How Grocers Can Leverage AI to Retain Customers Amidst a Price War With Discounters

While inflation has been on the mind of everyone through 2022 and into this year, we recently have been hearing whispers of possible deflation in the near future. Naturally, this has many small retailers and grocers wondering what they would do to survive if that comes to pass.

Starting in 2020, we saw larger retailers lift their prices to close the gap caused by inflation as discretionary spending was at a high. Some considerably faster than inflation. However, consumer budgets today have shrunk considerably vs. then, thanks in no small part to that continued inflation. The average person is incredibly price sensitive right now. That makes it difficult for smaller, more boutique retail stores to compete with big-box retailers (or smaller grocery stores with large chains) — their margins are already much smaller than their larger competitors, which means there isn’t much wiggle room on price.

As customers get more budget conscious, they'll skew more toward the discounters — e.g., Walmart, Aldi, Trader Joe's, and Amazon.com — steering clear of those that aren't getting at least closer on price. The only way for most small retailers to do so is to cut operating costs to stay afloat. If they can align their offerings with consumer expectations and decrease operating costs to pass those price savings on to the customer, they’ll be able to keep their customer base happy and buying without taking a huge hit to profits.

Here are three tips for retailers and grocers to shore up their customer base and remain competitive through the uncertain economic times ahead:

1. Lean on AI and technology to cut costs.

Retail, inventory and management technologies have long been used to cut costs. Today’s latest innovations are no different, with the exception that in some cases the cost to acquire the technology and get it up and running can be considerably lower than before. In particular, artificial intelligence (AI) inventory management solutions when combined with inexpensive shelf-level cameras can significantly reduce operating costs for retailers and grocers. They can automate ordering and order-writing, making it speedier and more accurate. They can also alert staff when a shelf is low and needs to be restocked from the supply in back without needing to waste employee hours manually checking shelves. Employees can work smarter and do more with their time, helping to offset the rising costs of labor.

2. Pull them in with hi-lo and heavy discounting.

Carefully planning out launches, holidays and other initiatives to cut down on any waste is crucial in keeping costs down. Since 2020, many larger retailers got into the habit of overbuying, meaning lots of inventory went unsold, spoiled, or just took up expensive space in warehouses. Smaller companies should remain wary of any temporary upward trends in consumer spending and not fall into the trap of overcorrecting and being stuck with more than they need. Supply chains were unreliable for some time after the pandemic started, but have largely gone back to something near normal. At this point, any remaining supply chain-related delays are probably known factors, so they should be accounted for as a given in any product road maps and campaign rollouts.

3. Give them a reason to choose you.

Smaller companies have the benefit of appearing more “down-to-earth” to consumers, so they can benefit from leaning into that. Being transparent and candid about the economic reality will go a long way to building trust and keeping customers coming in even if the big-box store down the street could save them a few dollars. This authenticity goes a long way. To increase traffic to his stores, Sam Walton gave away free watermelon and popcorn at the entrance. Little tokens like that are low cost ways to get people to love you all that much more.

As economic conditions continue to squeeze consumer budgets, smaller retailers will need to utilize technology to decrease operating costs so they can pass the price savings on to customers, account for any trends that will impact buying behavior, and provide authentic and personal experiences that big-box retailers can’t compete with.

Francois Chaubard is the CEO and founder of Focal Systems, a platform that helps retailers cut shelf scanning costs in half by switching from manual to automated shelf scans.