On April 28 we held an engaging and informative webinar on the hot button topic of inflation. Over the past year, we have seen double– digit inflation growth in produce, in particular meat. Inflation impacts all aspects of our daily lives but is often felt most when it comes to staples…like food.
Here are three key takeaways from the webinar.
1. The Impact on the Consumer
The pandemic has brought a whirlwind of challenges for grocers in the past couple of years. We’ve seen everything from panic buying to empty aisles. Now, inflation is increasing at its fastest rate in decades, eating up budgets in North American households. And all this has had an impact on consumer behavior.
According to FMI research, 86% of consumers are changing the way they shop due to inflation. Each year, FMI publishes the Power of Produce and for years the drivers of consumer purchase behavior when it came to Fresh were quality and freshness. In this year’s report, for the first time, the number one purchase consideration when it came to produce was price.
Consumer habits are changing because of inflation: they are buying fewer items and they are not buying as much meat or seafood, buying converted products, such as ground beef which can easily be frozen, and a shift towards private brand labels. However, consumers are still “premiumizing” their purchases – like buying that expensive cut of meat. But instead of for a regular weeknight meal, it is for that special occasion.
There’s also a growing focus on health and well–being as consumers are increasingly aware of healthy food choices. Now, that might be a result of combining inactivity with too much binge-watching Netflix during the pandemic, but regardless there is a shift to healthy eating.
The final point on consumer shifts coming out of the pandemic and into an inflationary environment is the rebound effect of people wanting to eat out. Due to various restrictions, most people were forced to eat at home. With the easing of those restrictions, people now have the option of eating out again. While an enjoyable experience, there is that sticker shock when you get the bill reminding you of the reality of inflation.
So, the question of eat at home or eat away from home for consumers becomes a question of value. And for many, the value is continuing to eat at home. Good news for grocery retailers, but inflation poses material challenges for them too.
2. The Impact on the Grocery Retailer
The second key takeaway from the webinar is the impact inflation is having on grocery retailers.
The reality of Fresh is it has always been the best way to build trust and loyalty with consumers as Fresh is experiential. And studies show Fresh is the primary reason why a consumer goes to a particular store. One intrinsic truth of the consumer is they want to buy Fresh.
Retailers need to stay focused on this truism, but consumer loyalty will be tested as they are looking for value and changing their purchase behaviors. As a result, retailers are doubling down on Fresh, from cultural cuisine to local items.
Retailers need to seek out new ways to engage with consumers. They need to be creative in order to retain those price-sensitive consumers and still make Fresh a valid – and affordable – option.
There is a growing focus on buying locally to circumvent supply chain issues. Also, buying locally can be an inflation-reducing exercise, while aligning with sustainability goals.
Merchandising plays an important role in repackaging, such as smaller servings to combat price and deliver value. Variety and assortment changes also help in combatting inflation. And consumers looking for variety. The more variety, the more choice for consumers, and the more retailers will sell during this inflationary period.
When it comes to variety, retailers need to consider cost effectiveness, recipe requirements, product complexity, and any merchandising instructions and materials that need to be provided to impacted stores.
Retailers need to pivot quickly and be adaptable. They need a good foundation from which they can execute efficiently “just-in-time” changes in their retail operations in short time limits. For this, retailers need to make data-driven decisions leveraging the attributes of purpose-built Fresh-centric technology. And this is where the third key takeaway comes into play.
3. Technology to the Rescue?
Time has always been the enemy of Fresh, and now price is too. Having Fresh-centric forecasting is critical to meet the changing demands of consumers and the price impact of inflation. It is especially critical as retailers need to operate in the time frame of days and weeks, not months.
Without doubt, retailers will look for efficiencies to mitigate the risks of inflation. During times of inflation, retailers can’t raise prices as quickly as costs go up, so there will always be pressures on profit margins.
Retailers need to generate overnight forecasting to find the right balance when it comes to demand signals. They need to make data-driven decisions to effectively manage the demand curve and avoid poor merchandising decisions due to incorrect data. Retailers must be responsive, nimble, and understand the shifts in demand.
And that’s where technology such as Fresh Retail Platforms (FRP) comes to the rescue. FRP technology plays a critical role in risk mitigation of the challenges facing grocery retailers, including inflation, by helping them in key operational areas such as production planning, labor allocation, and demand forecasting.
Earlier we discussed that consumers want choice, and that choice comes with variety. FRPs can provide retailers the right cost, the right nutritional information, and the right operational processes to protect against margin loss and the erosion of consumer confidence.
For retailers, technology is not only an investment to deal with today’s challenges, but also an investment for tomorrow’s growth.