Acme tries reducing normal prices

Acme Markets president Dan Sanders at an Acme in Concordville: "We are working feverishly to lower our price structure." The parent company's CEO said: "We know that the long-term journey is to get all of our prices in line with where our customers expect them."
Acme Markets president Dan Sanders at an Acme in Concordville: "We are working feverishly to lower our price structure." The parent company's CEO said: "We know that the long-term journey is to get all of our prices in line with where our customers expect them."
Posted: February 20, 2011

It was January, and the mega-corporation that owns Acme Markets had just lost $202 million. Its top executive was blunt: There are customers who think prices are too high.

"Insult pricing" is how Supervalu Inc. chief executive officer Craig R. Herkert, a former WalMart Stores Inc. executive, termed the problem in a dismal call with investment analysts. That is when daily prices are so high that customers boycott an item for months until it goes back on sale, or they just start shopping elsewhere.

The company says it is urgently trying to end the practice at its beleaguered 120-year-old Acme supermarket chain and at other chains it owns across the country. But while high regular prices can become a retailer's nightmare, there is no cheap or easy fix.

For Supervalu especially, a debt-burdened company with other costly challenges on its plate, lowering prices is already proving dicey because it, too, costs money.

"We know that the long-term journey is to get all of our prices in line with where our customers expect them," Herkert told skeptical analysts last month.

"We are working feverishly to lower our price structure," Acme Markets Inc. president Dan Sanders said separately, in a recent interview with The Inquirer.

Since the fall, Acme's divisional leaders have sprung into action, permanently cutting prices on key items at their 117 stores because the situation is critical, said Sanders, who became president in March.

Year after year, Acme has lost sales to ShopRite, Giant, Wegmans, Wal-Mart, and others, struggling against customer perception of high prices when compared with competing chains offering attractive "value," as they call it in the industry.

In particular, ShopRite is renowned locally for its aggressive pricing. Wegmans has wooed onetime Acme customers with splashy new mega-stores that flaunt gourmet foods alongside grocery standbys.

"Right now," Sanders said during a tour of Acme's Concordville store, "we have to focus on the vitals."

It is one tough assignment, given the brutal economics of today's supermarket landscape.

A&P, the parent of Super Fresh and Pathmark, fell into Chapter 11 bankruptcy in December, and the fate of about 40,000 unionized clerks in the Mid-Atlantic region remains uncertain, as does the firm's own future. Store closings in South Jersey and Southeastern Pennsylvania have already been announced.

Supervalu, meanwhile, faces its own big challenges as it tries to lower prices. Like A&P, it carries huge loans and is under pressure to stay current on its debt payments. It also must cater to shareholders, who may balk at seeing cash invested in lower prices instead of being delivered to their stock portfolios.

It is no help, either, that just as Acme has pushed forward with price-cutting, there has been an increase in global commodity prices, making items such as corn and cooking oil more expensive, thus pushing up the costs of wholesale merchandise for everyone.

Still, Acme has wasted little time trying to change its image by changing its prices. To pay for the move, it tried to accumulate cash by offering higher-paid unionized employees early-retirement packages, while also slashing other operations costs.

Around October, a new team of divisional leaders at the grocer's Malvern offices began "Wave One" of price reductions, targeting 725 items, including steak, milk, fruit juice, diapers, shrimp, and canned beans. Hundreds more will drop this year as renegotiations with vendors continue through "Wave Two" of the initiative.

"These are the things that almost all of us consume," Sanders said.

One example was boneless sirloin steak, he said: When he was hired as president in March, it was selling for $6.99 a pound, regular price, at Acme. Today, it is $3.99.

A gallon of milk now goes for the lowest price allowed by Pennsylvania law, he added.

For the strategy to succeed, customers must sense that in-store prices are what Sanders calls "fair" and reflect the "value" of shopping at an Acme vs., say, Wal-Mart, where there is less emphasis on perishables and customer service, he said.

It is very complicated, deciding how to discount and whether it will work, said Neill F. Crowley, a former supermarket executive who teaches at the Haub School of Business at St. Joseph's University, which has a high-profile food-marketing department. Crowley also lectures on pricing strategies to industry professionals.

Price is not the only thing supermarket customers look at when deciding whether a store offers value, he said.

"I look at value as time, money, effort, risk, and stress," Crowley said. Is checkout painless? Can you find the products you want? Are prices attractive? Those are the considerations.

Executives consider the entire mix when determining how much to focus on price and how much to focus on other things, because each costs money: having the butchers needed to cut steaks on the spot, having cashiers at registers, stocking up on labor-intensive perishable items, keeping a clean store.

With its unionized and experienced labor force, Acme pays the highest supermarket wages and compensation in the region, Sanders said.

And so grocery executives, according to Crowley, must ask themselves this question: "If I choose to become more competitive on price, what other element am I going to choose to forgo for my customer?"

Sanders said Acme's goal was to improve its pricing while hanging on to the amenities that might make it more attractive to middle-market customers than a straight discounter like Wal-Mart.

But setting the right day-to-day price for a product is fraught with peril. If it does not lead to higher sales, it risks hurting profits and sales.

"How many more are we selling?" Sanders asked, referring to the four cuts of steak whose prices have been reduced. "Thirty-nine percent more since we started this back in October."

Zipping through the Concordville Acme's aisles in suits and ties, Sanders and his three senior lieutenants looked like the Men in Black of the grocery wars.

One of them, recently hired merchandising vice president Ajay Kanwar, has been tasked with picking the prices suitable for each store, based on the types of customers who shop there.

He has chosen to make a statement in the diaper aisle, where the price of Pampers Baby Dry Diapers Big Pack is now $19.99, down from $23.99.

Mother-and-daughter shoppers Pamela Verdi, 41, and Brittany Verdi, 17, of Marcus Hook, said the lower price was one reason they visit the Concordville Acme.

"The price of diapers is wonderful," said Brittany, who had stopped in to pick up some Gerber baby food. "I love the $19.99."

But for Acme, the road to this spot has been uphill.

Right after the chain began lowering prices, global commodities prices began rising sharply, so Acme had to rethink. Kanwar pointed to a 10.6-ounce box of Total cereal that used to sell for $4.59 but now sells for $3.99, a bit higher than the original discount.

"Corn prices have gone up 16 percent just in a week," Kanwar said.

He might have been heartened to hear that another shopper that day, Denise Keogh of West Chester, had noticed that Acme seemed more affordable of late.

"I usually go to Giant because I think that Acme is overpriced," said Keogh, a stay-at-home mother who went into the Concordville store only because she had made a trip to Home Depot next door.

"I was just thinking," she said, "that some of the prices seem lower than what they were."

Then she grabbed a 20-ounce box of Acme brand raisin bran ($2.59) and dropped it into her cart.


Sampling of Non-Sale Prices

Item                                              Was       Now

Pampers Baby Dry Diapers Big Pack            $23.99 $19.99

Acme brand shredded

Colby Jack cheddar (8 oz.)                       $2.99 $2.59

Capri Sun juice,

box of 10 6-oz. containers                       $2.39 $1.99

Top sirloin boneless steak (per pound)           $6.99 $3.99

Angus top round steak (per pound)              $7.99 $4.99

Angus top sirloin steak (per pound)              $8.99 $5.99

Whole milk (per gallon)                          $3.99* $3.73

Total cereal, 10.6-oz. box                          $4.59 $3.99

*Estimate

SOURCE: Acme Markets


Contact staff writer Maria Panaritis at 215-854-2431 or mpanaritis@phillynews.com.

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