How do supermarkets set their prices?

How does a product arrive on shelves at €1.49 rather than €1.89? Why can the same item be displayed at a different price from one brand to another, or even from one store to another?

Pricing in supermarkets is far from arbitrary. It is the result of a complex balance between commercial negotiations, margin strategies, regulatory constraints, field data, and consumer psychology.

For brands, understanding these mechanisms is essential to negotiate better, position themselves effectively, and guarantee profitability. In this article, we decipher the major levers that influence retail selling prices and give you concrete tools to better manage your pricing strategy.

The main elements to consider in pricing by retailers

Supermarket prices are not decided at random: they result from a balance between different factors and elements, which we present below. Each factor plays an essential role in building the final price displayed on the shelf.

Negotiations with suppliers

Every year, manufacturers (Nestlé, Danone, Coca-Cola, Unilever… to name just the largest) conduct long negotiations with distributors (Carrefour, Leclerc, Intermarché, Auchan, etc.).

These negotiations cover several dimensions:

• Purchase rates: price invoiced by the manufacturer to the distributor, which serves as the basis for calculating the selling price in store.

• Committed volumes: the more a retailer commits to large volumes, the more attractive a unit price it can obtain.

• Discounts and rebates: immediate discounts, deferred discounts, or back margins (e.g., commercial cooperation).

• In-store promotion: endcaps, POS advertising, promotional operations, which heavily influence sales.

• Promotions: price reduction, "2+1 free" mechanics, coupons... which are an integral part of the commercial strategy.

The final selling price to the consumer is therefore directly determined by the result of these discussions. A product purchased at too high a price by a retailer risks being uncompetitively priced on the shelf, thereby reducing its turnover potential.

Overall, the trend is toward increased decision-making power on the retail side, especially when the manufacturer in question is not one of the category must-haves. Some products are considered "indispensable" (Coca-Cola, Nutella, Cristaline...): if they are not present, consumers may turn to competition. In this case, the manufacturer retains the upper hand in the negotiation. Conversely, when dealing with less iconic brands, they are the ones who must make the bulk of the commercial efforts. To better understand these dynamics and prepare for your negotiations, we have written a comprehensive article on the subject.

The distributor's margin strategy

The distributor applies a commercial margin to cover its operating costs (logistics, energy, rent, staff, marketing) and generate profit.

But this margin is not uniform:

• Loss leaders (Nutella, Coca-Cola, laundry detergent...): voluntarily low margin, because these products serve as benchmarks for the store's price image.

• Private labels (distributor brands): higher margins (often 25–35%), as they allow retailers to differentiate themselves and improve profitability.

• Premium or niche products: larger margin, justified by lower price sensitivity among consumers.

The distributor therefore adjusts its margins according to the category, seeking a balance between shelf attractiveness and overall store profitability.

Regulations

Prices are not 100% freely set. The legal framework heavily influences practices:

• Resale-below-cost threshold: it is forbidden to sell a product below its actual purchase price (PAE). This prevents destructive price wars.

• Egalim Law: it regulates resale below cost and food promotions (capped at -34%). The Egalim III law aims to protect farmers' incomes and limit value destruction.

• Promotion framework: prevents certain practices deemed too aggressive, which could devalue the entire category.

In practice, regulation forces retailers to find a balance between price competitiveness, compliance with laws, and preserving the economic value of industries.

Competition

Supermarkets operate in an ultra-competitive environment, where prices set the trend. Each retailer closely monitors the prices of others to ensure they are not perceived as "too expensive."

Each retailer chooses its strategic positioning: some (Leclerc, Lidl) play the systematic low-cost card, while others (Monoprix, organic) rely more on experience or quality. It is up to you to understand your brand's positioning and target the retailers that most correspond to your products and brand.

To do this, your area managers can carry out price checks and competitive checks in-store to understand the positioning in your product category.

Price psychology

Displayed prices also obey marketing and behavioral psychology rules:

• Psychological pricing: €0.99 seems much cheaper than €1.00, even if the difference is minimal. Also called acceptability price, it helps agree on the price deemed most acceptable by the majority of consumers.

• Benchmark products: certain items (milk, baguette, pasta) influence the overall perception of the store's price. If these products are expensive, the consumer will feel that everything is expensive. These products are either basic necessity goods, but can also be loss leaders.

