Category: Data Discoveries

18 Dec 2018

The Aldi Effect: Are Walmart prices higher in locations where there is no Aldi store?

When European retailer Aldi started opening stores up and down Britain in 2016, people who lived close to a new retailer location started noticing that the value of their homes went up by as much as £5,000. It was called the “Aldi Effect” by the local media and, soon enough, the vicinity of an Aldi store to a piece of property became a listing feature.

Aldi started putting up more stores all over the U.S. starting in 2011, with a total of 1,600 stores to date. And just like in the U.K., it would seem that there is yet another advantage to having an Aldi store in your neighborhood – lower prices for everyday groceries at your local Walmart store.

Walmart and their everyday low price (EDLP) approach has consistently driven a low price image across the U.S. With their limited assortment and private label focus, Aldi has also worked to deliver customer value through low prices. When both retailers are present in a market, they have demonstrated an ability to fight head-to-head for low-price leadership.

Engage3 collects and monitors grocery pricing in markets across the U.S., and identifies pricing patterns and market trends.

For this study, we created a basket of 50 grocery staples that were price checked at three Walmart locations within each of the four Texas markets studied – Austin, Dallas-Fort Worth, Houston, and San Antonio. Dallas and Houston have 36 and 50 Aldi store locations, respectively, while Austin only has 1 store location and San Antonio has none. The competitive landscape in Dallas-Fort Worth and Houston is much more robust, with not only Aldi in the mix, but Kroger and Safeway banners as well.

Our study revealed that in Austin where there is only 1 Aldi store location (north in Pflugerville), Walmart pricing for the basket of staples was 16.2% higher than in Dallas, and 17.6% higher than it was in Houston.

Aldi Report Austin

In San Antonio where Aldi has no store presence and where H-E-B and Walmart are the dominant grocery players, we found that the Walmart basket was between 21% and 22% higher than the exact basket in Dallas-Fort Worth and Houston, respectively.

Aldi Report San Antonio

 

While the average pricing differences in the four cities taken together were between 6% and 11%, some pricing disparity on items like peanut butter and mac and cheese were fairly significant. The chart below shows peanut butter at a Walmart store in Dallas-Fort Worth priced at $1.18, while the same jar was priced at $2.18 in Austin – a whopping 54% difference. Similarly, the mac and cheese, priced in the Dallas-Fort Worth stores at $0.34, was double the price at $0.68 each in Austin.

Aldi Report Table Austin DFW

The same pattern can be seen in Houston, where there are currently 50 Aldi stores. The chart below shows peanut butter at a Walmart store in Houston priced at $1.78, while the same jar was priced at $2.58 in San Antonio, or 45% more. The same mac and cheese, priced in the San Antonio store at $0.68, is 100% more expensive than in Houston at $0.34.


The market basket data used in this analysis is objective and precise. But while the same 50 items were used across all markets, the correlation of Aldi’s effect on a market is still subjective.  Based on Engage3’s observations of competitive pricing data across the U.S., we have determined consistent patterns of Aldi’s influence and effect on market pricing.

Pricing has always been like a chess game, where each retailer is reacting to their competitor’s moves, while trying to predict how their competitor will react to their maneuvers.  But, unlike chess, this game is often played with 3 or more players, and aggressive moves can make it difficult to discern strategy from reactive tactics.

For more information on how to build a strategic competitor assessment and market price monitoring program, watch our competitive pricing video here,  request our white paper on how to leverage AI and big data in competitive pricing here, or contact us at 530-231-5485.

 

 

17 Dec 2018
Grocery Bill

What’s Driving Up Your Grocery Bill? The Costs Explained.

Food Costs on the Rise

USA Today recently came out with a report about which grocery item costs have risen the most in the last ten years. The increases ranged from 26 percent to 92 percent during the period, and affected a wide variety of products – from shelf-stable to frozen items to fresh produce. The causes identified for the price increases are shortage, demand, and regulation, and each has an impact on your grocery bill.

Shortage

The most drastic price change in the shortage category included oils and fats, particularly peanut butter. Since 2008, the category has seen a 34.9% price increase, and coincides with peanut shortages throughout the U.S. The combination of smaller yields and consumer preferences has caused many families to reconsider buying peanut butter.

According to an investigative report by NPR in 2011, peanut butter manufacturers were paying almost double what they were before the shortage. Farmers were trading in their peanut fields for cotton, and droughts that year had peanuts soaring to astronomical prices. Trader Joe’s even pulled their private label peanut butter from shelves for a short time.

