Impossible Competition, loss leaders and having your throat cut !

[herewegoagain.]

I make an apology in advance if this comes over negative... just fuming - !!

I have just taken into stock (today) a certain Easter confectionery item, branded, costing me £2.65 plus VAT at trade price - now I am very careful about what I stock, because of the supermarkets and this was the best price I could get the item for (at the time)...

Now... Asda have got the same item on sale at £1 !! - what chance do independents like me have? -
the recommended retail on the item is £3.99 - I WAS putting them on sale at £3.99 - 2 for £7 - so hardly making a fortune on them !

Now I know they will stick 5p on the tea bags/ sugar etc - the fast moving items and treat this item as a loss leader...

There really needs some sort of legislation about this kind of thing.... it is damaging to everyone - apart from the consumer that is - who will expect yet more 'something for nothing'.... damaging for wholesalers - when the supermarkets go direct to the manufacturer -

I am sending my stock back - there is no point in stocking it on those figures !! no one will buy it !!

I am going to get 3 dozen from Asda, wait till they have sold out, then put them on sale and stick 50p on them ! I never ask for supermarkets to play fair against other retailers - after all it is not in their interests - but there really needs to be some legislation in place, as year after year, more and more stock items are way below COST PRICE, for traders - who are only trying to make a living...

How can an independent be competitive against this? all the service in the world - if I gift wrapped it, carried it to their car or even if I ate the item for the customer (!) would make no difference !! I give in ! rant over !! ;-)

 

[Scott-Copywriter]

A benefit of this is one you have already mentioned. If the trade price is more expensive, then simply buy some loss leader stock from Asda to give yourself a stronger and more competitive mark-up.

That being said, just remember that no one has psychic knowledge of every single price in every single shop. You may be more expensive than others, but they can still buy from you because 1). they don't know every other price around and 2). it's simply more convenient.

My local corner shop is far more expensive than Asda, but I wouldn't drive a mile down the street just to save 50p on a pint of milk.

 

[The Byre]

In many EU countries, selling at below cost IS illegal, so too is bundling (e.g. two for the price of one, free pack of coffee with your coffee machine).

But I voted no, simply because that was what we had under price fixing in the 60s and that was a disaster for everybody and would work against the interests of the small retailers, as they are hardly in a position to create own brands.

 

[Paul Norman]

This is the 'scurge' of an open market, with competition. We all love it, until it moves in on the things we wish to sell.

There will not, in our lifetime, be legislation to control prices upwards. The retail motor trade effectively had something approaching this, but not as rigid, and there was an outcry of 'rip-off Britain'.

There is always going to be someone selling at a loss - for a range of reasons. But you have to find a balance that works for your business, that is profitable but competitive.

Thankfully, most of us to not buy everything on price alone, otherwise even the few remaining High Street stores would have long since gone. I would rather buy a nice watch from a reputable shop than a potential fake from a bloke stood on the street corner. Not everyone will agree, but neither am I alone.

I feel your pain, obviously, as a retailer. But legislation is not the answer.

 

[Ashley_Price]

Now... Asda have got the same item on sale at £1 !! - what chance do independents like me have?

Well, first things, first how close is the ASDA store to you?

If you were based in Lewes, for example, you'd still have people buying your stock because the nearest Asda is at least a 15 minute drive away (although, sadly we do have 3 other supermarkets in the town).

But also you probably give customers something that the supermarkets can't, and that's friendly customer service.

If everyone felt the same, then independent shops would have all closed up long ago.

You have to see what other things you can do that the supermarkets can't that ensures customers still buy stuff from you.

And as, @The Byre says above, it was brought in to combat the price fixing.

 

[japancool]

Are you allowed to have RRPs any more?

As for legislation, what if I want to get rid of old stock that isn't selling? I have some stock that has now been superseded by new items, and no one is interested in the old models. I will need to reduce the price, probably below cost to shift them. I would rather get something for them than nothing, and I imagine that's not uncommon amongst retailers, both B&M and internet.

