January 6, 2008

The Grocery Game!

I think we can all agree that groceries are a necessity. There aren't too many people in the US who grow enough of their own food to avoid at least a weekly trip to the grocery store. So, food is a necessity and we obtain it by purchasing it from the store.

Food, in the form of groceries, also constitutes a large portion of the family budget; whether you are rich or poor, you have to eat. So we have two established facts: we have to buy groceries at a store and we are committed to paying a good sum of money for those groceries.

Now comes the strategy for making the most of this situation. Harford puts into words some of the intricacies of the "grocery game" that I have been playing for years. Location, sale pricing, shopping cheaply and careful comparison are the hallmarks of the grocery game -- and any parent on a tight budget knows that this game can pay off big in the end!

Let's talk location -- like Harford discusses at the beginning of the book, location can play a big part in drawing in those who want the convenience of a store close to work, close to home or on the way to school. The store may pay a premium for this location, so be open to shopping at stores that are not as convenient. Grocery stores also have another game they like to play with regards to location -- while they may pay a similar cost per square foot for the grocery store located at Circle and Galley and the grocery story located next to Broadmoor Towne Center, they don't charge the same for the items sold. This location game they play happens all over the country -- grocery stores charge more for everyday staples in higher per capita neighborhoods than in lower per capita neighborhoods. Sometimes a few miles can make a big difference in the cost.

Does anyone disagree that when we are in a hurry, we spend more money on groceries? Harford points this out: "An expensive shopping trip is the result of carelessly choosing products with a high mark-up". Shopping cheaply involves using a list (and sticking to it) and paying close attention to the items you are purchasing. Don't grab the first jar of peanut butter you see or the can of soup that is directly in your line of vision -- look at the price, and choose accordingly. His suggestion of comparison shopping also comes into play here -- you are in a contest with the grocery store for your money. You want as much as possible for your pennies and they want to give you as little as possible for your dollars. Look high and low for items; stores like to make the cheaper stuff hard to find! Bulk garlic is usually cheap -- but I can't tell you have long I have to spend to find it. I can find jars of minced garlic, boxes of organic garlic but I swear the cheap, bulk garlic gets moved every week to a different part of the produce section!

Sale pricing -- this strategy can pay off in big savings when filling that grocery cart! You just have to change your attitude about the costs of food staples. Harford hit the nail on the head when he said "...it is just as accurate, and more illuminating, to turn the "sale" on its head and view prices as premiums on the sale price rather than discounts on the regular price."

By shopping with this attitude, you can select items that offer a fair value to you. When spaghetti is normally sale priced for $1.00/pound and you see it for $1.89/pound, it doesn't make sense to purchase any more than you absolutely have to have that day. This particular strategy works best if you have an excellent memory for prices or you have the organizational skills to keep a price book. Frugal grocery shoppers know the trick of the price book -- a listing of items your family regularly purchases along with the least expensive price paid for the item in the last six months. When shopping, consult your price book; if the item is close to the "low price listing", buy as much as you want -- if it is high, consider other options.

The price book strategy also helps to even out the problem of "inside knowledge" that Harford refers to. Grocery stores know that you are going to purchase meat, dairy, frozen foods, snack foods, etc. They spend a great deal of money tracking consumer spending habits in order to increase profits. You, on the other-hand, don't know if the prices that the grocery store is selling those items for is high, low or somewhere in between. Even advertised items can be high -- 10 for $10 is no bargain if the item usually sells for 89 cents. By keeping a price book, you have the inside knowledge to know whether the price is good. You may be surprised to learn that most "loss-leader" sales happen on a rotating six week schedule. If your family likes spaghetti, you want to buy it once every six weeks at the lowest cost. The same goes for Hot Pockets, ground hamburger and shredded cheese. Buy them during the low cost cycle and save your pennies for something else.

The biggest hurdle to the grocery game is time -- when we have the time to shop, to make a list, to keep a price book -- we can win the game. Those of us working full-time, going to school and raising a family frequently lose the game because we don't have the time to play (and that is just what the stores are counting on).

Stefanie Hudgins


Larry Eubanks said...

