The Rise of Everyday Low Pricing – A Slippery Slope

In this article, we focus on the increasing prominence of Everyday Low Pricing (EDLP) in Coles and Woolworths and the implications for branded product suppliers. The discussion includes a case study of moving from HiLo pricing to ELDP, with some very interesting outcomes



Everyday Low Pricing (EDLP)

EDLP strategy creates permanently lower retail selling prices, by rolling all supplier trade spending used to fund temporary price reductions, into lower regular price.

Everyday Low Pricing  was popularised by global US retailer Walmart. The strategy has been very effectively used in Australia by Aldi in the supermarket sector and Kmart in the discount department store sector. Both Aldi and Kmart underpin their strategy with 100% own sourced, private label product.

HiLo Pricing

HiLo Pricing strategy, moves from everyday “High” price, to time limited, discounted “Low” price, funded by supplier promotional discounts. With less than 10% of supermarket shoppers loyal to a single supermarket banner, HiLo promotions help move shoppers between retailers and create impulse buys. However, HiLo adds complexity and cost, for suppliers and retailers, required to manage all inputs affected by large price and customer demand changes.

Everyday Low Price Expansion – Coles and Woolworths

While HiLo pricing is still preferred by Coles and Woolworths, for over 80% of their 25,000 products, both have been blending and expanding EDLP Strategy into their overall marketing strategy.

Coles is aggressively pursuing a hybrid HiLo and EDLP strategy, converting 4000 branded and private label products to EDLP, “to give customers trusted (fair) pricing, they know is not going to change.” The primary purpose is to keep customers away from Aldi (1350 private label EDLP products) and Woolworths.

Woolworths lower prices message is through its “Prices Dropped,” “Lower Prices Always” campaign (worth $1Billion to date), essentially to reverse exploitation of excessive past price increases that made it uncompetitive, and rebuild customer trust/loyalty.

Moving branded products to EDLP results in a price reductions between 15% and 30%.

HiLo Deep Discounts Increasing

It’s interesting, that while Coles and Woolworths both pursue a lower everyday “trusted” and “fair” prices image, HiLo promotional discounts are now deeper and more frequent. 2016 saw a 31% increase in promotions with 50%+ discounts and 2017 shows no reduction. Catalogues for the week commencing 5 April 2017, show:

Catalogues Wk/c 5 April 2017 Coles Woolworths
Total Promotion Items 268 267
1/2 Price Promotions 67 57
% 1/2 Price Promotions 25% 21%
EDLP Promotions 18 40
Branded EDLP Promotions 3 19

As more than 50% of shoppers attracted to deep promotional discounts, buy on price, with little brand consideration, we see this as conflicting with the desire to build “fair pricing” perception and does little to attract high value customers.

Essentially, these deep discount promotions are being used to pull more price conscious shoppers back into stores, exposing the range of EDLP products, significantly larger than Aldi’s range. Tier1 brand suppliers largely have the pleasure of paying for this exercise!!

Product Categories/Brands suited to EDLP

Generally, mature brands and product categories with low growth and promotional lift prospects, are more suited to EDLP and more efficient to manage on EDLP, with smoother and more predictable demand.

Moving a category/brand to EDLP, recognises that low growth and promotional responsiveness, justifies less brand marketing on shrinking brand value i.e. the category/brand should be better off on EDLP auto pilot.

Price/Volume sensitivity analysis will determine whether EDLP strategy is more profitable than HiLo, for a Brand/Category.

Everyday Low Price and Operating Efficiencies

Smoother, more consistent customer demand from EDLP, creates the following operating efficiencies :

  • Reduced promotion management and merchandising costs
  • Easier demand and inventory management
  • Reduced out of stocks / lost sales

Overall, a simple, stable EDLP model lowers operating costs, which appears attractive for retailers and suppliers. However, 66% of branded goods suppliers surveyed recently said they would not consider changing to EDLP, with brand equity issues taking precedence over operating efficiencies.

Everyday Low Price vs HiLo Price – Case Examined

With 66% of suppliers not favouring EDLP, we examined an interesting real situation involving well known brand and category leader, Cottees Cordial, switching from HiLo to EDLP.

     The Case Study Data :

 1) In March 2017 Cottees Cordial (1 Litre concentrate) switched to EDLP at Coles : price dropped 26% from $5.00 to $3.70, while Woolworths maintained Cottees Cordial as a HiLo promotional product, at normal (Hi) price of $4.98

2) The switch by Cottees to EDLP at Coles, followed Woolworths placing Golden Circle Cordial, (2 Litre) into its “Prices Dropped” category (EDLP), in January 2017. Price dropped 25% from $4.00 to $3.00

Coles switch from $5.00 to $3.70 EDLP

3) Shortly after the Coles EDLP switch, Woolworths ran a 1 week, 2 for $7.50, Cottees promotion, equivalent to $3.75 per unit.

Woolworths Promotion response to Coles $3.70 EDLP : 2 for $7.50 = $3.75 each

 4) We conducted price/volume analysis on the 2 strategies, using actual retail prices, actual promotion discount, benchmark cost of goods and trading terms, to show how the 2 pricing strategies compare.

