Tales from COVID: Pricing in the Americas

How retailers across North and South America navigated pricing with changing market trends due to COVID-19.

There is no doubt we are living in unprecedented times and living in a world we thought we would only ever read about in science fiction books. Before COVID hit, retailers across the Americas were facing higher competition, channel switching and increasing customer buying power. Today, retailers have a different set of challenges in front of them - extraordinary expenses, furloughs and store closings, inventory stockouts, and supplier cost increases.

With customers in the U.S. and across Latin America, we have kept an eye at Revionics on the evolving situation in these different markets. This has allowed us to identify emerging trends and help retailers adapt to their new landscape. As the pandemic continues to create a rapidly changing retail environment, these insights and examples can help you respond to the many challenges COVID presents today and in the months to come.

Pricing changes and challenges in the U.S.

eCommerce thrives

If there is some technological advantage to this pandemic, it is the boom of eCommerce. Cautious of visiting public places and stuck at home, consumers have turned to online shopping for basic and other needs. These changes in consumer shopping behavior have spurred a very strong growth in eCommerce, with online retail orders growing 146% year-over-year and accounting for almost 15% of total retail sales in the US.

Particularly when it comes to grocery, the shift to online sales has been unexpected. According to recent research from Brick Meets Click and Mercatus, U.S. online grocery sales reached a record $7.2 billion in June. This represents an 80% increase compared to when the lockdown started in March this year, and a 500% increase compared to a year ago.

This growth is due not only to the increased number of customers buying online, but also the number of orders placed. Online shoppers are spending more time on retailers’ sites and also visiting these sites more frequently.

Complications for grocery retailers

While this is great news for grocery retailers, it also created additional obstacles that the companies largely were not ready for. The changes in consumer demand and channel behavior have shifted certain product category elasticities, causing inventory issues and lost pricing opportunity on some items.

On top of inventory shortages and evolving shopping habits, grocery retailers are also balancing increased sanitation costs and modified store operations. Altogether, this has left many retailers struggling to maintain their margins.

One of our grocery clients in particular in the U.S. had to invest additional money and resources to find new vendors in order to keep up with the rising demand. This resulted in higher logistical expenses and product costs for many categories across the store, including canned and frozen foods, personal hygiene and cleaning products.

In order to combat these challenges, our retailers turned to Revionics analytics and scenario planning. The ability to quickly simulate different scenarios and anticipate shifts in consumer-demand enabled retailers to adjust prices in response to fluctuating category elasticities and supplier costs, while maintaining optimal value for their customers.

Mexico’s shifting market

Exchange rate inflation and freezing prices

Mexican retailers have suffered widespread supplier cost increases due to the devaluation of the Mexican peso to the U.S. dollar caused by the pandemic. Retailers in Mexico are also dealing with labor shortages as many employees are considered high risk for the virus and thus sent home. These difficulties leave retailers looking for ways to prioritize store operation activities, including what prices to change, when, and how many changes to take.

With Revionics’ advanced algorithms and price ranking methodology, our retailers are able to quickly prioritize price changes based on different strategic goals. This helps them to determine which price changes will bring the most impact on margins, sales or revenue while remaining within store execution constraints.

Many retailers also had to adapt to strict price gouging regulations. One of the largest convenience stores in Mexico had to pause their pricing activity for several weeks to focus on the rapid changing consumer demand and carefully monitor competition in order to avoid price gouging. With help from Revionics, the company was able to quickly get back on track with their price changes By leveraging our ranking algorithm and simulating different pricing scenarios for categories with the highest shifts in elasticity and demand, the retailer was able to provide value pricing to consumers and improve their price image.

Capitalizing on new trends

Much like everywhere else, changing consumer shopping behavior also affected retailers in Mexico. Due to health concerns and government restrictions, stores faced reduced traffic and limited operational capacity. However, while the number of transactions dropped in most stores, the ticket size per transaction typically went up.

However, one of our retailers shared that while the number of store transactions dropped, it was offset by the ticket size per transaction. The data showed that while customers are making fewer trips to the store, they seem to be stocking up on each trip.

To capitalize on this new shopper behavior, many of our customers relied on Revionics to run a Market Basket Analysis. This analysis helped retailers identify more insights into which products are driving larger basket sizes, what items tend to be added together, and more. Armed with this data, retailers can drive more strategic decisions around pricing, promotions and product placement to boost sales and revenue numbers.

Rising retail pressures in South America

The political and social instability in South America resulted in drastic measures affecting retailers. In Bolivia for example, retailers are facing more stringent government regulations restricting pricing rules and sales. Essential businesses are limited on the number of customers that can be inside the store, while non-essential retail stores had to close. Meanwhile in Brazil, retailers are facing increased costs from suppliers, putting pressure on margins and competitive positioning.

In order to address these issues, our retailers across South America have turned to Revionics analytics to provide insight into how to adjust prices to recover margins. Understanding how upcoming cost increases are going to affect your bottom line is key to quickly reacting and minimizing loss. It is also important to know how to balance category margins by changing price strategies on items not regulated by the government.

One customer specifically had many price restrictions on pharmaceutical products. Even though the costs rose, prices had to stay the same. By modeling these cost increases with Revionics, our customer was able to test price change scenarios and adjust pricing across the category to maintain margins.

Adapt to your market with Revionics

Now more than ever, retail companies are struggling to stay afloat. As COVID-19 continues to impact economies around the world, it is important for retailers to quickly find ways to overcome challenges and stay relevant to consumers. Revionics helps retailers all over the world adjust dynamically to the changing retail landscape. Our experienced pricing strategists, data scientists and technology are on top of the trends to help you stay ahead of the curve.