Grocery margins are thin: the average net profit margin was 1.6% in 2023, according to FMI. With so little room, can grocery stores afford to carry the additional operating expense of a dynamic pricing platform?
Adopting Dynamic Pricing in Groceries
The truth of the matter is that the return on investment (ROI) with a dynamic pricing engine is strong enough to be of value to grocery stores of all sizes. Dynamic pricing ROI for groceries primarily comes from two places: higher profits and inventory optimization.
Dynamic pricing looks at the overall market, evaluates the grocery store’s position, and recommends prices that are intended to increase profits. Sometimes that profit increase comes from raising prices on popular items; other times it comes from driving more volume sales. The AI engine takes numerous factors into consideration, as it continuously evaluates and updates prices.
However, as mentioned earlier, ROI in groceries also comes from inventory optimization. In today’s grocery environment, large grocery stores throw perishable inventory into the trash every week. This includes fresh baked goods that are made on premises, milk and dairy products, produce, stale bread, and other products with a limited shelf life.
Dynamic pricing can step in and protect a grocer’s investment in inventory by adjusting prices based on sell by dates. When fresher milk comes in, for example, grocers can offer discounts on the milk that is still good but has a shorter shelf life. For the first time, grocers can incentivize their customers, through automated dynamic pricing, to buy a product that needs to be finished quicker.
Using AI, the system can identify the ideal price point where consumers are willing to choose the older product, rather than relying on the pricing manager’s intuition. As a result, not only are products nearing their end of life still sold, but they are sold at the highest possible price point.
For more on the pricing problems supermarkets face, read the supermarket pricing challenge, or see dynamic pricing for grocery.
What is grocery shelf pricing software?
Grocery shelf pricing software sets and updates the prices shown on the shelf and at checkout. A dynamic pricing engine recommends each price from demand, competitor prices and stock levels, then sends it to electronic shelf labels and the POS system, so the shelf price and the register price always match.
Integrating dynamic pricing into your system
Dynamic pricing engines allow for real-time changes in prices, due to competitor pricing, inventory changes, or other factors, helping to give the grocery an edge over its competitors. Once ESLs are implemented into a store, grocers can simply connect their dynamic pricing engine to the ESL and POS system. Consumers will appreciate the clearly displayed prices on the digital screens and welcome a shopping experience where the display price is always the same as the price at the cash register.
The dynamic pricing engine is technology agnostic. It can be connected to the ESL and POS systems using wi-fi, beacons, ultra-wide band transmitters, or other communication methodologies.
Frequently Asked Questions
What is dynamic pricing in grocery stores?
Dynamic pricing in grocery stores means adjusting prices based on demand, competitor prices, stock levels and sell-by dates, instead of keeping them fixed for weeks at a time. With electronic shelf labels, the new price appears on the shelf and at the register at the same time.
Does dynamic pricing mean grocery prices go up?
Not necessarily. A dynamic pricing engine recommends the price that best meets the store’s goals. Sometimes that means a higher price on popular items, and other times a lower price to drive volume or to sell products that are close to their sell-by date.
Can dynamic pricing reduce food waste in grocery stores?
Yes. A dynamic pricing engine can lower prices on dairy, bakery and produce as they near their sell-by date, so they sell before they have to be thrown away.
Do grocery stores need electronic shelf labels for dynamic pricing?
Not to start, but electronic shelf labels (ESLs) make frequent shelf price changes practical. Without them, shelf prices can only change as often as staff can relabel the shelves.