No shopper compares thousands of prices between stores. They compare a handful, and grocers know precisely which ones those are.
A few items carry the store's reputation
Milk, eggs, bread, bananas and a small number of national brands are bought often enough that most households carry an approximate price for them in memory.
Because those prices are remembered, they are the only ones that can be compared without effort, and a shopper's sense of whether a store is expensive is built almost entirely from them.
Grocers call these known value items, and they are priced with reference to competitors rather than to their own cost, sometimes at little or no margin.
The rest of the shelf is priced on indifference
Products bought rarely, or in categories with many varieties, do not generate a remembered price. A shopper cannot tell whether a jar of a specific sauce is competitively priced.
Those items carry higher margins without affecting how the store is perceived, which is where the profit lost on the visible staples is recovered.
The result is that two stores with genuinely different overall price levels can feel identical, because they match on the small set of items anyone checks.
Position amplifies the effect
Aggressively priced staples are placed where they are seen early and often, so the price impression forms before most of the basket is filled.
Large printed price signage is reserved for these items. The visual language of a low price is applied selectively to the products where it will register.
Meanwhile the categories carrying margin use shelf tags without emphasis, since drawing attention to a price invites the comparison the retailer would rather avoid.
Price checking runs constantly
Grocers monitor competitor pricing on their key items continuously, through scanned data, published circulars and in-store checks by staff or contracted services.
Changes propagate quickly. A competitor cutting a headline staple will typically be matched within days, because allowing a visible gap damages the whole store's image.
The competition therefore concentrates in a narrow band of products while the majority of the assortment moves independently of any rival.
Unit pricing defeats the mechanism
Because the effect depends on remembered comparisons, it weakens whenever a shopper compares within the store rather than between stores.
Shelf tags in most US states carry a unit price, and that figure allows a direct comparison between package sizes and between brands regardless of how the headline price is presented.
Using it consistently shifts attention from the small set of items the store priced for perception to the larger set it priced for margin.