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Top 7 Takeaways from FMI Midwinter 2023

01.23.2023 | Mike Troy, Sr Director of Content and Thought Leadership
 

A broad range of conflicting forces will come together in 2023, presenting grocers and CPGs with a unique operating environment and evolving combination of growth challenges. That because even though the industry is roughly three years removed from the onset of the COVID-19 pandemic, aftershocks continue to reverberate and fault lines have shifted, adding new uncertainties to the operating environment.

It’s why more than 1,200 senior executives from across the grocery and CPG industry gathered in Orlando January 20-23 for the annual FMI Midwinter Executive Conference. The record attendance speaks to the quest for answers to complex business challenges amid rapidly evolving industry dynamics.

Senior leaders from SymphonyAI Retail CPG participated in the event, and over three days of conversations with other senior leaders and hearing from industry visionaries heard recurring themes:

The C-Suite recognizes technology investment is overdue. Technology is critical to address nearly all of the grocery industry’s challenges, judging from comments of retailers, keynote speakers and start-ups. However, there has been a period of underinvestment as the pandemic, government stimulus and record inflation in 2022 provided a tailwind to sales growth. Circumstances have changed, and as H-E-B President Craig Boyan told FMI Midwinter attendees, it is one thing to build a great-looking consumer-facing technology with apps and a website, but quite another to address the massive tech deficit that exists at most retailers.

“The truth is we all need to be tech companies,” Boyan said. “The battle that we are about to face is how can we all become great tech companies before tech companies become great retailers.”

That’s where investment comes in because, as Boyan noted, “we’ve all got a heck of a complicated picture when we look inside the plumbing of our old houses.” Upgrading that technology ‘plumbing’ is going to be the fundamental challenge of the industry over the next five years, he added.

Others agreed. Accelerating technology transformation is at the core of a new strategic plan the FMI Board adopted at the meeting. Technology transformation is one of six imperatives they see facing the industry, along with supply chain disruption, labor shortage and workforce challenges, changing marketplace and societal dynamics, evolving consumer behaviors and rising ESG expectations.

“We need to invest so when the next thing happens we can continue to operate,” said Charles McWeeney, vice president of technology, innovation & strategy with Wakefern Food Corporation.

“Technology needs to move from tactic to strategy. Technology should be driving strategy,” according to Doug Baker, vice president of industry relations at FMI.

Economic challenges and uncertainty. There is a lot of noise about whether the U.S. will enter a recession this year, including differences of opinion shared at FMI Midwinter. “My prediction is we will avoid a recession, but it will be a choppy environment,” said Deb Weinswig, founder of Coresight Research. To support that view, the veteran Wall Street retail analyst noted that consumer sentiment, while low, has bottomed and unemployment is low at 3.5% in December. “I am long retail,” she said regarding the continued relevance of physical stores, and she maintains that “grocery is poised to have a tremendous 2023.”

Others are less sure and point to looming pressures on consumers that will inhibit their ability to spend, even if the recent trend of decelerating food-at-home inflation continues. For example, savings rates are at a 17 year low and credit card and household debt is growing at the fastest rate in 15 years, according to H-E-B’s Boyan. “We all worry about what happens when consumers run out of fuel. It is very reasonable for us to assume that growth in consumer spending in 2023 and beyond is going to be slower than last year.”

Another variable that promises to affect consumers’ purchasing power, and retailers’ expenses, is increased crude oil prices. The recent reopening of China from Covid lockdowns is expected to increase demand for crude oil and push prices above $100 a barrel, according to Scott Moses, Partner and Head of Grocery, Pharmacy  & Restaurant Investment Banking with Solomon Partners. If that forecast is accurate, increased fuel prices will erode purchasing power while increasing retailers’ freight costs.

Inflation versus Deflation. Food-at-home inflation was in the double digits for most of 2022, peaking at 13.5% in August. “We’ve never seen anything like it,” said Neil Stern, CEO of Good Food Holdings, an operator of 50 stores under banners such as Bristol Farms, Lazy Acres and New Seasons Market. The specialty grocer couldn’t increase prices fast enough because “price increases were coming from suppliers so quickly.”

