- The rise in grocery prices has caused the food portion of the producer price index to rise by 3.5% this year, according to the Wall Street Journal.
- Due to keen competition from discount grocers and Amazon, those price increases are not yet being passed on to shoppers.
- Instead, grocers are aggressively managing operating expenses and struggling with price inflation to avoid raising prices and losing market share.
Much like traditional retail, grocers are struggling to manage inventory and contain costs to remain competitive in the face of disruption and rising prices.
Yet, grocers have options not always available to brick and mortar retail; namely, discounted "gourmet" items on which the profit is higher despite lack of branding.
"Grocery has always been a low margin business, and recently major grocers have been expanding their private label offerings in an attempt to gain more control over assortment and pricing," said Zoe Leavitt, senior intelligence analyst at CB Insights.
"Private labels can also create competitive moats, helping grocers differentiate themselves from peers and from Amazon. For example, Costco has been successful with its Kirkland Signature label, and Trader Joe's has relied heavily on private labels," Leavitt told Supply Chain Dive.
Still, selling house brands at a slightly higher price point aren't enough of a cushion to ensure store survival.
"We see food businesses beginning to experiment with a wide range of technologies to better manage inventory," Leavitt said. "Some are using AI to optimize inventory planning and reduce out-of-stocks — like startup Blue Yonder — while others are using IoT technology to track products. AI could become a valuable tool for grocery inventory management going forward. Over the past year Walmart, in partnership with IBM, has been rolling out blockchain to various grocery products to improve supply chain traceability and transparency."
That said, deployment of inventory management technology is likely the best strategy for improving profits.
"Startups like Apeel use biotech to help grocers manage their inventory," Leavitt said. "Apeel, which has raised $40M from Andreessen Horowitz and others, offers an invisible, tasteless, edible coating that extends the shelf life and taste of fruits and vegetables. This reduces spoilage — a major cost for grocers — and Apeel only charges the grocers a proportion of the money they save."
"Thinking more creatively about new technologies could help grocers squeeze more value out of their inventory management systems," she said.