 

[Ashley_Price]

Are you allowed to have RRPs any more?

I think you can charge any price you want. if you think you can get away with charging a lot of money for an item then try it and see.

But what you have to remember with the supermarkets is often they don't lose out of having an item at "below cost" - from someone in my Rotary Club that worked for Unilever, the supermarkets pass the loss onto the manufacturer. So that "2 for 1" deal, the supermarket doesn't lose any money.

 

[japancool]

I think you can charge any price you want. if you think you can get away with charging a lot of money for an item then try it and see.

I mean, are suppliers allowed to set or recommend a price any more? I thought they weren't. The OP seems to suggest there was a price recommended by the manufacturer or supplier.

 

[The Byre]

You can have a list price, but you can't insist on retailers selling at that price.

 

[Jeff FV]

Suppliers are allowed to recommend a retail price, but that is all it is - a recommendation. No one can be compelled to sell at that price.

 

[The Byre]

As for legislation, what if I want to get rid of old stock that isn't selling? I have some stock that has now been superseded by new items, and no one is interested in the old models. I will need to reduce the price, probably below cost to shift them. I would rather get something for them than nothing, and I imagine that's not uncommon amongst retailers, both B&M and internet.

In those EU countries that ban selling below cost price, this is a real bone of contention! If shop A thinks that shop B is selling below cost, he will report them to the relevant body and on inspection, shop B has to prove that he is selling old stock that otherwise would spoil/not sell/have to be dumped.

 

[herewegoagain.]

Well, first things, first how close is the ASDA store to you?

If you were based in Lewes, for example, you'd still have people buying your stock because the nearest Asda is at least a 15 minute drive away (although, sadly we do have 3 other supermarkets in the town).

But also you probably give customers something that the supermarkets can't, and that's friendly customer service.

If everyone felt the same, then independent shops would have all closed up long ago.

You have to see what other things you can do that the supermarkets can't that ensures customers still buy stuff from you.

And as, @The Byre says above, it was brought in to combat the price fixing.

Cheers for your reply, Asda has a small convenience store around the corner - and yes I did check the day before yesterday to see if they had them in - they didnt at the time !!

Like most independents, I offer good service, but even this would make stocking lines like this pointless - people wont pay 3x the cost !!

 

[Chris Ashdown]

Hi Herewegoagain

Unfortunatly we all suffer with the large discount prices some sellers offer as a loss leader

I think your best bet is to play the supermarket game as they do and as you say buy up thir cheap goods and resell with a markup holding no more than a couple of days stock of each item

You might try buying some of the supermarkets own brand and selling it slightly less than it cost you and tell the press you selling cheaper that the supermarket, good publicity where you can bring up your points and a bit of grief to the supermarket boss who will get emails from head office

 

[Ashley_Price]

Asda has a small convenience store around the corner - and yes I did check the day before yesterday to see if they had them in - they didnt at the time !!

Like most independents, I offer good service, but even this would make stocking lines like this pointless - people wont pay 3x the cost !!

But if ASDA don't have the stock in then it doesn't matter what they charge. People who want to buy now - in spite of the fact there's a few months till Easter - will buy yours.

 

[japancool]

Cheers for your reply, Asda has a small convenience store around the corner - and yes I did check the day before yesterday to see if they had them in - they didnt at the time !!

You can sell things at any price you like if you don't have the stock...

One of my competitors has announced the price for a brand new headline item which is just ridiculous. But he hasn't got any stock of it and won't do for a little while yet, so it just looks a bit silly since people who wanted them for Christmas have already bought them off me...

 

[herewegoagain.]

But if ASDA don't have the stock in then it doesn't matter what they charge. People who want to buy now - in spite of the fact there's a few months till Easter - will buy yours.

well in theory !! lol they are there this afternoon !! the whole point of my original post is to show how products get devalued - to the point no one - not even the supermarkets - make money on them.... it just winds me up.... I am a bit old fashioned, a hard working bloke trying to make a wage - having a whinge ! lol

 

[herewegoagain.]

