Discount warehouses often sell goods at slimmer profit margins than individual products at regular retail stores, which makes membership fees a key part of the strategy. At Sam's Club, AI steps in to keep members engaged, helping show prices and products that make a case for membership renewal.
"Even when we look at price optimization, we look at the volume elasticity and the renewal probability for the member, and then make those decisions for price optimization," said Vinod Bidarkoppa, CTO at Sam's Club. "And we've seen some great, fantastic margin lifts."
Businesses using AI at scale can employ laser-like precision, aiming AI at the areas of the organization where improvement is a top priority. But AI projects can have a wide-ranging effect, impacting the entirety of the business cycle – from supply chain to pricing to marketing.
AI is helping Sam's Club, which operates 600 discount warehouses in the U.S., keep members loyal in a few ways, Bidarkoppa said.
- Algorithms help customers set their favorite products on an automated reorder cadence, which has led to an increase in basket size.
- Another AI-driven feature reminds shoppers to pick up their most frequently bought items while walking through the store.
- Exit greeters speed up the final cart check by checking three randomly-selected items before customers leave.
AI is creeping into the supply chain in retail too. Companies are looking at ways technology can improve supply chain and other functional areas of the business, said Mark Baum, chief collaboration officer and SVP of Industry Relations at FMI, The Food Industry Association. On the demand side, companies want to use technology to get insights and better understand consumers.
FMI research shows less than one-third of food retailers are using AI as part of their technology strategies, according to a report from FMI. AI is used for pricing and promotions at 19% of food retailers, while 22% use the technology for generating consumer data.
Infusing AI at scale
Whether it's AI or software or cloud computing, simply plugging in technology does not immediately translate to efficiency.
Discount clubs tend to have better access to capital, which eases their ability to invest in AI, robotics and other technology solutions, Baum said.
Enabling AI at scale, however, is not always easy. At the warehouse club, change management has been a key part of implementation.
"Helping the organization understand the benefit of using those newer tools is part of change management," said Bidarkoppa. Unlearning previous behaviors lets teammates understand how new tools can help them augment their job and improve performance.
Sam’s Club has seen an uptick in sales as consumers hunt for bargains in their usual staple runs. Comp sales, a key metric in the retail industry, increased 9.5% year-over-year during the second quarter of fiscal year 2023, for the period ending July 29.
Though no specific numbers were released, membership count hit an all-time high, the company said. Earlier this month, Sam's Club raised membership prices for the first time in nine years.
Data backs executives looking to infuse more AI into their companies. Nearly one-third of revenue at tech-savvy companies is generated through AI-based capabilities, according to McKinsey data.
AI-based recommendations and forecasts are helping Sam's Club operate at scale, Bidarkoppa said. And it's continuing to happen in multiple parts of the business.
"This is a journey," said Bidarkoppa. "It depends on different parts of the business. But we have many successes in multiple parts of the business that we're using as case studies to demonstrate the benefits of AI."