What Your Supermarket Won't Tell You

by Jim Rendon
Thursday, January 8, 2009
provided by
1.

Feel the squeeze? Actually, so do we.

When the economy slows and businesses begin to feel the heat, grocery stores are
often exceptions to the rule. That s because when consumers cut back on frills li
ke eating out, they tend to make even more trips to the supermarket. Still, all
bets may be off in the wake of the crash of 2008.
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Citi Investment Research analyst Deborah Weinswig forecasts falling same-store s
ales growth at many of the major chains in 2009; for one, she sees top performer
Kroger experiencing a decline in same-store sales growth, from about 5 percent
in 2008 to 4 percent in the coming year. Meanwhile, supermarket chain Supervalu
forecasts its own flat sales growth through 2009.
Even the big-box stores now established contenders in the grocery industry are facin
g tough headwinds in the wake of the market meltdown. Weinswig says she expects
dips in same-store sales growth for BJ s Wholesale Club, from 11 percent in 2008 t
o under 7 percent in 2009, and a drop from 8 to 6 percent growth over the same p
eriod for Costco. Bottom line, it s tough to pass through higher costs when consume
rs have such a laser-like focus on price, says Mitchell Corwin, a senior equity a
nalyst for Morningstar.
2. You re getting less for the same price.
When Linda Edwards, a nurse in East Windsor, N.J., picked up her usual $4.99 jug
of orange juice at Shop Rite this summer, she was surprised to discover that it
contained 7 ounces less than it normally did. A few months later she noticed he
r Skippy peanut butter and chicken strips were also lighter but not any cheaper.
Everything seems to be shrinking, but my family hasn t shrunk, says the single moth
er of five boys. A spokesperson for Unilever, which owns Skippy, says reducing p
roduct size is one way the company is coping with higher food and fuel costs.
Manufacturers know that in a tight economy, consumers are driven away by price h
ikes, so they quietly shrink products, hoping a few ounces here or there won t be
missed, says Alexia Howard, a senior research analyst for Sanford C. Bernstein.
But it s starting to backfire, says Ben Popken, editor of Consumerist.com, who say
s he s getting more complaints from readers about shrinking products. People are re
ally sensitive to any decrease in their purchasing power, he says. Popken recomme
nds checking the unit price between brands to see whether you re paying the same p
rice for less food.
3. We jack up prices where you re least likely to notice.
When times are tough, super-markets know vigilant shoppers notice even tiny chan
ges in the price of foods like milk, cereal, bread and cheese. In fact, there ar
e about 500 such products, and stores raise prices on these staples at their own
peril.

So how do markets deal with rising food costs? They tinker with the price of the
roughly 45,000 items people don t buy regularly enough to have a fixed idea of th
eir cost tacking on 3 to 4 percent to specialty products like, say, gourmet pasta
sauce or fresh-squeezed juices, without consumers noticing. There s an opportunity
to make some margin back on those items, says Jim Hertel, managing partner of Wil
lard Bishop, a consultant for the industry.
But don t expect the savings to be passed on to you when costs come down. Many man
ufacturers lock in prices well in advance, and they often hold off on bringing p
rices back down to make up for the resulting losses, says Howard. One way to be
sure you re getting the best deal when prices drop: Stick to basics. Products like
coffee and meat are likely to reflect their underlying costs more quickly than m
ost other foods, Howard says.
4. You can t always believe our nutrition claims.
It seems people are more concerned with their health these days, but nutrition l
abeling on most foods can be tough to decipher. Hoping to bridge the gap, grocer
y chain Hannaford Bros. developed a program called Guiding Stars, which posts nu
trition ratings of one to three stars on the shelf tags of some products. We d like
to see the FDA adopt the program nationally, says Bruce Silverglade, legal affai
rs director at the Center for Science in the Public Interest.
Sounds great, but according to a Government Accountability Office report, the FD
A hasn t randomly checked the accuracy of nutrition labeling in over a decade, and
of those products it has tested due to obvious red flags, more than 20 percent
had errors. (An FDA spokesperson says random sampling isn t necessary; the FDA tes
ts products according to guidelines set by its Office of Regulatory Affairs.) Wi
th so little oversight, consumers can t fully trust manufacturers nutrition labels
or any ratings system based on that data.
It s the manufacturer s responsibility to provide accurate information that s all we can
use to assess products, says Julie Greene, director of healthy living for Hannafo
rd Bros.
5. We won t take your coupons.
The Sunday paper used to be the source for grocery coupons. But now they re increa
singly available online, from sites like Coupons.com as well as manufacturers and
supermarkets own Web pages. The problem is, they aren t always easy to use. Over 1
0.6 million Internet coupons were redeemed last year, according to Carolina Mark
eting Services. While that amount is expected only to increase, it s still a fract
ion of all coupons redeemed, and many stores are still unfamiliar with them.
That s what 61-year-old retiree C.J. Shearrer discovered when he printed out about
$30 worth of coupons and took them to a Wal-Mart in Midwest City, Okla. Shearre
r says the manager told him the store didn t accept online coupons; only when he s
howed him a printout of Wal-Mart s coupon policy, says Shearrer, did the manager a
gree to take them. (A company spokesperson says Wal-Mart accepts one Internet co
upon per item per customer, as long as it s legitimate and scans at the register.)
Stephanie Nelson, founder of information site CouponMom.com, suggests doing wha
t Shearrer did: Bring along a copy of a given store s coupon policy, which should
be found on its Web site.
6. Our loyalty cards help us cater to our biggest spenders...
Many supermarkets offer shoppers loyalty cards that get scanned at checkout for
savings on specially marked products. But saving money isn t what these cards are
really about. Whenever you use your card, stores record your purchases in vast d