Hello Chris, yes, I do get some stock from the supermarkets - Easter Eggs are a prime example- they are half price to me - compared to the wholesalers !! -and I add value by gift wrapping and adding lollies, chocolate mini eggs to them etc - as a proper gift - I just find it annoying that I should use wholesalers and factories for stock, not supermarkets who sell cheaper than the wholesalers - doing it this way is the only way I can make any money at Easter !!

Hi Herewegoagain

Unfortunatly we all suffer with the large discount prices some sellers offer as a loss leader

I think your best bet is to play the supermarket game as they do and as you say buy up thir cheap goods and resell with a markup holding no more than a couple of days stock of each item

You might try buying some of the supermarkets own brand and selling it slightly less than it cost you and tell the press you selling cheaper that the supermarket, good publicity where you can bring up your points and a bit of grief to the supermarket boss who will get emails from head office

 

[Ashley_Price]

the whole point of my original post is to show how products get devalued - to the point no one - not even the supermarkets - make money on them

As I said earlier, supermarkets do still make money on them, because they pass the loss onto the manufacturer. Supermarkets are so big now that if the manufacturer doesn't do what they say, the supermarket can stop stocking their products.

 

[Scott-Copywriter]

As I said earlier, supermarkets do still make money on them, because they pass the loss onto the manufacturer. Supermarkets are so big now that if the manufacturer doesn't do what they say, the supermarket can stop stocking their products.

That's a form of price fixing, which is illegal.

The supermarkets don't pass the loss to the manufacturer. They absorb the loss but use the product as a loss leader to attract people into stores where they then may buy other products.

This means that they may have lost money on one product, but made an overall profit on the rest of the products the consumer has purchased during their visit.

 

[Ashley_Price]

That's a form of price fixing, which is illegal.

Do you really think the supermarkets are going to worry about that?!

They have so much power that they can treat suppliers how they want.

See THIS ARTICLE (albeit from 2007) in the Guardian. As it states there "suppliers' lobby groups say simply that they are so frightened of being delisted - having their goods taken from the grocer's shelves and contracts not renewed - that they dare not complain."

There are reports that the supermarket bully boy tactics even extend to planning departments. If Tesco really want a site, they threaten the planning authority that if their application is refused they will take them to court, which means millions of pounds of taxpayers' money could be spent fighting Tesco.

 

[Scott-Copywriter]

Do you really think the supermarkets are going to worry about that?!

http://www.telegraph.co.uk/finance/...5m-fine-in-dairy-price-fixing-settlement.html

Yes, they will.

They have so much power that they can treat suppliers how they want.

They can put an awful lot of pressure on suppliers, but they can't blackmail them into taking a loss on their products. That is illegal and, as you can see from the article above, even the major supermarkets aren't impervious to massive fines.

See THIS ARTICLE (albeit from 2007) in the Guardian. As it states there "suppliers' lobby groups say simply that they are so frightened of being delisted - having their goods taken from the grocer's shelves and contracts not renewed - that they dare not complain."

There are reports that the supermarket bully boy tactics even extend to planning departments. If Tesco really want a site, they threaten the planning authority that if their application is refused they will take them to court, which means millions of pounds of taxpayers' money could be spent fighting Tesco.

I'm sure they do use bullying tactics, but they don't force their suppliers to take a loss. It's common business practice for big supermarket chains to take a loss on 'loss leader' products as a way of increasing their overall profit.

 

[japancool]

Having loss-leaders certainly shouldn't be illegal. A lot of businesses do it, and legislating against it would effectively mean you couldn't, for example, buy a mobile phone and get free screen protectors, or that sort of thing.

 

[promdressers]

I, costing me £2.65 plus VAT .........................recommended retail on the item is £3.99 - I WAS putting them on sale at £3.99 - 2 for £7 - so hardly making a fortune on them !

