The digital arena is the new frontier of competition for grocery retailers. From large big-box stores like Walmart and ecommerce giants like Amazon to smaller and mid-sized local grocery retailers, businesses are fighting for their share of the growing online grocery market.
In such a competitive environment, grocery stores need to find ways to attract customers while remaining viable as businesses. Adopting the right pricing strategy for online grocery retailers is critical to their long-term success.
Online grocery shoppers are like their physical counterparts—always looking for the best prices.
A popular online grocery strategy will win you many new customers, as 72% of consumers surveyed by Drive Research named price an influencing factor when purchasing online groceries.
In this article, we’ll cover how pricing works in online grocery and how you can develop a strategy that best benefits your store.
How market forces affect online grocery pricing
With inflation raising food prices by 2.5%, according to the US Department of Agriculture, formulating a pricing strategy that appeals to your customers can be what helps your store thrive.
To understand the dynamic factors shaping online grocery shopping prices, we need to examine customer behavior and industry-specific factors.
The shift to online grocery shopping
The online grocery market saw an influx of new customers in 2020 due to the global pandemic. In 2024, it’s become clear that many customers are here to stay.
Grocery ecommerce has been steadily on the rise, both in the US and worldwide—nearly 140 million consumers in the US shop for groceries online.
It’s easy to see what makes online grocery so attractive to shoppers. Listed below are a few reasons for this shift:
- Online grocery stores allow customers to access a wide range of products they may not find in a single physical store.
- Shopping for groceries online is much more convenient than having to make a trip to a physical store.
- Convenient delivery options save shoppers a lot of time and resources.
Unique challenges of online grocery pricing
As you can see, online grocery stores already offer an extremely popular service. Success or failure boils down to the pricing strategies of online grocery retailers.
The effectiveness of your chosen pricing strategy depends on how effectively it tackles the inherent challenges of the online grocery industry.
Some challenges that are unique to the online grocery industry include:
- Logistics: From sourcing inventory to order fulfillment, finding logistical solutions for efficiently moving grocery items requires careful planning and cost analysis.
- Perishability: Customers prize freshness when they purchase grocery items, so stores need to find a cost-effective way to keep goods and ensure they reach their destinations in the best condition.
- Competition: The online grocery space is very competitive. Small- and mid-sized retailers must keep up with large industry players who can absorb the losses incurred by offering free delivery and rock-bottom prices.
Online grocery retailers should factor in these hurdles when preparing pricing strategies. It is vital to ensure maximum value for customers and healthy business profits.
4 key pricing strategies of online grocery retailers
A recent study found that prices in online grocery retailers showed more variation than in physical stores.
By studying the diverse factors that influence your operational costs, you can develop a pricing strategy that works for your business.
Here are some of the most commonly followed pricing strategies for online grocery stores:
1. Competitive pricing
Online grocery store prices are subject to change based on prevailing market trends. A competitive pricing strategy involves closely monitoring prices offered by other retailers and adjusting yours accordingly.
2. Promotional pricing
A promotional pricing strategy for online grocery retailers can effectively acquire new customers.
Using tactics such as flash sales, buy-one-get-one (BOGO) deals, and loyalty programs for long-term customers is a very attractive way to get shoppers to buy from your grocery ecommerce store.
3. Dynamic pricing
Dynamic pricing is a strategy that sets online grocery stores apart. It leverages advanced algorithms to determine the prices of items in the store in real-time.
Product prices are set after measuring several variables, such as customer demand, inventory levels, competitor prices, delivery destination, and fulfillment method.
4. Value-based pricing
Following a value-based pricing strategy means taking a customer-focused approach and setting prices based on the customer’s perceived value of the goods being sold.
Online grocery stores implementing this should find ways to appeal to customer sensibilities, whether through lower prices, flexible delivery options, or other initiatives that add value to the shopper’s experience.
Best practices for implementing your online grocery pricing strategy
Optimizing the pricing strategies of online grocery retailers is a complex process that must be well thought out.
There is no quick-fix solution, and an effective strategy can only be developed after investing a lot of thought, time, and resources.
To help make the right decisions, online grocery retailers should follow the practices outlined below:
1. Utilize data analytics
Online grocery businesses have access to a wealth of customer data generated every time a user interacts with the store.
Other data sources, like competitors’ prices and market trends, are also relevant to pricing strategy. Leverage robust data analytics tools to gain insights and find the best strategy for your store.
2. Test and iterate
Because there is a high demand for grocery ecommerce, retailers can afford to experiment with different pricing strategies before settling on the best one.
Don’t be afraid of a little trial and error. Attempt different approaches and compare them according to KPIs to determine the most cost-effective.
3. Maintain transparency
Whatever pricing strategy you adopt for your store, you must always be completely transparent with your customers.
Do not add hidden purchase costs, such as delivery or miscellaneous admin fees. Being upfront about your pricing strategy with shoppers strengthens your store's credibility and gains customer loyalty.
Conclusion
Creating the right pricing strategies for online grocery retailers is one of the first steps toward your store's success.
By following the tips in this article, you can develop an online grocery pricing strategy that drives more sales, grows your customer base, and yields maximum returns on your investment.
Frequently Asked Questions (FAQs)
What is an online grocery pricing strategy?
It is important to price your items at a rate that covers the cost of selling them online. It must also be competitive with the rest of the market, meet customers’ expectations, and yield healthy profit margins.
How to set prices for grocery stores and supermarkets?
It’s important to analyze sales data and customer profiles to prepare a baseline for your pricing strategy. Factors like customer demand, vendor supply, and item exclusivity will play a role in influencing your supermarket’s pricing strategy.
Remember that no pricing strategy is static. Instead, you must be prepared to experiment with prices and test different approaches to see which prices generate more sales.
What are the challenges to setting a grocery pricing strategy?
Grocery stores and supermarkets face unique challenges in setting a pricing strategy. The goods are mostly perishable, so storing them in the right conditions is an expense that needs to be factored into the final price of sale.
Grocery supply chains are complex, and logistics solutions for operations from sourcing to delivery also affect the price of goods. Finally, the competitive nature of online grocery means stores have to adjust their prices to keep up with market trends.
What are the most common approaches to grocery store and supermarket pricing?
There are various pricing strategies that your supermarket can follow. Some of the most commonly implemented pricing strategies in online grocery include:
- Competitive pricing, where you monitor other retailers’ prices and adjust your own.
- Promotional pricing, which uses attractive deals to bring in new customers and reward loyal customers.
- Dynamic pricing, which leverages advanced algorithms to determine the prices of items available in the store in real time.
- Value-based pricing, where stores set prices from a customer-centric perspective, based on the customer’s perceived value of the goods being sold.
