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04/15/2022

Nine steps retailers can take to ease the pain of inflation

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David Ciancio
David Ciancio, global head of grocery retail for Dunnhumby

Today, we find ourselves in the thick of the highest inflationary rates in many of our customers’ lives.

Inflation rates have the potential to balloon even further with additional supply chain delays and potential food shortages due to the war in the Ukraine.

And consumers are very worried.

In fact, U.S. consumers are now more worried about rising food prices, the economy, and their own personal finances than they are with getting COVID according to the latest wave of theDunnhumby Consumer Pulse Survey. In the face of towering macroeconomic challenges, retailers must drill down on customers’ changing needs and habits, and demonstrate uncommon courage to alter traditional business practices so that the burden of inflation does not fall squarely on customers through price increases.

Here are nine steps you can take now:

  • Refresh your customer understanding

Retailers must reexamine foundational customer segments and language. Customers do not experience inflation in the same ways and typically do not notice its impact on the price of their basket until they get to the register.

Retailers should take a data-informed approach and examine whether they are delivering on the needs of specific groups of customers, asking, for example, if they must shift to think more about price-sensitive customers or double down on any commitments, like to fair prices, knowing that shoppers are seeking even greater value.

  • Streamline assortment in key categories

Category resets are among the most significant tactics that can help retailers ensure they are not passing all inflationary costs onto customers. Data science has shown us that as much as 20% of retailers’ product assortment can be delisted without negative impact to customer experience or sales and profit.

By reducing product assortment, retailers make their range work harder to save on cost-to-serve. Eliminating duplicate products simplifies shoppers’ choice in the grocery aisle, while increasing retailers’ negotiating leverage with competing brands, leading to lower-cost goods.

  • Prioritize private brands

Private brands are a great inflation fighter, with benefits beyond a cheaper basket at checkout. A wide range of private brand items helps encourage a sense of value choices. Even when a shopper opts to purchase a CPG branded product, the awareness of a better value alternative can have a positive impact on sentiment, particularly during inflationary times.

Retailers should show a clear 15-20% price advantage to national brands with their own label products. Retailers should also consider offering a quality guarantee on private brands, such as promotions like “try it and like it, or get the national brand free.”

  • Evaluate price competitiveness

Retailers should ensure their prices are competitive on the right items – they don’t need rock-bottom prices on everything. The key-value item (KVI) list should be reviewed against considerations of changed shopper needs and habits during the pandemic, and current supply and demand shocks in the broader industry.

The inflationary period is particularly tough on price-sensitive shoppers, so an even deeper investment on KVI pricing might be required. Retailers should reinvest in base prices on essential products that will drive volume for these customers.

  • Strategize promotions: 

Many retailers execute several different types of promotions across the store simultaneously, from percentage discounts to flat discounts to buy-one-get-one-free offers. The best-performing retailers focus on consistently offering only three to four promo types, reducing costs for the enterprise, confusion for shoppers and complexity for operators.

During periods of inflation, promotions must be strategically applied. For example, buy-one-get-one-free promotions do not increase total basket cost, but they can dramatically affect stock availability, exacerbating already strained supply chains. Inflationary times offer the opportunity to reset promotional strategies to save money and margin that can be reinvested elsewhere.

  • Help customers find smarter and easier alternatives

Substitutability is the science of how unique or similar shoppers perceive a product to be, looking at shopping between two products in the range, and in the same or in separate baskets, to determine which are substitutable or complementary. Applying this science makes stores easier to shop for customers and helps them find the right products for their needs and budgets.

Enable customers to find cheaper alternatives by using the science of complementary product choices and API services to enable personalized “recommenders” on mobile apps and online channels.

  • Uncover new sources of revenue

Retailers should reinvest in their customers by monetizing insights and media. By doing so, they will be able to generate extra sales growth. Retailers should also consider building an ecosystem of partners that can help share the burden of meeting new customer expectations, while still generating new sources of revenue.

  • Study consumer preference

Customers understand trade-offs, like self-scanning and reduced service department hours, in exchange for cheaper prices. The trick is to do the right things for customers at the right times. Use customer data to understand which services customers value, using insights to identify efficiencies that can reduce prices and improve the shopping experience.

  • Broaden digital transformation

Customer expectations around “digital” are no longer limited to online channels. Digital innovations that make shopping easier, faster, safer and lower contact will be sought after. Shoppers are looking to retailers to deliver useful and helpful new applications, such as pre-trip planning applications that enable crowd avoidance; recommender apps that make shopping choices easier; touch-free replacements for loyalty cards, coupons, receipts and payment; self-scan mobile apps and self-service checkouts; and personalized promotions via mobile apps.

These digital services have the added benefits of managing store labor and advertising costs, thus reducing pressure to increase prices on consumers and maintaining profitability during inflation.

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