Shrink Is Becoming the Margin Lever Grocers Actually Have Left

Kroger completed the rollout of Flashfood across its Mid-Atlantic Division in early April, extending the surplus grocery app to more than 100 stores in Virginia, West Virginia, Kentucky, Ohio, and Tennessee after a 16-store Richmond-area pilot that began in summer 2025. According to the companies’ announcement, the pilot generated roughly $700,000 in shopper savings and diverted more than 290,000 pounds of food from landfills before the expansion decision. Flashfood operates in over 2,000 grocery stores across North America.

The promotional playbook has lost force

Broad markdowns produce diminishing lift when shoppers are cross-shopping before they see the circular. Deloitte’s 2026 Global Retail Industry Outlook, based on a survey of 330 global retail executives conducted in October and November 2025, describes value-seeking as a structural shift, finding that four in ten Americans exhibit deal-driven or cost-conscious behaviors including in higher-income households. Numerator’s 2026 Visions report adds that 37% of U.S. consumers cited rising prices as their primary concern by late 2025, and documents a bifurcating economy in which lower-income households’ base spending is declining while higher-income households retain flexibility.

Foot traffic data reinforces the cross-shopping pattern. JLL’s 2025 Grocery Report, drawing on Placer.ai, found Aldi visits up 51.2% from 2019 and Grocery Outlet up 48.7%. IGD’s Global Discount Trends 2026 projects the discount channel will grow at 4.8% CAGR through 2030, nearly a full point ahead of the wider grocery market at 4.0%.

For traditional grocers working against those dynamics, further price investment at the front of the store has a ceiling. Margin sources that do not require additional shelf-price reductions have moved up the capital priority list, and the shrink line is one of the larger available pools.

Where the fresh math works

ReFED’s 2026 U.S. Food Waste Report, released April 7, estimates total surplus food in 2024 at 70 million tons, roughly 29% of the U.S. food supply, and records a 2.2% year-over-year reduction, the first meaningful decline outside the pandemic dip. The retail share of that surplus concentrates in fresh departments, where margins are already thinner than center store. Every pound exiting through shrink instead of through a discounted sale lands against operating profit.

Replenishment upstream, markdowns downstream

AI-driven pricing in grocery is two workflows operating together. Upstream is demand forecasting and replenishment, which reduces the volume of product at risk of markdown. Downstream is timing and targeting on what does get over-ordered.

On the replenishment side, Afresh announced the completion of a nationwide rollout of its Fresh Replenishment solution across bakery and deli departments at all Albertsons Companies stores on October 23, 2025, covering Safeway, Albertsons, Jewel-Osco, Shaw’s, Vons, and ACME, and building on earlier deployments in meat, seafood, and produce. Afresh reports partnerships across more than 10,000 store departments in 40 states, including Brookshire Grocery Company, Bashas, Cub Foods, Smart & Final, and Meijer. On the markdown side, Flashfood sits downstream, selling items approaching sell-by dates through an app with pickup from in-store zones, with Kroger, Piggly Wiggly, Loblaws, and Gelson’s among its partner retailers. Flashfood has publicly reported a 27% average shrink reduction across its partner base, a vendor-sourced figure that should be read as directional.

Albertsons CEO Susan Morris told investors on the company’s fourth quarter earnings call, as reported by FoodNavigator on April 15, that merchandising intelligence is one of four technology priorities for fiscal 2026, alongside digital customer experience, labor optimization, and supply chain optimization. Morris described Albertsons’ pricing approach as surgical and funded through productivity gains. On Kroger’s Q4 earnings call on March 5, CFO David Kennerley told analysts the company has significant 2026 investment dollars allocated to AI, with early applications in pricing, shrink management, and agentic shopping tools. Roth Capital Partners analyst Bill Kirk, quoted by CNBC, observed that not every grocer knows what to do with the consumer data it has, and named Kroger as further along than most peers.

What this means for CPG commercial teams

The implications diverge across audience segments.

Large fresh suppliers face a data-access question first. When a retailer’s replenishment system becomes the primary record of item-level demand and shelf-life performance, the shopper insights a brand receives through standard joint business planning start to lag the retailer’s internal view. Commercial teams selling into Albertsons, Kroger, Meijer, and the broader Afresh-partnered base should use 2026 JBPs to clarify how forecast-accuracy gains are being shared and whether markdown activity on their SKUs counts inside or outside agreed trade funding definitions.

Mid-market and regional brands are exposed further downstream. A product consistently landing in markdown channels is signaling something about pack size, velocity, or date-code assumptions that a category review will eventually flag. Engaging the retailer on SKU rationalization before that data accumulates tends to produce better outcomes than waiting for a delist decision to surface.

DTC brands scaling into wholesale fresh should recalibrate launch economics. Retailers using AI replenishment identify underperforming SKUs faster and reset faster than the manual cadence most new-item plans still assume, and early velocity diagnostics matter more than they did on the prior technology cycle.

What the retailer commitments look like in aggregate

The Flashfood expansion at Kroger, the completion of the Afresh rollout at Albertsons, and the AI investment commitments both retailers disclosed on recent earnings calls are three expressions of the same commercial logic. The combined footprint across these two retailers alone covers the majority of the top 10 U.S. grocery banners, and the vendor ecosystem reporting partnerships with additional regional chains suggests the deployment curve is steepening through 2026.

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