Granite Bay software firm Revionics helps grocers set prices

Revionics announced yet another contract with a small chain of supermarkets earlier this month, demonstrating anew that momentum is on its side.

The Granite Bay-based maker of pricing software is on a roll. An income statement is hard to come by, given that Revionics is privately held, but supporting evidence can be found.

A year and a half ago, the company had eight employees, counting the CEO. Today it has 60. Its customer list, in the single digits 18 months ago, hovers at more than 75 today.

Chief Executive Todd Michaud said retailers are turning to price-optimization software to help make decisions on how to price items at each store in a chain. The programs factor in everything from a product's sales history to what the competition is doing.

"We have a lot of traction in the market at a time few retailers have price optimization, but everyone knows they need it," he said.

Mark Lilien, a retail analyst and consultant for the Retail Technology Group, said price-optimization software has its place but isn't the only answer.

"Many retailers … can achieve the same goals with their existing systems and staff," he said. "There is more than one way to achieve this goal."

Michaud became Revionics' CEO in August 2006. He discussed the company, its prospects and the advantages of being in the Sacramento area in a recent interview.

Q: What is your core product?

A: Revionics Advanced Pricing System is … delivered to our subscribing retailers over the Internet. They don't actually take possession of hardware or software. … Subscription service over the Internet makes it palatable. It lowers cost. They essentially pay for using the service.

Under the old model, you'd buy the software, pay the consultants to put it in, and it would cost more than expected. With our model, the software is already installed and available.

Q: Is the goal to get the maximum price for the retailer?

A: No. The software is trying to help them maximize their revenues and their margins. Frequently, customers are advised by our technology to lower their prices. It results in consumers buying more of the product. That will actually grow the retailer faster than just raising the price.

Q: What factors does your software consider?

A: We look at all the traditional factors – what the retailer's paying, what the product mix is, what competition's doing in that retailer's market.

One of the most important things we're looking at is consumer demand intelligence. We're trying to take advantage of data retailers have been collecting over the last several years. …

Our system scoops up and processes that data. We use that information to help us figure out how consumers respond to different price points. … It's pretty sophisticated mathematics, economics and statistics. … The system will arrive at an ideal price point for each item sold at each store. It may vary by store, even within a chain.

Q: That sounds like a pretty powerful number-crunching program.

A: The lights flicker every time we turn it on (laughter).

Q: Can you explain more about how your system works?

A: We have subject-matter experts review the data, review the system and basically recommend and advise how that retailer's pricing strategy ought to be augmented and deployed through the use of our tool.

The tool is correlated to a retailer's price strategy. We're looking at a lot of different factors. Things like price elasticity, cross-effects. What happens when I price one item a certain way? If I lower the price on my Heinz ketchup, does that take away sales from my Del Monte ketchup? … The system tries to understand those relationships.

Q: Can't stores just set prices on their own, without software?

A: If you're a retailer trying to figure out what's going on in the minds of your consumers, you need more sophisticated tools than have been historically available to you. These retailers are trying to satisfy consumers at a time they are quite price-sensitive. …

Competition for retailers is at its peak. Wal-Mart, Fresh & Easy, WinCo are coming into this area. … Price optimization may give them places where they can keep up with inflation but also where they can deliver much more attractive pricing.

Q: Are most of your customers small chains and independents?

A: Most of the energy around price optimization is the small and medium size of the market, which is our sweet spot. … The early pioneers in price optimization were the Safeways and Wal-Marts of the world.

Our company is focused on the guys who compete with Safeway or Wal-Mart. It's almost a David and Goliath kind of thing. What's new, I think, is having a different delivery mechanism and retail science capable of providing value to even the smallest of retail operators.

Q: What's it like coming to Sacramento? (Michaud formerly worked for Retalix, a food-industry software company with U.S. headquarters in suburban Dallas, and for International Business Machines Corp.)

A: The local market does have a lot of very good tech talent. … A lot of people would have thought it's a disadvantage not to be in the Bay Area. That's bunk. That's not true at all. I think there's always been talent, but it commuted to the East Bay for work.

One of the unique things we offer is you can live and work here. … It's a great place to live. We're very, very fortunate. I think it (Sacramento) has all the raw ingredients.

About the writer:

• Call The Bee's Mark Melnicoe, (916) 321-1976.