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DANGER AHEAD (Part 2): The Secret Trick National Supermarkets Use to Beat Independent Grocers

Updated: Jul 1

AI equips independents with a toolkit to help maximize their profitability

NOTE: This article is the second in a four-part series on the threat that the recent price cuts by big national supermarkets are to independent supermarkets and what independents can do about it.  You can read Part 1 here.

There's a hidden weapon that the big national supermarket chains are using to maintain their superior profit margins – and it's not what you think. It's their ability to accurately forecast their gross margins and gross dollar profits weeks in advance, giving them an unparalleled edge in the market.

With recent announcements of large-scale price cuts on key products, particularly in their own-brand private labels, by Walmart, Target, Aldi, and Kroger, it's more critical than ever for independent grocers to understand and master this secret.

How Do The Big Boys Do It?

Big national players invest heavily in data science teams and complex (and expensive) systems to understand their precise, fully blended gross margins in advance. This allows them to enter each week not only knowing how they'll achieve their target margins but more importantly, understanding their actual dollar gross.

In fact, the Big Boys treat the whole process of pricing and promotional planning like investment advisors at investment banks. Each week, they know how much extra profit they have (or don’t have) available, and they then evaluate the most strategic ways to deploy this excess profit effectively.

The Independent Grocer's Dilemma

Independent grocers, even the large ones, typically lack the data science teams and the technology that the big national players have. Unfortunately for them, this means they are usually flying blind into each new week when it comes to how their business will perform. To make matters worse, independents have far less margin to play with, averaging only 1-2% profit compared to the 4-5% profit the big national players achieve.

Adding to the problem, independents only understand their actual margins 6-12 weeks after the fact while experiencing week-to-week profitability swings of +/-1-5%. This forces them to take a conservative approach to pricing because they won't know until it's too late if they made a mistake, and by then, corrective action becomes very costly.

The Cost of Conservatism

Over the years, this conservative pricing strategy has gradually eroded the competitiveness of independent grocers. It's no surprise that 1% of the independent shopper base leaves each year for more cost-competitive options. Major chains' recent aggressive price cuts on key private-label items will likely further exacerbate this issue.

Is There Hope?

Absolutely! At Puzl, we've partnered with some of the industry's most profitable independent grocers to develop an AI-based gross margin manager that provides independent grocers with a hyper-accurate view of their fully blended gross margins up to 12 weeks in advance.

Puzl then equips independents with a toolkit to help them use this visibility to maximize their profitability, competitiveness, and cash flow. Puzl users are seeing a 100-150 basis point profit improvement, can change their price image in 12-14 weeks, and are experiencing up to a 40% improvement in cash flow. And we do all of this for as little as $149.99/store/month.

Don't let the big guys keep their secret weapon. Level the playing field with Puzl.

If you would like to learn more about Puzl, please contact us to get a demo of our AI in action!

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