Grocers in the U.S. and the European Union are facing a new growth challenge as inflation eases in most markets. While rates of inflation remain above the historical norms of developed economies, a downtrend is clearly evident (see chart below) which means grocers must pivot to drive unit volume growth and reduce their reliance on price increases, driving top-line growth.
This is a major shift from recent years when surging inflation created a massive tailwind for sales. However, rampant inflation had various side effects on shopper behavior, including the creation of an unbalanced growth situation that oftentimes saw grocers’ sales increase even as they sold fewer units.
Inflation is expected to ease further in the months ahead although there is uncertainty regarding the size and pace of future declines. As a result, increasing unit volumes will be essential for grocers to restore healthy, balanced growth in an environment also likely to see heightened promotional activity and ongoing loyalty pressures. The following are five effective strategies retailers can employ amid these new market dynamics.
- Capitalize on the acquisition of new customers: Many retailers gained new customers as deal-seeking shoppers expanded the universe of retailers they visited. However, extensive shopper data analysis by SymphonyAI Retail CPG shows very few retailers capitalized on this phenomenon, which contributed to half of their total sales growth and compensated for the shrinking of basket sizes. Even though inflation is easing, retailers still have an opportunity to better welcome, retain and grow engagement with new shoppers. The most effective method of doing so involves taking full advantage of the richness of shopper data to understand specific profiles and needs and develop customer-centric assortments. Armed with this understanding, retailers can use personalized offers to promote repeat visits based on actual spending behaviours and encourage them to shop more broadly by providing incentives on items they don’t buy.
- Disinvest in mass promotions in favor of targeted offers: : An effective combination to grow unit volumes involves redirecting investment into base price and personalized offers to regain customer confidence and loyalty. The key is implementing data-driven decision-making that leverages analytics to identify – and eliminate – underperforming promotions that consistently yield poor results in terms of the impact on sales, margin and shopper satisfaction and loyalty. SymphonyAI Retail CPG data shows between 25% and 40% of all promotional activity is ineffective. It doesn’t need to be that way, thanks to analytics which can rapidly and accurately identify the most effective promotions and determine the optimal overall promotional mix. Streamline and prioritize promotions that have shown positive results, and redirect investment to optimize pricing and personalized offers, targeting specific customer segments. This increases the effectiveness of marketing efforts and maximizes ROI.
- Accelerate the pace of actionable customer analytics: The market is very dynamic, as evidenced in the chart above, which shows how quickly inflation accelerated followed by an equally rapid decline. How much further and faster inflation falls, so-called stickiness, is up for debate, but whatever the trajectory retailers should be accelerating their pace of insights discovery to keep up with the pace of customer change. The ideal frequency can vary by product, category, and department, with a limiting factor being the technological capabilities of the retailer. Ultimately, faster discovery of highly accurate and actionable insights holds the key to growing unit volumes.
- Collaborate with CPGs on customer insights: The need to increase unit volumes and create cross-sell opportunities is a shared goal among retailers and CPGs and thus an ideal impetus to deepen collaborative efforts. Doing so around a data-driven analytics framework will help trading partners co-create value by more effectively serving mutual customers. There are ample opportunities to develop joint category action plans to optimize the use of trade spending to improve promotional effectiveness and grow unit volumes and affinity product sales.
- Store intelligence: Analytics based on shopper data are crucial, but a new type of insights known as Store Intelligence is helping transform retail operations and category management decisions. AI-powered computer vision is helping retailers and CPGs see what is happening in stores in a way that wasn’t previously possible. The increased visibility means on-shelf availability issues can be fixed faster while improving promotional execution and planogram compliance. The net result is that a wide range of execution shortcomings that hinder sales can be identified, prioritized, and resolved faster to further the goal of driving increased overall units.
These five strategies, all of which revolve around increased use of analytics using shopper and other forms of data, put retailers in a stronger position to drive levels of unit volume growth needed to offset further declines in inflation.
Learn more about the effective use of shopper analytics to grow unit volumes and counteract the effects of inflation. Get in touch today!