Posts related to food and consumer packaged goods

Board Room


We were meeting in our wood-paneled boardroom. I was part of a broker team hosting business planning sessions between a major Northeastern supermarket and a few dozen of our CPG manufacturer clients.

During one session, a large beverage manufacturer suddenly announced that they were going to drastically cut the depth and breadth of their discounts. To put it mildly, this announcement went over like a bomb. There may have been some screaming and cursing.

It seems this manufacturer had a bad year, and so management wanted to cut back on discounting in order to boost margins.

Unfortunately, they had missed some important points.

They were focusing entirely on their internal financials. They did not consider the supermarket’s goals, one of which was growing their share of the manufacturers’ discount spending, also known as trade spending. There might have been an opportunity to work together on mutual goals. And most seriously, they did not consider the consumers’ perspective.

For most of my clients, discounting is used to improve volume, and plans rarely change from year to year. It is a brute-force tool.

Compared to those clients, this beverage supplier had the right idea. But though it’s tempting to use price cuts to improve volume, it can leave money behind if the market is willing to pay higher prices. This supplier simply wanted to reduce their discounting — a worthy enough goal, perhaps, but without the right tools to present their case. And with the right support, they might have been prevented an important customer from screaming at them.

When I work with clients in similar situations, I use a range of specialized tools to help them understand their consumers’ willingness to pay for their products. Here are the three tools I use most often:

1. Price waterfall: assesses the current situation and whether there is any leakage. What margins are earned at various points in the value chain, and how much of a role does discounting play?

Price Waterfall Chart Example

When I conducted this analysis for one manufacturer, it was shockingly clear their internal margins were almost non-existent after accounting for all of their trade expenses.  Trade spending was crowding out nearly all opportunity to earn a profit.

In other versions of this chart, additional expenses like allowances for spoils, cash payment terms, and others can be included to provide a more comprehensive view.  

The price waterfall chart served as a useful internal communication tool to visually demonstrate where margin might be leaking.

2. Van Westendorp: assesses consumers’ willingness-to-pay. What is the range of acceptable prices? What are the minimum and maximum acceptable prices?

One of my clients typically discounted from $2.99 to $2.19 or $2.29. Many of their retailers demanded a minimum 20 to 25 percent discount, which is why those price points were selected. But we found that consumers were just as willing to pay $2.49 on sale, and one field experiment actually showed higher volumes at $2.49 than $2.29. The retailer made an exception to allow a lower discount on promotion, and everyone earned more dollar margin and we demonstrated that volume could actually grow.

Van Westendorp Research Output Example

In other words, I helped my client develop a comprehensive selling story that made for an appealing scenario that resulted in a reasonable request to their trading partners.

3. Conjoint: evaluates various product attributes: How much do consumers value different product attributes, and how does that translate into the price they are willing to pay?

By using this complex research technique, we can learn how consumers assign value to various attributes. This chart is a small snapshot of the output available from conjoint research. Ultimately, this research can result in a model that allows you to mix-and-match product attributes to create complete product concepts, balanced by different price levels, that allows you to see the impact on consumer preference and willingness-to-pay.

Conjoint Research Output Example

One of my clients used this technique to redesign their entire product line, resulting in a new lineup of product sizes, product contents, and — of course — evidence-based price levels that could be defended in a meeting with their retail buyers.

* * *

At the end of the day, discounting is just one tool in your pricing toolbox. There are plenty of others you can add to the collection.

It’s easy, even tempting, to rely on discounting, as it can have an immediate impact on volume. But there’s the danger of leaving money on the table and training your consumers to buy at lower prices. No one ever wins when prices spiral to the bottom. Instead, you need to equip yourself with accurate, compelling, consumer-driven information to ensure you earn the price you deserve. 

Amazon Devices at Whole FoodsSource:

On June 15, 2017, my phone showed a news alert that Amazon had agreed to buy Whole Foods. I was not anticipating this and it inspired my imagination, as it did for millions of others who took to social media to talk about it.

No one knew what Amazon would do with its largest entrance yet into bricks and mortar retailing. The deal closed in August and Whole Foods received a flurry of attention that focused on an announcement that the chain would cut prices on some top sellers like avocados, almond butter, and rotisserie chicken.

