Dynamic pricing is coming to grocery stores

Transcript

SCOTT DETROW, HOST:

More and more, the things we buy are being priced by algorithms. From an airline ticket to an Uber ride, prices change. And your milk might be next. Amanda Aronczyk of NPR's Planet Money takes us to a store with dynamic pricing.

AMANDA ARONCZYK, BYLINE: Partap Sandhu is the head of pricing at a major Norwegian supermarket called REMA 1000. With a tap, he can change the price of any one of thousands of grocery items. REMA has been using dynamic pricing for more than a decade. At the moment, Partap is walking quickly towards the canned food aisle.

PARTAP SANDHU: So we'll go find the mushrooms now.

ARONCZYK: He stops in front of the whole canned mushrooms in liquid.

SANDHU: Any minute now, it will change price.

ARONCZYK: Partap has just learned that the competition is selling these for 20 cents less than at his supermarket. So Partap is matching. No one will have to peel off a sticky price tag or remove a paper label. Instead, the new price will flash on an electronic shelf label.

SANDHU: So any second now.

ARONCZYK: This label looks a lot like a paper shelf label - same size, lettering, same location on the shelf, but it's actually a screen that can be updated wirelessly. This is what allows brick-and-mortar stores to be more like online retailers.

SANDHU: In certain times of year, we can have up to 2,000 price changes a day.

ARONCZYK: Like take, for example, during Easter time.

SANDHU: This is a big thing in Norway. You have to go skiing.

ARONCZYK: You have to go skiing?

SANDHU: Yeah. And if you don't do it, I mean, you're not from the region.

ARONCZYK: (Laughter) OK.

SANDHU: So - and you have to have Kvikk Lunsj.

ARONCZYK: Kvikk Lunsj - Partap says it's basically like KitKat, but better.

SANDHU: Our strategy would be to sell it 10 cents cheaper than our competitor, and the competitor will have the same strategy. So it kind of gets like a race to the bottom.

ARONCZYK: REMA drops the price of Kvikk Lunsj 10 cents, competitor does the same, then another 10 cents. This is one of the effects of dynamic pricing in your supermarket - price wars that escalate over just a few hours. And sure, that sounds fun, but dynamic pricing also introduces new problems. Like, customers do not want the price of their Kvikk Lunsj to go up while they're shopping. So while the supermarket is open, prices shall only go down. Price increases happen overnight, or with everything tracked and digitized, this could lead supermarkets to charge more money right when demand spikes or maybe in the future even target particular shoppers willing to pay more.

MATT PAVICH: Your customers - they will leave you if you're taking your prices up and you're doing it fast and you're not doing it in a smart way.

ARONCZYK: Matt Pavich is the senior director of innovation and strategy for Revionics. That's the company that designed the pricing software that this Norwegian supermarket is using. Matt says that it is likely that you'll see electronic shelf labels at a supermarket near you soon.

PAVICH: Just last year, Walmart named 500 stores are going to be using electronic shelf labels and lots of others - Schnucks, Hy-Vee, Kroger. We're seeing things from a lot of major players.

ARONCZYK: These new labels will allow them to price dynamically like the Norwegian supermarket. Meanwhile, the label under those whole canned mushrooms blinks.

SANDHU: Oh. Now it's...

ARONCZYK: Do you see?

SANDHU: ...Thirteen-seventy.

ARONCZYK: Thirteen-seventy.

SANDHU: Twenty cents cheaper.

ARONCZYK: Amazing.

Amanda Aronczyk, NPR News.

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