Supermarkets sell certain items at or below cost every week. The practice is sustainable because of what those items do to the rest of the basket, and the selection is anything but random.
The basket is the unit of profit
Grocery margins are thin overall, and no single item carries the store. Profitability depends on the mix of what a shopper buys in one trip.
A discounted staple that brings a shopper through the door contributes indirectly, through the higher-margin items purchased alongside it.
This is why loss leaders are advertised prominently and placed to require walking past a great deal of other merchandise.
Trip frequency matters as much as basket size, since a household that shops one store weekly is worth far more over a year than one that visits occasionally for advertised items alone.
Known-value items do the work
Shoppers remember the price of a small number of goods, typically milk, eggs, bread, bananas and a few center-store staples.
Those prices form an impression of whether a store is expensive, and that impression governs where a household shops for everything else.
Retailers therefore price known-value items aggressively and take margin on items whose prices shoppers cannot recall, which is most of the store.
Suppliers often fund the promotion
Manufacturers pay trade allowances for featured placement and advertised pricing, so a promoted price may cost the retailer less than it appears.
These arrangements are negotiated well ahead of the promotion, which is why weekly advertisements are planned months in advance.
Private label products work differently, since the retailer controls the margin directly and uses them to anchor value perception without supplier funding.
Limits keep the economics intact
Purchase limits exist to prevent a small number of buyers, including resellers, from absorbing the entire discounted quantity.
Some states restrict selling below cost under laws intended to protect smaller competitors, which constrains how deep promotions can go.
Where those laws apply, retailers use loyalty pricing and bundled offers that achieve a similar effect through different mechanics.
Loyalty data changed the targeting
Card programs allow discounts to be aimed at individual shoppers rather than offered to everyone, which reduces the cost of a promotion.
A shopper who would buy the item anyway can be left at full price while a lapsed shopper receives the offer.
The tradeoff is that personalized pricing weakens the public price impression that loss leaders were designed to create, so both approaches run side by side.