Is price the new king of Italy?

Price has always been an essential marketing mechanism in retailing. It is obviously now of paramount importance when consumers are worried about losing their jobs in a post-Covid recession.

On a recent shopping trip to Italy, it was therefore not surprising to find grocers like Interspar or Coop Italia proclaiming how they have frozen their prices. They do this everywhere on store banners, shelf stoppers, and price tags. They don't even spare their organic food departments. 

This is great for customers, but is it really good for retailer margins? After all, only one player can be the cheapest in the same way that only one gunslinger could ever be the fastest in the Wild West. Or are we really in some Italo-Western where all that matters is to be the last man standing?

In the pursuit of an answer there is little point in talking with a discounter whose whole raison d'être is price. But what about a full-assortment grocer like Spar Österreich, Austria's leading retailer by sales, with more than 570 hypermarkets and supermarkets in northern Italy?

This is a grocer, who has always been about quality, and therefore with a reputation to lose. So we asked country manager Paul Klotz how dangerous he thinks it is for Spar Österreich to play the price game in bella Italia...

Coop Italia started the current round at the beginning of April when the market leader froze its own label prices until the end of May. This was swiftly followed by most major rivals who have continued to guarantee constant prices on a renewable monthly basis or even till the end of this year.

Luigi Rubinelli, founder of RetailWatch, estimates that around 28 per cent of own label products in Italian food retailing are now under some form of special offer and that this figure will continue to increase. "Grocers are clearly adapting their price strategies to the Covid-related fears of their clients," he says pointing to inflation levels of only around 1 per cent.

He doesn't believe, however, that brands have decreased their prices during the Corona crisis and have merely increased the number of their promotions. Rubinelli also points out that own label margins are "pretty high" and that retailers wanting to push their house brand have corresponding room for manoeuvre.

Meanwhile, even discounters have started adapting their marketing messages in order to reassure clients, while preserving their traditional every-day-low-prices. „At this time we want to get especially close to our Italian customers by emphasising the overall quality of our offer. This includes low daily prices, product quality, Italianness and freshness," says Aldi Italia.

The Hofer subsidiary emphasises these points in an advertising campaign launched at the beginning of September entitled 'Vivi meglio quando spendi meno' (spend less, live better). Aldi intends to communicate the same message in a new campaign as from mid-October. 

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"Then Covid came..."

Herr Klotz, is Spar's recent price offensive a reaction to the growth of Aldi and Lidl in northern Italy?

It has more to do with the current situation there.

Namely? 

In Italy curfew regulations were very strict. One couldn't even drive to the next neighbourhood to do some shopping. During this period there were only image campaigns, and it wasn't until May that price advertising could be restarted. Then, in May, there was a noticeable lack of consumer spending power and considerably fewer tourists.

The whole trade then began to make up for lost sales via price advertising.

Including Spar Italia?

Let me first give your readers some background: The Spar brand has been in Italy for 60 years. All of today's nine Spar organisations had prepared some great advertising to commemorate this anniversary, which is common practice in retailing. Then Covid came and none of this could be put into effect.

In fact it wasn't possible to do any advertising between March and May.

To what extent are your price campaigns an attempt to calm customer nerves about the future? 

Many Italians feared that prices would be put up again after the lockdown ended*. We've reacted to this by focussing on every-day-low-prices. This is why we have sunk the prices of 400 brand products and have frozen these till the end of the year. We have also frozen the prices of 3,400 own label lines until the end of December.

But doesn't this massive focus on price risk watering down your quality image?

We aren't emphasising price in any one-sided way. We are merely using different communication channels for different advertising messages. We don't make a big play with our extensive quality and regionally-oriented advertising in the stores themselves. We tend to do this regionally via social media and newspaper print campaigns.

This works very well in Italy in a very regionalised way. We emphasise our quality throughout the national regions by using Italian products. We've even created our own symbol with the national flag and the slogan 'Italia nel cuore' (Italy in the heart).


*The Italian lockdown started in March and lasted until June 3, after which it was successively phased out.

LZ

Our German retail B2B newspaper, Lebensmittel Zeitung, in print & digital

Read in German: 'Italiens LEH reagiert auf Rezession' and 'Wir haben die Preise von 400 Industrie-Markenprodukten herabgesetzt' by international editor Mike Dawson on page 10 of Lebensmittel Zeitung, no. 40, 02.10.2020