Loss laggards. That’s what products sold at a deficit to attract customers should be called. Indeed, I’m at a loss as to why there isn’t more uproar about so-called loss leaders. How can anyone have thought a loss leader pricing strategy was a good idea? Loss leaders are unethical and have no place in 21st century food systems. They are a lose-lose-lose situation.
What’s the case for loss leaders? Retailers will argue it’s about allowing everyday staples like milk and eggs to be sold cheaply, to attract new customers into stores with the hope they do more of their regular shop there. But make no mistake, loss leaders are not affordable – for farmers, suppliers, small businesses or the environment. In fact, I can’t see how such pricing strategies help anyone in the long run.
Such an approach provides a double whammy of unfair treatment for those producing food. Firstly, and most obviously, it exploits those supplying the products, who typically have little say in deciding the final selling price at the checkout. Many farmers and producers have been squeezed beyond the point of business survival.
Secondly, it is unfair to those brands and certification schemes cross-subsidising the loss leaders, as it means the price differential between the two is much higher than it would be otherwise.
Take the example of organic. Some organic products are being sold at an additional premium in order to subsidise their conventional non-organic counterparts that are sold at a loss. Yet the premiums on supermarket shelves aren’t being passed onto the producers of organic products in farmgate prices. For one major co-operative in the UK, the organic farmer premium for milk was down to just 13% in May 2023, having been 27% two years earlier.
It is much easier for major supermarkets and other large outlets with wide ranges to have loss-leader strategies than smaller independent stores. So yet again, the David in the David versus Goliath story is undermined. Independent stores struggle to compete. Honest pricing would allow farmers and suppliers to be paid fairly and would put large and small businesses on more of a level footing.
Loss leaders distort the reality of what things cost, including for those on low incomes. Artificially low prices are unsustainable. Honest pricing would mean customers get more transparency and a better sense of how much food and drink really costs. This, in turn, might help them value foods more and mean less is wasted. Currently, milk, which is often sold for less than the cost of production, is one of the top wasted products in the UK – an estimated 300,000 tonnes is tipped down kitchen sinks each year.
Honest pricing would also help to reflect the true costs of food that are usually externalised – such as environmental harm – and picked up by others, rather than by those doing the damage themselves.
Supermarkets and other fuel retailers will soon have to publish live fuel prices. Will food be next? Be honest and get ahead of the transparency curve. Major food retailers should show real leadership by ditching loss leaders.
No comments yet