Outcome-as-a-service model delivers returns for grocery retailers

Sponsored by Shelf Engine - automated ordering for full shelves and zero shrink.

Grocery retailers can drive revenue and boost profit by offloading their buying function in a way that completely eliminates their risk in today’s competitive operating environment.

As automation gains traction in the industry amid increasing competitive pressures, new tools are emerging that free grocery industry buyers and merchandisers to devote more time to other important activities.

A 2019 McKinsey report found that automation can take over 30%-40% of the work merchants are required to do. Merchandise-planning activities, for example, consume about 20% of merchandisers’ time—a number that could be reduced significantly through the use of advanced-planning systems that predict future scenarios by analyzing historical data and modeling potential outcomes.

Automated decision-making can also provide significant time-savings in the areas of pricing and promotion, and in inventory replenishment and markdowns. Other merchandising functions that reap benefits include assortment, negotiation and space planning. These types of systems can optimize pricing and promotions, for example, by analyzing historical and competitive data to determine consumer sensitivity to price, brand loyalty and other factors that impact purchasing decisions. The same types of data can be used to optimize assortments and space planning.

However, these automated systems have their drawbacks.

Despite their decision-making capabilities, the automated solutions that grocers use to optimize pricing, promotions, assortments and other variables can still introduce human bias, and their promise of labor-saving efficiencies often evaporates in the time and money spent managing the systems.

Missed sales and revenue opportunities

Grocery retailers have a lot riding on these automated solutions, especially given the competitive pressures and volatility of the current operating environment. Yet it’s clear they still present many challenges. These solutions can still introduce human bias and often fail to achieve promised labor savings because they are expensive and typically have complicated implementations that can take years. They also require grocers to adapt their operations to the new technology solution, prior to any proof that the solution will deliver value, which can be extremely risky and disruptive.

The ideal solution is one that offers the benefits that come with automation while eliminating the burden of complicated and costly integrations. The entire process is outsourced, so all the negatives that come with bringing on a whole new technology solution are completely removed from the equation. This represents a new way of thinking for grocers—one in which the entire ordering and inventory process is outsourced to a specialized partner that assumes all of the risks involved, giving grocers an edge in a cutthroat industry where every penny of profit makes a difference.

Shelf Engine, a Seattle-based ordering automation company, is the only retail partner that offers such a solution to the industry. It may sound too good to be true, but it’s not. And it’s available right now to grocers. The company’s powerful AI analyzes historical and current data around sales, waste and deliveries to generate forecasts and ordering models for each SKU in the store, or within the particular categories selected. Using machine learning, it also factors in the impact of external factors, such as weather.

Assumes all inventory risks

Through its innovative outcome-as-a-service business model, sales are guaranteed, and Shelf Engine assumes all of the inventory risk. It charges retailers based on the items that are actually sold, which means that grocers no longer have to subtract the costs of shrink from their product sales.

Grocers continue to manage pricing and their relationship with their vendors while Shelf Engine places the orders, achieves higher margins on each item, and drives increased sales with optimized assortments.

In one study, a leading supermarket retailer that deployed Shelf Engine in the produce and deli departments of 250 store locations increased its average profit margin by 63.7%, while also growing overall revenue. Annual profits were projected to increase by $19,200 per store based on just a small subset of products offloaded for management by Shelf Engine as part of the study.

These benefits are in addition to labor and time savings achieved though the elimination of tedious forecasting, buying, and ordering processes.

Grocery stores have long struggled with tight margins and ever-increasing competition, and their challenges have only been compounded by the volatility of the current environment as the pandemic upends traditional shopping patterns. In today’s world, retailers more than ever require solutions that insulate them from the downside of inventory risk and give them a competitive edge in an increasingly technology-driven marketplace.