Retail Pricing Heroes: How did high inflation affect retail chains? What was the number one factor that you see has changed?
Pavel Tomanek: High inflation is something that I would call a silent killer. When prices start to increase rapidly, there are some “positive” effects–sales are higher and the margin on old stock isn’t bad. But, customers are afraid about what’s going on, and their confidence and willingness to spend money changes. The old rules and principles of retail disappear as habits adjust. The Covid and post-Covid eras, for example, made it challenging to manage all of these changes. During these times, sales will drop, and you will lose momentum as volumes, customers, and margins are put at risk. Look at online business–if you want to survive and not be killed by inflation, start thinking about pricing and how to convince customers you are fair, while giving them what they want. So, the biggest change that I can see is that the old rules and principles no longer apply to pricing anymore, and you should be thinking in a more complex way: Pricing driven by customer centricity.
RPH: How were retail chains able to earn money during this high inflation period?
PT: Stop thinking on old terms like Key Value Items (KVIs), top-shelf items, bottom-shelf items, and so forth. The world is changing–the prices of bread, milk, and meat are not important to the young generation. They perceive prices through their shopping list–almond milk, avocados, hummus… It’s become more and more apparent that customer segmentation is crucial. Each store has its own market established via geography, locations (high street vs. neighborhood), and social structure. The real challenge is giving them specific localized pricing. This enables you to not lose margin by making the standard error of simply having the cheapest meat and matching the competition where it is not important, for example.
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