Grocery store food items

While food prices are expected to go higher, grocers can take some measures to protect their margins.

About 18 months ago, grocers wanted consumers to consider buying few items so that stores would still have items left on the shelves. Now, the dynamics have changed dramatically.

With pandemic restrictions easing and restaurants reopening, supply chains are still playing catch up as demand soars. As a result, food prices are rising across the board and grocers need to contend with inflation.

Case in point: the U.S. Commerce Department’s core price index of personal consumption spending rose 3.4 percent in May compared to the same period last year. That’s the largest increase since 1992. On top of that, a recent Wall Street Journal survey of economists found a majority of respondents expect inflation to continue unabated at a rate of two percent annually through 2023.

With all that happening in the background, what can grocers do to prepare for higher food prices? Here are a few ideas for managing the increased cost of doing business:

Improve Labor Management
As we mentioned before on this site, labor is one of the costs that can vary widely each month (as opposed to things like rent, which typically don’t vary much on a month-to-month basis). The idea is to see where scheduling can be optimized to make sure the right number of employees are working at any given time as opposed to too many or too few. If there’s any room for optimization, this can help offset some of the costs of inventory.

Manage Promotions
Certainly, promotions can be used to lure prospective customers to stores but they are costly. Like labor management, the idea here is to review the promotions program and try to determine if there’s any room for optimizing promotions so they don’t cut into your margins as much. Is there a product that sells frequently where you can test out a reduction in promotions? If so, try it for a month and see what effect it has on sales.

Set Aside Inventory
According to this article, some grocers have already begun setting aside everything from sugar to frozen meat in anticipation of higher prices. Ironically, this may add to inflationary forces on a macro level but on the individual supermarket level it makes sense to stockpile because food makers are raising process and stockpiling can help protect margins on items with longer shelf lives.

Carry Fewer Items
Another area where you may be able to cut some fat is in the overall variety of items being ordered from vendors. Snack-maker Mondelez has already said it saved money by eliminating 25 percent of its snacks, dropping less-popular sizes and flavors. In place of those items, the company said it will fill shelf space with higher-priced, higher-profit snacks.

Are there other areas of your store where you can make similar changes? Look for categories where you can replace low-margin, less-popular items with higher-priced, high-margin items.

Invest in Store Technology
Technology took on a larger role in supermarkets during the pandemic and it appears that change is here to stay. In many cases, the technology proved to be a valuable asset in helping supermarkets work through the crisis.

Now, technology such as self-service checkouts, kiosks and grocery point of sale systems are being used to help control costs in labor management and in inventory management. In addition, the point of sale can help with managing promotions and pricing.

Also, keep in mind that a point of sale system can provide store owners and managers with real-time visibility into the store’s operations. With this information in hand, owners and manager can make better decisions on where to spend and where to cut back.

Want to learn more about grocery store technology including point of sale systems? Contact us today for a risk-free demo.

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