No Name, a Canadian ultra-discount private label brand owned by Loblaws, announced a price freeze in October. Prices will be held constant until January 31st, 2023. According to the company, the price freeze is “for inflation.” While this may seem superficially logical, it becomes bewildering when you think about it. What exactly is a “price freeze”? Why are they freezing prices “for inflation”? Do they expect inflation to stop in a couple of months?
Growing up, No Name products were a staple for my father. He was the type of utilitarian that would claim this ultra-processed junk tasted the same as brand-name products. I despised the crap at the time, and my opinion has not changed much in the past 25 years. Yes, budget-friendly foods are essential, but is this the best they could come up with?
Despite my bias against No Name, its approach to advertising and branding is fascinating. The intentionally in-your-face ugly packaging has been consistent for decades, which could legitimately be a smart marketing strategy. They use advertising so bad I legitimately don’t know if it is meant to be a joke. I would never buy from them, but they are curious to watch.
So, when the No Name price freeze was announced, I was confused. It didn’t make sense in terms of effective marketing and business strategy. But after analysis, the real objectives have become clear to me.
Let’s start with an obvious question…
What is a Price Freeze?
What the hell is a price freeze? I mean, I know what it is technically – it is essentially a sale, but the amount you save is complicated and inconsistent. These savings will be tiny, especially in the first month of the promotion. Are people supposed to be excited about this?
A critical aspect of sales is the feeling of getting a deal. We all have heard someone say, “$50 is a lot for a t-shirt, but it was 50% off, so I had to get it.” The 50% off makes us feel we are getting $100 in value for $50, even though we still pay $50 for a t-shirt. Sales reframe prices as low compared to the “real” value of the product, making us think we are getting a good deal (though we are often not).
Now imagine you are looking at a $50 t-shirt in a store. A salesperson wanders up and smugly mentions, “You will be happy to know that we haven’t increased the price of this shirt in the last month.” Huh? Why should I care? What is this supposed to be telling me about the desirability of the shirt?
A price freeze is like a regular price promotion, but instead of having a reference price to compare, you have a vague suggestion that the costs could be higher. How much higher? Who knows. You are saving relative to some alternate reality where the price wasn’t frozen.
Without this reference price, the whole promotion lacks hooks.
This also fails another metric – people won’t talk about it. We all know bargain hunters, who love to search for deals, clip coupons, and make comments like, “Can you believe I got this used novelty waffle maker for only $11?” These folks derive pride from their thriftiness, which means they are excited to talk about how much they saved.
These micro-influencers don’t derive satisfaction from buying items subject to a “price freeze.” It doesn’t feel like you are saving, and you can’t calculate how much you saved. These hardcore bargain seekers seem like the exact type who would appreciate a sale on already inexpensive goods, but this promotion probably won’t appeal to them.
Price Freeze for Inflation
Let’s grant this “price freeze” business a moment and pretend it is a typical promotion. Why is there a price freeze “for inflation?” What exactly is the mechanism here? You could imagine a government passing some policy where all food prices are frozen due to inflation, but no such policy exists. There must be some customers who saw this and were confused.
In fact, this could be turning one of the brand’s strengths into a weakness. No Name has one advantage for consumers – it is inexpensive. Freezing prices for inflation now reminds people that prices have been increasing. It is almost a reverse sale – the price was lower a few months ago, and now you are forced to pay more.
No Name is also putting itself in a no-win situation for when this un-promotion ends. If prices jump substantially in February, consumers could get angry because a price freeze suggests the increases should be stopped, not just delayed. On the flip side, if prices don’t increase after the freeze, it would feel like the promotion wasn’t “doing” anything.
Of course, a segment of buyers is extremely sensitive to price, such as those who are poor or thrifty. The price freeze would affect their behavior simply because they always pick the cheapest can of pinto beans or block of cheddar cheese they can find. Of course, No Name probably already had a significant chunk of that market. A more traditional price-based promotion would affect these budget-focused customers while appealing to a broader audience.
And remember, this isn’t about revenue; it is about profit. Ultra-discount brands have tiny profit margins. If they sell 300 g bags of frozen chopped spinach for $1.89, how much could they possibly make after expenses? I don’t know enough about the grocery industry to speculate, but it cannot be much. A slight increase in prices could erase No Name’s meager profits. In that case, it wouldn’t matter how many people would buy this $1.89 spinach; No Name would only break even.
This may seem like overthinking, but this happens when you run a strange “price freeze for inflation” program instead of a real promotion. I expect plenty of customers who see the price freeze ads and scratch their heads. All of this begs the question: what is the point of all this?
Un-Promotions for Oligopolies
This situation must seem totally bizarre if you are a non-Canadian or a Canadian who doesn’t pay too much attention to business news. But if you know anything about Canada’s grocery oligopoly, this makes a little more sense.
Weston owns Loblaws and No Name (as well as Presidents Choice, Joe Fresh, No Frills, Zehrs, Valu-mart, Freshmart, Real Canadian Superstore, Atlantic Superstore, Dominion Superstore, Shopper’s Drug Mart, and Pharmaprix, among others). They are the largest grocery business in Canada, with a 27% market share. The Empire Company – owners of Sobeys, Safeway, and others – come in second place with a 22% market share. These two companies functionally control the grocery industry across most of the country.
With two companies, there should be at least some competition, right? Not exactly. There have been many accusations of collusion, most famously in the bread price-fixing scandal of 2018. These two companies, along with Metro (the #3 grocer), worked with bread suppliers to raise the price of bread by about $1.50 per loaf over 14 years. This would represent hundreds of millions of dollars in additional profits.
Understandably, all of Canada’s grocery companies have come under increasing scrutiny. So it was a bad look when Loblaws had record profits for Q3 of 2022 despite claiming the increasing food price are due to inflation. The No Name price freeze was announced around the same time.
This price freeze makes a lot more sense if you consider it a PR campaign rather than a sales promotion. The advertising seems half-hearted. Of the six banners across the front windows of my local Loblaws, only one was for the price freeze. This in-store ad captured the vibe – not only did this endcap not have No Name products, but it was hidden behind another display.
The question becomes whether this “price freeze” accomplishes the goal of improving Loblaws’ image. It’s mixed. On the one hand, they are seen “doing something about inflation,” and it doesn’t matter that the impact is insignificant. It also draws attention to the available consumer choices – if you don’t like higher food prices, buy No Name, and if you are too good for the brand, that is your problem.
On the other hand, focusing on inflation seems like a risky move. No Name makes up a small piece of Weston/Loblaws’ overall portfolio, so a price freeze on just one brand reflects poorly on everything else. People also may not understand these business relationships, so they remain angry at Loblaws for not doing anything about inflation.
But of course, the thing about oligopolies is it doesn’t matter what you think of them. My town has two grocery stores; Loblaws owns one, and Empire owns the other. These two companies own all the grocery stores within a 30-minute car ride. I don’t have much choice, nor do many other Canadians, unless regulators take steps to break up these oligopolies.
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