Food waste is a massively pressing issue in the grocery industry. Shockingly, about one-third of all food produced goes to waste, according to the United Nations. Recently, The Consumer Goods Forum, consisting of 14 of the world’s largest retailers and manufacturers, launched a Coalition of Action on Food Waste to combat this issue. And consumers are just as concerned. 70% said they’re buying just as many – or even more – eco-friendly product than they did prior to COVID-19.
For grocers, food waste is not just a moral concern, but a business one. It leads to lost sales and revenues and can also create a negative image regarding corporate responsibility in consumers’ minds. There are just too many perishable SKUs with various shelf-lives and receiving dates to manually navigate inventory management through sell-by or best-by dates to ensure fresh items don’t go unsold.
The additional pressures of competitive pricing and promotions, coupled with price perception and the complexity of pricing relationships between products makes it hard to incorporate dynamic factors like expiration dates and rates that can have a major impact on driving better margins. Here’s how you can start doing it.
Optimize the best price
Luckily, there is a way to face this head on today, with AI-based dynamic pricing. AI engines can utilize sales and transaction data to help understand internal and external demand factors. From there, retailers can use best-before or target dates to recognize when perishable items are likely to be sold out, and can optimize the price according to demand and target date. The closer they get to a zero-stock date, the lower the price can become – without hurting margins.
But which products should be priced dynamically? Retailers should look into fresh and perishable products, and those that customers are more price sensitive to, such as a cut of meat. What’s more, when these products are sold at competitive prices, customers will be enticed to shop at your store.
With dynamic pricing, grocers can automatically adjust the price based on relevant context conditions. For example, AI can predict exactly when avocados will begin to turn dark green and establish the optimal price day by day as the expiration date draws nearer – based on relevant market context and historical analysis – to ensure the price compels shoppers to buy them all before they end up in the garbage. Let’s explore a few more contexts in which dynamic pricing can be applied to eliminate waste:
Cross-sell relevant products
Individual products don’t exist in a bubble when it comes to setting an optimal price. Lowering the price of one item can affect a variety of other products. In the best-case scenario, a price cut will positively trigger the purchase of other products. Artificial intelligence can quickly detect cross-sell opportunities with perishable items and items with longer shelf life. For example, a competitive price on fresh garlic bread might incite consumers to purchase pasta, spaghetti sauce, or a frozen lasagna.
Improve inventory accuracy for promotions
Access to robust POS and promotion redemption data can validate and help grocers understand order quantities when managing inventory for an upcoming campaign. If grocers increase stock in preparation for a promotion that isn’t as successful as planned, this can generate a lot of food waste. Instead of manual calculation, artificial intelligence and dynamic pricing can lead to better accuracy and predictability around price and inventory to reduce overstock and wasted food.
Maintain brand image while driving social responsibility
Brand image is important, and food waste can damage consumers’ affinity for the brand. This happens even before the items are thrown away – when visibly over-ripe produce sits on the shelf untouched by shoppers.
With AI-powered dynamic pricing, grocers can establish a win-win scenario. Optimal pricing can provide discounts to shoppers, incentivizing them to purchase products as they near their best-by date, which minimizes food waste at the same time. The more goods that are sold, the less ends up in the garbage – and the less the customer sees sitting there awaiting its fate. What’s more, this maximizes sales and profits for grocers at the same time.
You can explore the benefits and use cases of dynamic pricing further in our ebook, or feel free to schedule a call with us to discuss how we can benefit your business’ unique needs.