Organic Peanut Butter

On top of this, demand for the pantry staple rose sharply. Tiffany Arthur from the U.S. Department of Agriculture noted in the 2011 article that, “Peanut butter consumption…jumped by 10 percent since 2008. Usually it goes up just one or two percent in a regular year,” she said.  The shift in preference was an economic one. Peanuts are an inexpensive source of protein, and the U.S. recession shifted consumer tastes towards shelf-stable peanut butter. Though farmers have recovered from the shortages since that time, peanut butter hasn’t returned to its pre-shortage price.

Demand

Himalayan Salt

Salt and food seasonings went up by 36 percent, marking a change in the way people are cooking at home. One of the most significant additions to shoppers’ kitchens is Himalayan salt, which has recently grown in popularity. Supermarket shelves today are filled with different brands of this gourmet pink salt.

 

 

Canned VegetablesCanned vegetables have become a staple, partly due to the increase in food-borne illnesses and recalls. The latest Romaine lettuce scare, among other outbreaks, could be contributing to consumers buying more canned goods. Health-conscious shoppers are also buying and cooking more vegetables at home, and prices for canned green beans, corn, peas, and the like have gone up 26.9 percent as a result.

 

Demand for seafood has put pressure on the fish farming industry, as seen by the 41.4 percent increase in shelf-stable seafood prices and 28.7 percent increase for frozen products. Poultry and beef shortages have also contributed to higher fish consumption. On top of this, new diets focusing on healthy fats and meat-centric meals have helped this trend along.

Regulation

Apart from supply and demand, government intervention has played a large part in the increased cost of goods. The number one increase over the last ten years was for cigarettes, nearly doubling their price in the United States. From 2007 to 2017, cigarettes became 92.2% more expensive, primarily due to federal taxes on tobacco products. Research shows that a pack of cigarettes that, on average, sold for $4.91 in 2004 increased to $8.41 ten years later (24/7 Wall St.) The bulk of the cost is due to cigarette taxes like California’s, which raised the cigarette tax by 2 dollars per pack last year.

Cigarette Taxes

We may see more tobacco taxes in the near future because of mounting health concerns. The Campaign for Tobacco-Free Kids, an advocacy group, claims that every 10 percent increase in cigarette prices could lead to as much as a 5 percent decline in cigarette smoking, a statistic that contributed to support for the 2017 California tax. Out of all the grocery items whose prices went up in the last ten years, cigarettes and tobacco products are the most politically charged. Regardless, the costs and taxes show no signs of slowing down. According to the U.S. Bureau of Labor Statistics, prices for cigarettes were 171.55% higher in 2018 versus 2000, resulting in a $8.58 difference in value.

Effects On Your Grocery Bill

Though the cost of groceries has gone up at a higher rate than inflation, there is now a much greater variety of products to choose from. Organic foods have grown in popularity and specialty grocery stores are thriving in the current market. Apart from some items that have increased a dizzying amount such as cigarettes and prescription drugs, prices have remained relatively stable. In addition to all this, the private label trend in recent years has allowed for prices to remain at the level of inflation. For detailed information on private labels and similar categories, you can read our Q1 2018 Pricing Report here.

25 Oct 2018
KVI and Price Image

Known Value Items – Drivers of Price Image

A Shopper’s Store-switching Decision

A KVI is a known value item. It’s an item that disproportionally drives the price value perception. So, in a grocery store it would include eggs and an automotive store might include motor oil, and a convenience store it might include cigarettes.

The reason that KVIs are important is because they drive a shopper’s store switching decisions. If the retailer’s prices are out of alignment with the prices that shoppers remembered, then the shopper can reevaluate their decision to shop with that retailer.

A question you can ask a shopper is, what items do you stock up on? And at what price points do you stock up? And you’ll begin to understand what a KVI is with the answers you get to that question.

A Tiny Number of Items

Another element that’s really important with the known value items is that it’s a very tiny number of items that drive a retailer’s perception in the marketplace. Typically, about a third of the price perception comes from only two-and-a-half percent of the products. It’s a very concentrated number of items, and this holds true across grocery, drug, mass,convenience, pet, auto—virtually all retail sectors. So, getting it right is critical.

Dynamic KVIs

Traditionally, retailers will evaluate their KVIs once a year. Over time it’s gotten to a more periodic basis where they’re doing it more often, but the market’s changing faster today than it’s ever changed before. Things are getting localized, things are getting personalized, and with that the shopper’s price perceptions are being set more dynamically.

All of these things mean that calculating KVIs based at the enterprise level is the wrong way to do it. The analysis needs to come down to the store level, down to the shopper level, down to the daily level, and have items coming in and out of the KVI list at those lower levels.

