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In March, I made the following statement:
“U.S. consumers would certainly benefit from lower prices. But retailers should be careful with how far they push their manufacturer partners to lower prices. If they simply push for lower prices without planning for the right lower prices, they may find it extremely difficult to grow same-store sales this year.”
That article reviewed category retail unit price trends for the four-week period ending Jan. 24, 2009, which were up 5.5 percent across the store, but we were starting to see some sizeable price reductions in a number of commodity-price-driven categories. Of the 123 studied categories, we found 11 with price declines of up to 12.4 percent vs. the prior year.
But what a difference six months makes. Since the end of January, unit prices have fallen rapidly. For the four-week period ending July 11, 2009, unit prices were up just 1 percent and the number of categories with price declines almost tripled to 30 categories. Categories with the largest price compression include fresh eggs (-24 percent), milk (-19 percent), cheese (-10 percent), diet aids (-9 percent), baby needs (-8 percent), fresh produce (-7 percent), and shortening and oil (-6 percent). None of these seven categories posted dollar sales growth and four of the seven saw dollar sales fall between 16 percent and 20 percent.
My colleague Mark Laceky, VP of Nielsen’s Price & Promotion Practice, cautions retailers on price rollbacks, sayng that price rollbacks reduce category sales, as categories have far less price sensitivities than brands. As price rollbacks are market-wide, there is no competitive advantage for individual retailers, so no inherent traffic gains are made.
These price cuts are providing consumers with exceptional value, but they are showing up in the form of weakening or declining department, category and same-store store sales trends for many U.S. retailers. Just check out the latest monthly or quarterly same-store-sales trends for the leading food, drug, mass-merchandiser and warehouse/club retailers. Retailer-announced price reductions have been very common as of late, so don’t expect the situation to improve in the near term.