Loss Leaders. Why do supermarkets have them?

A Harvest Hub member noticed that Colesworth had new season Menindee grapes on sale this week for $4.98/kg. At Harvest Hub they’re $11.80/kg.  Thank you for giving us the opportunity to discuss this!

Our member’s right – they’re $4.98/kg at Woolworths.  (Coles is selling ‘white seedless grapes’ almost as cheaply for $5.00/kg.) These prices are actually below wholesale cost.  At Harris Farm, they are a more comparable $10-$11/kg

Menindee grapes

Loss Leaders. Why do supermarkets have them?        Every store always has a few ‘loss leaders’ – products they’re prepared to sacrifice profit on to draw in customers. Merchants then make up for these losses by charging handsomely for other goods.

 

Loss leaders are often sold at cost or below cost. In this way Menindee grapes are loss leaders, as are Colesworth branded 2 litres of milk for $2, and many advertised supermarket weekly specials.

In relation to fruit and vegetables, supermarkets often have agreements with individual growers, which removes the price they pay the grower for produce, and the price they sell it for from the usual ups and downs of ‘market pricing’.

As you know market pricing is based on normal demand and supply. For the growers caught in these agreements with Colesworth, this means that price is fixed despite any changes in circumstances.

Harvest Hub doesn’t enter into such agreements because they can disadvantage growers, and our support for growers includes considering a future that benefits both them and our members.

If supply is short, due to bad weather, insect devastation, unripe produce, for instance, the market price will increase. An increased price is fair for the grower who has to bear the brunt of seasonal produce ups and downs.

Our Sydney basin growers, too, have families to feed. We don’t think locking them into pricing is equitable, especially if the price negotiated is so low the grower struggles to produce their crop.

As 95% of Harvest Hub customers are regulars (i.e. they are already in our store), we simply ensure we’re competitive across the board.  We purchase from our growers at a fair price for them, we check our final pricing every Friday night (into the wee hours of Saturday morning) and we establish our prices for the whole week.

We don’t change these prices no matter what happens at the market so that our Hubs supplied at the end of the week are not disadvantaged.  So unlike Colesworth we do not alter the end-user pricing, nor do we adjust our pricing to reflect the different suburban communities our members hail from.  Colesworth charges according to locality.

Whilst we publish and keep our prices constant for the week, each week we do not lock-in the growers to a specific price. They receive what they ask for and that generally is what is fair for keeping them in business.

The result of this is your Harvest Hub basket is competitively priced overall, plus you receive you always receive additional items in the Value Bag and this is the reason we base it on a co-op style divvy.

To give you some examples (all prices per kg, except where otherwise indicated. Note there will be variation between Woolies shops): To see full list expand to 15 items.

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While we’re not the cheapest on every item  we are competitive across a range of goods – especially considering that Colesworth pays the growers on average 10% – 30% less than we do because of their buying power.

Local Produce in Season

Harvest Hub prides itself on supporting local growers, especially Sydney basin growers and providing local produce in season.  One of the reasons Menindee grapes are comparatively expensive now is that we are at the very beginning of the grape season.

That said, Woolworths’ produce is not particularly local – nor is Harris Farm’s.  Whilst we support many Sydney-based growers, we know that Woolworths has virtually no growers across the Sydney Basin, and Harris Farm only has a handful.

And while Coles is becoming aware that Australian shoppers prefer to buy local, of the 27 Australian growers featured on Coles Meet Our Growers Page only three of them are from NSW, and one of those is a wine maker.

That said, we encourage our members to buy the specials in store, if it’s worth the trip – but we also advise them to be careful with filling up their shopping basket with all the other fully priced items. Loss leaders are intended, after all, to get a customer into the store to purchase other goods.

We expect Menindee prices to drop over the next few weeks as the grape season progresses – so it won’t be long before we’re able to match Coles’ and Woolworths’ grape prices.  In the meantime, we offer members locally sourced, in season fruit, vegetables, and artisan bread and award winning dairy that is competitively priced and ethically sourced.


Any thoughts on this subject?