Grocers, profits and the one per cent
Everyone who works in the supermarket business knows how efficient the food business has become.
The proof: Grocers work on razor-thin margins and competition has vastly reduced the price of food. The rise of the modern supermarket business over the last 80 years has in no small part contributed to better lifestyles.
Back in the early 20th century, around the time the modern grocery industry started to develop, food was expensive. Households often spent more than a third of their income to buy groceries, according to Marc Levinson’s The Great A&P, a historical account of the grocery business told through the rise of A&P.
By the late 1960s, the cost of food had fallen drastically. In Canada, in 1969, slightly less than 20% of the average family of four’s income went to groceries. But by the mid-2000s, that number had dropped to less than 10%
But today's consumers remain wary, and for good reason. Every week they make one, two or three trips to the grocery store, only to leave with shrunken bank accounts. When grocery prices do go up, people naturally assume they’re being gouged.
Most people I speak to are surprised when I tell them the food business is a low-margin game and that of the $100 they spend at the till, usually only $1 ends up as profit for the store.
It must drive many grocers crazy when they hear complaints about prices. Perhaps what’s needed is an ad campaign to show that, far from ripping people off, the grocery industry actually does a good job keeping people’s costs down. That’s exactly what one organization has just done.
The U.S.-based Food Marketing Institute (FMI) has released a video on YouTube to shows the benefits of the modern supermarket industry.
The campaign centres on the industry’s low margins. The 1% profit that grocers make, the ad states, is proof consumers are getting a good deal.
Despite its low margins, the video states, the grocery industry “continues to thrive by providing low cost and high value to shoppers throughout the country.”
It goes on to highlight other industries that aren’t nearly as cost conscious. The financial services business and pharma trade reap net margins of 16%, and the restaurant biz eats up profits of nearly 9%.
The video then asks viewers to go to the FMI website to learn more facts about the supermarket business.
Will this video change shopper perceptions? Probably not. It is, after all, just a short clip on YouTube. Only 68 people even bothered to watch it in its first week uploaded. So basically, a few staff from FMI and yours truly have seen the video.
YouTube videos that go “viral” and actually grab attention get tens of millions of views. Eighteen million people on YouTube, for example, have seen P&G’s "Pick Them Back Up" video for the 2014 Winter Olympics, in the last month.
Getting the "supermarkets-are-a-good-deal" message to stick would take a much more extensive advertising campaign than what FMI has done.
If nothing else, though, FMI’s video will make grocers a bit proud of the business they’re in. They might even view that 1% margin as a hard-won badge of honour.
Check out FMI’s video below:
http://youtu.be/fnolVDrXPSg