Price Wars, Global Lessons
By Michael Sansolo
The incredibly important role food retailing plays in people’s lives was placed in sharp focus last week in a reverse price war taking place far from the US.
Last Friday, discussion of a potential arms deal with Iran dominated news around the world, and nowhere was that topic as important as in Israel. Yet there was a secondary story in one of Israel’s major newspapers that focused squarely on supermarkets – especially because last Friday was the start of the Jewish holiday of Passover, a celebration that itself focuses squarely on food.
Thanks to numerous economic issues, Israeli shoppers are doing something very strange these days, according to the newspaper Haaretz: They are simply buying less food. That in turn is putting a squeeze on the country’s food retailers, causing them to discount ever more heavily in a failing attempt to win back sales.
As any retailer in the US knows, such policies lead to an additional problem in the form of falling profits. Plus, when everyone is discounting, no one is special or is gaining sales. So productivity measures are falling everywhere.
Israeli retailers responded with a strange marketing tactic.
To explain, virtually the entire industry abandoned price merchandising for the Passover holiday. No price breaks on chickens (usually a centerpiece in Israel), or the holiday’s key food, matzo, or on any of a wide range of products shoppers specifically buy for the eight-day holiday.
According to Haaretz, the trend started with the nation’s largest retailers and everyone down the line quickly followed suit.
What’s more, the supermarkets stopped advertising because they had no sales to trumpet and wanted to save on the cost of marketing. After being immersed in a bitter price war with new discount chains, Israeli food retailing has essentially gone cold turkey. Haaretz said consumers were noticing now – and buying less for the holiday – and one can only imagine how consumers will respond in the long run.
It likely won’t be pretty. At some point, one retailer is going to break from the pack and the war will get jump started.
The celebration of Passover focuses on discussion of a series of historical questions, starting with, “Why is this night different from all other nights?” When the inevitable Israeli price war begins, retailers there should ask themselves, “Why is this price war different from any other?”
The answer is that it is not. Price wars almost never are.
Countless price wars have demonstrated the futility of a race to the bottom. In the end, virtually everyone loses and customer loyalty is reduced to one special at a time. Through the years the more prudent approach of reducing costs to enable price savings, while enhancing differentiation has shown to work much better.
Here in the US, we are coming off a dreadful economic period and we, too, have ample numbers of discount invaders. However, the chains most beloved by shoppers, at least according to Consumer Reports, are those that seemingly found a way to carve a new path. Companies like Wegmans, Publix and Trader Joe’s top the list, thanks to their well-earned reputations for unique and highly pleasing shopping experiences. And all three did a strong job featuring price savings throughout the Great Recession.
You’d think that lesson would be global.