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Changes Just Keep Coming to the Grocery Pricing Landscape: Why Science is the Key to Survival

By Cheryl Sullivan, President, DemandTec

Just when it seems that the grocery landscape can’t get any more chaotic and challenging, new curveballs get flung at us – and at warp speed. It’s easy to feel nostalgic for that time, not so very long ago, when retailers had long lead times to plan assortment, prices and promotions; shoppers’ behaviors were predictable and they were loyal to certain retailers and brands; and supply chains were established and stable. In that world, shoppers were more predictable and non-tech savvy, and human-led processes and spreadsheets banking on last year’s historical data, were reasonable approaches to use in carving out a retailer’s position in the market.

But that landscape is firmly in the rearview mirror now. Shoppers have complete price transparency across every item in every market and every channel. One misstep in the supply chain that causes a stock-out can drive a customer straight into the competitor’s arms, never to return. Traditional KVIs are upended as buying patterns during COVID-19 veer wildly into unprecedented territory.  

Now more than ever, retailers who rely on science-based price optimization have not only significant advantages in the market but indeed are finding that it’s crucial to navigate through today’s challenges brought on by the pandemic  and in many cases such as grocery,even thrive in a whip-lashed landscape. Using AI-based capabilities to get real-time insight into demand shifts has become table stakes.

Let’s look at one of the rapidly unfolding and unprecedented impact areas from the pandemic – the sudden upheaval in the meat supply chain as massive meat processing facilities become hotspots for COVID-19 transmission and are shuttered. As meat grows more expensive or even becomes scarce, it is next to impossible to predict what shoppers turn to as substitutes, be it nuts, grains, pasta or dairy, and how quickly and in what quantities. And a recent article from Phil Lempert in Winsight Grocery Business spotlights additional upheaval to come: long-shuttered food factories in China that supply much of the U.S.’s seafood, produce, garlic and processed mushrooms; bruising tariff battles with Europe compounded by closures in European food factories that supply wines and cheeses; and finally port backups that have “paralyzed food shipments around the world for weeks.”

Only leading science can provide insights that detect early shifts in demand signals and effectively separate the signal from the noise so that retailers can adjust with agility to accommodate to spasms in supply and shopper choices on substitutes that will continue to be severe for the foreseeable future. In addition, as one of our large Latin American grocers who leverages DemandTec price optimization recently told us, “optimization and simulation tools can support scenario analysis and speed up the decision-making process. This can be a significant advantage in a dynamic environment.”

In a world where 1 in 5 Americans have filed for unemployment, the shopper’s wallet has shrunk, leaving retailers competing for a decent share of an even smaller pot.  As shoppers grow less price-conscious on the new KVI’s emerging and viewed as survival items, they have become even more price-sensitive on the rest of the assortment. Combine this with CPG companies who are offering less trade funds, it more important than ever to ensure promotional dollars are optimally leveraged. Blindly returning to the same old historical seasonal offers won’t cut it. Trade circulars, always the traditional standby, are sharply reduced or even eliminated in the pandemic landscape, and droves shoppers are now buying online instead of coming into the store in any case. How can retailers already strapped for resources construct the right offers in the right channels quickly? The answer, again, is science-based technology that enables automated collaboration and negotiation between retailers and their suppliers along with the ability to seamlessly allow them to plan and execute the right promotional offers in the right channels.

The adoption of price optimization in retail is not new.  Many retailers have been reaping the benefits for several years.  Many even cite it as a key contributor to their positive performance in their earnings calls.   In fact, in the 2020 RIS News technology guide released last month, retailers advised that price optimization is in the top 10 of 80 technologies for retail technology investments.  What has changed is the nice-to-have mentality amongst retailers that have not invested in science-driven pricing.  I am hopeful the COVID-19 pandemic will be the wake-up call those retailers need to understand that price optimization is a top priority for retailers and has become mainstream.  It is a core tool in their toolbox as they compete for a dwindling shopper wallet and a must-have to navigate the level of unpredictability that exists in retail today and will no doubt continue to exist far into the future..