26.6p per profit on a unit costing £2.65? is 10% a fairly standard sweetshop mark up? You wouldn't want much wastage.

 

[10032012]

Supermarkets get away with it as they are all LARGE EMPLOYERS

If they get fined for this, people lose jobs... (seriously, if you are a large employer, in the top 50 especially, you can hold the Government to ransom regardless what the law dictates. unemployment is too high as it is, they don't want it to get worse. The government needs a backbone, if Tesco disappears overnight (they wont) someone will absorb the demand (primarily the other supermarkets, but you will get people entering the market. Its even more applicable with the banks... they wont move away)

We all hear about @herewegoagain moaning about this competition but the high price from his wholesalers plus his mark up simply isn't creating employment. This goes for all you small shops! Its illegal what they do, but by employing so many people its a big chunk of the income tax and NI treasury income.​

However, back to the correct angle... I think its shocking what they get away with, the supermarkets surely have a cartel, you can clearly go from hero to zero... I have to say its not limited to supermarkets this behaviour, Boots is a significant business that uses supermarket concepts.

Any politician claiming wanting to help small shops cannot be believed. They generally see supermarkets as good for the consumer as the smaller shops are overpriced with their large mark ups (having a laugh?) and co-ordination through the big supermarkets is much easier for manufacturers that employ people, the supermarkets that employ people and consumers demands for food etc.

I go back to referring about Tesco... they either push manufacturers margins (in Tesco there are generally three types of products... 1) always at full price, rarely on offer, 2) price jumps around a lot (sometimes on 'offer', sometimes fluctuate not on offer... for example £3.99, then £2, before jumping to £5) and 3) products that are always on offer as BOGOF/BOGTF or half price, a deal with the manufacturer) or do loss leaders to kill local competition. keep an eye on prices, everything is expensive... apart from deals, making things bearable and those few how-can-they-make-it-for-that-let-alone-ship-it-across-the-world-and-to-the-supermarket items (not including the mandatory under-priced iphone/ipad PR stunts).

 

[Ashley_Price]

...as you can see from the article above, even the major supermarkets aren't impervious to massive fines.

Wow! a £6.5 million fine! That's staggering...

But, hang on, Tesco made sales of approximately £73 billion! (See Tesco's own prelimary report for 2012/13 HERE).

That means this fine was approximately just 8 PERCENT of their total sales!

They are impervious because they have so much money they can easily pay a fine like this.

And what do you say about traders like Tesco and other stores that buy clothes from sweat shops in foreign countries where there are no (or little) labour laws?

Look at the clothing factories in India and other places that collapse or fires break out, and workers have died. What do the western companies do? They "urge factory owners to improve safety standards." - Nothing about refusing to buy from them if they don't improve standards you notice, or offering to put money into ensuring better standards for the workers who are making the clothes they sell.

 

[Scott-Copywriter]

Wow! a £6.5 million fine! That's staggering...

But, hang on, Tesco made sales of approximately £73 billion! (See Tesco's own prelimary report for 2012/13 HERE).

That means this fine was approximately just 8 PERCENT of their total sales!

They are impervious because they have so much money they can easily pay a fine like this.

They aren't impervious because it's a £6.5million pound fine, and if they break the rules again, they'll get an even larger fine. That's why they spent years fighting it in a legal battle (which they eventually lost).

And anyone with an ounce of business acumen knows that sales are completely irrelevant. The number which matters is the number left over after expenditure, and their net income for 2013 was only £124million. That makes £6.5million a pretty big chunk of their profit to give away, and something which the shareholders of Tesco would not have been happy to do.

 

[Nuno]

Wow! a £6.5 million fine! That's staggering...

But, hang on, Tesco made sales of approximately £73 billion! (See Tesco's own prelimary report for 2012/13 HERE).

That means this fine was approximately just 8 PERCENT of their total sales!

They are impervious because they have so much money they can easily pay a fine like this.

