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How True Food sets its prices

Posted on Sunday 28 April 2019

By Charlotte Hawkins

As a not-for-profit organisation, there are fundamental differences between the way that True Food sets its prices and how commercial food retailers set their prices. Of course, True Food, along with commercial retailers, has to take into account overheads such as staffing and premises, but the way goods to sell are purchased from suppliers and how prices are set for the customer is very different.

In a supermarket, fresh products are either bought directly from the grower, or as is more often the case, through brokers who deal in specific commodities or produce from a particular region. The job of the buyer is to build links with these suppliers and negotiate as low a price as can possibly be obtained. Buyers are judged and rewarded on being able to get a good deal for the supermarket, and the larger the supermarket, the more buying power they have. This means that they are able to secure prices which barely cover the cost of production, meaning that smaller suppliers are often put out of business as they cannot compete with the larger companies who can benefit from economies of scale. With independent growers, a supermarket can demand exclusivity, which puts a huge risk on the shoulders of the grower, as supermarkets can and do terminate contracts with little warning, leaving growers with a product for which they then have to rapidly find another buyer.

Branded foods are bought slightly differently in a supermarket. Brands have to pay slotting fees to be allowed to stock their goods. The slotting fees dictate how much shelf space their product will have, the position of the shelf, and the level at which the products are placed. Slotting fees are set according to how humans behave. Numerous studies, many of them involving the use of special eye movement trackers, have established the best and worst places for products to be positioned, and consequently the best places command the highest slotting fees. The premium space is called the "gondolas" which are placed at the end of the aisles. As customers scan shelves from left to right, positions on the left are regarded as more valuable, as is the position in relation to eye-level. The practice of charging slotting fees makes it very difficult for smaller producers to compete with large food-production corporations, reducing consumer choice and discouraging small businesses, many of whom focus on artisanal, local or ethically produced foods.

When supermarkets offer special deals, contrary to popular belief, it is not the supermarket that bears the cost of these, but the supplier or grower. They have little choice but to comply with the supermarket’s demands, as they know that the supermarket can drop their product whenever it suits them.

With such a complex system and with such an imbalance of power between the supermarket and grower or supplier, the prices that are set for the customer have little to do with what the food actually costs to produce. Supermarkets watch what their competitors in the local area charge, and adjust their prices accordingly. There are also certain known-value items, such as milk, bread, broccoli and bananas, which are loss-leaders, meaning the supermarket deliberately sells these products at a loss to make their prices seem more favourable overall and entice their customers into their store. Organic foods are often sold at a disproportionate premium to the price the supermarket has paid for them, as supermarkets know that they can get away with it as people wanting organic foods are prepared to pay the excessively higher price.

It is not that the setting of prices is profit-driven that is a problem, but that it makes it very difficult for farmers and small food suppliers to continue to do business when the supermarkets wield such power and have little compunction with whether the grower or supplier survives or is pushed out of the market. In addition, few consumers would argue with paying a price that reflects the cost of production, plus a little bit to cover costs and enable a profit to be made, but the current system of price setting within a supermarket is unfair to consumers (particularly those buying organic products) and has a lack of transparency that borders on deceptiveness.

True Food’s not-for-profit ethos is entirely different. For fresh produce, it buys directly from the grower whenever possible. Many of True Food’s fresh food suppliers are also charitable organisations, but for those that are commercial, True Food ensures that they are able to make sufficient profit to continue their business.

True Food buys its goods either directly from the grower, in the case of local fruits and vegetables, or through ethical supply companies in the case of imported fresh products (such as citrus fruit and bananas) or foods that have undergone some sort of processing.

For storecupboard items, True Food often chooses local small-scale businesses to source the food directly from, such as Tutu’s Ethiopian sauces, or deals with ethical larger-scale producers and importers, such as Organico and Suma.  Our Buyer, Rebecca, ensures that they are bought at a price that is fair to the grower and supplier. True Food does not command slotting fees from suppliers to stock their products in our shop, and they are not compelled to participate in business-crippling special deals.

This fairness is also passed on to customers. True Food works on a percentage basis of the mark-up that is put on products which covers our staffing and business costs. Because of the fragility and short shelf life of fresh fruit and vegetables, the mark-up is a set 50%, and products that have a longer shelf life are marked up at 35%, which means that the suppliers of frozen meat, dairy products and manufactured products are not effectively subsidising the losses that inevitably come with the retail of fresh products. To minimise waste, True Food sells at a heavy discount products that supermarkets would write-off. This benefits both the customer directly and True Food, as the food doesn’t go to waste. True Food doesn’t engage in loss-leading or disproportionate mark-ups for products where they have a captive market.

All shoppers at True Food know that the prices they are being charged are fair. Fair to the grower, supplier, and perhaps most significantly, to them as a customer. It treats the people who supply our food with decency and respect, while providing the customer with items that they would often be unable to buy elsewhere. All this is done with consideration of the environmental impact, and consideration of True Food's role in our local community. A win-win situation for everybody.

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