How Dynamic Pricing Can Help Food Retailers Sell More and Waste Less
Food wastage causes enormous economic and environmental pressures across the world. One billion tonnes of food is wasted every year, costing the global economy around US$940 billion and accounting for 8 per cent of greenhouse gas emissions1.
In Australia alone, 5.3 million tonnes of food that is intended for human consumption is wasted each year—over 2 million tonnes of which is generated by the commercial and industrial sectors. This waste costs our nation’s economy an estimated $20 billion annually2.
Challenges for ANZ Food Retailers
Australian and New Zealand (ANZ) food retailers grapple with the problem and expense of food wastage on a daily basis, as the cost of unsold, perished food inventory contributes to shrinkage rates and erodes profits. Supermarkets and grocery stores, in particular, manage a large number of products with varying expiry dates, and are faced with the challenge of selling these items before they expire, while making sure they generate as much profit as possible.
ANZ consumers are also increasingly concerned with consistency and freshness when choosing produce; and for retailers, failing to meet these expectations can lead to an inconsistent customer experience, lost sales, increased costs, and wasted food stock3.
The recent COVID-19 pandemic has added further pressures, creating a shake-up in usual supply and demand patterns, and, according to IBISWorld, is expected to limit industry demand in 2020-21, with factors such as a decline in disposable income containing household expenditure on groceries4.
Ad-Hoc Discounting Can Lead to Losses
Food retailers often attempt to limit shrinkage and protect the bottom line by discounting products nearing their use-by date. However, finding the perfect pricing and timing balance across the product’s life cycle – for maximim sales at minimum discount – is difficult. They walk a thin line of discounting too early or offering discounts that are too high. And as the scale and complexity of inventory levels grow, manual, ad-hoc approaches to discounting are no longer agile or accurate enough.
In order to maximise sales to keep products (and profits) out of the waste bin, retailers must be continuously aware of their customers’ willingness-to-pay throughout the product lifecycle; and have systems in place that allow them to monitor and control pricing based on this information.
Dynamic Pricing Allows for Accurate Discounting
Fortunately, the emergence of AI-enabled dynamic pricing solutions makes responsive price strategy on perishable foods far simpler and more profitable. AI-enabled dynamic pricing technology can collate and interpret buyer behaviours and purchasing trends; it unlocks this big data and analytics to deliver the insights food retailers need to adapt and adjust prices in real time.
Some of the attributes that are taken into consideration when dynamically calculating pricing for fresh food include:
- How do consumers trade off expiry date with discounts?
- How do consumers respond when there is little inventory left on the shelf?
- When is the next shipment of inventory due to arrive?
- How many units does it include, and at what cost?
- What are the relations between products - which products are an alternative to one another?
By reading and interpreting these variables, dynamic pricing software can deliver accurate, optimised pricing across all points of a products’ life cycle. This controlled approach eliminates erroneous, profit-eroding discounting while ensuring products are priced to sell - well before they become unsellable.
Other significant benefits that can be achieved by implementing dynamic pricing include:
- Higher revenue - Achieve at least 20% increase in revenue by optimizing pricing and incentivizing your shoppers to buy products that would otherwise go to waste. Control demand with smart pricing.
- Boosted margins - By selling products instead of throwing them away and decreasing your average markdown, you can significantly boost your net margin. An average 3-percentage point increase in net margin per product can be achieved.
- Improved freshness – Meet customers’ expectations for freshness by improving fresh product rotation. This also opens up opportunity to optimise shelf space productivity for slow-selling products.
By giving food retailers improved control over their supply and demand processes and minimising in-store waste and shrinkage rates, dynamic pricing is a smart, win-win strategy, allowing food retailers to protect their bottom line and help protect the planet at the same time.
To find out more about how dynamic pricing can reduce wastage and improve sales in your store, visit www.pros.com.
1 – FAO Save Food Global Food Waste and Loss Initiative 2 – National Food Waste Strategy, Australian Government 3 – Latest Fresh Food Analytics Report Takes Aim at Food Waste 4 – Supermarkets and Grocery Stores in Australia - Market Research Report