LARCHMONT, N.Y. -- D'Agostino Supermarkets here is venturing into new territory by adopting a price-optimization technology application that most competitors are only examining. "A 1.5% increase in gross profit is possible," said Walter D'Agostino, vice president of merchandising, of the price-optimization solution the chain is rolling out. By fall, all 23 stores should be fully operational on the system from DemandTec, San Carlos, Calif., he added.
D'Agostino said the supermarket chain tested the pricing tool in 10 product categories and quickly came to appreciate variations in price demand elasticity among stores in the same market, and products within the same category.
D'Agostino's old method of determining pricing -- a cookie-cutter approach -- failed to optimize profit because some items were being priced too high and others too low.
"Whoever gets on this quickly is going to get the most benefit," said D'Agostino. "Eventually it will be everywhere, but right now people are just looking at it.
"It's not just about raising the pricing," said D'Agostino. "It's about making the pricing more in line with demand" that's specific to a product and specific to a store. To calculate pricing recommendations, the software takes into account two years' worth of sales data and applies algorithmic modeling.