Agility is the key to success as inflationary pressure mounts for retailers

It might not have been obvious to shoppers, but for some time, significant cost pressures have been crashing against the wall of UK supermarkets and suppliers.
The BRC has reported that in November, inflation was at its highest level in a year and IRI analysis shows that direct price increases accounted for the majority of that topline figure.
Until now, almost all the increase in the cost of a shopper’s basket had essentially come from premiumisation and bigger pack sizes. Retailers had been absorbing most of the rising costs we have seen as part of their aggressive position on EDLP and price matching. But we’re now at a tipping point where retailers are unable to hold fast on that price barrier much longer, and prices are starting to increase. We forecast food and drink inflation could actually reach 5% to 8% in Q1 2022.

The big question becomes, how will shoppers react when the material cost of food and drink increases? For those who have been relatively cushioned during the pandemic, will they continue to ‘premiumise’ their grocery shop, as we have seen over the last 20 months? For others, these months have been and will continue to be very challenging. Could shifting from branded products to own label, a different range, or even a different store help them to manage a household budget? And when people make those changes, how will retailers react?

The real challenge for the FMCG industry in 2022, as I see it, is balancing those polarised needs of the shopper. Thanks to the depth of store loyalty programmes and a plethora of other data sources, retailers and manufacturers have never had more detailed insights into people’s behaviour and lifestyles. This unparalleled understanding of shoppers and their fast-changing behaviours will prove essential as the industry again gets tested to the limit.
By swiftly identifying real time changes in shoppers’ habits, as the cost pressure mounts, retailers can pinpoint which customers they are at risk of losing and what changes need to be made in order to both retain them and maximise value. The new news here is that this capability no longer sits in the hands of just a few retailers. Never have so many UK retailers and wholesalers known so much about their shoppers.

As featured in
Kieran South’s
monthly column
in The Grocer

The industry has experienced times of rising inflation and economic downturns before. Lessons were learned from 2008, and many will be keen not to replicate the same mistakes. However, it would be wrong to assume that we can look that far back to inform our approach to the coming months.

The FMCG landscape has changed irrevocably in recent times. Some of the trends that were already in market have been accelerated in ways we would not have thought possible in such a short period. Convenience and product availability have driven many new shoppers towards e-commerce, which has, in turn, brought structural and operational challenges for retailers and manufacturers. Concerns over the environment and sustainability have become increasingly important factors in shopping decisions for many of us and are influencing innovation pipelines as a result. The Government’s focus on improving the nation’s health will see promotional, and advertising restrictions come into force next year, forcing a complete rethink of promotional strategies for manufacturers and retailers, as well as how physical space will be reallocated in-store. Who will be the winners and losers in this brave new world? I don’t know who first coined the phrase, ‘change is inevitable, and growth is intentional,’ but I believe those that can move at pace, identify real time data insights, and translate them into meaningful action are most likely to get their nose out in front and win the race with shoppers.