My industry colleagues and I frequently talk about the reinvention of Whole Foods. It left me wondering what the average consumer thinks about the new Whole Foods.  

So, Revenue Architects conducted a survey in February 2018 to assess changing consumer perceptions toward Whole Foods.

Most notably, most consumers surveyed (54 percent) don’t ever shop at Whole Foods. Many consumers avoid Whole Foods because of a perception that its prices are very high or because they are seeking a broader, more conventional selection of goods. In addition, Whole Foods has only about 470 stores, far from covering the entire United States. By comparison, Walmart has over 4,700 stores and Kroger’s retail brands have nearly 2,800 stores.   

Whole Foods: Shoppers vs. Non Shoppers

When we focus just on those who do shop at Whole Foods, most of them (52 percent) won’t be changing their shopping behavior because of the Amazon purchase.

Likelihood to Shop at Whole Foods

A notable portion of the survey respondents say they are less likely or much less likely to shop at Whole Foods now, and it will be important to track whether and in what way the spending of those shoppers is migrating. Some have hypothesized that dedicated organic shoppers might be wary that Amazon will stray from Whole Foods’ product standards, a departure that seems possible after a report that Amazon’s management is interested in adding popular, high-volume, conventional products like Coca-Cola to its shelves.

An almost equal portion of shoppers, though, say they are more likely or much more likely to shop at Whole Foods now, possibly inspired by the innovation and lower prices that Amazon might bring to the chain.

What is abundantly clear, though, is that Amazon has invested considerable sums into dominating online retail, and that they are actively seeking ways to bring innovation to traditional bricks and mortar retail.  

Importantly for manufacturers who sell to and aspire to sell to Whole Foods and Amazon: Have you created a plan to address these coming changes?  

Alex Lee, longtime president of OXO, the maker of well-designed cooking tools and housewares, told the story of how they created their iconic liquid measuring cup.

No one had ever seriously complained about measuring cups.  Some people thought that glass ones are too heavy and that they tend to break, but that was really it.  OXO started to study how consumers use measuring cups and noticed one striking commonality that was more impactful. It’s something you’ve probably done yourself at some point.

Photo source:

Do you see it?  Using a traditional liquid measuring cup, you need to lean over to read the measurement.  It’s annoying, But we thought it was normal.  Well, we did think it was normal until OXO designed a better way: a measuring cup you can read from the top, with no leaning over required.

Photo source:

This new measuring cup sold two million units (!) in the first year.

This is a powerful idea: studying how consumers behave can transform your business.  I apply this maxim to pricing research, a topic that has been popular with a number of my clients.

When thinking about how to suggest a retail price, many brands, both big and small, start with their cost.  Then they add on the profit they want to earn, account for expected distributor and retail margins, and get to a suggested retail price.  Or someone suggests a key price in their category and they go with that.

But it’s critical to take the consumer’s point of view into account and understand her willingness-to-pay.

There are three approaches I rely on:

  1. Engage with your retailer’s buying team
  2. Observe what’s happening in the market
  3. Use surveys to ask consumers about price directly

1. Engage with your retailer’s buying team

The team at your retailer customers might have some research or other experience in understanding their shoppers’ willingness-to-pay.  Ask them.  When you have a review meeting or some other opportunity to talk, ask what they are hearing.  Keep in mind, though, that many buyers are biased toward always lowering prices, even if it means that they lose penny profit.

One client of mine faced significant cost pressure, but the client’s largest customer simply would not accept a price increase.  We probed to understand her resistance, and she showed evidence that products in her portfolio suffered large declines in velocity when they were priced above $1.99.  We suggested a smaller pack size that could hit the magic $1.99 price point and make money for my client. She accepted the proposal, and this arrangement worked for everyone.

2. Observe what’s happening in the market

Competitive benchmarking: Where are your competitors priced, and where do you fit on the continuum?  Are you priced comparably to competitors whose products realistically compare to yours?  Are there any magic prices that are working well or toxic prices that are failing miserably?

