Understanding Why Grocers Are Embracing Discounts

Discounting has emerged as a pivotal strategy for grocers, especially evident throughout the inflation-impacted period of January 2023 to January 2024. Grocers discounts to retain shoppers, remove stale inventory, and push up sales during dampened demand, as highlighted in our Grocery Doppio study. 74% of grocers will continue to discount in 2024, while 83% of shoppers are focussed on savings in the year ahead. 

The Tipping Point. 

The starting point can be traced back to the Consumer Price Index (CPI), which reached 4.9% in April 2023. This signaled a period of inflation that significantly affected consumer purchasing power and, consequently, grocery spending habits. With these economic pressures, grocers have had to balance maintaining profitability and offering competitive pricing to retain cost-conscious customers.

The Consumer Shift Towards Value

Consumers increasingly focused on savings as the year progressed, with 69% of shoppers looking for multi-buy deals instead of discounting percentages. This shift towards value-driven purchasing was also highlighted over the Fourth of July weekend, increasing the net-new worth by a 13% increase in net-new worth items, indicating that even when spending, consumers sought the best deals. 

The inclination towards discounts has been further fueled by a change in consumer preferences, with 73% of shoppers opting for private brands since the beginning of 2023, indicating a shift away from brand loyalty towards value for money, pushing grocers to emphasize discounts on private and exclusive brands as a means to attract and retain customers.

Digitization- A Game Changer 

The digital transformation of the grocery sector has also played a crucial role in the rise of discounting strategies. By October 2023, grocers expanded their digital marketing and loyalty program budgets by 7.3%, highlighting the sector's shift towards online engagement. The holiday season saw a 14% increase in basket sizes through digital promotions, demonstrating the effectiveness of targeted discounts in driving online sales.

Customer Loyalty and Market Share

Discounting has not only been a response to inflation but also a strategic move to build customer loyalty and increase market share. With 77% of grocers increasing digital promotions and discounts for holiday preparedness in 2023, the approach has proven effective in attracting price-sensitive shoppers and encouraging larger purchases.

The Role of Technology and AI

By January 2024, 87% of grocers believed that AI could improve pricing and inventory management, highlighting the growing recognition of technology as a critical tool in optimizing discount strategies. With the average digital grocery basket size reaching $176.1, marking an 11% increase from January 2023 to January 2024, integrating technology in discounting strategies has shown potential for enhancing sales while maintaining customer satisfaction.

Conclusion

Embracing discounting strategies by grocers from January 2023 to January 2024 is in response to the challenges and opportunities presented by inflation, digital transformation, and evolving consumer preferences.