Consumers might soon find themselves paying more at the checkout as retailers increasingly turn to digital labels capable of adjusting prices in real-time based on demand. This shift could have a substantial impact on shopping experiences and budgets alike.

The Bank of England has sounded the alarm, indicating a significant rise in the adoption of these ‘market-responsive pricing tools.’ Their latest reports suggest that by next year, one in three businesses will implement these systems, marking an increase from the previous year where only one in five companies used such strategies.

These adaptable pricing systems, often referred to as ‘dynamic prices,’ are driven by sophisticated algorithms and artificial intelligence. The prices displayed on digital labels can fluctuate according to various factors such as demand, store capacity, and even competitors’ pricing strategies, as highlighted in a business survey commissioned by the Bank.

Several elements could influence these price changes, including weather conditions, the time of day, and the level of foot traffic in a store. For instance, on a particularly sunny day, the cost of purchasing a pair of sunglasses might see a noticeable increase.

This pricing strategy is not entirely new. Online giants like Amazon have long utilized dynamic pricing. Similarly, the hospitality and travel sectors adjust their rates based on seasonal popularity or specific timeframes.

The survey further points out that supermarkets might be the next industry to widely adopt electronic labels, following in the footsteps of European retailers where this practice has already gained significant traction.

UK retail food prices are already 38 per cent higher than pre-Covid levels and experts fear further significant increases if disruption caused by the war in Iran continues.

This British Retail Consortium graph shows how CPI inflation since 2020 stands at 29 per cent – below overall food inflation and median employee earnings which are both about 38 per cent 

Britain’s most popular supermarkets have already begun introducing or testing digital price displays, but there is no evidence that they are using surge pricing. 

Around 700 Co-op stores use electronic labels currently, with plans to extend it to all 2,300 shops.

Morrisons are also looking to use the tech in all its 497 stores, telling The Times that it was intended to eliminate paper labels and was not using dynamic pricing.

Waitrose similarly will extend the digital labels to all of their supermarkets but reportedly have no plans to bring in surge pricing. 

Tesco and Sainsbury’s have been testing the displays and Asda will roll them out to their 250 ‘Express’ supermarkets. 

Events and concerts often bring dynamic prices to the forefront, with hotel prices surging up to 156% in London when Taylor Swift performed her hugely popular Eras Tour.

Dynamic pricing in hotels is more popular than before, the study highlighted, with about 15 per cent of room rates adjusting at least once a month in 2005, but happens around 80 per cent of the time nowadays.  

Clare Lombardelli, the deputy governor for monetary policy, explained: ‘Digitalisation has radically reduced what economists call menu costs – the expense of changing listed prices – so–called historically because of the costs associated with having new menus printed with updated prices. Digital pricing allows firms to change prices frequently at negligible cost.’ 

Ms Lombardelli and Rupal Patel, who wrote about the study, said: ‘Personalised pricing goes further still and may involve tailoring the price each consumer is offered to their personal circumstances and consumption patterns.’

Shoppers may face higher prices as retailers look set to use digital labels that could change the cost of products based on demand

And while these digital labels ‘introduce opportunities for efficiency’, they also raise ‘concerns about fairness’.

Martyn James, a consumer rights expert, told The Times that he was concerned about retail giants adopting dynamic pricing, despite early promises not to.

He highlighted other industries, like concert tickets or airline fares, using this method: ‘In almost every other sector, from airline fares to gig tickets, providers have misused their powers to change pricing without any official oversight in real time…

‘So how can we trust [supermarkets] to use digital pricing solely to update the cost of items without price manipulation?’

But even if this ever came to be, he said it would be a good way into the future, as the technology behind these price adjustments is very expensive.