How Retailers Handle Price Wars: Europe Versus the US

On both sides of the Atlantic, retailers are facing two major industry pain points, flattening demand and compressed prices. Behind both these issues, however, is fast-changing consumer behavior. In both markets, there’s a race to fulfil consumer demand effectively and efficiently.

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Last year, we witnessed the return of inflation in the traditional retail sector in the UK. The weakened pound pushed its way into high street prices, while wages stagnated. In the US, meanwhile, dozens of department stores and retailers either announced bankruptcy or closed hundreds of stores. So, how are retailers managing the price pressure while predicting their consumers?

The art of acquisition

In the grocery sector, we’ve seen a number of deals and acquisitions emerging across both US and European markets. Tesco announced a £3.7bn takeover of wholesaler Booker, the owner of the Londis and Budgens convenience brands. Tesco currently operates more than 3,000 shops in the UK while Booker supplies more than 5,000 stores in franchises. Convenience grocery is the new normal, and in Europe these smaller stores are growing by 5% annually.

Capitalizing on this trend, discount grocers Lidl and Aldi are continuing their aggressive European expansion. Lower cost, smaller product range stores now control around 13% of the UK grocery market and more than a third of all grocery sales in Germany. New grocery formats that unite the supermarket and discount store are booming; Colruyt in Belgium and Mercadona in Spain, for example.

An omnipresent approach

Amazon, meanwhile, recently made a move on high-end US grocer Whole Foods, its largest ever acquisition of $13.7bn (£10.7bn) to buy the organic food chain. This omnipresent retail approach indicates that the physical store is far from dead, and the traditional supermarket model isn’t broken.

Amazon’s surprise announcement had a palpable impact on Walmart; the traditional grocer’s stock valuation fell by almost as much as the sum Amazon is paying to acquire Whole Foods. Walmart, meanwhile, is making its own strategic investments.

These investments are primarily in smaller, digital-first businesses to capture a new segment of the market, and a new audience. By also transitioning more of its stores to fulfill e-grocery orders, the business can also focus on delivering online orders to customers.

AI optimizes prices

These smaller-scale mergers and omnichannel acquisitions have one major benefit for retailers across both markets — access to data.

The ability to accurately predict both niche and broader buying behaviors across shopping channels is invaluable for retailers. With hundreds of internal and external factors affecting the modern shopper’s buying habits, the human brain struggles to make decisions that determine business profitability.

Analysing vast sets of consumer data with AI, meanwhile, provides retailers with the opportunity to make automatic, science-based pricing decisions. It optimizes a retailer’s entire pricing strategy, ensuring specific product prices are competitive, but ensuring the overall basket price is optimized.

Automated decision-making

Whilst AI analyzes and identifies what action should be taken, automation puts these actions into cost-saving processes. These processes are then optimized and aligned with the specific goals of that retailer.

Automation is being used both side of the world to reduce the cost of grocery operations; self-service checkouts are increasingly popular and robotics are scanning and restocking gaps. Automated warehouses are increasingly deploying robots for stocking, picking and packing for delivery.

Address pain points not talk tech

In Europe, retailers and businesses are open to science-based decision making, and understand the power of AI. There are a large number of European retailers improving their supply efficiency and saved significant costs by using automation. Fresh food retailer Natsu in Germany, for example, has significantly reduced its stock wastage by using AI.

In the US, meanwhile, businesses are more apprehensive. Not only is there a fundamental lack of understanding of the technology, but there’s a concern that AI is overhyped.

What’s more, with such a vast number of companies in the analytics space, US retailers may feel overwhelmed.

Yet with an equally challenging retail landscape in the US, those in the industry are aware they must enhance their analytics capabilities to stay ahead of the competition. But in today’s complex market, there’s no one-size-fits-all approach. Successful businesses are more pain point focused, addressing the specific industry challenges, rather than technology-driven.

Blue Yonder, for example, works with retailers to assess their unique pricing strategies, understand their product life cycles and identify where gaps need to be filled. Then using AI and consumer data, their processes and pricing are continually optimized. Find out more about how Blue Yonder’s Price Optimization solution delivers the best bottom line without compromising brand's promise to its consumers.

 

 

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