If you went shopping for a knob of ginger at Woolies in Darwin, you’d pay $50 per kilo. Head west to the remote community of Yarralin and visit the AIG managed store there, and you’ll pay $19.95. How can this be?
The price of ginger is just an example of how retail pricing structures work. AIG has been trying to turn conventional ‘profit at all costs’ structures upside down since we started community store management in 2018. We recognise in remote communities’ people don’t have the luxury of choice. They cannot shop elsewhere if the prices are too high, so discounting healthy essentials is very important.
Pricing should be driven by what people can afford
Big stores like Woolworths and Coles have their prices set long before products hit the shelves. Gross profit is always the end game and drives every decision made in the store.
AIG runs things differently. For starters we don’t have the buying power of huge corporations, so our price fluctuations are influenced by the wholesale price of the product. If carrots go down in price for example, that is because the supplier is selling them cheaper, and we pass the savings on to shoppers. The same applies if prices go up.
Secondly our pricing decisions are primarily driven by what people need and what they can afford. “Those things that are bad for you we have a higher markup on and are therefore more expensive. The healthier groceries we reduce the margin on, have a lower markup and cost the customer less” says Dom Robbie, the Stores Coordinator at AIG.
Stores have an important role to play
Our pricing decisions are made with the view that community stores are social enterprises, and while discounting fruit, vegetables and meat to cost price can mean less money in the till at the end of the day, the nutritional gains of the community and the long term benefits that come with that have significant value.
Our sales data has shown us that when healthy options are cheaper, people buy them. Our fruit and vegetable sales have risen sharply and in many cases doubled in all the stores we manage since prices were set at cost.
“There are three tiers of pricing. Sitting at the cheap end is Mob’s Choice which are the heavily discounted essentials. Then there are core range products which have lower gross profit. These are things that we believe community should get at a better price. Then there are things that sit at the higher end like toys, ice creams, pies and confectionary. They are unhealthy and non-essential and more expensive” said Dom.
Shopper trust sits at the core of our pricing design
Our model works because of shopper trust. When our customers know we are working hard to give them reasonable prices instead of ripping them off, they will shop more in the store instead of doing big shops in Katherine for example. It’s really just a matter of economies of scale. If more people shop in the store, we can keep prices low.
AIG will continue to work hard at managing stores not only as a place for shopping but also as a place forAIG building stronger communities.