Umm, isn't £6.5million actually about 0.009% of £73billion?
Makes your point stronger, but several degrees of magnitude out....
(8% of sales would be 5.84billion.)

 

[Talay]

.... no one has psychic knowledge of every single price in every single shop....

But many do know all the relevant prices in all the stores, if price is a decisive factor to them.

Not all of us are mathematically illiterate or have memories like swiss cheese

 

[WillLoxley]

Are you allowed to have RRPs any more?

As for legislation, what if I want to get rid of old stock that isn't selling? I have some stock that has now been superseded by new items, and no one is interested in the old models. I will need to reduce the price, probably below cost to shift them. I would rather get something for them than nothing, and I imagine that's not uncommon amongst retailers, both B&M and internet.

You can recommend a retail price, though price fixing by the manufacturers is not allowed.

 

[warnie]

26.6p per profit on a unit costing £2.65? is 10% a fairly standard sweetshop mark up? You wouldn't want much wastage.

No! never have and never will sell anything for 10%. Even my previous business as a wholesaler my margins never dipped below 16%. unfortunately if an independent retailer wants to sell for example, Easter eggs, then we have to sell them for near cost to compete and even then sometimes the supermarkets are cheaper.

I refuse to sell them, and instead we make our own Easter gifts for those that want to give something a little different other than a £1 Cadbury's egg from Tesco's.

 

[deniser]

Sigh! It's all part of the drive towards getting rid of small businesses and having us all employed by a handful of conglomerates. It's not just on the high street but on the internet too with Amazon and Ebay just swallowing all the little people

 

[warnie]

As for loss leaders, well, as a retailer It's better if it doesn't happen. But as a consumer I like everything as good quality and as cheap as possible. If supermarkets didn't sell stuff as cheap, then maybe I could up my margins and actually buy in Easter eggs for once. But that extra profit I make will be more than dwarfed by the extra I'd be spending on everyday goods to keep the house running.

 

[emmylou74]

I am not for regulating price. As much as it annoys the c**p out of me. Just coming out the pet trade it was a nightmare all of that. But they can stick those kind of products. I am working on only having my own products and going directly to small time manufacturers etc to work with me. I am staying away from all wholesalers and large produced stuff.

If I had a sweet shop then I think I would hire a chocolatier to create my own range of easter eggs and then you could offer to personalise them - people just love personalisation.

BTW I wanted thank some of Ashley Price's comments but cannot see how to do that anymore - total technophobe!

 

[herewegoagain.]

to quote 100312

We all hear about @herewegoagain moaning about this competition but the high price from his wholesalers plus his mark up simply isn't creating employment. This goes for all you small shops! Its illegal what they do, but by employing so many people its a big chunk of the income tax and NI treasury income.

Moaning ! very rude... I see you must use your personality as a contraception !! ;-) LOL - no offence - well maybe just a tad ! lol - I am entitled to comment the same as the next person - like it or lump it....

Regarding your comment about employment, please.... my shop employs me - do you think I do it for nothing? ! I am merely trying to earn a crust - would you prefer I be on benefits?? some weeks there is not much difference !! think on !

 

[Scott-Copywriter]

But many do know all the relevant prices in all the stores, if price is a decisive factor to them.

Not all of us are mathematically illiterate or have memories like swiss cheese

Not really. Perhaps a few people do, but that's only a small percentage. In retail, you're highly unlikely to capture every type of consumer demographic. In the fight for extremely price-conscious consumers who know every single price of every product, the OP will lose. Instead of fighting that, just let it go and focus more on target audiences which are more suited to his business model. It's foolish to presume that everyone thinks in the same manner and it's foolish to try and please everyone.

In the case of a small confectionery item worth a few pounds, a price-conscious consumer would have to visit Asda to check the price, then avoid buying it and visit the OP's store to check their price. After that, they would then have to go back to Asda if they decided that the trip was worth saving £1-2 for.

