The Economic Genius of Supermarkets

For decades, supermarkets have been integral parts of the suburban lifestyle. The convenience of finding everything beneath a single roof, unbelievingly low prices, and easy access to a wide variety of products have effectively attracted thousands of moms over the years. A supermarket is not in any way an interesting place to be, and the neatly stocked shelves, narrow aisle spaces, shopping trollies with uncoordinated wheels, disinterested employees, along with the tacky music playlists do little to get rid of the humdrum. However, beneath the upper mask of boring family-friendly establishments, supermarkets are, as a matter of fact, epitomes of clever and sophisticated implementation of both behavioural and traditional economic erudition.

Megastores first emerged in the United States in the years following the Great Depression when budgeting and saving began to cap the spending practices of the working-class Americans and low prices were the key to attracting the hordes. Giants like Walmart still rely on low prices and mind-boggling discounts to lure customers. As the market competition increased with the emergence of more and more chains, so did the comforts and the unique selling points of each mega-seller. The brick-and-mortar stores are facing even stiffer competition due to the growth of online shopping giants and to exist in such hyper commercialised settings while surviving the cut-throat competition, supermarkets have adopted and developed methods to attract shoppers, get them to spend more time (and money) in their store, and leave satisfied enough to revisit.

Superstores manage to cut costs in all spheres: labor, inventory, and all other miscellaneous costs. People choose the products by themselves, haul their purchases around, and then get the entire basket billed. This considerably reduces labor efforts and costs. By giving customers the freedom to walk around and make their own choices, extra time does not need to be allocated to help confused customers and the time saved can be utilised to satisfy other purchasers. Another economic concept that supermarket chains fully exploit is economies of scale. Speaking simply, economies of scale means that profit margins increase as the volume of buying and selling increases. Supermarket chains buy huge volumes of products at low prices from manufacturers, usually in credit. These cost prices are comparatively lower than the cost of inventory of small-scale stores. This forms the basis of the evergreen USP of “low prices, huge discounts”.

Groceries and essential products are usually sold as loss leaders – products which are sold as a loss to attract shoppers – and the losses are covered through the mammoth volume of sales and the sale of other high margin products to the attracted shoppers. Low prices affect consumers so much so that they are willing to put in the extra effort while shopping for groceries as compared to purchasing in general. For instance, the German Supermarket chain Aldi is beating Walmart at its own low-price game. Aldi does not pamper its customers into returning; in fact, it strips down the shopping experience in the most unapologetic and brutally efficient way. Yet, it has built a cult-like following in the United States, even eliciting appreciation from the competing company Walmart’s CEO Greg Foran.

Besides these traditional economics schemes, hypermarkets also heavily derive ideas from behavioural economics research and consumer psychology. Everything, from the layout of the store to the music that plays, is pre-decided to take advantage of the inherent behavioural biases in consumers. Every aspect of the store is mapped out and attention is paid to color, wording, and even surface texture. The overall layout of a supermarket is a visual merchandising project that plays a major role. Stores can creatively use a layout to alter customers' perceptions of the atmosphere. Alternatively, they can enhance the store's atmospherics through visual communications (signs and graphics), lighting, colors, and even scents. All these are done to exploit the inner salient bias in humans, which is our tendency to overlook the features that do not stand out.

Cognitive biases creep into our thought process when we use heuristics, and we always resort to using heuristics we need to think promptly. By setting up the environment to trigger the intrinsic biases, supermarkets ascertain that a specific choice will be made. For instance, in almost all instances of discounts, the original price is quoted and struck through and the new lower price is highlighted. This is because, one estimates the value of one’s decisions based on previously conceived perceptions, and thus by showing the previously higher prices, enterprises exploit the anchoring bias in humans.

Running a superstore, therefore, is not merely stocking and restocking shelves. A considerable amount of effort goes into implementing the proper economic policy to boost sales and attract customers. Thus, supermarkets are the epitomes to showcase the effectiveness and importance of economic sciences.

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