for the 800 pound elephant to roar. They could increase their weekly advertising to include more cost cuts on those items that are strong sellers. Once the consumer is in the store, give them more reason to purchase other items they would usually purchase from other stores. Do this repeatedly and often and the consumer will begin to think of Food Lion as the first choice in groceries, etc.
Being more efficient does relate to cutting costs. The claim that being efficient has nothing to do with cutting costs reveals a lack of clear analysis. Claiming the goal of the lowest price in the marketplace leaves Food Lion open to constantly having to reduce prices hurting their profitability. Any other chain can lower a price on a particular item and Food Lion will now have to lower their prices on ALL of those items. This just looks like a downward spiral.
I think there are at least 3 classes of grocery customers. One segment is not that price sensitive at all. A second segment will trade off getting the lowest price for convenience, service etc, but will bolt if they perceive they are getting gouged. The third segment will use every avenue to lower their costs, taking advantage of the loss leader sales and double coupons at a traditional store, and buy the items that through experience they know are cheapest at Walmart, Target, Sam’s Club, etc. You can’t be all things to all people.
As was discussed a few weeks back, perception seems to trump reality in this pursuit, and even in those (presumably rare) instances where discounters HAD bested WM, few believed it; so FL has their work cut out for them…and then some. Of course they have left themselves plenty of wiggle room as to what “leader” means, perhaps able to argue that WM isn’t really “in” the market because of a limited number of stores, or whatever. (And as something of a side note, my memories of FL are tied to a a bad/expired meat scandal a few years back, so I would think “quality leader” might be something they would more want to pursue.)
Cathy Green is right. “Price is the number one thing on Consumers’ minds when it comes to choices of retail grocery. When adults respond to the Top Reasons that they choose a Grocer, they consistently say Price (75%), Location (74%), Selection (60%), and Quality (49%). These figures are from the BIGresearch Consumer Intentions & Actions (CIA) Survey.
If Food Lion plays the game on a price position only, they are not going to push the needle on Sales, Volume, or Profit. Walmart, and the numerous grocers that Food Lion competes against in the Mid-Atlantic and Southeastern markets will not be easily bested on “Price” alone.
Hey all – As the reporter who conducted the Cathy Green interview, I wanted to point out that the version linked above has been significantly cut from the original, which appears here.
I hope that seeing her remarks in greater context is helpful; indeed, I’m enjoying reading this interesting discussion.
When I first tracked Food Lion 18 years ago, it was an EDLP leader in its markets, with every store a perfect clone of the prototype. This kept operating costs low, but the assortment was somewhat generic and the positioning was rather low-end.
The chain has lately made some admirable efforts to segment its shoppers and adjust its merchandising offerings by store to meet variation in demand. This added intricacy would seem to be at odds with an absolute lowest price strategy that stresses ultra-efficient operations.
Efficiency is so fundamental in this business that it must be an anchor discipline for every retailer, regardless of its market positioning. But operating efficiency is not strategy (to paraphrase Porter). I’m therefore wary of the Food Lion approach, beyond its value as a statement of commitment to the shopper.
Ralph Ketner and his group rented a motel room and went in with a calculator. When they emerged from the room–like Moses from the desert–they had a plan on a tablet. They knew that they could be the low price leader. LFPINC, Lowest food prices in North Carolina propelled them to extraordinary growth and profits. New owners, with their eyes on the wrong places and the infamous TV bris, knocked the wind out of their sales. PI, If they go to their closet and pull out Ralph’s notes, they will see that it can be done.
This requires Food Lion to reposition itself, and not just the products it sells. This will take time, many promotional dollars and lots of focused marketing if Food Lion expects to achieve any success. It is a difficult hill to climb, and there are many failures from others that have tried and failed. Only time will tell.
I agree with some other contributors here that there can only be one legitimate low price leader in a category. Walmart was first and, even with some challenges noted here in RetailWire, still holds the title.
Enhancing the shopping experience with service and adding value and quality through private label brands seems to be the place where differentiation can be found.
If Food Lion views “low price leader” as achieved through operational means, it fails to look at its stores through the customer’s eyes.