This simply isn't how the buying process works for the vast majority of people, and it doesn't really make any sense. Perhaps some people would resort to price comparisons for such low-value items, but the vast majority of people will impulse buy and make a snap judgement on whether they consider the price fair or not.

Of course, a lot more price comparing goes on with higher value products where there is potential to save tens to hundreds of pounds, but it very rarely occurs with such low value produce.

 

[japancool]

But why try to compete with the likes of Asda on cheap, mass produced items? One reason, not the only reason by any means, Asda can do it is because people don't usually go there just to buy a £1 Easter egg, but they'll do their shopping there as well, and Asda can make their money on the other products in their basket, as Scott-Copywriter mentioned.

There must be loads of other goods, particularly premium items that Asda don't stock that you could compete on. Belgian chocolate Easter eggs or that sort of thing. I mean, I love white Toblerone and Ritter chocolate, but very few places around here stock them, and that's what I look for when I go into an independent, not Cadbury's Easter eggs that I can get anywhere.

 

[mhall]

That's a form of price fixing, which is illegal.

The supermarkets don't pass the loss to the manufacturer. They absorb the loss but use the product as a loss leader to attract people into stores where they then may buy other products.

This means that they may have lost money on one product, but made an overall profit on the rest of the products the consumer has purchased during their visit.

I can absolutely confirm that the supermarkets DO pass on the loss to the manufacturer. They dress it up sometimes as retrospective discounts, admin costs or even stocking fees, but they get it back somehow. If the manufacturer doesn't like it, then the supermarket simply terminates the supplier agreement. It's not just supermarkets. People like Staples will charge a supplier for product display stands within the store - all on top of the fantastic prices they already screw the supplier for.

 

[Scott-Copywriter]

I can absolutely confirm that the supermarkets DO pass on the loss to the manufacturer. They dress it up sometimes as retrospective discounts, admin costs or even stocking fees, but they get it back somehow. If the manufacturer doesn't like it, then the supermarket simply terminates the supplier agreement. It's not just supermarkets. People like Staples will charge a supplier for product display stands within the store - all on top of the fantastic prices they already screw the supplier for.

I have two issues with this supposed claim:

1). As I said before, it's illegal. In fact, it's illegal in a multitude of ways.

2). If suppliers are making a loss, then they're going to go under. It's simply a matter of time. I have no doubt in my mind that supermarkets squeeze suppliers for everything they're worth, but common sense will tell them that having some suppliers at a certain price is better than having no suppliers at all when they all shut down.

Having said that, it really depends on what we're talking about. Is it passing a loss on to the manufacturer whilst still creating an overall break-even/profit, or is it passing on an actual net loss?

If a supermarket is buying certain produce at a loss price for the manufacturer, but also buying other produce from the supplier which results in an overall net profit (however small it may be) then this is a bit like a suppliers version of the loss leader strategy.

 

[Chris Ashdown]

Get real with the word "Loss Leader" have you ever been to a 99p shop and they make profits and sell plenty of Easter eggs

The buying in price to a small retailer is massive compared to the bigger buyers, and I assume the choc shop would sell me a thousand Easter eggs at a much reduced price then he sells to customers buying one egg in the shop, and also get a much better price from his whole-seller himself

 

[Nuno]

I can absolutely confirm that the supermarkets DO pass on the loss to the manufacturer. They dress it up sometimes as retrospective discounts, admin costs or even stocking fees, but they get it back somehow. If the manufacturer doesn't like it, then the supermarket simply terminates the supplier agreement. It's not just supermarkets. People like Staples will charge a supplier for product display stands within the store - all on top of the fantastic prices they already screw the supplier for.

If a supplier doesn't know about this, and budget for it when negotiating with the majors then they shouldn't be in the game. You basically aren't selling product to the majors you are renting shelf space. The price of that shelf space changes all the time, so you have to be aware that you will be operating within certain parameters.
To do this successfully means shifting serious volume over time. If you can do this then supplying the majors can be very profitable, but you have to know what you are doing, and the rules of the game.