Increased Complexity

The challenge is that all this results in a lot more complexity that needs to be managed. The comp shop programs that were easy for one person to manage before now explodes the amount of competitive data that’s needed and the amount of management time that’s required.

A Platform to Manage Margins and Price Image

The retail marketplace is only going to get more competitive, and retailers need a platform to support themselves in this new environment. At Engage3, we’re on a journey to build that platform to enable the retailer – the early adopters – to outpace their competition so they can outperform them in terms of Margin and Price Image.

17 Apr 2017

Data Discoveries: Store Brand vs. National Brand

Milk: it does a body good, but what does it do to your finances? Conventional wisdom has it that prices always rise, and milk is one of the most consistently expensive items in its aisle – everyone needs it for something, from breakfast to baking, so of course the price of milk is going to go up over time, right?

Well, kind of. In the first round of our Store Brand vs. National Brand Analyses, we examined promotional and regular pricing trends for Organic and Conventional milk, and while a few of these analyses turned up what we might expect – regular price trends for conventional milk are both positive, with nationally branded items showing a significantly steeper increase over the past year than store brands — we found several surprising results as well.

SB vs. NB Milk

Let’s start with the major one: compared to store brands, the average price of nationally branded organic milk is plummeting, dropping by nearly a quarter per gallon over the past year. Store brand pricing has held steady at around $6.00 per gallon; but where nationally branded items once averaged close to $6.15, that average has fallen to $5.87 in the span of 14 months, now beating store brands. Promotional prices on organic milks are also dropping steadily, though store brands are outpacing national brands there.

The choice seems clear in one regard: if you’re an organic milk drinker, don’t just default to the store brand. It’s a good bet a gallon of Horizon might be easier on your wallet.

16 Mar 2017

Data Discoveries: Is Organic Produce Really More Expensive than Conventional?

Market trends continually bear out the basic intuition that consumers prefer organic produce to conventional. More than ever, consumers are making conscious and active choices in selecting what type of produce goes into their bodies. Restaurants and fast food chains have begun to consider the preferences of their customers by introducing more organic, all-natural, gluten-free or GMO-free products into their menus.

But for the smart shopper, trying to be both health conscious and money conscious, there’s a worry associated with organics: higher prices. Generally, organic produce is more expensive than conventional produce, but recent trends indicate that gap may be closing. Price difference is highly impacted by region, availability, and a variety of other invisible factors.

We took it upon ourselves to analyze the marketplace over the past year for organic and conventional produce and noticed interesting movement in specific regions that reaffirm trends that are reflective of the widespread availability and increasing demand for organic produce. In the regions where prices for organic produce saw a sharp increase, conventional produce followed suit. In both the Midwest and the Southeast, prices for organic produce averaged around $2.60 and conventional prices averaged around $2.00 by the end of the 2016. Conventional prices rose in the same movement as the organic prices, a possible indication that there wasn’t a strong overall preference for either in these regions.

Screen Shot 2017-03-15 at 3.40.12 PM

The most notable results came from the mid-Atlantic, which saw a sharp increase in organic prices and steady movement of conventional prices. The gap between organic and conventional produce is the largest among the regions studied, nearing almost a full dollar. Mid-Atlantic shoppers are eagerly gravitating towards organic chicken breasts and largely ditching conventional options.

Florida and the South didn’t see an incredible change in prices of either organic or conventional products, as the market trends show steady movement. The South’s organic prices stayed around $2.00 and its conventional stayed around $1.40; the award for most expensive organic prices goes to Florida, which showed little movement in the gap between conventional and organic. Florida’s organic prices were averaging around a little more than $2.60 by the end of the year.

In the five regions where organic produce prices saw a slight decrease (Southwest, Pacific Northwest, Rockies, New England and Northern California), the markets for conventional prices held steady. The only region that saw both a decrease in organic and conventional prices was Northern California, a region widely recognized for their health conscious and active consumers. It’s possible that, to keep sales of conventional produce from incurring too drastic of a loss, conventional producers may have lowered prices to match the movement of organics. The Rockies stand out for having the lowest prices in both organic and conventional produce. Both produce types can be found within an average range of $1.20 to $1.60.

Every consumer’s preference is different when it comes to organics. Taste, price and environmental impact all play roles in affecting the mindset of the consumer, who is, on average, becoming more conscious about the price and quality of the food they are buying. With an overall market gravitation towards organic produce, prices for produce in general have seen an increase. However, when compared with conventional produce, we see this market in essence rolling up its sleeves and preparing to fight to keep their prices steady or matched with organics.