• Price segmentation: some products are deliberately premiumized to attract a specific clientele, while others are discounted to drive traffic to the store.

This strategy allows driving consumer perception beyond simple economic logic.

The role of digital and data

With the rise of e-commerce and digital tools, pricing has become a real-time management tool.

Thanks to sales data and AI tools, retailers are increasingly practicing dynamic pricing. They adjust their prices based on demand, available stock, seasonality, or trends. For example, during heatwaves, they raise prices on cold drinks or ice cream.

Thanks to cash receipts, loyalty cards, and AI tools, retailers can also finely analyze price elasticity and adapt their strategy by product and by store.

Finally, in drive-thru or delivery (e-commerce purchase), prices must be consistent with the physical store, while taking into account different expectations depending on the channel. Digital thus transforms pricing into a strategic and predictive lever, well beyond simple gross margin.

How does this differ across product categories?

The way supermarkets set prices varies greatly depending on the product categories, as the challenges and consumer sensitivities are not the same.

Fast-moving consumer goods (FMCG)

Fast-moving consumer goods (dry food, beverages, hygiene, cleaning products…) are a particular segment of supermarkets, because they are the products most purchased by households.

The prices of these products are therefore closely monitored by consumers: rice, pasta, milk, laundry detergent... they are "benchmark" products. These products are the "primary" reason consumers go shopping. They therefore serve as a draw to attract customers: retailers make low margins on major brands.

That is why they launched their private labels (distributor brands). They are strategic for retailers because they allow them to achieve higher margins. We have written an article to help you know how to position yourself against private labels.

As mentioned earlier in the article, promotions on these products are very strictly regulated by the Egalim law (maximum -34%).

→ highly regulated and strategic prices.

Traditional fresh products

These are the specialty departments you have in supermarkets and hypermarkets: butcher, fishmonger, fruit & vegetables, bakery...

Pricing is more flexible because it depends on supply costs (commodity prices, seasonality).

The weight of labor (processing, cutting, preparation...) also influences the margin.

‍Here too, retailers play the card of a differentiated positioning in specialty departments. Where E.Leclerc competes on price, Monoprix and Carrefour compete on quality and service.

→ more flexible prices, linked to costs and the season.

Self-service fresh products

These include deli meats and cheeses, ready meals or frozen foods, yogurts, and fresh dairy products, directly accessible on the shelf.

These products have high sensitivity to promotions. Their price is linked to agreements with manufacturers. Here again, private labels offer a more comfortable margin while major brands are a benchmark price.

→ highly regulated and strategic prices.

Non-food products

Margins are much higher than on food (often 30 to 40%, sometimes more). Nevertheless, certain categories, such as home appliances and tech, are in crisis and withdrawn from shelves by some retailers. This is mainly because prices are compared to e-commerce (Amazon, Cdiscount…) which is often cheaper and to specialty stores, often more specialized in advice and with better after-sales service. Retailers struggle to remain competitive. That is why they use seasonal events  "gardening operation," "Black Friday"... where prices are very aggressive.

→ high margins, event-driven management, e-commerce pressure.

Seasonal products

This can range from toys at Christmas, to barbecues in summer, and school supplies in autumn. For these products, prices follow a seasonal cycle: higher at start of the season, falling as the end approaches (for example, toys discounted after Christmas). Volumes and stock determine the pricing policy: a retailer might slash prices to liquidate stock quickly.

→ more flexible prices, linked to costs and the season.

Gross margins that also differ by category

Gross margins vary greatly depending on departments and categories, as the distributor's strategy is not the same everywhere.

Some product families serve as price drivers (hence very low margins), others compensate with high margins.

Here is an overview, which can vary depending on retailers and products:

This table can serve as a quick reference to position your products relative to distributor expectations. Here is what you can keep in mind:

• Very low margins (10–20%): leading products and high-tech → draw role.

• Medium margin (20–35%): drinks, groceries, self-service fresh.

• High margin (30–50%): traditional fresh, standard non-food.

• Very high margin (50% +): bakery, catering products, accessories, premium private label.

How, as a brand, do you know what price to sell at in supermarkets?

The "right price" must take into account consumer perception, distributor expectations, and your own profitability. Here are the levers to determine a realistic price range:

Analyze the market and your competitors' prices

• Study the shelves (in-store and online) to identify:

  • the price of category leaders,

  • private label prices,

  • premium/entry-level segments.‍