Natural elasticity: if your product sells at different prices at different retailers during different weeks, or at a discount during a price reduction, measure the effects. Equivalize sales across retailers by measuring units sold per store per week (or per million dollars of store ACV), and see if one price works much better than another.  For a frozen food item, I once found that promoting it at $2.49 produced better unit movement than at $2.29.  It was a no-brainer to make the change.  You can obtain this data directly from your retailer customers or from syndicated data sources like SPINS, IRI, and Nielsen.

3. Use surveys to ask consumers directly about price

There is a wide range of tools available to affordably survey consumers about their willingness to pay for your items and other topics.  I have found Google Surveys to be very affordable for certain use cases, as low as 10 cents per response for a single-question survey.

From easiest to hardest, some pricing survey techniques include:

  • Gabor Granger: Identify the highest acceptable price by asking about purchase intent at multiple price points.
  • Van Westendorp: Identify bounds of acceptable price ranges by asking what prices would be too cheap, cheap, expensive, and too expensive.
  • Conjoint: Identify utilities of product attributes, including price, by having respondents choose from among multiple product/price combinations.

* * *

Ultimately, the most important thing is to get inside your consumers’ heads.  Any technique you use to get there will involve a wide range of trade-offs, but it’s important to start somewhere.  And the evidence you learn to support your objectives will go a long way toward building trust with your retail buyers, sales team, and beyond.

(You can see a video of Alex Lee’s presentation that inspired me on the Gel Conference’s Vimeo channel.)


Contact Scott if you’d like help thinking about your products’ prices — and how your customers perceive them.

A version of this post originally appeared in Specialty Food Resource’s Food Entrepreneur Magazine.


In 2013, Amazon CEO Jeff Bezos bought the Washington Post. (Granted, he bought it personally instead of via Amazon, but it’s still relevant to the Amazon/Whole Foods story.) At the time, the paper was facing a steady decline and staff layoffs, as most newspapers were, and its online presence was stagnant. Bezos got involved with the business side and its technology—no surprise there—and he didn’t interfere with editorial direction.

Nieman Lab has a transcript from an interview with a Post staffer who talked about the bots they now use to help run the business, deliver news, provide information for stories, and even automate the writing of basic stories. The content management system they built works so well that other news outlets license it from them. And there’s an energy in the Post’s reporting that I haven’t seen in a long time. This is cool stuff.

Web traffic doubled and 1,200 stories are posted per day—500 of them original— outpacing their competitors, including The New York Times.

I think Bezos’s game plan for the Post hints at how Amazon will manage its new supermarket chain.

Refocusing on consumers

Bezos has told staff at the Post to “focus on the reader.” Whole Foods could stand to remember its core shoppers, those consumers who are drawn to Whole Foods’ core values. Some long-time fans feel that the chain has catered too much to a broad market and made less visible their adherence to the core values of environmental protection and support for organic farming. The New York Times wrote about this worry 10 years ago, when Whole Foods had become a “mega-chain” of 303 stores (which has now grown to 431), with “gelato stands, chocolate fountains and pizza counters.”

Legions of shoppers live within proximity of Whole Foods stores but have an aversion to their prices. Clearly, Whole Foods has tried to cater to this audience but delivered mixed messages. They have alternately highlighted the reasonable prices of their store brand items while also creating high-quality, indulgent offerings for those who are indifferent to prices. That juxtaposition has made it hard for shoppers to believe the low-price message.

I believe Amazon will re-focus on Whole Foods’ core values, making noticeable changes in its product assortment to win back true believers who have become alienated. At the same time, they will look closely at the offerings geared toward consumers looking for a more general grocery offering. Can they offer delicious food while respecting the company’s core values, at reasonable prices?  And without a doubt, Amazon will reinvent the supply chain — more on that soon — and Whole Foods’ IRMA system, the back-end technology that is universally despised, not unlike the back-end systems at most supermarkets.

How should Whole Foods’ suppliers position themselves for the changes that are bound to happen?

Some people believe all Universal Product Codes (UPCs) contain the number 666, representing the number of the beast or the anti-Christ.

Snopes cites the relevant Bible verse: “No one could buy or sell unless he had this mark, that is, the beast’s name or the number that stands for his name” (Revelation 13:17-18).