atabases that contain years worth of your purchasing information. That means they
know what you buy year after year, how often you shop and when a coupon influen
ces your purchases. And they use
this information for everything from promoting new products to deciding what to
stock.
More important, stores tap this data to target customers who buy lots of groceri
es on a regular basis. Woolf says that as much as 65 percent of a store s sales ar
e derived from these core shoppers, who make up just 12 to 25 percent of its cus
tomers. Loyalty-card programs allow stores to cater to these folks by sending th
em free samples, offering special bargains other shoppers don t get and structurin
g discounts to reward them for their regular, expensive shopping trips. Those cus
tomers who contribute more profits, you look after them better, says Woolf.
7. ...but they re not always your best bet for big savings.
Stores that use these loyalty programs want you to think you ll save big by partic
ipating. But that s not always the case: Wal-Mart, which has no such program, unde
rcuts competitors on price, and most stores without these programs match their r
egular prices to competitors discounted card prices. In many cases, these retaile
rs may even be able to offer lower prices than stores with elaborate loyalty-car
d programs, says David Livingston, managing partner with industry consultant DJL
Research. Loyalty-card programs do add an expense for stores, Livingston says. And
stores can offer the same bargains without the card programs.
In the end, what do consumers get for handing over their data? It depends. Accor
ding to Stephen Hoch, a marketing professor at the Wharton School of the Univers
ity of Pennsylvania, loyalty-card discounts really just shift higher prices onto
those without cards. And even the best rewards don t always amount to much. Super
markets have a tight profit margin of about 2 percent, making it hard for superma
rkets to give customers big rewards, says Hoch.
8. Big sales may not mean lower costs for you.
Supermarkets know you want bargains. And they ll use bargains to get you through t
he door, via promotional flyers and advertised discounts. But the key is to make
sure they don t give away too much once you get inside.
How do they do it? For starters, atmosphere. Supermarkets know the first thing y
ou see when you walk in sets the tone for your shopping trip. If it puts sale it
ems or highly discounted products near the entrance, it can create the impressio
n there s real value to be had, whether that s the case or not, says consultant Hert
el. That s also why space at the end of aisles is often used to display a small nu
mber of sale items. Stores know that you re likely to buy lots of other products w
hile you re shopping many of which will not be on sale or will be store brands helping
to cover the discounts on promotional items. Indeed, studies show that supermar
kets have been effective at limiting giveaways, says K. Sudhir, a professor at t
he Yale School of Management. Stores want to create the perception that customers
are getting a good deal, he says. But they don t want everyone to get the lowest pr
ices.
9.

We may carry local produce, but we re no farmer s market.

When former Chicago software engineer Michael Morowitz wants to buy strawberries
, he waits until summer and looks for those grown locally. Strawberries shipped t
o Chicago in February are never going to be as good as those grown nearby in Jun
e, says Morowitz, who runs The Local Beet, a Web site about locally grown food in
Chicago. Like Morowitz, more people are looking for goods from nearby farms as
a way of getting better, fresher foods and supporting local growers, not to ment
ion cutting down on pollution from transportation. And supermarkets have heard t

he call so much so that megaretailer Wal-Mart now touts locally grown produce.
But it s not as clear-cut as it sounds. For one thing, there s no agreement on what
local means. For example, Wal-Mart defines local produce as that grown within th
e same state, but in a large state like California, that doesn t mean much. Also,
it s tough for big chains to find enough local farms to fulfill their needs, and s
maller farms can struggle to keep up with a large chain s demands, says Julia Stew
art, a spokesperson for the Produce Marketing Association. In the case of Wal-Ma
rt, some of its local suppliers are the same massive farms that normally provide
its produce. It just makes for a positive press release, Livingston says. A Wal-M
art spokesperson says the company works with farms of many sizes and doesn t precl
ude its local farmers from selling their produce elsewhere.
10. We re experts in human behavior.
Marketers know a lot about how you shop and what s likely to make you pick up a pr
oduct. For example, stores have discovered that shoppers are more comfortable st
aying to the right as they move through a store, says Ron Larson, associate prof
essor of marketing at Western Michigan University. How much difference does it m
ake? According to market-research firm Sorensen Associates, shoppers moving coun
terclockwise spend
$2 more per trip than those who go the opposite direction.
How to avoid getting psyched out by savvy marketing? Know what you want to buy b
efore you enter the supermarket. Livingston recommends planning meals for the we
ek and sticking firmly to your list once in the store. Also, grab the smallest c
art that will hold all your items, and heed the old saw Never shop when you re hung
ry.