How to Choose the Right Grocery Pricing Strategies for your eCommerce Business

This article was originally published on August 24, 2021 with the title “How to Choose the Right Grocery eCommerce Pricing Strategy for Your Business.” It was revised on November 15, 2024.

The grocery industry changed this summer—thanks to unprecedented delivery discounts.

The summer of 2024 will be remembered in grocery retail circles not just for record-breaking delivery sales but for how delivery discounts from major players like Walmart, Instacart, and Amazon transformed consumer behavior.

From June to August of this year, delivery sales grew 16%, its monthly active users (MAUs) increased 14%, and order frequency for the receiving method was up 15% compared to sales data from the previous three-month period.

To illustrate delivery’s remarkable growth, we can compare the receiving method’s key metrics from June – August of this year to the previous three-month period:

The aggressive promotions by major players have not only increased delivery usage, but also heightened customer sensitivity to pricing structures, fees, and overall value propositions. As delivery discounts reshape consumer expectations, grocery retailers need to revisit their eCommerce pricing strategies to stay competitive.

In this article, we’ll provide guidance on choosing effective pricing strategies for your online grocery business and share several effective pricing tactics to help you remain competitive in this market.

Understanding Traditional Pricing Strategies

But first, a history lesson: Traditionally, grocery stores have employed several different pricing strategies to attract customers and maintain profitability:

Cost-plus Pricing

Set product prices by adding a fixed markup to the cost of goods sold (COGS), ensuring a consistent profit margin on each item.

Demand-based Pricing

Price products according to customer demand levels, increasing prices when demand is high and decreasing them when demand is low to balance sales volume and profitability.

Competitive Pricing

Set product prices based on competitor prices, aiming to match or beat the market to attract price-sensitive customers.

Charm Pricing

Use pricing to influence customer perception, such as offering prices that end with a “9” or “99” (e.g., $9.99 instead of $10) to make prices appear lower and more attractive to customers psychologically.

Promotional Pricing

Temporarily reduce prices or offer discounts on products to stimulate sales, clear out inventory, or attract new customers during specific periods.

Value-based Pricing

Determine prices based on the perceived value to the customer rather than solely on cost or market prices, allowing for higher pricing on premium or unique products.

Loss Leader Pricing

Offer select items at a price below cost to attract customers into the store, with the expectation that they will purchase additional, full-priced products.

Dynamic Pricing

Use technology to adjust product prices in real-time based on factors like demand, competition, inventory levels, and market trends to optimize sales and maximize revenue.

While most of these strategies have been effective in traditional brick-and-mortar settings, the increased overhead expenses associated with order fulfillment—such as picking, packing, and delivering orders—significantly impact profitability for grocers with eCommerce platforms.

These additional costs necessitate specialized pricing approaches to ensure that online grocery services remain viable without eroding profit margins.

Common eGrocery Pricing Strategies

To address the unique cost structures of online grocery retail, two main pricing strategies emerged:

Offset Pricing Structure

Offer no-fee order picking and curbside pickup, recouping the fulfillment costs by increasing product prices on your eCommerce platform.

Up-front Pricing Structure

Charge explicit fees for pickup or delivery services while maintaining price parity between online and in-store products.

Both models have their merits, but with the aggressive delivery promotions from major players we talked about in the beginning, regional grocers face increased pressure to rethink their approach, especially when it comes to pickup services.

Should Regional Grocers Charge Fees for Pickup?

The membership-driving initiatives from Walmart, Instacart, and others are heavily focused on delivery services, leaving an opportunity for regional grocers to emphasize their pickup offerings—which still remain the most popular method of receiving eGrocery orders.

While Walmart typically doesn’t charge for pickup, many regional grocers still employ the up-front pricing structure mentioned above. This is a pricing strategy difference that can be turned into an advantage.

By introducing a loyalty program or subscription plan that waives pickup fees or offers expedited service, grocers can craft a unique value proposition that differentiates them from larger retailers.

Pickup, after all, has a significantly lower cost-to-serve compared to delivery, meaning that grocery stores can provide this service more affordably while still delivering convenience and value to their customers.

This strategy creates a win-win situation: customers receive greater value through lower prices, and grocers incentivize repeat business without losing margin to delivery’s higher fulfillment costs.

