Amazon, Walmart and Target are squeezing traditional grocery chains on price

The grocery business has always been hard. It’s getting even harder.

National retailers like Walmart, Target and Amazon are increasingly beating regional grocers on prices for the most popular items, according to data provided to Recode by Basket, a startup that makes an app that tracks prices across brick-and-mortar grocers as well as some online retailers.

Across a selection of 15 of the most searched-for grocery items on Basket, Walmart’s prices were 16 percent cheaper than regional and local grocers on average during a recent February week.

Prices at Target and Amazon Fresh were 13 percent and 4 percent cheaper, respectively. (Amazon Fresh charges customers $14.95 a month for the convenience of deliveries, and also requires them to be members of the $99-a-year Amazon Prime program.) At the same time, Walmart-owned Jet.com had the highest prices on average. But, unlike Amazon Fresh, Jet does not charge any membership or monthly delivery fees.

To close the gap with cheaper national retailers, the country’s biggest food brands are stepping up funding of in-store promotions with their grocery partners, according to Basket data. The prices, shown above, include sales that were running inside the brick-and-mortar chains during the week in February when the data was pulled.

“[L]ocal retailers are using an increase in these manufacturer funded sales and in-store promotions to keep up with less traditional grocery retailers ever changing pricing bundles, packages, or membership discounts,” Basket Co-Founder and CEO Neil Kataria said in an email. “Over the past two years we’ve seen the number of sales prices available in-store increase by over 150%.”

For Basket, the current dynamic provides a big business opportunity: to provide food brands with real-time pricing data on their products and those of their competitors.

Shoppers use the Basket Savings app to build a shopping list and find out which local and online grocers have the best prices for their desired products. If a store doesn’t have the exact item, Basket surfaces a comparable house brand. Users of the app can choose to search for the best prices for their basket of goods across multiple stores in their area, in case they want to visit more than one supermarket to save extra cash.

When Basket started, it made an app solely to reward users for uploading prices in order to get pricing data. Today, Basket still pays hundreds of power users — called Commerce Moderators — to fill in pricing information in the region in which they live, according to Andy Ellwood, the startup’s co-founder and president. The startup also asks regular users of its app to confirm or alter product prices when they go in to a store to shop.

But even those techniques wouldn’t be enough to cover all of the nation’s grocery prices. So the startup has been training algorithms to take one price from one product and automatically extrapolate the price of others based on it.

For example, many Safeway stores in Seattle share prices across different iterations of a given product, Ellwood said. So a pricing update for a 2-liter bottle of Diet Coke triggers changes to the price for a bottle of regular Coke, too. For retailers that have regional pricing, a change to a price at one store may lead to an automatic change to that same product at another one of the chain’s stores across town.

“When a shopper enters or confirms a price, it might trigger another five to 50 prices in a store,” Ellwood said.

Ellwood likes to make comparisons between Basket and Waze, the maker of the driving navigation app where he previously worked. But the advantage of Waze’s system today is that it can be improved without Waze users having to do anything; the app passively tracks their speed and location thanks to smartphone technology and can infer driving conditions based on that information.

The challenge for Basket: it does not possess an analogous, passive data-collection capability. The closest comparable it has is that shoppers can easily confirm a price in the app when they go to buy the item, but that still requires some action on their part.

Still, if Basket can nail the pricing-gathering at scale, the insight from that data could help the country’s biggest brands, caught in ongoing pricing wars between retail giants, compete more effectively. And that might explain why the investment firm Anchorage Capital led a $12 million Series A investment in Basket, according to a source, in the second half of last year.

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