FMI – The Food Industry Association on Wednesday released its 74th annual “The Food Retailing Industry Speaks” report, a 98-page document packed with data and observations on the current state of the grocery retail industry.
Acknowledging right away that retailers and suppliers are facing “formidable challenges” due to labor issues, technological advances, inflation, supply chain headaches, government regulations and consumer shifts, the report paints a less-than-rosy picture of food retailing in 2023.
In fact, only 12% of grocery retailers surveyed by FMI predict their net profits will increase this year, given higher operating costs. Nearly one-third (32%) of retailers expect stores to close this year. And more than three-quarters (76%) of grocers said inflation had negatively impacted their business in 2022, while 86% of retailers said they expect inflation will pressure margins this year.
But there is plenty of opportunity in the grocery segment, despite the challenges, FMI said.
“Food industry leaders are increasingly bringing innovative approaches to battle these and other challenges,” FMI noted. “They are working to future-proof their businesses by tapping into lessons learned over the past few years.”
Here’s a quick look at some of the key points and areas for growth in FMI’s 2023 Industry Speaks report:
Prioritizing value. Retailers are focusing on competitive pricing, increasingly communicating value and spotlighting private brands to drive traffic and loyalty. About 65% of grocers surveyed said they’re emphasizing high-low pricing, everyday low pricing and other price differentiation. Eighty percent said they plan to “moderately or significantly” increase investments in private brands in the next two years.
Fresh foods ascend the throne. Three-quarters of grocers said they plan to devote more space to foodservice and fresh grab-and-go as they look to get more shoppers in their doors. Eighty-five percent of retailers said they’re using fresh prepared foods and foodservice programs to differentiate themselves from other grocers, up from 75% in 2022.
Technology is necessary but complicated. “If you’re not technologically enabled, you’re competitively disadvantaged,” Mark Baum, FMI’s SVP of industry relations and chief collaboration officer, said Wednesday during a media briefing on the report. “Every CEO needs to think like a CIO, if not act like a CIO, going forward.” Eighty-five percent of retailers said they were experimenting with new technologies to improve the customer experience in 2022, up from 73% the year before that. And a quarter of them are tinkering with artificial intelligence.
Workforce issues remain a top concern. Retailers reported 65% turnover in 2022 and 70% of grocers expect training costs to increase this year. Food retailers said they typically spend $500 per employee on training, and nearly all (91%) of all grocers said they increased wages for full-time employees in 2022. Retailers are also increasing benefits and offering flex time to boost retention.
Supply chain improves—but just a bit. Food retailers reported average out-of-stock rates in 2022 of 10.7%, down just a tick from 11.3% in 2021, but still higher than the historical rate of 8%. “Food retailers and suppliers are in almost universal agreement that supply chain issues had a negative impact on their businesses in 2022.” Retailers and suppliers said collaboration is easing some of the headaches.
Growing competition. As restaurants closed, offices shuttered and travel came to a standstill during the pandemic, consumers relied on supermarkets. That is changing. “Retailers express growing concern that changing consumer habits are not as positive for their businesses,” the report said. “Some retailers are now concerned that consumers are shopping around more, perhaps due to inflation, and frequenting restaurants more often.”
Finding e-commerce that works. Before the pandemic, just 50% of retailers sold groceries online. That number has climbed to 80% today—with fresh or perimeter departments making up more than 40% of those sales. Just 45% of retailers with online sales reported that their e-commerce programs are profitable and 67% said they are experimenting with e-commerce strategy as customers return to in-store shopping.