Retail Trends 2023: Strategic focus now critical to be competitive

Barry Grange CEO, Retail Express

2022 was a difficult year. Though sales percentages were up almost across the board in the grocery sector, retailers spent the year battling rampant inflation, frequent supplier price increases, rising energy costs, and numerous other economic challenges. Customers felt the pinch deeply, meaning retailers were forced to fight, wherever possible, to prevent passing on additional costs.

Sadly, the picture going forward looks even more bleak. In 2023, hedged rates on energy prices will expire, causing suppliers’ costs (and, in turn, prices) to multiply – to the point where additional costs to retail can no longer be readily absorbed. Those same price hikes will affect the cost of running stores, which means that pressure is building, and the valves holding back consumer price increases will have to be opened at perhaps the worst possible time.

The state of the market 2023-25

Customer confidence is deemed to be at its lowest level for 50 years[1]. Even when interest rates and price hikes settle, confidence will take time to rise again. The truth is that the current crisis will not end in 2023, or even 2024. Retailers must look forward, making significant operational alterations which can take them to 2025 and beyond. If they remain reactive, if their focus is trained solely on firefighting, it’s likely, for some, that they may not survive.

Restructuring to meet increasing demand is a necessity which requires long-term strategic change in every pillar of the business. Retailers must buy better, tighten logistics and distribution, improve selling tactics and market positioning, making their ‘go to market strategy’ fit the new norms, all while building systems which allow them to be more agile and flexible as conditions demand.

Building a strategy to remain competitive

There is a reason that businesses that operate in line with a deep discount business model are experiencing significant growth, averaging over 20% per annum[2]. This model, accompanied by a persistent investment in their ‘go to market strategy’, has helped deep discounters excel in these exact market conditions. Over time, these businesses have worked to offer a wider range of higher quality products and stronger service. Long term strategy has enabled  them to compete with major supermarkets without sacrificing their core model.

The typical response to tightening margins is to reduce investment, which makes logical sense on the surface. But slashing wildly at resources is a short-term fix with long-term ramifications. A company cut down to bare bones will lose its ability to fight and may also lose its attractiveness to customers. The key, instead, is to consider the way the market is changing and to invest whatever it takes to position the business to be effective in this changing retail landscape – the loss of market share during 2022 and 2023 to the deep discounters is probably lost forever.

New Retail AI horizons

Consumers are typically switching downmarket, steering away from premium brands in favour of lower cost alternatives. They are making more frequent shopping trips but filling smaller baskets, as fluctuating prices meet a lack of awareness of how much they will safely be able to spend. Investing capital in positive change is the correct course of action. Done right, strategic restructuring will quickly earn that capital back, and keep the business on track to best serve its customers’ changing needs.

A broad overview is essential, though proper change management involves launching focused projects aimed at generating different ROIs across all aspects of the business. Knowing precisely how the business operates from top to bottom is the key to implementing process redesigns, spotting current and future trends, and implementing analytics and automation technology, increasing competitive advantage. Cutting-edge merchandising software signals a new dawn for the retail industry with AI a powerful ally.

Retailers now need to look at the next two years as a period of opportunity; a time to become leaner and smarter through forecasting, planning and better execution. If this crisis can be the catalyst which causes the business to intelligently refocus, optimise, and enter 2025 ready for what could potentially be a significant economic upturn, retailers who take heed will be glad they invested today and throughout 2023.

[1] https://www.ft.com/content/d074c31c-1f14-43c1-9ae4-320fa7b854f8

[2] https://www.statista.com/statistics/386763/aldi-sales-percentage-change-great-britain-uk/