Few things are as important as price when it comes to grocery shopping — but how to optimize those prices is undergoing significant change in 2021, and retailers who don’t get on board could face problems sooner rather than later.
Thanks in large part to the pandemic — but also cheaper technology — price and promotional optimization efforts are moving from manual processes to automation, which is often powered by machine learning or artificial intelligence (AI).
Even when the pandemic subsides and food retail gets back to normal — or as normal as will be possible after months of supply-chain hiccups, pantry loading and e-commerce growth — merchants that intelligently embrace price and promotional optimization will have an edge when it comes to dealing with new consumer habits.
Cheryl Sullivan, president of Boston-based pricing and promotional data and technology company DemandTec, sums up the situation and stakes better than most.
“Even in early 2018, many retailers considered science-driven price optimization as a nice-to-have,” she says. “By 2020, it was no longer viewed as a nice-to-have, yet retailers struggled to understand it. Fast-forward as we move into 2021, and retailers have begun not only to understand it, but to embrace it. With the onset of a pandemic that threw grocery into a tailspin, it’s clear that optimization is an absolute imperative.”
A recent study cited by Sullivan helps to illustrate her points.
In mid-2020, 60% of retailers said that they were focused on putting AI-powered pricing in place. In 2021, that technology will stand as a top priority for retailers that have not already progressed on the optimization journey, she notes.
“About the only thing that didn’t change was the importance of price – shoppers continue to rank it as the single most important factor in choosing where to shop, which it has consistently been for many years,” Sullivan adds. “It won’t come as a surprise that I see 2021 as a critical year for price optimization to take center stage for retailers.”
Private Label Pricing
A change that took place during the pandemic — a change still playing out, in fact — shows the importance of better food retail price optimization efforts, and how grocery store operators can use the technology to gain ground over rivals.
Before the pandemic, according to Sullivan, shoppers reported a 37% increase in their purchases of private label products. That increased to 44% during the pandemic — with that figure expected to go even higher in 2021 and after the COVID-19 outbreak fades.
“Heightened price sensitivity, changing KVIs [known value items] and supply-chain hiccups that sometimes resulted in national-brand stockouts all combined to make shoppers more inclined to give store brands a try,” she explains. “As a result, shoppers are discovering that private label brands provide both high quality and value, and they are more interested in them than in the past. Retailers need to strategically consider the role of private label in their overall product mix, and price accordingly, which optimization can help you do effectively and quickly.”
Indeed, one sign of the increasing importance of price optimization comes from Washington, D.C.-based Datasembly, which describes itself as the leading provider of real-time product pricing, promotions and availability data for retailers and CPG brands. In the latter part of 2020, the company raised $10.3 million in a Series A funding round, and said that it counted as customers three of the top 10 CPG brands and two of the top five regional and national retailers.
Datasembly’s proprietary technology collects billions of grocery and retail product records from hundreds of thousands of locations every day, and the new funding will go toward accelerated product development, and expand sales and marketing efforts.
“Datasembly is changing the way retailers and CPGs can get and share pricing information, eliminating the need to visit stores in person or to settle for averaged data,” says founder and CEO Ben Reich. “Using real-time store-level pricing and promotions data, customers get unprecedented transparency between retailers, partners and suppliers. The top retailers and CPGs we’re already working with are reaping the benefits of the value we provide. Along with our two strategic investors, we have the talent and resources to continue to grow our customer base and solve the industry’s archaic pricing problem.”
Eventually, consumers will return to stores even as online grocery shopping remains popular, says Matthew Pavich, managing director, global strategic consulting for Austin, Texas-based Revionics, another price optimization firm.