Does ‘No-fee Pickup’ Justify Higher Prices on Products?

Obviously, charging fees for order fulfillment helps grocers directly recover operational costs. However, this model can deter price-sensitive customers who may opt for competitors offering free or reduced-fee services.

By strategically leveraging subscription plans to eliminate these fees, regional grocers turn what might be seen as a cost into a selling point—encouraging larger basket sizes, more frequent orders, and increased customer retention.

But how are fulfillment costs recouped?

In the offset model, grocers have traditionally boosted the selling price of products. However, there are other ways to offset production costs that offer higher profit margins without compromising a competitive pricing strategy.

Retail Media Cost Offsets for Grocers

Retail media allows grocers to generate additional revenue by selling advertising space on their digital platforms—whether it’s through product listings, search results, or banner ads on their eCommerce site. Consumer packaged goods brands and suppliers pay to promote their products in prime positions, which not only increases visibility but also boosts sales.

By leveraging retail media, grocers can create a new revenue stream that helps cover fulfillment costs, allowing them to maintain competitive pricing on products while enhancing their profit margins.

This shift from solely relying on product markups to more diversified revenue channels enables grocers to provide value-driven services like no-fee pickup without sacrificing profitability.

The Importance of Transparency

No matter which pricing strategy you use, being upfront with your customers about fees and price adjustments is essential.

If you’re charging for delivery or pickup, let them know before checkout. If product prices are higher online due to fulfillment costs, make that clear too.

Transparency isn’t just about revealing the final price—it’s about empowering customers to make informed decisions.

Benefits of Transparent Pricing

Building Trust

Honest pricing strengthens loyalty and keeps customers coming back.

Empowering Shoppers

Clear pricing lets customers make informed choices about their shopping experience.

Managing Expectations

Being upfront about fees or higher prices online reduces frustration and surprises at checkout.

While customers want low prices, they also show a willingness to pay more for convenience or quality—especially when they know exactly what they’re paying for. This highlights the importance of clearly communicating your value proposition.

However, being able to communicate and deliver on that value proposition relies heavily on maintaining control over your pricing strategy.

Why Grocers Need Control Over Their Pricing Strategy

Currently, many grocers might offer their own pickup services but rely on third-party platforms like Instacart for delivery. In the short term, this probably seems to be working out well.

The ongoing promotional initiatives from Instacart that we’ve highlighted throughout this article are driving eGrocery sales, being used to boost visibility and increase sales volume for grocers. But this reliance can quickly become a “short-term addiction” that, while fueling immediate growth, may undermine your long-term profitability and control.

The Risks of Over-reliance on Third-party Providers

Depending too much on third-party platforms risks losing control over critical aspects of your business, including pricing and customer experience.

As these platforms dictate fees and manage transactions, your ability to adjust prices or provide unique value is diminished. Worse yet, they could prevent you from undercutting them on your own site, forcing you to inflate prices on your eCommerce platform and potentially alienate your customers.

To safeguard your brand and profitability, you need to keep a firm grip on two essential areas:

1. Product Assortment: Make sure that the range of products offered through third-party platforms is more limited than what’s available on your own eCommerce site. This ensures that customers have an incentive to shop directly with you for a wider selection.
2. Pricing Structure: Retain control over your pricing on your own platform. Hidden marketplace fees or unexpected costs at checkout can damage the customer experience and reflect poorly on your brand, even though the third-party provider may be responsible.

Shoppers often associate their marketplace experience with your brand, not the third-party provider. If a customer encounters unexpected fees or higher prices, they’ll direct their frustration toward you, not Instacart.

Shifting Focus Toward First-Party Platforms

Rather than relying on third-party platforms to handle key parts of your business, shifting focus towards building a strong first-party platform allows you to retain control over your pricing, customer experience, and data.

Developing your own platform not only ensures consistency in service and pricing but also helps you leverage customer data to create personalized experiences and pricing strategies that keep customers coming back.

By focusing on a first-party strategy, you can deliver on the value proposition that truly benefits both your brand and your customers, ensuring sustainable growth in an increasingly competitive market. Again, it comes back to taking control of your pricing strategy.

Pricing Tactics to Consider

This control opens the door to effective pricing strategies like tiered and time-based pricing, personalized offers, and better use of private labels—all of which can help you stay ahead of larger competitors and enhance profitability.

