November 14, 2008

Wegmans Supermarket Vows to Lower Prices

Print More

Excitement is slowly starting to build in anticipation of the holidays, but at Wegmans, that time of year seems to have already arrived. Last week, Wegmans issued a statement on their website saying, “Wegmans is lowering prices — just in time for the holidays!”
Danny and Colleen Wegman, the two owners of the grocery store chain wrote in a letter that because of anticipated cost decreases, the company had decided to bring the prices down as soon as they could. The CEO and President of Wegmans, Danny Wegman said, “It’s ok with us if we make a little less money.”
Jo Natale, director of media relations for Wegmans, explained some of the reasons for the price decreases.
[img_assist|nid=33578|title=Food inside|desc=In the face of a worsening economy and lowering gas prices, Wegmans has decided to lower its prices.|link=node|align=left|width=|height=0]“It came about as a result of discussing why gas prices are falling — and you and I are spending less to fill up our fuel tanks — but why hasn’t that impacted food prices yet?” Natale said.
“We felt it was important to explain to our consumers that we had locked into contractual prices with diesel fuel, wheat and flour because the price for these commodities had gone up dramatically and there was no indication that these prices would go down,” Natale said.
Natale explained that these price contracts, between the retailers and producers, are not expected to change until 2009.
“Given that we anticipate lower costs now is the time when consumers need help, we decided to take a leap of faith on lowering the prices on the products families buy every week,” Natale said.
Prof. Edward McLaughlin, marketing, who specializes in food retail, explained some of the huge declines in these commodities since the summer.
“In the peak of the summer, crude oil was $147 a barrel. [On Wednesday] it closed at $58, this is an enormous decline and that’s a very important cost,” McLaughlin said.
McLaughlin also explained that six months ago was when the corn and wheat prices rose astronomically, and since then corn has come down 16 percent and wheat has come down 40 percent.
But despite these falling costs, lowering prices before contracts end can still be risky financial move.
“Wegmans can afford to strategically do whatever they want in a wide degree of latitude because they are a private family-owned company,” McLaughlin explained.
“A publicly held company with publicly held stock would have a lot more difficulty publicly saying we’re going to lower our profit rate,” McLaughlin said.
Many of the products that will generate a lower profit rate due to the price cuts are Wegmans brand products, such as packaged slice breads, canned vegetables, whole pork shoulder roasts, 5 lb bags of potatoes, broccoli and bagged lettuces. But there are also some non-Wegmans products, such as Nestle chocolate chips, that will be experiencing price decreases.
These are the products that Natale would describe as the daily products necessary for families to get dinner on the table.
In addition to basic dinner staples, Wegmans is also lowering the prices on baking staples because of the holiday season.
What McLaughlin found particularly notable about the price cuts is that Wegmans is already an “everyday low price” company.
In terms of pricing strategies, McLaughlin explained, there is a wide spectrum of approaches. On one end there is the “hi-lo retailer,” which has huge promotions to get consumers very excited to come out and buy. On the other end are companies like Wegmans, which do not have big promotions, and instead keep their prices consistently a little bit lower.
“Wegmans moved to the everyday low prices strategy three or four years ago, so the fact that they are already having stable prices and then lowering them even more is an interesting strategy,” McLaughlin said.
Despite the cuts, Natale said this profit decrease will not effect how Wegmans runs its business.
Instead, Wegmans is hoping more people will end up shopping at the supermarket to offset their loses.
Mary Beth Martini-Lyons, a Dryden resident, read about the Wegmans price costs on a blog, but she rarely shops at Wegmans because it is farther than other grocery stores in the area.
“I might shop here more now,” Martini-Lyons said.
Wegmans anticipates that the average consumer shopping for a family could save as much as $40 to $60 a month.
“I think it’s a great idea,” said Pam Sevey, a Lansing resident, “Not too many corporations in America would do this. It shows they care more about their customers than the bottom line.”