Pricing Pressure, Part II

Written By:
Jay Jacobowitz
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In my July 2013 Merchandising Insights column, I outlined a strategy to help independent natural products retailers create more competitive retail pricing while preserving healthy profit margins. The strategy rests on identifying vendors—usually direct vitamin lines—that offer ongoing wholesale purchase discounts. Several of you subsequently contacted me to discuss pricing, which leads me to provide a few additional thoughts here.

Your Location
First, pricing strategy is usually trade-area driven, meaning how much or how little competition you face will probably be the most important factor in your decision whether or not to pass on any extra discounts to your customers. Even though the natural products retail industry is red hot, with new competitors emerging daily, there are still many relatively less-densely populated trade areas in the country and, if you’re an independent retailer, chances are good you operate in one of these.

If so, you may not need to become more aggressive with your pricing…yet. At the same time, because several vitamin chain stores and other full-line natural retailers are opening multiple new stores per year, creeping into ever-less-densely populated markets in search of suitable real estate, your trade area could be up next on their radar screens. In fact, if you currently have little competition, have achieved significant sales volume and have been enjoying outsized profit margins for many years, you may have a bull’s eye on your back precisely for these reasons. Because my company closely follows the moves of all industry retailers, I’ve seen this predatory strategy with increasing frequency over the last 12 to 18 months.

A Periodic Approach
Second, in my July column I recommended readjusting your gross profit margin to the standard published level, which for vitamin/supplement lines usually means 40, 45 or 50%. I also advised you to preserve the suggested retail price (SRP) published by the manufacturer, but then discounting off of that SRP by the ongoing discount percentage that vendor gives you.

Depending on your overall pricing strategy, and the amount of competitive heat you are feeling, you may not need to do this on an everyday, ongoing basis. Instead, you might promote these product lines periodically; say for a couple of weeks or one month per quarter, passing along your extra margin in the form of an advertised sale discount. In this way, you will give the impression of offering dynamic value year-round while preserving your extra profit margins during the other eight months of the year.

Finally, I should point out that your vendor probably requires you to meet a minimum volume order level to receive the extra discount, but because your baseline sales level supports this order level, you are not straining or overstocking to meet the requirement. And certainly, you can safely assume any retailer your size or larger enjoys the same discount level as you, putting downward pressure on the published SRP. I’d love to hear your stories! Good luck! WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 36 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. Jay will be exhibiting at Expo East in Baltimore, MD, at booth #6030, from September 25-28, 2013. He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.

 

 

Published in WholeFoods Magazine, August 2013