That situation will “come to a screeching halt” in 2023, according to Karen Short, a managing director with Credit Suisse. She maintains that CPGs are on their last leg of increasing prices and that in the second half of 2023 the market could see deflation.

Walmart Wants Its Market Share Back. Closely correlated to the issue of inflation/deflation, is what Walmart does in 2023 with pricing and promotion. The nation’s largest food retailer is a better operator than it was five years ago and is looking to regain market share it lost during the pandemic, according to Short. It could do so by investing in aggressive pricing to widen existing gaps, which Short’s research shows have never been wider relative to conventional grocers.

“That is the biggest wild card for anyone in this room,” short said during a keynote session, “is what does Walmart do?”

The implication for grocers is they need to have deeper understanding of shoppers, through primary data and other sources, and leverage AI-based analytics to develop effective promotional strategies and increase personalization efforts that can drive increased loyalty, engagement and basket size.

Data utilization and monetization. Data volumes are growing, but few are using their data as effectively as they would like. AI is the answer to many use cases, as several speakers noted during FMI’s Tech Talks programming. This also explains why senior executive from SymphonyAI were busy having in-depth discussions with retailers and CPGs about what’s possible with AI and the capabilities of the CINDE (Customer INsights and Decision Engine) platform which proactively uncovers data-driven insights to make prescriptive recommendations to enable execution of customer-centric strategies.

“We are helping our business partners see around corners with analytics,” Kirk Ball, chief information and chief technology officer with Giant Eagle, said during a panel presentation. He identified the need to invest when he arrived at Giant Eagle and found the company had not updated its core network in almost a decade. “There is a journey to value that needs to be communicated, and communicating that value as it is realized along the entire journey is very helpful with those who have to make the investment.”

Shrink and Store Execution. The issue of shrink didn’t appear on the formal agenda, but it loomed large over the event as grocers experience theft and spoilage. Organized retail crime is a real issue, as noted in research by the National Retail Federation (NRF), but an equally pressing concern for grocers is mounting losses at self-checkouts due to scanning errors and theft. In addition to the impact on margins, the situation presents planogram compliance and on-shelf availability issues because POS data isn’t presenting an accurate picture of store-level inventories, thus heightening the need for increased store intelligence and visibility of shelf conditions.

Labor Availability and Associate Productivity. Labor has always been an issue in grocery, but never this painful. The U.S. economy is essentially at full employment and the percentage of the total population working or actively looking (the labor force participation rate) is at 62.3%, while unemployment remains at a low 3.5%, well below historical averages. The situation has put upward pressure on retail wages and heightened the need to increase productivity with technology tools that improve execution. It has also put grocers at the center of a highly politicized debate over immigration.

Resolving the issue is important for the industry to confront labor challenges because, as Moses from Solomon Partners noted, “immigrants make great grocery workers.”

Sandy Douglas, CEO of United Natural Foods, said immigration should be managed and thoughtful and called it an important public policy issue for FMI. The core challenge is depoliticizing the issue of immigration so it can continue to serve as a force multiplier that is part of the growth engine of the U.S. economy, according to Douglas.

Retailers also see technology playing an important role. It explains why Hyer, a company that bills itself as the Uber for labor was chosen as the winner of a start-up pitch competition voted on by attendees via an FMI app. Launched several years ago, Hyer functions as an on-demand labor app to help retailers fill gaps with background-checked individuals known as “taskers” who opt in to perform different types of work. The network currently consists of 300,000 taskers.

This is a high-level view of select issues which surfaced often during the FMI Midwinter event. It seemed there were often more questions and concerns than answers, but it was generally agreed that regardless of the challenge technology will play an increased role.

Retailers focused on improving productivity in 2023 are making bold moves with AI-powered solutions. See why the industry was buzzing about SymphonyAI Retail CPG and CINDE at FMI Midwinter. Connect with an expert in AI shopper insights today!

 

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