It’s true that grocery forecasts paint a positive picture for retailers as shoppers spend more this holiday season Unfortunately, nearly 40% of shoppers who plan to spend more say it’s because of the higher cost of goods. Grocers that plan to stay competitive this holiday season can’t realistically increase prices in-store without losing customers to the competition.

With no end in sight, how can grocers stay in the black without passing on rising costs to customers?  Start with protecting existing margin, and creating additional revenue streams to offset current and upcoming price increases.

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Why are grocery prices rising?

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Pandemic-related supply chain disruptions have led to significantly higher prices in grocery stores and noticeably fewer items on grocery shelves. Essential basket items have gone up 5.9% since August 2020, and up 15.9% since August 2019, and in October all the primary edible categories in the IRI Supply Index showed in-stock percentages below 90%. 

Unfortunately, average wages nationwide are not keeping up with current and projected inflation, and consumers and retailers are concerned. According to the Economic Research Service at the U.S. Department of Agriculture (USDA), the food-at-home prices were up 2.5% in October. All food categories are on the rise, with beef and veal having increased the most in price (6.5%), and vegetables having increased the least (0.6%). In the coming months, the USDA expects these prices to increase from 2.5-3.5% in 2021 to 3.0-4.0% in 2022. 

Grocers who aren’t passing those costs to customers have to find new ways to generate revenue and offset production costs.  

Solutions for rising food costs:

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1. Invest in promotions or rewards that are personalized and profitable

Some grocery stores have scrapped promotions and discounts to help curb demand for scarce products amid the supply chain crisis.  But if you choose the right promotions, they should always be within margin and profitable for your business. 

Personalized promotions target the right customers at the right time with the right incentive. A cashback option like Upside  changes change individual customers’ purchasing habits and funnel demand from multiple grocers to a single location—yours. 

Beware of the tiered spending programs that cannibalize your profit! When you segment customers based on their total spending and offer each customer tier the same perks, you give unnecessary discounts to loyal customers. 

When grocers provide more value, customers are incentivized to consolidate their trips with you instead of shopping with the competition. You just need to make sure you provide smarter promotions… not bigger ones!

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2. Get the word out about your business with free tools

Loyalty programs can be effective, but they’re not everything. Retailers today need to consider better ways to find new customers and influence their habits. In the wake of the COVID-19 pandemic, customers got savvier about how to find the products and services they needed. It’s important to go to where your customers are, like mobile apps where consumers spend time finding information and making purchasing decisions. Apps, like Upside, can track where customers travel and make it easy to influence their behavior, and incentivize them to purchase at your store.

3. Encourage customers to choose high margin products

Customer preferences have changed. Concerns about shelf life and prices lead younger buyers to stock up on more frozen items—which traditionally have low margins—and over half of consumers ages 18-34 believe that frozen meat, vegetables, and fruit are “just as good or better” than fresh products. Grocers should take advantage of opportunities to push higher-margin products to offset costs.
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Make more with hot bars and salad bars ‍

The pandemic forced grocery stores across the country to shut down or severely limit two strong profit centers: hot bars and salad bars. Grocers adapted and started to focus more on ready-to-eat prepared meals to maintain sales and offset losses. But as customers become comfortable shopping in person again, and more people are heading back to the office and fueling lunch rushes, food bars may be making a comeback. 

According to SupermarketPerimeter.com, “At the end of spring and beginning of summer… the industry started to see many signs of market normalization. In               store trips continue to climb, people are spending more time in stores, they’re more open to browsing for new products and meal ideas and they’re much more willing to re-engage with self-serve in general, including salad bars.”

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Switch to private labels ‍

Another high margin area is private label (generic) or store brands. These brands represented 19.5% of market share in 2020 and sold $158.8 billion in product — an increase over 2019. Customers typically buy these consumer packaged goods in physical stores because they are more likely to choose brands from establishments they trust. 

And, of course, store layout can direct customers to areas with higher margin products. Name brand breakfast cereals, for example, are high margin items that generally occupy front and center aisles. When grocers flank baked goods and prepared foods departments near front entrances, those high margin products will attract more customers and generate better sales.

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4. If you can’t have everything, prioritize the right products ​​

Through the week ending Oct. 17, all the primary edible categories in the IRI Supply Index showed in-stock percentages below 90%, including frozen and alcohol (each at 85%), frozen (86%), beverages (87%), general food (88%) and refrigerated (89%). With ongoing supply chain issues, making significant investments in your specific supply chains will  ensure you have products on shelves to meet this type of exceptional consumer demand. 

Equally important is pulling information about what has sold well in past quarters, particularly around various holidays. For example, Thanksgiving is all about turkey and sides. If some of the more popular holiday items are hard to get due to the supply chain, order obvious alternatives like ham and trendy sides like sauteed mushrooms, creamed Brussels sprouts, or glazed shallots. Promote those items with free recipes both in-store and online.

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5. Use tools that guarantee profit, not just top line revenue!

Now is the time to invest in tools that have a proven track record. Successful retailers are meeting customers on digital platforms like Upside!
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The grocers that are staying competitive in this difficult market environment are the ones that make shopping easy for their customers. They’re meeting customers on the digital platforms those customers already use and are only investing dollars that they know will provide a return. That’s why grocers are considering Upside. The platform uses profitable cash back promotions to bring nearby customers into your store instead of your competitor’s and even encourages your regular customers to put more in their baskets.