As I visit with retailers either at shows or via the phone, it seems the price is a very common topic these days. It is front of mind for many retailers. This is a frustrating thing because our industry is not structured to be competitive on price. However, if there are market forces that are bringing this concept to the forefront, we do need to both understand them and take appropriate action if we are to remain competitive selling the products that we introduced to our communities.
In this post, I am going to share why price is such an issue and in my next post, I will share at least five things that an independent retailer can do in a market that is price-focused.
First of all, there are at least three major reasons for the current focus on price, and at least one of them is good news for our industry.
The economy. While most economic data indicates that we are out of the “Great Recession,” there has still not been a return to the pre-recession economic issues in some key areas. Wages have been flat and, in many cases, have declined. With families having less purchasing power, there will be pressure to lower prices. Additionally, the labor participation rate is the lowest that is has been in more than 40 years. This makes the unemployment rate seem much lower than the actual number of people who would like to be employed. Obviously, unemployment and its challenges have people looking for the lowest price in the market.
Competition. We are seeing more and more competition in the market. In the last two years, about one-third of stores indicated that they had new competition open in their market in the previous 12 months. Ouch! When the number of people selling products is increasing faster than the number of people buying them, pricing pressure is not surprising. While some of this competition is from stores with roots in the natural products industry, many of them have a pretty price-focused message, making them a different form of competition from those that we have faced in the past. Further, the competition from the grocery and superstore sector continues to increase. In that part of the market, growth is achieved by lowering prices. (It is all that some of those stores know.) Of course, more products are also being found online. Price is a factor—or the major factor—for e-tailers. Basically, everyone new to the space that is of any substance is a discounter by nature and has brought a different message into the natural and organic marketplace.
New customers. (This one is the good news!) Natural and organic industry loyalists believe that we are not offering some fad or niche way to eat and live, but that we are offering an alternative that is conducive to health and wellbeing. We have been beating the drum about that message for many decades. (The Natural Products Association, our industry’s oldest and largest trade association, is celebrating its 80th birthday this year.) While we have had slow, certain and sustainable growth for a long time, the message and the acceptance of what we sell is reaching more people and families than it ever has. While, for a long time, our customer base was dominated by those with a high level of disposable income for whom paying a premium price for premium products was not an issue, as we are now reaching beyond our traditional customer base, we are connecting with those who are used to seeing stores fight over price and are in a more modest income bracket. They want to buy natural and organic products to enhance their health and wellness but cannot afford the premium prices.
It is great that we are reaching new people and even that our industry is proving to be attractive for new retail businesses to enter it, but growth does bring about change. At this point, the pressure on pricing is being brought from several fronts and is an issue that we need to address head on. I’ll talk about that more in my next post.