Skeptics worry that retailers are imposing stealth price increases by installing new digital price tags. But the authors of a new study say retailers are not smart enough to do so – and not dumb enough to try it.
A team of researchers from the University of Texas at Austin, the University of California San Diego, and Northwestern University have published a new report, which summarizes its findings right in the title: “Electronic shelf labels have not led to surge pricing in US grocery retail, despite regulator concerns.”
“Worry not!” coauthor Ioannis Stamatopoulos wrote in an essay describing his findings. “This long-overdue shift in grocery retail is far more likely to bring efficiency and consumer benefits than the dystopian scenarios some fear.”
Several grocery chains have begun replacing their paper price tags with electronic shelf labels in recent years, in the name of efficiency. No longer do employees have to change thousands of paper tags every time there’s a sale or a price adjustment – with digital price tags, they can change prices throughout the store at the touch of a few buttons.
But changing prices so easily could lead to changing prices sneakily. Opponents of the technology worry that retailers will be able to implement “surge pricing,” raising prices in times of high demand, or whenever they’d like, tricking you into paying more than you would if you had a physical, paper tag to rely on.
So the researchers put that hypothesis to the test to see if that was really happening. Their conclusion – it isn’t.
The team studied five years’ worth of prices at an unnamed grocery chain that sounds, from their description, an awful lot like St. Louis-based Schnucks, before and after the retailer introduced electronic shelf labels (ESLs) several years ago. “And I have good news,” Stamatopoulos proclaimed. “We find virtually no surge pricing either before or after ESL adoption,” the report concluded. Instead, Stamatopoulos explained, “ESLs are far more likely to lower prices, increase sales, reduce food waste, and improve supply chains.”
The researchers found that an average of about 4.5% of a store’s prices change on any given day – sometimes more, as when a new weekly ad begins, and sometimes less or not at all. After electronic shelf labels were installed, that percentage barely changed. Digital price tags “had no impact on temporary price increases,” the study found. If anything, price changes were more likely to be in shoppers’ favor.
That tracks with what Schnucks executives said their goals were when they shifted to electronic shelf labels. In 2023, Schnucks’ then-chief information officer Bob Hardester told Grocery Dive that ESLs allowed his stores to mark down products nearing their expiration dates, or to offer specials during rush hours. Easily-updated price tags mean “you don’t have to follow your traditional ad cycles,” he said.
When Walmart announced last year that it was jumping on the electronic shelf label bandwagon, it said going digital in thousands of its stores meant employees would no longer “need to walk around the store to change paper tags by hand,” which would give them “more time to support customers.”
But critics were unconvinced. Last summer, Democratic Senators Elizabeth Warren of Massachusetts and Bob Casey of Pennsylvania asked Kroger to explain its rationale for installing ESLs, and expressing their concern that “widespread adoption of digital price tags appears poised to enable large grocery stores to squeeze consumers to increase profits.” And earlier this year, several states introduced legislation that would restrict the use of ESLs or even ban them altogether.
“Our results suggest that recent regulatory concerns regarding surge pricing in grocery retail are misplaced,” the study declared. “Our empirical findings corroborate the retailers’ statements” that their motivation is efficiency, not greed.
Does that make the researchers naïve, or retail apologists, in not acknowledging the risk of surge pricing down the road? Hardly. They say there are good reasons for retailers to avoid using ESLs to raise prices.
“Given how focused retailers are on staying competitive, introducing surge pricing would be irrational,” Stamatopoulos said. Hiking certain prices just to make a quick buck could backfire if it turns loyal customers away. Besides, “given how difficult it is to measure price responses, implementing real-time pricing in response to transient events would be technically challenging,” Stamatopoulos continued. “For retailers to estimate demand very finely and dynamically respond accordingly, so as to squeeze every dollar out of it, I think that’s kind of impossible.”
So if you see a digital price tag at a store near you, don’t panic. In answer to fears that retailers may use technology to overcharge you, there’s now research that says they won’t. For now, at least.
Image source: Hanshow