With full control, you can better align your pricing with operational needs and customer preferences, ensuring that every decision—from fees to promotions—strengthens your brand and customer loyalty.

Below are several pricing tactics that grocers can implement to achieve these goals.

Variable Fee Structure

Offering flexible fees for both delivery and pickup options caters to customers’ desires for value and convenience.

By adjusting fees based on demand, you can smooth out peak times, optimize resource allocation, and provide a seamless shopping experience. This dynamic pricing strategy can help retain customers who value both affordability and service quality.

Tiered and Time-based Pricing for Pickup

Specifically, introducing tiered pricing or time-based fees can help manage customer demand and operational efficiency—while boosting the more-profitable pickup services.

Offering reduced fees for off-peak pickups and higher charges during peak times when consumer demand is at its highest encourages customers to shop when it’s more convenient for your operations. 

Additionally, waiving fees for customers who spend above a certain amount incentivizes larger basket sizes, enhancing your profit margin through economies of scale.

Price-sensitive Customer Segments

No-fee pickup or reduced fees during off-peak times is especially appealing to price-sensitive households.

Lower income customers, especially those feeling the pinch of economic uncertainty, are drawn to promotional pricing that offers them savings without sacrificing convenience.

Personalization and eMarketing

Utilize customer data to deliver personalized offers through a value-based pricing strategy that caters to individual preferences.

Automated, data-driven campaigns can re-engage lapsed customers with targeted promotions and deals, driving repeat business. Personalization helps build loyalty by ensuring customers feel valued.

Perimeter Departments

Capitalize on your strengths in fresh produce, bakery goods, deli items, and prepared foods.

These perimeter categories are often where regional grocers excel and where big-box retailers may struggle. Customers show a willingness to pay more for fresh, high-quality items from grocery stores, and your pricing strategy should reflect this.

Analyze sales data to find the right balance between selling price and profit margins.

Private Labels

As competing with big-box retailers on national brand pricing isn’t sustainable for most regional grocers, focus on promoting your private label products.

These products can offer quality at a lower price point while improving your profit margins. Prominently feature them on your digital platform to make them more visible to shoppers. They can become a key differentiator, especially for customers drawn to your store for its fresh perimeter offerings. Once there, these customers still need center-aisle products, and private labels can meet those needs at a competitive price.

Elevate Your Value Proposition

Rather than competing solely on price, enhance the overall customer experience by focusing on areas where your brand excels.

This includes almost all of the tactics listed above, from offering personalized services and premium private label products, to providing a superior selection of fresh and prepared foods. It’s all about giving customers a unique value proposition that differentiates your brand from mass merchants, helping you attract and retain customers.

Mercatus Empowers Grocers With The Control They Need

Pricing alone doesn’t build customer loyalty—creating a satisfying shopping experience across the board is the most important determination of success in grocery retail.

Much of what we’ve covered in this article, from transparent pricing to controlling the customer experience, is about building trust and increasing customer lifetime value. While pricing is crucial, it’s just one piece of the puzzle. To maximize profits, grocery retailers need a pricing strategy that attracts their target market and aligns with their business objectives.

That’s why Mercatus empowers grocers with a unified commerce platform, helping them take control of their brand, foster direct customer relationships, and drive sales without sacrificing profit margins.

We help grocers compete through:

• Direct Customer Connection: Our white label platform ensures your brand is consistently represented and communicated across all channels.
• Improved Customer Experience: Instead of inconsistent fulfillment and product markups diminishing the customer experience, the Mercatus platform integrates with your choice of last-mile delivery partners and lets you control the cost-to-serve.
• Enhanced Personalization and Customer Loyalty: Mercatus collects and consolidates customer data to give grocers total control over their customer experience, allowing them to provide convenience and value through personalized engagement.
• Additional Revenue Streams: Mercatus’s Retail Media solution and Sponsored Product Sampling program connect you to the growing retail media industry, ensuring ads meet your brand standards, engage your customers and increase sales online.

No matter the market trends, grocery eCommerce should offer growth opportunities, not force pricing strategies that cut into your profit margins. To discover how Mercatus can help you tailor your pricing to fit your brand’s unique needs, reach out to us today for a strategy session.