by Kevin Sterneckert, Chief Marketing Officer
Wallet, basket, shopping cart—no matter the symbol used to represent the customer spend retailers are competing for, the goal and sense of urgency to win it is the same. By continually strategizing around promotions and product assortment, retailers today are focused on first earning consumer purchases and then working continuously to keep their loyalty.
Research shows that up to 17 percent of items in a grocery category are duplicative, and many retailers see removing duplication as a way to improve margins. But if a grocery retailer is going to replace or eliminate a product from shelves, they must first understand the value the product has within the category and store for the customer. Is it possible that particular item is the deciding factor for someone choosing to shop with one retailer over another? You would sure hate to lose a customer because of a significant yet avoidable rationalization mistake.
Knowing how consumers view and value products in a category is important; not knowing could cost a grocer the entire shopping cart.
Understand the benefits of category rationalization, done right
There are a number of reasons why the presence of duplication should prompt cuts in a category. To accommodate click-and-collect fulfillment options and consumers’ desire for grab-and-go meals, retailers feel the pressure to reconfigure layouts, which often leads to minimized shelf space throughout the store. Additionally, retailers are finding that reducing duplication can offset the “paradox of choice,” which suggests that a shopper is more likely to not make a purchase decision if they’re overwhelmed by too many options. But to optimize the in-store experience and still drive sales, retailers must make thoughtful decisions across the enterprise, for every category in each location and at the customer level. Doing that at scale and at the speed necessary to gain a competitive edge is a daunting task.
How AI gets you past the numbers to see transferrable demand
Here’s where we start to lose touch with common sense. It might seem like profitability should be one of, if not the, leading indicator of a product’s worthiness to keep in stock. But making decisions off this factor alone could lead to unintended consequences. Take, for example, Walmart’s Project Impact, a program that saw the retail giant cut thousands of “underperforming” SKUs—judgment based primarily on a misguided correlation of item sales to consumer value—to the detriment of customer satisfaction and sales. Walmart had to scramble, ultimately adding thousands of items back to their shelves.
To avoid a similar fate, artificial intelligence now steps in with the power and insights to help grocery retailers make category rationalization decisions that protect profit and customer satisfaction. AI understands, with high accuracy, the idea of transferrable demand. It learns shopper behaviors, understanding what a customer buys as a complement to another product or even as a substitute. Consumers, after all, pay no mind to the profitability of their favorite breakfast cereal, coffee creamer or baked good. What matters to them is that they can rely on its availability when they come in to shop.
AI can do what teams of analysts cannot—it quickly ascertains the impact that removing a given product has on operational profit. This allows contextual decision making to take place at scale instead of in silos, meaning that retailers can make confident adjustments within and across categories. By embracing emerging technologies in this way, retailers not only will ensure improved category performance, but most importantly, that a shopper continues to find the products they’re looking for to fill their grocery cart.
Kevin Sterneckert has more than 25 years of comprehensive industry experience, focused on retail, manufacturing and logistics challenges. His industry experience includes developing innovative technology solutions in addition to serving as chief information officer, supply chain executive, inventor and store operations development for both physical and digital retail.