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Pundit’s Mailbag – On Supervalu Bags, Wegmans And American Airlines

Jim Prevor’s Perishable Pundit, April 7, 2011

Our recent piece on Supervalu brought a response that claimed we didn’t make our case:

A couple of thoughts on your article, Supervalu May Learn That Cutting Costs Without Customer Concern Will Ultimately Affect The Sales Side Of The Equation, particularly this sentence:

“What is missing from this story, however, is any indication that Supervalu tested this and determined that shoppers were happy with the new bagging regimen.”

What would constitute ‘testing’ for the purpose of this issue and your comment? Focus groups, intercept interviews, formal or informal (say at the check stand)? It is common knowledge that in most of the scenarios under which people are asked their “preference,” there will ultimately be a wide disparity between responses and actual practice.

You leave out the fact that there is broad public acceptance of the “reduce” component of stewardship of resources. This can be capitalized upon by retailers who will simply ask “do you need a bag for this” (i.e., the item with the handle) instead of unilaterally not providing one. Many of our supermarket shoppers are also visiting mass merchants regularly where there have never been single-use carry out bags.

Finally, the related, and I assume metaphorical, stories about Wegmans and American Airlines aren’t entirely effective. Taking the latter first, there is no indication that the ‘sans olive’ salad idea was not a success in that it really reduced expense without measurably effecting customer satisfaction (leaving aside the opportunity to expand the offering rather than contract it, given the pricing scheme apparently in place). And the former example of Wegman’s is materially different, given that they actually changed the bag size.

Keep up the great work and writing!

God bless you all, including Poppa!

— Daniel Barth
General Manager
Super King Markets
Los Angeles, California

Daniel Barth has been a great font of information for the industry, contributing many pieces to the Pundit, including these:

Pundit’s Mailbag — Why Bother With Ellen DeGeneres?

Pundit’s Mailbag – Letters Pour In On CSPI’s Highly Deceptive Riskiest Foods List

True Purpose Of Thanksgiving

Pundit’s Mailbag — When Winners Are Declared Losers For Winning Too Much

We agree that focus groups, etc., all have their flaws, but multi-unit retailers such as Supervalu have a great research capability built into the operation. They just have to try something in a small group of stores and maintain another small group of comparable stores as a control. In this case, doing such an experiment could be checked both against survey data — customer satisfaction, etc.— and real life sales. Will a change in policy reduce or increase sales and profits?

Although sustainability is a big issue, reduction is not always more sustainable. In the trade, if we weaken the cartons so more fruit arrives damaged, that is neither good stewardship nor more sustainable. Equally if the shopper’s eggs break in the garage because they didn’t get a double bag, that is likely to be neither good for the environment nor a policy supported by consumers.

We note that Dan Barth’s recommendation to ask the consumers what they would prefer — is precisely not what The Wall Street Journal piece explained Supervalu is doing. Supervalu was going to give the cheaper option to each consumer — no double bag plastic, no paper, and no bag on handled items — and force the consumer to be assertive and specifically ask for these services.

Regarding the examples of both Wegmans and American Airlines, the point we think worth raising is this: One shouldn’t assume a priori that a money-saving option is the one that will maximize consumer satisfaction — or sales and profits. It may be the case that meals don’t matter at all on airlines — many have eliminated them entirely, at least in coach. But that is an argument for eliminating meals.

If we assume that meals are important and part of the overall experience that ultimately translates into consumer preference for one airline over another, then our point, which is that saving money on olives may be less desirable than increasing satisfaction with the salad, remains true.

Much depends on knowing what one’s customers want. Supervalu’s Save-A-Lot concept, for example, is built around driving all possible costs out of the system so as to offer the lowest possible price. So not providing free bags at all can make sense.

It is a very satisfying thing for a top executive to look at a P & L and say “Aha — if I cut out the olives on the salad, I will save a fortune for the company” or “If I eliminate double bagging except when I get a special request, I will save a lot of money for the company.” But it is worth remembering that this is not necessarily true. For every action in life, there is a reaction, and it is not at all clear that these economies net to the profit line.

It sounds powerful to save $500,000 a year on olives. But remember that a first class ticket on American Airlines to a distant international destination can run $25,000. If you have an investment banker who goes once a month, one customer can bring in over $300,000 a year.

You don’t have to have many executives switch to Delta or United or an overseas airline to make the olive “savings” disappear.

Supermarkets are a business where pennies matter, and there are no $300,000-year customers, but the point is the same: savings only come about if the cuts don’t lead to consumer defections.

Many thanks to Daniel Barth for weighing in on this story.

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