Some grocers are using AI to cut food waste and boost profit margins

As grocery chains face increasing pressure from inflation-weary shoppers and increased competition, some in the industry are starting to rely on artificial intelligence to maintain margins without losing customers.

Traditional methods of maintaining profits or increasing sales, such as raising prices or running blanket promotions, are becoming less effective as shoppers split their trips among multiple retailers in search of value. This dynamic has helped fuel market share gains for discount stores such as: Dollar General and like warehouse clubs costcois forcing traditional grocers to rethink how they compete.

Many are turning to more targeted, technology-enabled strategies to balance affordability and profitability. One emerging approach is to use data and AI to adjust prices for perishable inventory, especially items approaching their “best before” date. Historically, approximately 30% of food in American grocery stores is thrown away each year. some experts estimate that this means a loss of value of approximately $18.2 billion.

While years of high inflation and the recent increase in gasoline prices make it difficult for households to buy food, companies are trying to bear less of this loss, this is also called “downsizing”.

“We see AI as a meaningful opportunity to both improve customer experience and increase productivity across our business,” he said. Kroger Chairman Ronald Sargent talks about the company’s latest quarterly earnings. “We are already seeing the results of more competitive pricing.”

According to a Deloitte research89% of people shop for discounts and deals. Share data It shows shoppers are visiting 23% more retailers to buy groceries.

This makes setting the right prices at the right time more important than ever.

Still, making the right real-time pricing decision requires a break from traditional tactics. Platforms like Flashfood help grocers dynamically price these items, which can help them limit losses from food waste.

“Not only is everyone now a valued customer, but shoppers have the information and resources to find the best deal,” said Flashfood CEO Jordan Schenck. “This raises the risks for competition among grocers because they are now competing with value-oriented retailers.”

Schenck said this has created a unique paradigm shift for grocers, who are seeing increased competition from other retailers and pressure to figure out how they can create value without eroding their brands through yellow label discounts and rebates.

Flashfood connects shoppers with local grocery stores to purchase food nearing its expiration date at a discount. Users browse, purchase and pay for items directly through the app, then pick up orders from a designated “Flashfood zone” refrigerator in the store.

Flashfood says it helps grocers sell fresh food by turning shrinkage into growing revenue. The company is expanding its footprint to more than 100 Kroger stores this month, expanding its footprint to more than 2,000 locations in North America.

The point is that retailers shouldn’t have to choose between offering shoppers affordable prices and increasing their margins. By using AI to precisely target discounts rather than flagging an entire category, Flashfood says stores can increase sell-through while reducing waste. The ultimate goal is to sell more perishable food and have fewer products thrown into landfills.

Flashfood says its partners, which include Kroger as well as regional chains like Piggly Wiggly, Loblaws and Gelson’s, have reduced shrinkage by an average of 27% while increasing traffic. Customers who use the app take an average of four additional trips per month and spend about $28 more per visit on full-priced items beyond their discounted purchases, according to the company.

At the same time, the data obtained from these systems provides retailers with deeper information about consumer behavior by determining which products will be sold at what price and at what point in their shelf life. This is particularly important in categories like fresh foods and bakery, where margins are tighter and the risk of spoilage is higher.

“Grocers have the best personalized data, but not all grocers know what to do with the data,” said Roth Capital Partners analyst Bill Kirk. “Kroger has been at the forefront of recognizing the importance of its data and the insights that can be gained.”

Kirk has a buy rating on the stock and a $78 price target, above Thursday’s closing price of $67.77.

Bridging the gap between overstock and value-seeking customers is emerging as one of the clearest opportunities grocers are trying to monetize to increase profitability.