McKinsey recommends grocers look at five trends to help make decisions throughout the rest of 2023.
In its latest research, titled “The State of Grocery in North America 2023,” McKinsey & Co. is taking a deep dive into where food retail currently stands, as well as five trends that will shape the industry for years to come.
McKinsey has identified several dominant themes grocers should keep an eye on for the remainder of the year, including increased economic pressure driven by inflation, increased digital engagement, additional pressures on profitability, continued upheaval in the labor market and an increasing focus on sustainability as part of core business operations.
When it comes to digital engagement, McKinsey’s grocery consumer survey found that convenience, in the form of time savings, delivery and more, was the overwhelming draw for online channels. However, consumers cited several obstacles, including high delivery fees and a preference for personal contact with products in store. “Grocery retailers would likely need to enhance the online experience to boost e-commerce penetration further,” the study stated.
Major trends shaping the grocery industry in 2023 and beyond include:
1. Ongoing pressure to deliver value to consumers
With spend reduction being a priority across all income groups, 44% of consumers are planning to buy more private brands, and 73% of consumers report that discounts have become more important in their grocery shopping decisions compared with a year ago.
“In addition, retailers that create unique experiences and provide greater convenience will be positioned to compete on more than price alone,” the study stated. “Identifying what consumers value most and offering flexibility (for example, options for smaller pack sizes) will be critical to this effort.”
2. Elevated personalized experience across channels
“Consumers have come to expect a consistent, seamless, personalized experience across the entire journey, making omnichannel no longer a 'nice to have' but a critical offering,” the study found. “The nature of omnichannel retail has changed dramatically over the past several years.”
According to McKinsey, the most successful grocers will continue to invest in personalization and omnichannel capabilities to attract, engage, retain and deliver value to customers. Grocers should also use purchase history to inform product offerings.
3. Broader business diversification
Creating new revenue streams and expanding ecosystems is more important than ever in grocery. Many retailers are entering new categories, developing new sourcing strategies, expanding into consumer services, and selling B2B services that harness their strengths, according to McKinsey.
“Grocery retailers have an attractive set of options for strategic expansion,” the study said. “As margin pressures persist, they should identify growth areas beyond the core to build a broader ecosystem of services and offerings that expand the consumer value proposition, build capabilities, and improve the financial profile of the business.”
4. Acceleration of generative AI
While McKinsey found that 85% of retailers have experimented with new technologies to improve the customer experience, and 35% of suppliers are using AI to better harness customer data, generative AI has the potential to add $2.6 trillion to $4.4 trillion annually to the global economy across more than 60 use cases, including many in retail.
“Grocers should consider developing plans to harness generative AI to transform their business, capture more value, and accelerate growth opportunities,” the study found. “As a first step, grocers could prioritize relevant use cases — in part by tracking their relative level of adoption among competitors.”
5. Sustainability as a driver of the top and bottom lines
Amid growing disruption, McKinsey recommends that grocers prioritize sustainability now to ensure longer-term success. “For example, switching to renewable energy and forming coalitions to meet recycling goals could improve energy stability and waste management, respectively, while generating returns for grocers over the coming years,” the study stated.
Additionally, McKinsey laid out a series of questions grocers should be asking themselves as they head into 2024:
What steps can we take to enhance the focus on value perception, including the role of private brands in increasing value to the consumer?
How can we create a seamless omnichannel experience to deliver a personalized offer and messaging at the right time and in the right place?
What growth areas beyond the core can broaden our ecosystem of services and offerings to provide more value to customers and build capabilities for the business, and how can we reimagine the operating model for long-term profitability?
Which generative AI use cases should we prioritize, and how do we create a test-and-learn culture to get the most out of this technology?
What actions do we need to take to accelerate our transition to renewable power, establish recycling solution coalitions with other grocers, and amplify messaging around ESG-related claims?