In today’s competitive retail grocery environment, razor-thin margins mean most grocery managers are looking for any advantage they can get. Installing electronic shelf labels (ESL) can offer retailers a significant technological advantage, yet relatively few grocery stores are using them.
Why aren’t ESLs more popular? It’s simple—ESLs have high initial startup costs and require changes in pricing procedures to make optimal use of the system. For example, a 30,000-tag system can initially cost almost $350,000. Numbers like that can give operational teams and management more than a little sticker shock, making it tough to justify the cash outlay. Yet when properly installed and implemented, an ESL system can pay for itself in just two to three years. And when price optimizing software is used in conjunction with the system, the ROI can come in as little as a year.
A positive ROI in so short a time should provide a dollar-for-dollar incentive to consider ESLs, but there are plenty of other benefits that can figure into making the case for these systems. Let’s take a look at some of the greatest benefits that you should factor into your business case and final your decision.
Optimize the Science of Pricing
While ESLs do replace paper shelf labels, the main benefit of the system is actually the software that enables a more sophisticated pricing strategy. Though retail pricing has long been seen an art, approaching it as a science is the key to determining optimal pricing. Price optimizing software can help managers devise a pricing strategy that neither leaves money on the table (pricing too low) nor leaves excess inventory on the shelves (pricing too high). And that means greater profits.
The technology in ESLs allows grocery managers to implement AI-based price optimization applications in their stores. With this software, managers can adjust prices to see where the elasticity is. When an item is price elastic, a slight upward change in price can lead to fewer people buying it. But an item that isn’t price elastic won’t be affected by raising the price—up to a certain point. That means retailers can charge more for certain items than they already do, while not trying to charge too much for others.
The best part is how the price optimization software works with ESLs. The software allows managers to make near-instantaneous price changes, with changes on the POS system appearing on the shelf label in less than a minute. The simplicity and speed let them test their new pricing and make adjustments immediately, without any labor cost or loss of employee time. The overall benefit is that stores can implement pricing strategies based on hard data instead of intuition, which allows store management to realize greater profits and see a faster payback on its investment.
Implementing instantaneous pricing can also help grocers reduce waste by assisting managers with management of perishables. As a perishable item approaches its expiration date, the manager can quickly and easily drop the price on the item to make the product move, without incurring labor or printing costs.
Get the Same Look without the Paper
ESLs have evolved and improved since their original introduction. One of the benefits of ESLs today is that they are available in all shapes and sizes. Earlier generations had fewer sizes and limited options for text, but the latest versions come in sizes from 1.6-inch diagonal labels for single facing items, to 12.5-inch diagonal end cap signage. Retailers also have multiple color combinations available and more room for text, and many ESLs can also include images. This gives them the same options available as with paper labels, but with the ability to change them at a moment’s notice.
Beside these new sizes and more sophisticated software, the latest ESL versions also have a lighter infrastructure making them easier to install, compared to earlier versions. Instead of having to install communications equipment throughout the store, today’s ESLs operate at frequencies that allow extended range, meaning even a sizable store might need only two to three communications units. And because the ESLs themselves use only a fraction of the power of earlier models, their batteries can last for three to five years, making them a much better value.
Reduce Printing and Labor Costs
Grocery store managers who install ESLs will see savings in labor and material costs over the long run. With paper labels, every change to prices on the shelves takes paper, ink, printing equipment, and staff time to install the new tags on shelves. Hanging shelf tags is a slow, cumbersome process, and with some stores changing as many as 3,000 prices each week, the cost of supplies and employee labor add up quickly.
However, most of these costs are completely eliminated with an ESL system. One person can make a change from the POS and update thousands of labels on store shelves in minutes, reducing the operational costs to next-to-nothing. With no printing supplies or labor, retailers will see a significant savings in overhead.
While ESLs can be rolled out slowly in stores, department by department, retailers will see the greatest price optimization benefits and cost savings when they convert an entire store at one time. When coupled with AI-based price optimization software and changing pricing procedures to take advantages of elasticity of demand, it’s possible for a grocery store with 30,000 labels to see a payback on their investment within a year.
Let TRUNO calculate your ROI and show you the benefits of investing in electronic shelf labels.