For the past several years, the grocery industry has been in the middle of a tech-driven whirlwind—one that has changed the way retailers operate and engage with customers. Mobile apps connect shoppers with loyalty programs, online ordering, recipe inspiration, and more. In-store technology makes the customer experience smoother and more efficient. In many ways, the industry looks nothing like it did 20 years ago.
AI has a role to play, too, and consumers are excited about it. Emerging use cases have the potential to transform the way grocery shopping happens. If shoppers take a picture of a recipe they’d like to prepare, AI can generate a digital shopping list for them. Lobyco’s 2024 research found that 70% of shoppers were interested in using AI this way.
If consumer interest is any indication, we’re sure to see a heightened degree of AI integration in grocery technology over the next few years. But this isn’t all the technology can do. For grocers, the most powerful application of AI lies in driving personalized engagement with customers. But this use case is not yet the norm in North America.
Around the world, grocery retailers have fully embraced AI as a key partner in their engagement strategies. Stores send consumers highly personalized offers and promotions based on their personal shopping profiles. If, for instance, a given shopper always buys a Diet Coke with their weekly groceries, they may receive a coupon for a free Diet Coke during their next visit. Shoppers appreciate and have come to expect this level of personalization, whether in their weekly digital promotions or as prizes from app-based mini games. They feel like their local stores really know them and anticipate their individual shopping needs.
For many North American consumers, this reality may be a work in progress. That’s because many North American grocers haven’t adopted AI in this way. They don’t offer personalized promotions like their counterparts across the globe. Rather, they issue mass coupons—sometimes in printed newspaper inserts or mailers, other times in digital formats—and hope that a select few will resonate with the shoppers who receive and pore over them.
Why is the industry like this in North America?
A big part of the personalization puzzle is, of course, the logistical feat required. While many North American grocers do already have a great deal of anonymized customer data in-house (i.e., aggregate purchase records), they may not be applying that data in a way that facilitates AI analysis.
Currently, these grocery teams use manual, inefficient processes to create, update, and share spreadsheets among themselves. They may have digital tools at their disposal to help analyze the data, but not in a meaningful way—not at scale.
Moving forward with AI-driven personalization means creating and embracing a single source of truth; one that lives in the cloud and updates in real time. From there, it’s about vetting and implementing AI and ML solutions that can comb through the data, identify patterns, and create customer niches based on purchasing profiles. For instance, a segment might be created for customers who exclusively purchase organic items.
With customer segmentation underway, grocery teams then must partner with AI and ML to develop ongoing promotions campaigns that resonate with each segment. This becomes a science; a precision game. Unlike the traditional North American couponing model, AI-powered personalization is about quality, not quantity. Retailers may only give each customer five promotions per week, but, thanks to AI, those promotions are all slam dunks. For many shoppers, this would be a big change, as they may regularly review dozens of offers before finding one that aligns with their preferences.
Moving from the “before” to the “after” of AI-powered personalization is a big undertaking. Teams will need to learn new tools, leaders will need to carve out new workflows, and marketing teams will need to develop customer-facing messaging that transparently communicates how data is now being used.
Getting the right technology in place will be a sizeable operation for North American grocers. But this isn’t all that’s required to move forward with personalization. What comes next will fundamentally change the way retailers partner with their suppliers.
To implement AI as the key driver of customer promotions, retailers will also need to deconstruct their existing promotions strategy.
It’s not unique for grocers to partner with their suppliers on customer promotions. Suppliers clearly have a big stake in the game here; their products are being offered at discounts, or even for free. What is unique, though, is that many North American suppliers are in control of which items get promoted and when.
Traditionally, when grocery stores issue coupons, they do so based on suppliers’ marketing strategies and initiatives. Products may be selected to align with a seasonal marketing campaign, a new flavor launch, or a KPI that needs to be met. Consumers may very well end up appreciating the coupons they’re offered, but their preferences are not the top priority.
This is what must change for AI-powered personalization to work; with new technology comes new ways of thinking. The same capabilities that drive customer segmentation (pattern recognition and data analysis) can be seamlessly applied to drive promotions strategies, too. Grocers can easily learn which products are most favored and when, based on internal and external factors like weather, upcoming holidays, price elasticity, and more. This intel can directly support promotions strategies, putting consumers squarely in the driver’s seat.
Even though suppliers won’t be directing promotions anymore, they’ll still be winning. Realigning promotions strategies results in a more efficient, resonant use of resources. Shoppers will only be offered promotions they’re likely to redeem. They will still be encouraged to try new varieties, flavors, and products, but in a way that’s data-backed and likely to succeed. Suppliers will experience all the benefits of brand loyalty and marketing, but without wasted resources.
Moving forward with AI-powered personalization will help even large supermarkets instill a small-town feel in their customer engagement. By making customers feel more valued on an individual level, North American grocers can do wonders for store loyalty.
This approach has been used around the world for years, with enormous success. It now comes down to the late adopters. The retailers that adopt AI personalization will quickly outpace those that don’t. It’s just a matter of getting started.