Setting your KVIs amidst volatility
4 Mistakes Grocers make on Key Value Items
Recent price swings—whether from tariffs, supply chain disruptions, or seasonal shifts—have made it riskier than ever to rely on static Key Value Item (KVI) lists.
A naive approach to KVI elasticity assumes consistent demand responses to price changes, but real-world grocery pricing is anything but stable. Substitution effects, for example complicate the picture—when tariffs drive up the cost of staple imports, shoppers switch to alternatives, shifting demand unpredictably.
We break down four key mistakes that can lead to mismeasuring your KVIs.
1. Substitution
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Proposed 25% tariffs on goods from Mexico and Canada will raise input costs, forcing grocers to decide: absorb the hit or pass it on to consumers? But price hikes won’t just affect margins—they will reshape consumer baskets in ways that might not be expected.
Shoppers won’t always take the price increase or stop buying altogether; many will substitute for alternatives. A pricier Corona from Mexico might push Super Bowl watchers toward domestic Coors Light, but avocados and tomatoes—staples with limited substitutes—will see direct price sensitivity.
From Canada, maple syrup and canola oil face similar challenges. While vegetable oil can replace canola, there’s no true substitute for maple syrup. Meanwhile, a spike in beef prices may even shift demand toward plant-based proteins like mushrooms or tofu.
2. Out of Item
A naive KVI implementation relies purely on historical sales data to identify key items, assuming that the highest-selling or most frequently purchased products should be prioritized.
However, when a KVI goes out of stock, its true demand becomes invisible in the data. Instead of capturing the lost sales, a naive approach might mistakenly elevate substitute products or secondary items that were purchased in its place. This skews the ranking of KVIs, leading grocers to misidentify which products truly drive price perception and traffic. Over time, these errors can shift pricing focus away from the items that customers actually care about most, weakening the effectiveness of KVI-driven pricing strategies.
To counter this, grocers need to integrate inventory availability into their KVI analysis, ensuring they measure true demand rather than just what was available for purchase.
3. Seasonality
A naive KVI implementation treats demand as static, assuming that the most frequently purchased items are always the most important. However, seasonality drastically shifts which products drive price perception at different times of the year.
For example, baking ingredients like flour and butter spike in importance during the holidays, while grilling staples become key in the summer. If grocers fail to account for these seasonal fluctuations, they may misidentify KVIs based on annualized data, leading to misplaced pricing priorities.
Without adjusting for seasonality, grocers risk underpricing or overpricing key seasonal items, missing opportunities to drive traffic and maintain customer loyalty during peak demand periods. A smarter approach refreshes KVIs dynamically to align with shifting seasonal patterns.
4. Events
A naive KVI implementation fails to account for event-driven demand, treating key value items as static year-round. However, major events like Thanksgiving and Super Bowl temporarily shift which products are most critical to shoppers. During Thanksgiving, items like turkey, stuffing mix, and pies become sought after while the Super Bowl drives demand for Coke, chips, and beer.
If grocers rely only on average sales data, they may overlook these short-term KVIs, leading to mispriced promotions or missed traffic-driving opportunities. To get KVIs right, grocers need to dynamically adjust for event-driven spikes, ensuring that the right products are prioritized when they matter most to customers.