Some grocery stores are using AI to reduce food waste and boost profit margins

As grocery chains face increasing pressure from shoppers tired of inflation and increased competition, some in the industry are beginning to rely on artificial intelligence to protect profit margins without losing customers.

Traditional tools to protect profits or increase sales, such as raising prices or running extensive promotions, are becoming less effective as shoppers split trips across multiple retailers in search of value. This dynamic has helped increase market share gains for discount companies such as: Dollar General And warehouse clubs like CostcoThis has forced 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 using data and artificial intelligence to adjust prices on perishable inventory, especially items nearing their “best by” dates. Historically, about 30% of food in American grocery stores is thrown away each year, and some experts estimate that translates to approximately $18.2 billion in lost value.

Now, with years of high inflation and the recent rise in gas prices making it harder for households to afford food, companies are trying to absorb less of that loss, which is referred to as “deflation.”

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

According to a study by Deloitte, 89% of people shop for discounts and deals. Numerator data shows that shoppers visit retailers 23% more often to purchase their groceries.

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

However, making the right pricing decision in real time requires breaking away from the traditional rules of the game. Platforms like Flashfood help grocery stores lower prices on items as they near the end of their shelf life, which can help them limit losses from food waste.

“Not everyone is now a value shopper, but shoppers have the information and resources available to find the best deal,” said Jordan Schenk, CEO of Flashfood. “This increases the risks in terms of competition among grocers, because they are now competing with value-based retailers.”

This has created a unique paradigm shift for grocers that have seen increasing competition from other retailers, and pressure to figure out how to create value without eroding their brands through yellow-label discounts and discounts, Schenk said.

Flashfood connects shoppers with local grocery stores to purchase food that is near its best by date at a discounted price. Users browse, purchase and pay for items directly through the app, then pick up orders from the store’s dedicated “Flashfood Zone” refrigerator.

Flashfood says it helps grocery stores sell fresh foods by turning what would otherwise go down into additional revenue. The company is expanding to more than 100 additional Kroger stores this month, building on a footprint that already extends to more than 2,000 locations across North America.

The idea is that retailers don’t have to choose between providing affordability to shoppers and boosting their profit margins. By using AI to precisely target discounts, rather than specific to an entire category, Flashfood says stores can improve the selling process while reducing waste. The ultimate goal is to increase sales of perishable food 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 shrinkage by an average of 27% while also increasing traffic. Shoppers using the app make nearly four additional trips per month on average 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 generated by these systems gives retailers greater insight into consumer behavior by determining which products to sell, at what price and at what point in their shelf life. This is especially important in categories such as fresh foods and baked goods, where margins are lower and the risk of spoilage is higher.

“Grocery stores have some of the best personal data, but not all grocery stores know what to do with the data,” said Bill Kirk, an analyst with Roth Capital Partners. “Kroger has been at the forefront of recognizing the importance of their data and the insights that can be derived.”

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

Bridging this gap between excess inventory and value-seeking shoppers is emerging as one of the clearest opportunities grocers are trying to capitalize on to improve profitability.