In a story on UPCs and this theory, The New Republic quotes from Revelation, which discusses the End Times:

“He forced everyone, small and great, rich and poor, free and slave, to receive a mark in his right hand or in his forehead, so that no one could buy or sell unless he had the mark, which is the name of the beast or the number of his name.” What is that number? “Let he that has wisdom count the number of the beast, for it is the number of a man, and his number is 666.”

As interesting as this sounds, it stems from a misinterpretation of the bars that appear on UPCs. They were interpreted to read as 666. But in reality they are just separating marks or guide bars, which look like the bars that represent sixes but are slightly different and have no numeric meaning.

Scanners read the width of the bars and the gaps between the bars in a UPC to convert them into a number that represents the product.

I’ll describe the UPC-A version of the barcode, which is used in the United States for most retail products. Other types of barcodes exist for some product categories, like books, and in countries outside the United States.

Number system digit: This number determines the product’s category.

  • 0, 1, 6, 7, 8: Most products
  • 2: Products sold by variable weight, such as produce and meat; determined by individual retailers or warehouses
  • 3: Pharmaceuticals sold by National Drug Code (NDC) number
  • 4: For retailer use; indicates loyalty cards or store coupons
  • 5: Coupons
  • 9: Reserved

Manufacturer code: This set of five numbers is assigned to a manufacturer by GS1, a nonprofit that governs the assignment of U.S. UPCs.

Product code: The manufacturer determines this set of five numbers; it can be any code the manufacturer desires.

Check digit: This number is determined by a formula. The scanner calculates this formula on its own and then checks against the numbers it scanned to determine whether it scanned the correct digits. If there was an error—say, due to a smudge on the package—the check digit won’t match, and the product will scan with an error.

Note that the information conveyed only identifies the manufacturer and the product.  No pricing or other information is provided. At a retail location, the register will look up the product information and cross-reference it to find the right price or any other information. There are no series of sixes or any other information included in a UPC that can somehow personally identify a shopper. Furthermore, these codes have not been affixed to people, as some have feared.

Some other notes and resources:

1. Using UPCs in syndicated data like Nielsen and IRI: I usually look for the 10 digits represented by the manufacturer code plus the product code. Most U.S. products that I’ve worked with start with a zero as the number system digit, and those leading zeroes are omitted by Nielsen and IRI. There have been a few instances where I have worked with products that contain a non-zero number system digit, and one must be careful to include those digits when searching.

2. If you need to obtain UPCs for your products, talk with GS1. There are some UPC resellers who can sell single UPCs, but that will make it hard to do business with anyone but the smallest of retailers.

3. Wikihow has a good tutorial on UPCs, and Keyence can help you decipher the bars in case you don’t trust the numbers printed below them.

A curious post about Instacart appeared recently on Reddit’s Boston subreddit that deserves some attention in grocery retail.

Instacart delivers groceries and other products from a range of retailers. Here in Boston, they deliver from Whole Foods, Costco, CVS, Star Market/Shaw’s, Market Basket, Russo’s, and Petco, plus some liquor and specialty stores inside the more urban parts of the area. My family and I are regular users. (You can try the service yourself with my referral link, which will get you and me both $10.)

Originally, the service didn’t disclose whether the prices were the same as in-store or different, and that changed in 2015 with clearer disclosures.

Some retailers are official partners and the prices online match what’s available in-store. But many retailers available on the platform aren’t official partners, and it’s no secret that Instacart’s prices are “15%+ higher than in-store,” as disclosed when shopping. The plus symbol leaves a lot of latitude, leaving the extent of the mark ups opaque for consumers.

That brings us to the Reddit post, which made the mark up practices much clearer.

The message writer received an Instacart delivery where the order picker accidentally left the store receipt from Market Basket. The customer compared the price he paid versus the amount Instacart charged and posted the details. I took prices from the scanned receipts and made some charts to help understand how and where they were marking up prices.

It’s interesting to see how the markups vary by product, with some staples having low (and even negative) markups. Market Basket is rightfully known for having low prices, and I wonder if Instacart is using what it knows about prices in other stores to raise low in-store prices to be similar to what it sees across retailers or even across markets.

