Industry Names Challenges, Strategic Investments

The food industry is investing in strategies to modernize the grocery shopping experience while dealing with asset protection concerns and inflationary challenges, according to The Food Industry Association (FMI) report The Food Retailing Industry Speaks 2024.

The report surveyed food retailers’ and suppliers’ developments and expectations for 2024, finding that while the industry worked to address labor and transportation capacity issues, financial hurdles, including inflation, caused industry profit margins to fall to pre-COVID-19 pandemic levels.

“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 FMI president and CEO Leslie G. Sarasin in a statement. “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.”

The report found large operational improvements across the board. Both retailers and suppliers reported significant declines in the negative impacts of supply chain and transportation capacity issues. Retailers said trucking/transportation challenges declined from 79 percent to 35 percent. On the other hand, suppliers noted a decline from 72 percent to 58 percent.

By addressing supply chain issues, retailers also reported a drop in out-of-stock rates, falling from 10.7 percent in 2022 to 6.5 percent in 2023, even lower than the typical historic rate of 8 percent, according to FMI.

As supply chain, transportation, and labor pressures eased, the number one challenge currently facing the industry has become asset protection, with 85 percent of food retailers citing increasing theft and fraud as the biggest problems negatively affecting business, according to the report. Additionally, roughly two-thirds of retail respondents cited societal challenges, including a lack of civility, drug use, and violence, as issues that negatively impact operations.

Inflation continues to eat into net profits. Food retailer profit margins fell from 2.3 percent in 2022 to pre-pandemic levels of 1.6 percent in 2023, with retailers and suppliers anticipating that operating costs will increase in 2024. Only 13 percent of food retailers believe their profits will increase this year.

Sixty-five percent of retailers also expressed concerns that inflation and economic challenges will change shopper behaviors.

Key findings from the report also include insight into where supermarket investments are going. Top initiatives include experimenting with in-store technologies to enhance the shopping experience, increasing in-store space for freshly prepared grab-and-go items, and carrying more private brand items and locally sourced food.

Technology is also playing a bigger role in the grocery shopping experience, with 41 percent of food retailers and 69 percent of food suppliers reporting using artificial intelligence for parts of their businesses—the retailer usage percentage nearly doubled year over year, said FMI.