OPINION: Competing for the shopper who is looking for value

In February this year two UBS economists argued that food might become a political issue in the first world as commodity prices put pressure on household budgets and the UK at that time seemed to them to be the country most at risk.

Shoppers, they argued, based their understanding of inflation on the increases in high frequency purchases and their model suggested that prices of processed foods in the UK were rising 2.5% higher than they should be compared to the US, France and Germany. This might focus the attention of politicians.

Six months later, the food industry seems to have been let off by the energy industry – with rises in petrol, gas and electricity prices making the headlines. However, the impact of the squeeze on consumer purchasing power is still being watched carefully.

In comments to the FT this summer, Paul Polman, chief executive of Unilever, said his company needed to be very close to the consumer and needed to offer them more choice at different price points “if they desire to switch”.

“What we see in the UK here, where Persil is the best detergent, which you might [previously] have used for all your laundry, now occasionally you use Surf, which is the best price/value equation that is in the market,” he told the newspaper.

“So we see that switching where we have portfolios, where we innovate well, we have a higher chance of keeping the consumer with us.”

Unlike the economists, Mr Polman is aware of the need to produce stuff that consumers might trade down to. His strategic sense appears sound. However, I am not convinced that in the real world shoppers will buy both Persil and Surf and decide on a load by load basis which one to stick in their washing machines.

High quality products and good margins

As the UBS economists noted, there is no such thing as an average economy. Similarly there is no such thing as an average shopper. For local shopkeepers you may serve a community which is suffering even greater falls in average weekly spending power than the average. Like Mr Polman you need to flex your range so that you are offering something for them to switch to.

Your ideas of what value products to offer and those of a market leading packaged goods company may not be the same. Remember that local suppliers may be able to provide high quality products that offer good margins – especially as they have to pay less for distribution and don’t invest in national advertising spend. Remember that your wholesalers may offer good products too.

Notice also the trend in advertising by the multiples. Today, many executions link discounts in return for spending a certain sum, say £40. The battle is on convince shoppers that supermarkets are their value champions. If your strategy is to keep the price of milk and bread low, are you doing enough to remind shoppers that you are fighting to keep prices down for them too?

The cost of food is likely to be an issue for some time. Be careful to position your shop as one that is generous to local people, helping them through the hard times.