Data-Driven Strategies Can Help Retailers Lessen Inflation's Impact

NATIONAL REPORT — The best ways retailers can understand shoppers' responses to price increases brought on by inflation and utilize data-driven strategies to respond in each product category is the subject of a new Coresight Research and NielsenIQ report. The report offers a four-step approach retailers can take to tackle the problem.

According to the report, the inflation problem will not go away anytime soon.

"We expect inflation to intensify as suppliers continue to pass on their own elevated costs. As consumers' purchasing power declines, we expect it will be more difficult to pass on the costs. We expect this trend to emerge in the second half of 2022," said Sarah Wyeth, S&P Global Ratings sector lead, consumer and retail.

NielsenIQ Retail Measurement Services has documented meaningful price increases across all 13 grocery super-categories. For the full year of 2021, the steepest inflation rates were in meat (14.2 percent) and seafood (12.4 percent). The same two departments continued to lead the charge in January 2022, with meat prices up 13.1 percent year over year and seafood prices up 11.8 percent, revealed Coresight and NielsenIQ.

"The impacts of rising inflation and consumer buying behavior in response vary by category of consumer goods," said the report authors. "Retailers need the data and insights to understand the categories and brands where customers may be more willing to tolerate price increases without negatively impacting sales."

As prices rise, consumer buying behavior and sentiment is shifting in the following ways, according to the report:

• Shifts across categories. Consumers are making trade-off decisions between spending categories. Meat and seafood volumes have declined year over year in recent months, while the deli and bakery categories have trended upward.

• Shifts to value. Consumers are focused on value, so they are looking for less-expensive product alternatives. According to industry executives, price-sensitive shoppers are buying cheaper cuts of meat, such as bone-in chicken and pork, as well as turning to store-brand meat products.

• Shifts to home cooking. Consumers are preparing more meals in their own kitchens and spending less at restaurants.

The report identifies four strategic areas where superior use of data and insights can lead to more informed decision making in the present inflationary period. They are:

Price optimization. Retailers can use more complete data and advanced pricing science to identify which products are most important to shoppers and analyze various pricing scenarios to find a balance between satisfying customers, driving increased sales and optimizing profit margins.

Competitive pricing becomes elevated in importance when shoppers are feeling the strain of rising costs. Digital shopping tools let them rapidly compare prices across retailers and brands. For omnichannel retailers, competitive pricing intelligence is an essential capability, leading to decisions that may be refined further by geography and linked with assortment, allocation and promotion planning.

Assortment and allocation planning. Shifts in demand during the pandemic and continued changes due to rising prices have exposed limitations in traditional methods for allocation, assortment and promotion planning.

Retailers need data to understand how their customers' buying behavior is changing. For example, according to industry reports, retailers are working with suppliers on stocking larger quantities of lower-cost meat products in response to shifts in meat-buying preferences.

There is also significant opportunity in using shelf-edge analytics to rationalize assortments at the SKU level, both in stores and on the digital shelves.

Promotion management. Promotion strategies based on rules of thumb and how things have been done in the past are not sufficient in the current environment. They provide limited insight into the most impactful revenue-generating opportunities and may focus too much on short-term results.

Retailers are becoming more open to automation of promotion and markdown optimization, which can help unearth more impactful revenue-generating opportunities. Automation is also essential to implementing personalized promotions, which can go a long way toward persuading frequent shoppers that they are getting great value on items most important to them.

Retailer-supplier collaboration. Retailers recognize the need to be competitive in the products that matter most to their customers. Many have pushed back where possible on price increases from brands and suppliers.

To balance these considerations with the reality of higher producer costs, tighter retailer-supplier collaboration is more important than ever to maintain sales volumes and keep the customer.

"It is all about the data," concluded Phil Lempert, CEO and founder of SupermarketGuru.com and the Retail Dietitians Business Alliance. "Monitor consumer shopping behaviors and product availability in order to determine which foods are in demand and focus retail assortments on those. The days of 45,000 SKUs are in the past. Focus, focus, focus and satisfy shoppers' needs and wants."