The V word

Ask a real estate person for the three most important words in her industry and she’ll repeat, “Location, location, location.” So what are the three most important words in our industry today? Easy: “Value, value, value.”

But today’s definition of value isn’t the one you’re likely familiar with. Consumers no longer think of value as trading down and making sacrifices. Value means getting what they want when they want it, and at a ridiculously great price. Seventy-five per cent of Canadian consumers tell Nielsen they are saving money on household expenses by purchasing items on sale. Think about that for a moment. Three-quarters of Canadians–more than the U.S. average (70%) and global average (57%)–are making decisions with their wallets.

The “new value” is entirely in sync with current consumer attitudes. We are out of the recession and optimism is growing among Canadians. But the recovery has been slow so far and shoppers are still skittish. The start of the HST in Ontario and B.C. is likely to put a further stranglehold on consumer spending. As a result, everyone (low-, mid- and high-income alike) is looking for value.

Retailers are responding. Non-grocery retailers, for instance, have started selling food as a way to draw traffic. Drugstores are selling essential grocery items and some of the ones that are open 24 hours are acting more like convenience stores than pharmacies. In fact, the entire store is now being used to pull in traffic. As a result, Canadians are able to buy more of their consumer packaged goods on featured price. Temporary price reduction sales are up 13% from a year ago. Today, almost half of the items sold in Canada are with some sort of price reduction.

The new definition of value is also affecting grocers. Consumers are visiting conventional grocers less and visiting warehouse clubs and other discount channels more. Discount retailers now capture more than one-third of grocery and drug category sales. Still, I’ve discovered two ways that conventional grocers can compete effectively on value:

* Remember that grocery is king.

I visit grocery stores every chance I get. And what I see is stores devoting more and more space to non-grocery items, such as clothing, perhaps with a goal of delivering a one-stop shop. Yet consumers are buying more essentials, and Nielsen research shows that meat, produce and dairy are leading unit sales growth across departments. Grocers should focus on these fundamentals. Fresh can be a huge point of difference for your store. So understand your strengths and stick to your grocery expertise.

* Know the difference between price and value.

You’re not going to win the value game on price alone. A box of Brand A cereal at my grocery store is the same one my drugstore carries. I’m going to buy wherever I can find the best price. So will every other shopper.

To differentiate your store, aim your energies on the four things that make any grocery store great: variety, selection, quality and service. Take the meat counter, for instance. I’m willing to pay more for meat at a store that gives me variety and quality and has someone behind the counter who can answer my questions. For consumers who consider these factors important, you can justify a price premium. They are getting the product and service they want at a price they’re willing to pay. To that consumer, you’ve just delivered value.

Restraint is the new normal and the V word is here to stay. Expect consumers to continue torespond to promotional activity. But don’t confuse that with real value.