As grocery chains face increasing pressure from inflation-weary shoppers and increasing competition, some in the industry are starting to rely on AI to protect margins without losing customers.
Traditional levers to protect profits or boost sales, such as raising prices or running blanket promotions, become less effective as shoppers spread their trips across multiple value-seeking retailers. This dynamic has helped generate market share gains for discounters like Dollar General and warehouse clubs like Costcoforcing traditional grocers to rethink how they compete.
Many are turning to more targeted technology strategies to balance affordability and profitability. An emerging approach is to use data and AI to adjust prices of perishable inventory, particularly items close to their expiration date. Historically, about 30% of food sold in U.S. grocery stores is thrown away each year, and some experts estimate that this translates into nearly $18.2 billion in lost value.
Now, with years of high inflation and a recent spike in gasoline prices making it harder for households to buy food, businesses are trying to take on less of that loss, otherwise known as “shrinkage.”
“We see AI as a significant opportunity to improve the customer experience and increase productivity across our business,” Kroger President Ronald Sargent said during the company’s latest quarterly earnings conference call. “We are already seeing the results of more competitive pricing.”
According to a Deloitte study, 89% of people look for discounts and special offers. Numerator data shows that shoppers are visiting 23% more retailers to shop.
It is therefore more crucial than ever to set the right prices at the right time.
Still, making the right real-time pricing decision requires breaking away from traditional playbooks. Platforms like Flashfood help grocers price these products dynamically, which could help them limit losses from food waste.
“Not only is everyone now a value shopper, but buyers also have the information and resources to find the best deal,” said Jordan Schenck, CEO of Flashfood. “This raises the stakes in terms of competition among grocers because they are now competing against value-driven retailers.”
This has created a unique paradigm shift for grocers who have faced increased competition from other retailers, Schenck said, and pressure to figure out how to create value without eroding their brands through markdowns and yellow-sticker discounts.
Flashfood connects shoppers with local grocery stores to purchase foods close to their expiration date at a discounted price. Users browse, purchase and pay for items directly through the app, then collect orders from a designated “Flashfood zone” refrigerator in-store.
Kroger’s Flashfood app.
Courtesy of Kroger
Flashfood says it helps grocers sell fresh food by converting what would have been a loss into additional revenue. The company is expanding to more than 100 additional Kroger stores this month, building on a presence that already spans more than 2,000 locations across North America.
The argument is that retailers don’t have to choose between offering affordable prices to shoppers and increasing their margins. By using AI to target discounts precisely, rather than markdown an entire category, Flashfood says stores can improve sales while reducing waste. The end goal is to increase sales of perishable goods and reduce the amount of products that end up in landfills.
Flashfood says its partners, which include Kroger but also regional chains like Piggly Wiggly, Loblaws and Gelson’s, have reduced shrink by 27% on average while also generating additional traffic. Shoppers using the app take an average of nearly four additional trips per month and spend about $28 more per visit on full-price items, above and beyond their discounted purchases, according to the company.
Advertisement for Kroger’s Flashfood app.
Courtesy of Kroger
At the same time, the data generated by these systems gives retailers deeper insight into consumer behavior by identifying which products will sell, at what price, and at what point in their shelf life. This is especially important in categories like fresh produce and bakery, where margins are tighter and the risk of spoilage is higher.
“Grocery stores have some of the best personalized data, but not all of them know what to do with that data,” said Bill Kirk, an analyst at Roth Capital Partners. “Kroger has been at the forefront in recognizing the importance of its data and the insights that can be derived from it.”
Kirk has a Buy rating on the stock and a price target of $78, higher than its Thursday closing price of $67.77.
Bridging the gap between excess inventory and value-seeking shoppers is emerging as one of the most obvious opportunities that grocers are trying to capitalize on to improve profitability.