Senator Elizabeth Warren expressed doubts that the new artificial intelligence-based “dynamic pricing model” used by grocery chain Kroger is really designed to “improve the customer experience.” She said Friday that the practice shows how “corporate greed has spiraled out of control.”
Warren (D-Mass.) co-wrote a letter with Senator Bob Casey (D-Penn.) on Wednesday to Kroger Company Chairman and CEO Rodney McMullen, expressing concern that the company’s collaboration with AI firm IntelligenceNode could lead to both privacy violations and exacerbate inequality by forcing customers to pay more based on personal data Kroger collects about them “to determine how much price increase they can tolerate.”
As the senators wrote, the chain first introduced dynamic pricing in 2018 and expanded it to 500 of its nearly 3,000 stores last year. The company partnered with Microsoft to develop an electronic shelf label (ESL) system known as Enhanced Display for Grocery Environment (EDGE), which uses a digital label to display prices in stores, allowing employees to change prices throughout the day with a click.
As Warren explained on social media on Friday, stores can use digital price tags to charge “special prices on water or ice cream when it’s hot” or raise the price of turkeys just before Thanksgiving.
By working with IntelligenceNode and Microsoft, Kroger has gone beyond simply adjusting prices based on the time of day or other environmental factors and is attempting to tailor the cost of goods to the individual shopper.
The senators stated:
The EDGE shelf will help Kroger collect and use sensitive customer data. Through a partnership with Microsoft, Kroger plans to place cameras on its digital displays that will use facial recognition tools to determine the gender and age of a customer captured on camera and present them with personalized offers and advertising on the EDGE shelf. EDGE will allow Kroger to use customer data to create personalized profiles of each customer… and quickly update and display the customer’s maximum willingness to pay on the digital price tag – a way that will allow companies to make profits that would not be possible with a mere paper price tag.
“I am concerned about whether Kroger and Microsoft are adequately protecting consumer data and that customers will ultimately be offered worse terms as Kroger expands the personalized customer experience,” Warren and Casey wrote.
Lawmakers pointed out that high food prices are a key problem for workers and families in the U.S. Chains use numerous methods to rip off customers, including “shrinkflation” and “greedflation,” which involves filling packages with less product and keeping prices high, even though supply chain problems have largely resolved since high inflation during the coronavirus pandemic.
Kroger could soon add several thousand more stores to its portfolio with the potential $24.6 billion acquisition of Albertsons. Last year, its operating budget was $3.1 billion, and gross profit margins have been above 20 percent for the past five years.
Meanwhile, U.S. households will spend an average of 11.2 percent of their budget on food in 2023, Warren and Casey said.
“The increasing use of dynamic pricing will drive up corporate profits – and leave consumers footing the bill,” the senators wrote. “It is outrageous that grocery giants like Kroger continue to implement price spikes and other profiteering schemes while families continue to struggle to afford food.”
Warren and Casey asked McMullen for information about its use of ESL platforms such as EDGE. They wanted to know, among other things, how the company sets its prices using dynamic pricing and whether it has ever used EDGE to change the price of an item more than once a day.
The senators have previously introduced legislation to prevent shrinkflation, called on the Biden administration to use its executive powers to lower food prices and proposed a price gouging ban bill that would give states and the Federal Trade Commission the authority to enforce a nationwide ban.
