Groceries: Why you are not likely to see a big price drop
Soon, you can expect to pay a little less for your groceries. But we are not talking about great bargains. The convenience goods industry in Denmark is under so much pressure that it cannot afford to lower the prices too much. Not even when the inflation seems to be slowing down.
This is the message from Mogens Bjerre, Associate Professor at the Department of Marketing at Copenhagen Business School, who conducts research on strategic sales and branding. According to him, the industry is still gasping for air after a few tough years with deficits – and the customers are currently paying for that.
‘There is an ongoing battle in terms of capital, and we also see chain stores disappearing.
Mogens Bjerre, Associate Professor
“There’s a very good reason why the big chain stores hesitate in terms of lowering their prices. In 2020 and 2021, they took quite a severe financial beating. Their current profits are used to cover their previous losses. Add to that that the chain stores are concerned with developing their business concept, which is costly. So, even though the customers may not experience it thus, there is an ongoing battle in terms of capital, and we also see chain stores disappearing,” Mogens Bjerre explains.
He adds that the current situation may also result in the strongest chain stores initiating some sort of price war in order to get at their competitors, who lack the money to follow suit. Even though this strategy will be costly to everyone involved.
A complicated market
A little something for the Danes to think about as they shop for cheese, chicken breasts and chick peas and still have to pay significantly more than they did eighteen months ago.
“I do expect this close competition to result in a price drop soon. My point is merely that we should not expect big price drops, because the prices prior to inflation were probably too low,” Mogens Bjerre points out.
At the same time, he admits that understanding the price formation in convenience stores is not easy. Two years ago, legislation on food trade was introduced in order to avoid unfair price formation and to ensure some sort of control over contracts between the various links in the supply chain.
“However, deals and discounts are very often kept in the dark, and it’s already an atypical sector because so many of the goods have a relatively short lifespan. So, there is a constant need to buy more,” says Mogens Bjerre.
Denmark stands out
Among the general public, there has been a discussion about whether or not convenience stores exploit the current high inflation to make an unusually big profit. Some have introduced the term “greedflation” – mostly abroad.
‘Danes like cheap groceries.
Mogens Bjerre, Associate Professor
“Greedflation” indicates a suspicion that businesses are greedy and use the prices on electricity, gas, oil, transport and raw goods as an excuse to make big profits for themselves. But Mogens Bjerre points out that in Denmark, the terms of sale differ from a lot of other Western countries.
“Discount supermarkets are a very dominant feature in Denmark and prices play a significant part, because Danes like cheap groceries. Whereas consumers in say, France, the Netherlands and Canada have another approach to food stuffs and prices, which also means that there is more room for exclusive grocery shops,” the researcher from CBS points out and then adds:
“Furthermore, competition in Denmark is tough, because we have a lot of convenience stores. In fact, supermarkets cover one third more square metres in Denmark than in the average EU member country, in relation to inhabitants.”
Chain stores disappear
According to Mogens Bjerre, this picture may change. After a rise in the number of convenience stores in four consecutive years, Denmark has lost two chain stores during 2023. And the remaining stores are preparing for battle.
“Aldi and Irma have disappeared. For the last couple of years, Coop has had an annual deficit of 1-2 per cent. The industry is engaged in a tough battle and profits are not terribly high. Previous studies show that a 5-6 per cent drop in trade will leave the bottom line in the red,” says Mogens Bjerre and points to Salling Group with Netto, Føtex and Bilka as the exception, as they have just managed to keep their numbers in the black.
“Netto in particular has kept Salling in the black. And on top of that, Salling is a young player on the market, and they have a much more consistent shop structure. Coop is only just starting on that. They quite simply need fewer formats,” Mogens Bjerre explains.
Which points to Coop’s new strategy, where management is cutting some of their eight chain shops lose: Irma, Dagli’Brugsen, Superbrugsen, Kvickly and Fakta – while concentrating on three new concepts: Coop 365, Brugsen and COOP.
Make room for distinctiveness
According to the researcher from CBS, it is not only discount supermarket chains that should be analysing concepts and markets.
“In terms of the slightly more exclusive segment, it might be advantageous to consider the formation of voluntary supermarket chains, where members are given the freedom to develop their own profile according to local needs,” says Mogens Bjerre and then elaborates:
“Apparently, there is no market for a chain store as such, but nationally, we have room for 15-25 individual shops with individual product ranges.”
In other words, consumers should expect changes in the retail business. Only, they should not expect huge price drops.