After reading a number of essays on groceries, this essay suggests I thought I want to ask you to explore.

Much of the discussion I've read looks at groceries mostly in terms of individual items and individual prices. And, certainly, microeconomics encourages us to think in this way. Think about the theory of the firm in economics (i.e., our model of a business), the producer is producing one good or service and selling it.

But, a grocery store certainly isn't a single product producer or business. It sells multiple products.

Consider also that people who buy from grocery stores may not go with the purpose of buying a single product. Rather, people think of making trips to the grocery store, and when they make their trip they often carry along a grocery list with many items to purchase.

Maybe instead of thinking of groceries stores as suppliers of bread, or onions, we might want to think of grocery stores as supplying "trips" to buy groceries? How might this change the observations made in the essays about grocery stores? Or would there be little change in the analysis and discussion?

Jessica Wade said...
This comment has been removed by the author.
Jessica Wade said...

That is a good point, I think I mentioned something about how turkeys or hams might go on sale to attract customers to complete all of their holiday shopping at that store and then they raise their prices on other complentary goods. This also is a HUGE reason why grocery stores have implented discount cards. They can keep track of what people are buying during these "trips" and by researching this they can target markets. By grouping people who buy similar items they are able to send out coupons for items they might be interested in but don't normally buy. They also are able to predict what people will buy during their grocery store trip and are able to use this information to price target. Another why that the cards targeted people was to collect information about the buyers current products and print out coupons for sublimentary or complimentary goods. One example I have is that for a while when someone would buy a pregnancy test a coupon for baby diapers would shoot out of our machine. Now this not only enourages our potentially pregnant shopper to come back in the event the test is positive it also introduces new products to her that she may not have known were at the store. By printing out these store specific coupons while the costumer checks out, it encourages each customer to come back because now they get a discount on an item the probably want, it also pushes them to look and buy new items that they might have gone elsewhere for.

Douglas Loeper said...

Larry Eubanks said: "Maybe instead of thinking of groceries stores as suppliers of bread, or onions, we might want to think of grocery stores as supplying "trips" to buy groceries? How might this change the observations made in the essays about grocery stores? Or would there be little change in the analysis and discussion?"

I would have to say that this is how some retailers think and that they expect their consumers do to. I say this from first hand experience. For many years I was the General Manager of a local casual dining, sit down, family restaurant. When I took over the position of General Manager there were some extra 'features' that had been implemented by the old GM that I was contemplating their usefulness of value vs. cost. The main one was the presence of a Magician or a 'Balloon Lady' on Friday and Saturday nights for the kids. What we believed, and tested, was that even though there wasn't a explicit cost to the consumer there was an expectation by the guest to tip these entertainers and an expectation by the entertainers to be tipped. My thoughts on the subject was that even though it may be 'value added' it's overall affected the experience of the guests negatively. What we believed was when the guest came into the restaurant they didn't figure out how much they were spending on each item or tipping each service professional they encountered but when they left they gained a sense of how much their entire experience cost. Drinks at the bar, Dinner in the dining room, Tipping and so on. Our action was that we'd pay a higher rate to the entertainers and they'd wear a button that said 'Doesn't work for tips, we work for laughs!' and that they would politely turn anyway any gratuity. With this scenario it was difficult to see an increase in sales only from this change but what we did notice from server feedback was their tip ratios improved on these nights and what had once turned out to be a negative to them was now a positive, their guests were happier, it wasn't taking anything out of their pocket, service improved and guest feedback on those nights improved.

We then took this idea of total cost of dining as we implemented valet parking (we shared a parking lot and on very busy nights we observed severly guests driving away due to a lack of parking). We hired valet parkers for Friday and Saturday nights and paid them a higher rate but again had them refuse gratuities. Our business increased, more then enough to offset the higher valet wages and the guests total dining cost wasn't affected.

In short I believe that both producers and consumers do think like this. I also wonder if shopping experiences are set up by retailers with any thought to this. Positioning more expensive or higher marin items in places where shoppers will pick them first so when their mental bank account is expended they overlook less expensive items or they use less expensive items to maximize their spending (buying a $1 soda to top off the shopping cart instead of passing up a $4 snack)?