Overall, Instacart marked up prices by 43%. Add the delivery fee ($5.99 flat) and service fee (10% and optional), and it comes to a 64% markup on groceries that cost $86.35 at Market Basket. That’s $55.30 to cover Instacart’s cost of shopping and delivery.

(Note: The service fee is separate from a tip, a change that Instacart made in late 2016, to the confusion of customers and anger of their contractor shoppers. The service fee is optional but selected as a default, and a tip is also optional but set to zero by default. And when faced with defaults, most people leave them as-is.)

Sure, it would be straightforward to make this comparison by simply looking at prices in store, but those who are paying to have groceries delivered to them probably aren’t taking the time to visit a store to observe actual prices. So, is it a good business practice to have such an opaque markup practice? That’s up for discussion and will likely get some attention from regulators as Instacart and its competitors grow.

By comparison, here in Boston, Ahold Delhaize’s Peapod (referral link for $20 off) offers delivery for $7 to 10 depending on order size, a $60 order minimum, and disclosure that prices may differ from in-store at Stop & Shop or Giant. Local chain, Roche Bros., offers delivery for a $10 fee with the same prices as in-store, and no order minimum. Tipping is optional with both.  (Edit: Tipping is optional with Peapod, and Roche Bros. employees are not allowed to accept tips.)

Some more miscellaneous points:

1. The cost charged for russet potatoes looks like it might have been a mistake. Instacart charged $4.25/pound, which is a steep increase over the typical $1.00 or less per pound I pay, even at Whole Foods, and more than the $0.59/pound shown on Instacart’s Market Basket page. So if we count this as an outlier and make the markup for that item zero, Instacart still has an overall markup of 32% for the products in this order.

2. The tax is interesting. Market Basket charged $0.52 and Instacart charged $0.84. Instacart paid $0.52 to Market Basket and then collected an extra $0.32. I don’t know what the rules are, nor do I know how Instacart handles the surplus tax, but I know the details here have tripped up companies in the past.

3. A follow-up post indicates that Instacart’s CEO, Max Mullen, reached out and made adjustments to the order of $10.39, which I am guessing is mostly the high-priced potatoes.

4. Instacart just raised $400 million at a valuation of $3.4 billion.

Ketchup wars! Mustard wars! It’s a Condiment Armageddon! And it’s also an analytical opportunity.

This spring, Heinz relaunched its mustard with a new, improved formulation to compete head-to-head with French’s, the category leader. Answering this shot across the bow, French’s launched a new ketchup, challenging Heinz’s leadership.  At least two publications have called this situation a “war” — presumably between a pair of rival condiment nations.

Over the last 12 months, Heinz’s mustard’s $10 million in sales represents a 300 percent year-over-year increase, while French’s new-to-the-market ketchup grabbed about $3 million. Looking at each brand’s mainstay product, Heinz’s ketchup is up three percent, while French’s mustard is down 3.9 percent. That might point to a clear winner and loser in the great condiment skirmish of 2015, but I think broader trends say they both may end up being losers.

In recent months, Fortune (“The War on Big Food”) and The New York Times (“Small Food Brands, Big Successes”) have pointed to the proliferation of small brands.  Boston Consulting Group analyzed this shift, showing that large food companies lost 2.3 share points to smaller ones from 2009 to 2013 and another 0.7 points in 2014.

So how do we account for entrepreneurial brands in all of this? Well, hiding in the data, there’s the ascendancy of “all other.” And that’s a group that entrepreneurs know well. After analyzing the top brands in a category, there’s always dozens of others that make up the long tail of results — usually ranging from a few percent to maybe 20 percent of the category’s sales.  In my analysis, there’s never enough space to list them all out, so they get collapsed into an “all other” grouping. But that’s where the momentum and innovation often resides, waiting to break out.

In condiments, there’s share dominance by the big guys. The top three brands in ketchup make up 97 percent of sales, and the top six brands in mustard make up 83 percent.  Aside from those, no other brand represents more than two percent of sales in ketchup and mustard.

But Ketchup grew $21.1 million (+2.6 percent) this year.  We can attribute 74 percent of that growth to Heinz, 15 percent to French’s, 9 percent to private label, and 6 percent to all other brands. (This doesn’t add to 100 percent because of two medium-sized brands that declined.)

