What influences what you buy when you travel the aisles at your local grocery store? For most shoppers, as much as 70% or more of all purchases are unplanned. While you may have a handful of items that you are certain of purchasing, about $70 of your $100 shopping trip is being heavily influenced by "what looks good." The consequence is more of your money lost at the register. A successful grocery store is designed to do one thing: sell more products and get you to spend more money. By being an active shopper and being aware of the psychology involved in grocery retailing, you can stay in control of your unplanned purchases and keep more money.
The center of the store is dedicated to cans and packages: known to grocers as dry goods. These items take up the most space yet make up the lowest profit margin for the retailer. Here, it's all about facings. Facings are the number of products you see facing the shopper. Kellogg's may have 60 facings of different varieties of cereal while Quaker may have only 16.
It's a fierce war for shelf space with regular negotiations between manufacturers and retailers for a limited number of inches. More facings for a product equal more sales. A small percentage increase in sales can mean millions of dollars for a large manufacturer. Retailers know this and often charge a luxury tax to the manufacturer for the shelf space known in the industry as a slotting fee. The slotting fee system is a practice seldom talked about beyond retailers' sales negotiation meetings.
Slotting fees vary greatly depending on the product, manufacturer, and market conditions. For a new product, the initial slotting fee may be as high as $250,000 in high-demand markets in addition to any promotional, advertising and stocking fees. According to an FTC study, the practice is "widespread" in the supermarket industry. Many grocers can earn more profit from agreeing to carry a manufacturer's product than they do from actually selling the product to retail consumers. I always thought the reason that a store didn't carry a particular product was due to supply problems. Turns out, it's quite likely the retailer and manufacturer simply haven't come to an agreement in their negotiations.
With thousands of products on store shelves, how can you make sure to spend your money wisely? Here are my top ten tips to help you be more 'shelf-aware.'
1. The woman's average eye level is 59? The average man's eye level is 64?. The highest profit items (and most likely to be chosen as an impulse buy) will generally be just below these heights. One exception can be the cereal aisle - where colorful kids cereals are almost always kept within reach of young hands. I don't mean to start a conspiracy theory - but nothing is unplanned in the grocery store.
2. Related products (tie-ins) next to a big selling product mean additional profit opportunities for the retailer. (Think steak sauce next to steak).
3. Unrelated products (e.g. toys) hanging within reach of your kids mean even more money spent. Avoid the temptation. These impulse items carry very large profit margins for the retailer.
4. Larger packages and quantities do not necessarily equal lower per-unit pricing. In fact, couponers often avoid the larger packages. The reason is that the same $1 coupon gives a larger percentage discount off the smaller product. When in doubt, check the unit pricing that most shelf-tags carry - or use your calculator app.
5. Products in cut-box cartons, thrown into a bin, on a pallet, on an end-cap, or with a large promotional sign that says, "new!", "special!", or "low price!" are not necessarily good deals. They're just being presented as such.
6. Avoid non-food merchandise at the grocery store. It may be more convenient to buy these items while you're picking up a gallon of milk, but it's usually not the best price in your town.
7. Don't be swayed by colorful packaging. Sometimes, the packaging can be more expensive than the product inside.
8. Make sure you are clear on sale pricing rules for your store. When a price says 3 for $5, you may likely be able to buy the product individually for $1.67 if you won't use the 2nd and 3rd items before the expiration date. Don't get caught paying full retail if this is not the case, however.
9. Store brands can often be a better deal (particularly if you're without coupons) and the quality is often comparable to national brands. The profit margin is often greater for the retailer as well. There are exceptions, however. One example I often share is green beans. Store brand varieties may have more pointy green bean ends in the bag or can, whereas brand-name varieties may give you mostly middles. If you are an active shopper, you use coupons from your Sunday Grand Rapids Press, and you take advantage of technology like SavingsAngel.com, you'll seldom buy store brands. We've found that the combined discounts of sales and coupons can give you prices far lower than the lowest store price product.
10. Don't buy anything at the checkout unless it's a planned purchase. Regularly purchasing candy, batteries, DVDs, gift cards, over-priced razors, and magazines can add up to hundreds of dollars by the end of the year. These products are the ultimate in impulse items and are wildly profitable for the retailer. There are far better ways to get these products for less money.