5) Woolworths HiLo Promotion (2 for $7.50), ran for 1 week out of 4 weeks, with a deal discount of 25%, resulting in sales uplift of 2.8 x normal price sales volume.

6) Coles, EDLP Supplier Discount, to reduce shelf price from $5.00 to $3.70, for the full 4 week period was 24%, resulting in Sales uplift of 1.8 x HiLo normal price volume.

The following table shows Pricing, Margin % and Deal % for HiLo (Woolworths), EDLP (Coles) and supplier, Cottees : 

Note : HiLo Averages based on 3 weeks Hi + 1 week Promotion

The results are shown graphically :

    1) Price/Sales Volume/Profit Margin – 1 Week – Retail compared with Supplier

2)  4 week Comparison : HiLo (3 weeks Hi, Normal pricing) + (1 week Lo Promotion pricing), EDLP (4weeks Everday Low Pricing)

EDLP – Sales Volume Increases 24%, Supplier Profit Reduces 25%, Retailer Profit Increases 8%

Everyday Low Pricing through Coles

The comparison shows while EDLP unit sales increase 24% for the 4 week period, supplier funding of the permanent EDLP reduction, is equivalent to a 24% Deal for the full period. This results in a  25% supplier profit reduction, compared to a 4 week HiLo sales period, with 1 week on Promotion.

While supplier (Cottees) profit falls 25%, retailer (Coles) profit increases 8%.

For supplier profit to be maintained, moving from HiLo to EDLP strategy, would require a sales volume lift of 2.4 times permanently, compared to the achievable benchmark of 1.8 – a highly improbable further 33% sales lift is required.

Clearly, supplier Cottees will be worse off – $131,000 over 4 weeks. The full cost of the permanent everyday price reduction, can only be offset by operating cost efficiencies, derived from more stable demand management.

Suppliers must agree to fix the Everyday Low price for at least 6 months, losing any flexibility to influence sales, via a promotional program.

The strategic marketing decision to switch from HiLo pricing to EDLP, is not totally in the supplier domain, with pressure coming from major retailers, such as Coles and Woolworths. Hence the importance of the Volume/Profit, pricing change analysis, as once a decision is made to switch to EDLP, it would be near impossible to revert back to HiLo pricing without a complete product / brand review.

HiLo Pricing through Woolworths and Coles – Price Creep

It’s also worth mentioning, that after the Woolworths promotion, (2 for $7.50 = $3.75 each), in response to Coles EDLP of $3.70, Woolworths increased the normal (Hi) shelf price from $4.98 to $5.25 (+ 5.4%), widening the price difference with Coles EDLP ($3.70) to 42% – certain to further erode customer trust and loyalty. Post analysis showed exactly that, with Cottees then required to fund a 1/2 Price promotion, down to $2.62!!

Coles uses similar price creep tactics. Following Golden Circle’s 25% Everyday Price Drop, from $4.00 to $3.00, at Woolworths, Coles increased the normal (Hi) Golden Circle price 10% to $4.40 in April, then ran a promotion down to $3.20.

 We watch this space with interest, to see where it leads to, for both Cottees and Golden Circle.


This case study highlights a number of Brand and Category Management issues :

  • The Cordial Category has been shrinking for some time, mainly in the under 35 age group, resulting from years of media coverage on health issues associated with sugar based products.
  • The shrinking category led to category leader, Cottees, shifting to EDLP at Coles, (in our opinion, with little option), after Woolworths moved Cottees competitor, Golden Circle, to EDLP.
  • Continuing product and brand innovation is essential to maintain growth. Bickfords Cordial is a good example – In a shrinking product category, with all other cordial brands in decline, Bickfords, has shown good growth, particularly in the over 50 age group, with a range of minimal sugar, more sophisticated flavours, that can also be used for mixers.
  • Well known mature brands, in decline, will be forced down the EDLP “slippery slope” by retailers, managing ranging and shelf space. As the brand does little to stimulate category growth, and becomes purely price based, the risk of being replaced by retailer private label brand increases.
  • As we have demonstrated, the move to EDLP can be more costly, through the need to convert all terms and promotional monies into permanently lower pricing. Switching to EDLP won’t stop the demise of a brand. Only product/ brand innovation, based on well defined consumer preferences, can stop the downward slide.
  • The Cottees/Coles EDLP case, highlights the additional pressure a supplier can be subject to if not on EDLP at all major supermarket customers e.g Woolworths requiring deeper discount HiLo promotions, to reduce the flow of customers switching to Coles Everyday Low Price.
  • The decision whether to switch from HiLo pricing to EDLP is a high level strategic marketing decision. To support the decision, quantitative analysis of the Price/Volume/Profit impact, versus the alternative of product/brand innovation is essential.

TPM360’s  Sales and Promotions Management Solution takes care of all your Customer, Category, Brand and Product performance requirements – history, current and forecast. Constantly directing attention to key success metrics, TPM360 ensures no unpleasant surprises.