Food retailers are navigating an ‘extreme obstacle course,’ FMI survey finds
From inflationary pressures to supply chain disruptions to labor shortages, food retailers have been navigating an “extreme obstacle course” for the past several years, and many are concerned the retail climate will only gain complexity moving into 2023.
These are some of the findings of FMI — The Food Industry Association’s new industry survey, “The Food Retailing Industry Speaks,” said FMI President and CEO Leslie Sarasin during a Sept. 6 media briefing.
For the first time in the 74-year history of the report, FMI, a trade group representing food retailers and their supply chain partners, surveyed both food retailers and suppliers to understand the challenges and concerns they are facing related to inflation, supply chain bottlenecks and labor shortages. The survey also explored how retailers and suppliers are investing to improve the customer experience and help shoppers navigate difficult macroeconomic challenges.
“For more than 70 years, FMI has surveyed our members annually to take the pulse of the food retail industry and better understand the issues, challenges the pain points, opportunities and goals of our members,” said Steve Markenson, FMI’s director of research and insights.
The Speaks 2022 survey was completed in the second quarter of 2022 and largely represents 2021 operational data among food retailers and wholesale companies representing just over 38,000 stores, said Markenson. The survey sample represents about 90% of grocery stores, slightly more than half of which are independent operators. For the first time, FMI also surveyed food products suppliers, representing more than $160 billion in food product sales.
“On the one hand, the survey revealed that retailers remain concerned that the extreme obstacle course they've been navigating for the last few years continues, and that it's going to get even more complex for them as we move forward in the end of 2022 and into 2023,” Sarasin said. “From shifting expectations on the COVID-19 pandemic phase to unpredictable inflationary pressures to ongoing supply chain bottlenecks and labor shortages, [as well as] continued global unrest, retailers continue to face a variety of hurdles to running their businesses every day.”
At the same time, the food retail industry has shown “tremendous resolve” in meeting its customers’ needs and remains committed to investing heavily in the customer experience and technologies to improve operational efficiency — even during this period of economic volatility, Sarasin added.
FMI’s grocery shopper trends research found that, while rising food and gas prices are of concern to consumers, most still feel in control of their finances. But shoppers in lower-income households are concerned about their continued ability to pay for food if inflation persists.
“Shoppers in August reported spending an average of $136 a week on groceries, and that's down from $148 a week in February of this year,” Sarasin said. “On the flip side, two-thirds of shoppers also said they're spending more now on groceries than they did a year ago, which may indicate that shoppers are buying less because of higher prices.”
With the current landscape of economic volatility, FMI sees its retailer members closely watching consumers’ ever-shifting behaviors and trends in an effort to align their differentiation strategies with the needs of shoppers.
“Surging inflation is hitting the food industry hard, affecting costs and prices,” said Andy Harig, vice president of tax, trade sustainability and policy development at FMI. As a result, 62% of retailers are using price differentiation strategies such as high-low pricing and everyday low-price offers to keep customers engaged, the survey found.
One-two punch: the labor and supply chain crunch
The FMI survey further revealed that labor and supply chain issues remain key challenges for retailers and suppliers.
Almost all survey respondents reported difficulty in attracting and retaining employees, said Harig. Eighty-seven percent of retailers and 86% of suppliers responding to the survey said the labor shortage was negatively impacting their businesses.
“To combat this problem, the top strategies employed for retaining and attracting full-time employees include better wages and salaries, improved benefits, flex time, training and skills development bonuses, and education programs and benefits,” Harig said.
On the supply chain side, more than 70% of responding food retailers reported that they expect supply chain disruptions will negatively impact their businesses this year, up from 42% of retailers who reported that concern in 2021.
“That's a significant increase in retailers worried about supply chain issues,” Harig said. “But what's even more telling is that a whopping 82% of suppliers anticipate negative supply chain impacts and outcomes. That's very significant when you look at the challenges we faced as an industry throughout the COVID period.
“These stats, coupled with the fact that the words ‘supply chain’ have now entered into the everyday vocabulary of the consumer, tell us that this issue remains a huge concern and one that requires all of us to work together up and down the food supply chain,” he added.
The state of omnichannel
FMI’s Speaks survey also explored the growth in online shopping and retailers’ efforts to engage the highly coveted omnichannel shopper.
“As a result of shifting consumer behavior during the pandemic, 91% of all retailers now offer online sales, and almost half of those retailers saw online [sales] increases in 2021. About 20% of those same retailers expect their online sales to increase again this year,” said Mark Baum, FMI senior vice president of industry relations and chief collaboration officer.
Online share of total sales has continued to grow for food retailers, representing 6.5% of total sales in 2021, up from 5.7% in 2020 and 2.5% in 2019, added Baum.
To meet the digital demand, retailers have evolved their delivery models and service strategies.
Almost 90% of all retailers now offer store or curbside pickup for online ordering, and 56% offer home delivery, said Baum, who further noted that the top service differentiation strategy in 2021 focused on the last mile — with 80% of retailers focused on online shopping and 79% investing in curbside pickup. Retailers also reported allocating more labor to support online purchase fulfillment.
But despite the growth of e-commerce use and sales, many grocers are “still trying to crack the code of online grocery shopping,” said Baum.
Retailers are working to get up to speed, improving their e-commerce operations and their overall operating models.
“When speaking about the perceived sophistication of their e-commerce capabilities, only 10% said their e-commerce platforms were ‘very sophisticated,’ 44% indicated that their e-commerce strategies were ‘somewhat sophisticated,’ and 46% — the highest number of that trio — said e-commerce was not as sophisticated as they would like it to be,” Baum said.
Interestingly, only 51% of retailers say their e-commerce business is profitable and only 13% said that their online ordering and pickup or delivery models were successful.
A plus for produce
Despite the many challenges revealed by the FMI survey, opportunities still abound, particularly in fresh produce.
“A major trend that has emerged from the pandemic is that shoppers who are looking for fresher, healthier, more convenient options are spending more time in their grocery stores,” said Sarasin.
The trend is driving retailers to differentiate from the competition in a variety of ways. Ninety percent of survey respondents said they were expanding local assortments, 81% said they were focused on product innovation and new items, and 81% also reported enhancing their store’s organic assortment.
Additionally, the survey found that 75% of grocers offered fresh prepared foodservice programs last year, and 82% of those plan to increase the space they have allocated to fresh grab-and-go products. Sixty-four percent of grocers reported they are increasing space allocation for plant-based foods and 70% said they are expanding their fresh produce departments.
