Fight inflation with algorithmic retailing: a strategy for growth in a difficult market

1st November 2023 | 3 min read

= Summary: Ed Betts explains the power of big data, and how AI-driven strategies can offer the insights required to be agile in an ever-changing landscape =

Inflation remains a huge problem for consumers reticent to spend and retailers struggling to stay afloat. While the rate of inflation is in slight decline, it is still more than three times the BoE’s 2% target. Shop prices rose at an annual rate of 6.2% in September, down from 6.9% in August according to figures published by the British Retail Consortium.

Inflation rates may be dropping, but this has no impact on the average consumer. Prices on the shelf are increasing despite the best efforts of retailers – and the public is responding. 70% of households now express significant worry about food and drink inflation^[1], and many have switched their entire shop to deep discounters in the face of continual price rises.

Joining the dots of big data

Inflation affects every aspect of a business. Employee wages are growing, suppliers’ costs are increasing, supply chain and premises expenses have maintained significant highs. Retailers are on a knife-edge, balancing significant expenses against the demands of a public hungry for lower prices while still looking to receive a prime customer experience.

The choice for retailers is to either fight every fire individually, using the time, effort and expense of high-level employees to solve tiny problems piecemeal, or to find a modern retailing solution which allows the internal focus to stay on strategy.

Algorithmic retailing – the term used by Gartner for the use of AI in retail to drive automation and recommendation systems – is a powerful strategic tool in the fight against inflation. It connects big data – every vital point from the shop floor to the stock room to the supply chain, and beyond to live market data – with algorithmic AI which is able to analyse that data quickly, precisely, and independently. Algorithmic retailing enables the automation of processes and planning through strategic guardrails and thresholds providing a way to smoothly turn a go-to-market strategy into reality, and intelligently share data between all business units to ensure their alignment.

Retail AI is not equivalent to the AI currently being popularised by text-generating neural networks; its live calculations are based on rigid data and sharp calculations, not on educated guesswork. Its automations must follow strict guard rails, ensuring that prices and orders stay within defined limits. Caution and calculation are the tools that will fight inflation, and the extra advantages of an Algorithmic retailing solution make it a critical piece of the puzzle.

Deep insights through deep learning

Algorithmic retailing is a tool which, once trained and established, knows the important figures more intricately than a human ever could. It aids broad strategic changes, but also enables business adjustments and predictions to be made on a microscopic level, based on data points which may otherwise be missed.

Algorithmic retailing’s insights are as granular as they need to be. They can offer anything from a sweeping oversight to minute-by-minute analysis of an individual product. Since we cannot assume that the effects of inflation will be the same across every product line and on every supplier, an algorithmic approach allows product verticals to be separated, analysed, and acted upon individually.

Algorithmic retailing can build predictive models based on market data. It backs up proposed changes by generating detailed simulations, taking past data into account. Every strategic decision is then ready to be confidently put in place, having already been fully tested. Those areas where the fluctuating market clashes with existing strategy can be quickly identified, and the solutions found.

A robust strategy for present and future

Fighting inflation and, indeed, staying afloat while the markets demonstrate significant turbulence means delivering better value to customers. A business backed by algorithmic retailing techniques can access that value more easily and with more agility than those entirely reliant on the human factor, making fewer costly mistakes thanks to a robust ability to test and refine strategic shifts before they are implemented.

Once the current inflation crisis has subsided, retailers that have retooled and refocused their strategic outlook will emerge healthier than ever, ready to form new strategies and make the most of a healthier market.

[1] Kantar data – UK Grocery Market Share – June 2023