Whole Foods Refines Price Tiers as Consumer Behavior Shifts 


Whole Foods Refines Price Tiers as Consumer Behavior Shifts 

  • Shoppers are shifting their behavior to shop more at value retailers in their search for value.
  • Retailers can use price tiers as a technique to convey pricing rationality.
  • 19.5 percent of FMCG sales are private label products and growing.

Winning Price Tier Strategies 

With consumers chafing under grocery price pressure after three years of compound inflation, Whole Foods Market recently took a hard look at the value story its prices communicate. To support a round of strategic decision making, it relied on price tier analytics from NIQ. 

At the NIQ C360 conference in Phoenix, Whole Foods’ Head of Competitive Intelligence, Price and Promotion Strategy, Jake Whalen shared how his company recently assessed its opening price point competitiveness, with particular focus on its private label offerings. 

“The goal for our team was to look at meeting our financial targets while delivering or maximizing value to the customer,” said Whalen.  

Whole Foods’ perspective was that it should define approaches that would not be too rigid, he added. “One strategy is not going to tackle all the challenges of this variant inflation. The pricing analysis that we did had to have the flexibility so we could apply it across many categories.”  

Whalen’s remarks were part of a broader panel discussion, “Winning at Every Price Tier,” which examined changes in consumer buying behavior and discussed how retailers could design price tiering strategies that establish or confirm their commitment to shoppers. 

Scott Yamada, NIQ SVP Retail Analytics for North America, set the stage by bringing the audience up to date on three present factors that are contributing to changes in grocery shopping habits – shaky consumer confidence, ongoing inflation, and high revolving credit card debt. 

How consumers react 

Yamada shared data from the NIQ 2024 Consumer Outlook report that showed 87 percent of U.S. consumers have changed how they shop for FMCG as a response to the past several years of compounded inflation. Among the most common shopper strategies, 34 percent have switched to lower-priced options to save money, while 32 percent stock up on branded items when they go on promotion. 

In their hunt for value, shoppers are shifting behavior to shop more at value retailers. Sales at value retailers in the trailing year ended April 20, 2024, saw an increase of 4.1 percent from a year ago to 39 percent of CPG sales. Notably, 19.5 percent of FMCG sales are private label products, a 3.4 percent increase YOY. 

While these behavioral changes reflect a consciousness of higher prices, Yamada said, “We see that not all departments are the same. There are different areas of price acceleration relative to others. This is really important when you think about price tiering and store strategies.” 

Price tiers vary by department 

Many grocery departments – but not all – break out into four price tiers, said Arthur Dmitruk, VP, Retail Analytics, NA, NIQ. Levels typically include a value or opening price point, private label, a mid-price level, and a premium level.  

A few categories have more or fewer tiers, a reflection of the range of choices available to consumers. Pet care commonly has five, while general merchandise and bakery typically have three. 

Price tiers are important, said Dmitruk, because, “Retailers can use price tiers as a technique to convey pricing rationality.” In other words, relative prices within each category must make sense to shoppers. 

He also emphasized that retailers should formulate strategies to succeed in all price tiers – not just the category as a whole. 

“Winning at every price tier and being competitive is a mixture of competitive insight, rest of market, as well as the store strategy.” He cited several “opportunity areas” to make the most of price tier analytics, such as incorporating new products or determining whether to enter another tier with a new national or private brand. 

Jake Whalen, Head of Competitive Intelligence, Price & Promo, Whole Foods

Arthur Dmitruk, VP Retail Analytics NA, NIQ

Scott Yamada, SVP Retail Analytics NA, NIQ
Panelists left-to-right: Jake Whalen, Head of Competitive Intelligence, Price & Promo, Whole Foods, Arthur Dmitruk,
VP Retail Analytics NA, NIQ, Scott Yamada, SVP Retail Analytics NA, NIQ

Whole Foods unique perspective 

Whalen said Whole Foods is highly conscious of its premium positioning overall and it monitors price perceptions with this in mind. Where some competitors offer lower prices on store brand products, his company pays special attention to the ingredients labels for its private brands. 

“We have a list of 100-plus ingredients that cannot be incorporated in our products,” he said. “An example is high-fructose corn syrup.” 

While maintaining this rigor can present a challenge in comparing absolute price points with other retailers’ private labels, Whole Foods believes its shoppers consider healthier formulations to be a component of value, he said. 

While this means Whole Foods’ opening price points may be a little higher, his team consistently asks during category planning, “Is this an area for Whole Foods to introduce the new private label item to start to compete on opening price point?” Whalen said. 

He praised the NIQ team for providing a decision-making tool “that was very creative and very easy to use.”  

“It allowed us to both identify opportunities to drive financial success, but it also make sure that we’re offering or maximizing value by offering a high quality product at the correct price.” 

Two considerations put price tiers to work 

Informed decisions begin with knowing what tier you’re in, your current competitive set, and your price benchmarks. First and foremost, the decision is driven by economics, said Dmitruk.  

“If you are going to shift it, you’re going to say, ‘OK, now I have different guard rails, I’m going to have a different competitive set.”  

Any decision to push a price tier up or down, is driven by analyzing price elasticities, he added. “You’d want to understand if there is a benefit of trading it down if it’s elastic. But you’ll also be able to quantify it if it’s not a particularly elastic product.” 

Two key questions 

Dmitruk emphasized that not every retailer should be compelled to play a role in every price tier in every category. He urged retailers to ask themselves two key questions: 

“How do I want to play from a value proposition?”  

“What tiers do I need to align my assortment and pricing up against relative to the market?”  

He continued, “It means you can see the total market and where your products sit across price tiers. It can help you identify clear opportunity spaces or define where you should or shouldn’t play.”  

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