Cash and Carry Price Wars

Independent retailers who shop at cash and carry wholesale depots are often characterised as less disciplined business people than their peers who stick to the delivered wholesale route. However, hard times are resulting in price wars between suppliers in some areas and this provides some opportunities.

One London retailer I spoke to this week says he is selling bottles of a leading soft drink for 99p, compared to £1.19 in the multiples. The cheapest buying price he can find from a delivered wholesaler is 89p, which would lose him 6.5p on every bottle sold at a 99p price point, due to sales tax.

But a new cash and carry depot next to two others near his shop means he can buy the product at 69p, which makes the price point achievable and he is shifting volume at a 19.5 per cent mark up.

He welcomes the battle between cash and carry companies to win his business but also reflects that if they can afford to sell it to him for 69p, then the big supermarkets are probably buying it cheaper and selling it at a vast margin.

This view of the cosy way that supermarkets operate was given weight in two FT stories last week. In the first, which reported that Sainsbury had backed down and restocked Pepsi after losing a battle over pricing with Britvic, an analyst said: “This type of thing is just part and parcel of negotiations. If you are a must-stock product, then if you want a price increase you will get a price increase.”

Secondly, in its Lexus column it noted that the big four retailers were all trying to win a bigger slice of a non-growing cake (grocery sales) and with 18 million square feet of new space due in the next four years, some analysts say the next step could be a price war. The FT says a price war is unlikely as the big four don’t want to reduce their profits. Instead “of fighting, supermarkets will probably just run on fumes: inflation flatters sales growth even if volume sales are weak”.

The rules of business suggest that independents can never win on price in battles against the supermarkets and this must be true. If independents were doing enough to hurt the grocers’ sales, then they would put the squeeze on suppliers.

However, for local shopkeepers, efforts to track down low prices at attractive margins will provide some short-term competitive advantage – particularly against multiples that are not paying attention to local independent competition. But these opportunities are often short term. For long-term competitive advantage you need to differentiate yourself in a way that the multiples cannot match.