Grocery Pricing in a Pandemic
A Stampede to Online and App-based Shopping – In Some Unlikely Demographics
Grocery shoppers have historically trailed other sectors in embracing online and delivery options, but that’s about to change. Even older shoppers, who usually enjoy trips to the grocery store and actively resist online alternatives, were deeply shaken by a virus that disproportionately threatens their age group. What was once a positive experience has turned into an experience one would have thought was reserved for scary movies.
Grocery shopping now comes with face masks and gloves, the sight of employees sanitizing grocery carts between each shopper, 6-foot marks spacing queues as shopper access to stores is physically limited, and sneeze guards in checkout lines. Harried parents working from home with bored, cooped-up children can no longer fit in time for a personal grocery trip.
What just weeks ago was unthinkable has become the norm: shoppers in all demographics flock to contactless channel options, whether mobile app or online, curbside pickup or home delivery, and grocers struggle to accommodate demand in the new channels.
Once again, grocers armed with science gained earlier insights and prescriptive pricing to combat the changing channel preferences, allowing them to more rapidly adjust their pricing while taking into consideration the limited staff and reduced stocking schedules, ensuring that if retailers could only execute a small number of price changes, they knew the most powerful ones to take. Those grocers that have teamed dynamic price optimization with electronic shelf labels (ESLs) were the biggest winners of all, as they were able to remove the store labor constraint and execute a far greater range of price recommendations.
Emerging KVIs, Increased Price Sensitivity
Much energy has always gone into applying a laser-focused strategy towards key value items (KVIs) — those well-known items that drive high demand and which shoppers are highly price-sensitive to. Although items have always entered and dropped from the group of items shoppers view as KVIs as shopper’s preferences change, today the rules of the game have completely changed, making it even more difficult for retailers to know their KVIs — let alone price them.
There is a rapid shift from perishables to more shelf-stable foods as shoppers try to limit their grocery trips, whether online or in-store, with more frozen and less fresh fruits and vegetables, less fresh bread flour for home-baked loaves. At the same time, the swiftness with which unemployment surged puts all consumers on edge — and probably not just for the near-term. Combined, these factors mean shoppers have upended known KVI assumptions heightened price sensitivity, which may even persist for an entire generation, as with the children of the Great Depression. Shoppers under stress are acutely sensitive to the perception of any retailer unfairly boosting prices.
Hand sanitizer and wipes may permanently play a more prominent role in shopper choices as hygiene awareness remains heightened.
Science-driven analytics and algorithms can delve deeply and rapidly into shifting price sensitivities and competitive elasticities to identify their KVIs and align their price strategies to support their desired price image, while accurately predicting performance in the face of rapidly changing sensitivities and elasticities.
The Collapse of Supply Chain Predictability
As meat packing facilities became COVID-19 hotspots and were abruptly closed, the meat supply chain contracted rapidly. The shutdown of shipping from China impacted vast parts of the food supply, while the ongoing chaos of shipping delays and port buildups worldwide further convulses supply sources and timing. This is on top of an already chaotic landscape of tariff and trade wars.
All roads lead back to the need for AI-driven pricing for navigating the shift in shopper behavior and ensuring that pricing aligns with the most current demand signals. Although pricing alone cannot avoid the supply chain challenges retailers are encountering as a result of the pandemic, a quick identification of price sensitivity level and resulting demand can help retailers minimize the impact.
The Elusive Win-Win
In an increasingly unpredictable world, those with science-based pricing are best positioned to predict demand, get early insights into demand signal changes, and normalize historical data to better optimize prices, deliver optimal promotions, manage their supply chain, and ultimately build shopper loyalty and drive business results. Ultimately, science-enabled grocers are better able to achieve the holy grail of pricing: fair prices that engage shoppers and help ensure their loyalty, all while they know where in the assortment the business can recover margins to sustain a long-term healthy business.