Food Industry Makes Headway On Tackling Current-Day Challenges
As the food industry works to deal with various issues such as inflationary challenges and asset protection, key players are also instituting new strategies to modernize the grocery shopping experience, according to a new report from FMI – The Food Industry Association.
The organization’s The Food Retailing Industry Speaks 2024 report, revealed the industry has made strides in addressing labor and transportation capacity issues, inflation, and other financial hurdles that caused profit margins to fall to pre-pandemic levels.
Retailers and suppliers reported significant declines in the negative impacts of supply chain and transportation capacity issues that have plagued the industry. The percentage of retailers emphasizing negative impacts from trucking/transportation challenges declined from 79% to 35%, while suppliers noted a decline from 72% to 58%.
By addressing these persistent supply chain issues, retailers also reported a dramatic drop in out-of-stock rates, falling from 10.7% in 2022 to 6.5% in 2023, a figure that is lower than the historic rate of 8%.
“The food industry continues to demonstrate its collective resilience and adaptability in solving persistent transportation and employee turnover issues so it can focus on operational efficiencies,” said Leslie G. Sarasin, president and CEO of FMI. “Inflationary pressures and other challenges continue to squeeze profit margins, but even these obstacles do not stop the industry from its investment commitments to sustainability, emerging technologies, and marketing and modernization strategies that improve the in-store shopping experience.”
Retailers and suppliers report employee retention improved in 2023. Food retailers and suppliers offered more positive feedback about their ability to recruit and retain quality talent, with average turnover rates for food retail employees falling slightly from a historic high of 65% in 2022 to 58% last year.
As supply chain, transportation, and labor pressures eased, the number one challenge currently facing the industry has become asset protection, with 85% of food retailers citing increasing theft and fraud as the biggest problems negatively affecting business. Additionally, two-thirds (64%) of retail respondents cited societal challenges, including a lack of civility, drug use, and violence, as issues that negatively impact operations. However, despite these concerns, FMI's Asset Protection Survey found that more than 80% of retailers have plans in place to address many of these challenges.
Retailers and suppliers also note the negative impacts of inflation and the increasingly complex regulatory environment on net profits. Food retailer profit margins fell from 2.3% in 2022 to pre-pandemic levels of 1.6% in 2023, with both retailers and suppliers anticipating that operating costs will increase in 2024, leaving just 13% of food retailers to believe their profits will increase this year. Also, 65% of retailers expressed concerns that inflation and economic challenges will change shopper behaviors.
Although concerned about possible economic challenges, there continue to be investments in innovative strategies to improve customer experience and increase growth. Top initiatives include experimenting with in-store technologies to enhance the shopping experience (81%). Retailers are also responding to changing consumer habits by increasing in-store space for freshly prepared grab-and-go items (79%), carrying more private brand items (67%), and carrying locally sourced foods (57%).
Technology is also playing a bigger role in the grocery shopping experience, with 41% of food retailers and 69% of food suppliers reporting using artificial intelligence (AI) for parts of their businesses—the retailer usage percentage nearly doubling year over year. Food industry companies are often using AI for assortment planning and replenishment, as well as supply chain logistics.
