business news in context, analysis with attitude

Yesterday we took note of a Wall Street Journal report that Amazon-owned Whole Foods is pressing suppliers to lower prices as their own costs start to decline.  According to the story, Whole Foods "told suppliers at a recent virtual summit that it wants to bring down retail prices in its store aisles as companies’ own costs start to decline, according to a recording of the meeting viewed by the Wall Street Journal

I commented:

In the case of Whole Foods, let's face it - the idea of "low prices" is relative.  To say the least.

That said, I would hope that every retailer is putting this kind of pressure on suppliers, and that retailers themselves are endeavoring to lower prices as costs go down.  I'm not sure that Americans are going to have a ton of patience for what they see as profit-taking - I'm sensing a certain amount of outrage among folks who are seeing stories about record profits at oil companies.  (Not that we should be surprised.)

Food retailers and suppliers could actually differentiate themselves by working to avoid being lumped in with the oil behemoths.

My favorite email responding to this story came from an MNB reader who wrote:

I’m not surprised at your comments  Typical liberal attacking the oil companies!

I must admit that I laughed out loud at this one.

I wasn't aware that annoyance at oil companies - that having raised prices consistently over the past year because their costs were higher, now are declaring record profits - is breaking down along political lines, with only liberals upset by what they're paying at the pump.

I think that my observation is a fair one.  If businesses say their prices are going up because costs also are increasing, consumers are going to be far more understanding than if/when prices go up and companies have record profits.  I didn't think of that as a political statement.

No, I think one of us is guilty of a knee-jerk reaction.  And it ain't me.

Another MNB reader wrote:

I worked in Sales for a Major CPG company for 33 years.  I saw many price increases for legitimate reasons …

But, I never saw a price reduction when circumstances changed!  Never happen!

That's all I'm talking about.

But, from another reader:

This is ridiculous.  Retailers have no control over what a supplier charges them and has no right to tell them what they should charge.  If the supplier wants to charge “X” for their item and the retailer doesn’t like it, then don’t buy it.  This is not a profiteering situation we are in, it is a survival situation.  For years retailers across the country have been gouging the public.  When a manufacturer gives a dollar for a promotion and only $.70 makes it to the shelf, what is that?  It is the same scenario as before, the retailer demands that the supplier lower their cost, while at the same time, they are increasing bogus fees for late trucks, pallets, less pass through on programs, greater program costs, “partnering programs” and maintaining or increasing their margins.  If the story is to be told, tell the whole story.  However, I am happy to see that WF has reduced pricing on sparkling water.

Two things.

First, I'm not sure I agree that there isn't any profiteering taking place.

And second, I think the implication in what Whole Foods is saying is that they may not buy from suppliers that don't lower their prices.

But I'm not going to defend retailers here, at least not when it comes to all the fees and allowances they collect.  I've been pretty clear here that I find this to be a corrupt system (not necessarily in the legal sense) that does not work in favor of the shopper.

MNB reader Doug Madenberg chimed in:

Agree with your sense that shoppers are suspicious of profit motives, which makes it difficult (yet imperative) for food retailers to position themselves as on their customers’ side when it comes to battling price inflation.

We recently asked U.S. grocery shoppers to estimate how much of every dollar they spend is left for profit, after the store pays all its expenses and taxes  (i.e., net profit, which we know is 1-3% industry-wide).  The average answer was 33%!  So there’s a huge perception gap that needs to be smoothed over with frequent, honest communication from the stores.  You’ve shown that Stew Leonard does a remarkable job at this, and many others do as well.

I was speaking with a  marketing director who monitors social media for her independent chain.  When shoppers complain about prices, she’s found the most effective tactic is to point out that the store’s employees shop there too, so they are trying to keep prices as low as possible for everyone’s benefit.  That would resonate with me.

At the end of the day, retailers are better off if they are perceived as being advocates for the shopper, not sales agents for the supplier.

Which leads to this related email from an MNB reader:

I wanted to share my view regarding Amazon’s decision to charge Fresh delivery fees and my personal experience with their deteriorating service level. Frankly, I’ve decided to cancel my Prime membership as the only reason I subscribed nearly a decade ago was for “free shipping.”  No need to pay a $140 annual fee if the primary benefit is being taken away.  Additionally, I feel that Amazon has broken their original Prime commitment as well.  “Free 2 day shipping” was their original promise.  In the past 6 months, they have changed to 3-5 day ship times. I live in one of the Top 5 largest cities in the country, so I don’t believe the change is due to my location where they have economies of scale. This December, at least 5 Christmas presents didn’t arrive on time as scheduled and 2 of those were ordered on Cyber Monday well in advance of the big day.  This happened to my mother and brother too who live in a different state. We sat around the Christmas tree and showed each other photos of what we bought for each other.  

I think it’s important to note that Amazon/Whole Foods is asking vendors to lower prices at the same time they are raising shipping fees for consumers and backend fees for Amazon sellers. Shouldn’t they also be lowering their fees (or at least holding them steady) as their costs come down with 18,000 layoffs and their elimination of big projects like store grand openings and charitable donations through Amazon Smile? 

All fair points.

On the subject of the growing popularity of frozen pizzas, one MNB reader wrote:

There are very good frozen pizzas. HEB offers a private brand called Midtown Pizza made in Italy that rivals many pizzerias and is hands better than any other frozen option.   Compared to the prices these restauranteurs are trying to charge Midtown is a steal. 

And, on another subject, from another MNB reader:

As an EV owner in New Mexico, where the EV charger infrastructure is very “nascent”, I think there’s a huge opportunity for retailers to drive traffic into their stores with chargers.  It takes about a half hour to fully charge my vehicle and I would definitely plan my shopping and dining with retailers who provided charging stations.  It seems like a no-brainer, but I’d be curious as to what effect this has had on retailers in states with more developed charging infrastructures … like California.  Here, it would definitely provide a significant differentiation.