Talk to an Expert

    Consistency makes compliance: meeting regulatory pressure through AI

    5min read = Summary: Ed Betts highlights the increasing levels of legal obligation faced by retailers and the path to ensuring compliance without failing customers =

    Retail pricing is an area that often comes under significant scrutiny. The cost-of-living crisis has brought the effects of inflation into sharp focus for consumers and puts pricing once again in the spotlight. The potential for profiteering and ‘greedflation’ has attracted significant press attention. And as certain business costs appear to be easing, retailers themselves harbour concerns over the wholesale prices which continue to be charged to them by suppliers.

    The uniting factor here is consistency: consumers need consistent information on pricing to make considered decisions on the products they buy; retailers need to be consistent with the labelling and promotion of special offers; and negotiations with suppliers must be held in a manner consistent with regulatory requirements to be fair and transparent.

    Any retailer looking for a route forward has a choice: work harder or work smarter. Given that the schedule of Joint Business Planning means such decisions are often made well in advance, it is vital to implement the built-in compliance of an algorithmic retailing approach early rather than fighting fires later.

    Compliance in unit pricing

    In a previous investigation, the Competition and Markets Authority (CMA) concluded that inconsistent and over-complex unit pricing can potentially prevent customers from discovering the deal which offers the best value. In the context of the current market, the CMA has resumed its investigation – and its July 2023 findings[1] suggest that little has changed.

    Although the Price Marketing Order (PMO) 2004[2] requires retailers to display unit pricing for most grocery products, the CMA finds its enforcement of specific measures to be ambiguous – and that its structure permits “unhelpful inconsistencies in retailers’ practices”.

    When the shelf-edge display of one product in a line displays a price per kilogram, a price per gram, and a price per individual item in a pack, it is very difficult for customers to determine which of these offers them the best value. When loyalty card pricing is promoted, the displayed unit prices often do not even fully relate to the eventual price the customer will pay.

    Future pricing regulations

    The CMA has highlighted its non-compliance concerns with many supermarkets, as well as recommending to the government a review of the PMO. It proposes changes including enforcement of a single standardised unit per product type, and clear unit pricing on promotional items.

    With such tightening of regulations forthcoming, algorithmic retailing is one way to find equilibrium on unit pricing. It consolidates every point of business data and can process and align it automatically. This means an algorithmic approach could, for example, identify product lines, run the required calculations, and adjust the unit pricing of each item to use consistent measures. It can also automatically produce unit pricing which follows loyalty card or temporary price reductions.

    Safely generating promotions

    Regulations regarding promotional pricing are even more stringent. All advertised discounts must consistently adhere to rules set out in the Consumer Protection Regulations, the Advertising Standards Authority’s CAP and BCAP codes, Chartered Trading Standards’ Pricing Practices Guide, et al. Advertising a non-compliant sale or promoting a product discount which is ineligible or cannot otherwise be fulfilled means facing serious fines.

    But planning these discounts – arranging on-sale dates, ensuring product availability, aligning with supplier discount periods, and meeting periods of high demand – is incredibly difficult, even more so since they must usually be cemented as the JBP is being prepared, without over-ordering if wholesale discounts are available.

    Again, with an algorithmic retailing approach, non-compliant discounts can be flagged at the planning stage, or even blocked outright. Intimate knowledge of the data, assisted by AI models running within custom-defined guard rails, also means an algorithm can offer additional insight into possible promotions – potentially uncovering new opportunities that a traditional planning process may have missed.

    Protecting suppliers through proper process

    High wholesale prices have some retailers considering their options. Some major grocery retailers have even requested that their suppliers reconsider their pricing in line with reduced energy and resource costs. This, obviously, must be done in a compliant manner, as a request rather than a demand, but if a supplier cannot meet the expectations of their retailer, the burden of compliance falls on the purchaser.

    Choosing to de-list a product must, under the terms of the Groceries Supply Code of Practice (GSCOP)[3], be done fairly, with genuine commercial reason, and with reasonable notice to the supplier. Failure to comply could result in fines of up to 1% of a large retailer’s turnover – considering the narrow profit margins that retailers operate under, such a fine could be extremely damaging.

    Algorithmic retailing can help to keep the de-listing process consistent and compliant with regulations. Highlighting those products which underperform or appear too expensive can bring such lines to light in a timely manner and allow the process of de-listing items to begin earlier than it would otherwise occur manually.

    The rate of inflation may be dropping, but it is yet to level off. This is a period of rapid change, happening under increasingly stringent regulation. An algorithmic approach is a smart approach which creates a consistent process structure, allows retailers to act fast, and automates the major burden of compliance, freeing key staff to make the decisions which will shape the post-crisis future of retail businesses.

    [1]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1172289/CMA_Review_of_unit_pricing_in_the_groceries_sector.pdf

    [2] https://www.legislation.gov.uk/uksi/2004/102/contents/made

    [3] https://www.gov.uk/government/publications/groceries-supply-code-of-practice/groceries-supply-code-of-practice

    More from Uncategorised

    • RE Inclusion in Forrester 2017: Merchandise Management Systems report

      Merchandising | Press Release

      RE Inclusion in Forrester 2017: Merchandise Management Systems report

      30th March 2017 | 1 min read Retail Express Chosen by Forrester Research for Inclusion in 2017 Vendor Landscape: Merchandise Management Systems report Leeds UK – March, 2017 – Retail Express has been selected by Forrester Research to be included in their latest Vendor Landscape: Merchandise Management Systems report. In the report, George Lawrie, Principal Analyst at Forrester Research, reviews the leaders in the field of Merchandise …

      Learn more
    • The Golden Quarter: Perfect promotions through intelligent merchandising

      AI (Artificial Intelligence) | Blog

      The Golden Quarter: Perfect promotions through intelligent merchandising

      = Summary: Ed Betts explains why this year’s Golden Quarter will be even tougher than the last and how AI-driven merchandising can help retailers thrive as inflation and interest rates bite hard = 4min read  The 100-day countdown to Christmas is the busiest period in the retail calendar, and unquestionably the most challenging. This year’s Golden Quarter will likely be one of the most difficult in recent …

      Learn more
    • Mark Grange appointed Marketing and Operations Manager

      News | Press Release

      Mark Grange appointed Marketing and Operations Manager

      4th November 2020 | 1 min read Mark Grange has been appointed Marketing & Operations Manager effective immediately. In this new role, Mark will be responsible for Strategic and Product Marketing, HR and Office Management. Mark joined Retail Express direct from university and spent more than a decade as an Engineer in the Retail Express Development Group, following which Mark was responsible for the Product Marketing function …

      Learn more
    • Retail Express Reporting Infrastructure

      Forecasting | Press Release

      Retail Express Reporting Infrastructure

      8th July 2016 | 1 min read Retail Express is pleased to announce the availability of its Intelligent Merchandising solution RE 2.0 release 4.4.0 with its new Vertica based Column Orientated Analytical NO SQL Database platform to manage Large data volumes and fast Query and Insights. A new Reporting module is being provided with this release to allow users to write their own query and to take …

      Learn more

    Download Whitepaper