In mustard, it’s even more striking.  The category grew $2.0 million (up 0.5 percent).  Many brands declined, and others grew at rapid rates. Gainers picked up $10.8 million, and declining brands lost $8.9 million.  French’s was one of the notable decliners, dragging down the entire category.  Meanwhile, Heinz’s gain was 3.85 times of the category’s growth, and the “all other” segment added 1.37 times more than the category’s growth, drawing from brands like Inglehoffer, Maille, Boar’s Head, and Annie’s Naturals, one of those entrepreneurial brands that is starting to see significant scale.

Even more telling is that this data set also doesn’t account for the natural and specialty channel, which has an even greater assortment of small brands (such as Tessemae’s and Sir Kensington’s) — and I suspect, even for the graying condiment category, some trends are starting in that channel and migrating to conventional grocery outlets. My local Shaw’s and Star Market stores have been increasing assortment of specialty products, and Target has an initiative to do the same, both in terms of bringing on new brands and co-developing sets with emerging product partners. (Hey, I loved finding Intelligentsia Coffee at my local Target last week!)  In these cases, there is no doubt smaller brands are stealing shelf space — which is eventually going to translate into share.

I often hear from folks in the food industry who have an idea to make something better.  These have included colleagues who wanted to improve baby and toddler nutrition, make tasty yogurt with better health attributes, bring Asian snacks to an American audience, and more. Most of them are still in business and thriving.  And while they (mostly) aren’t becoming big businesses, they are providing livelihoods for their owners and employees. Some have broken out; more will.

Consumers — particularly Millennials — are reacting to this demonstration of authenticity and are enjoying the newfound availability of novel products on shelves where they shop.  And they pay premium prices for this benefit.  In some cases, the premium isn’t much in dollars and cents, and consumers are willing to make the trade.

In other cases, larger premiums simply mean that new-age products are treats or consumers set aside larger budgets for packaged food than older generations have.  But in all cases, it’s leading to category growth at the expense of entrenched brands.

Among the headlines of wars among the big players in the food business, be sure to look for the hidden story of what’s happening with smaller brands.  If recent history is any lesson, there are some great stories that are waiting to spread.

Reposted from Project NOSH.  Thanks to Jeff Klineman for his editing and for allowing re-use.

Somewhere between $0 and $3.5 million per item.  Usually closer to $0.

Surprised?  I hear it from people outside the industry all the time — they are convinced that evil manufacturers are paying supermarkets to have their items placed at exactly the right position on shelves.

Don’t get me wrong — there’s some truth to the idea that manufacturers pay supermarkets for placement.  Just not how you think.

Let’s say a supermarket currently has pasta shelved together by type of pasta — that is, all spaghetti is together, all ziti is together, and so on.  But I want my brand (let’s call it Asta Pasta) to have all of its varieties shelved together.  I feel like that might cause consumers to shop within my brand and maybe ignore some of the other brands in the section.

I might even have some data showing that Asta Pasta’s sales go through the roof when this shelving configuration changes.  But I’m not going to show that to anyone outside my company.

Instead, I’ll hire an outside consulting firm that will analyze the entire section — Asta Pasta, store brand, and competitors’ brands too.  And they’ll create a study that shows how sales for the entire section will improve if brands like Asta are placed together in blocks.

If you can fit this change into a supermarket’s usual shelf reset schedule and it’s not too drastic — and especially if you can show that the category will have amazing sales increases — it might cost a manufacturer absolutely nothing to have this change implemented, aside from the cost of the study (negligible, hopefully) and the cost of a sales call to the supermarket’s headquarters.  If it’s something more radical (and gets approved), the manufacturer might be on the hook for the cost of resetting the section — which might run $200 per store or more.

Where money comes into play is when a manufacturer wants to introduce a new item — one that didn’t have a spot on the shelf previously.  That’s generally called a slotting fee or slotting allowance.  And it can run up to $3.5 million per discrete item (per flavor and size combination — that is, per UPC) to be placed in every U.S. supermarket.  We’ll cover that in a coming post.

(Image: Used under a Creative Commons attribution license from Flickr user AndyCunningham)