The food industry continues to face numerous disruptions – rising supply chain costs, labor and raw material shortages, geopolitical conflicts, changes in consumer behavior and expectations, and the ongoing cost of living crisis.

Today's grocery retailers must transform to meet these disruptions and meet consumer demands. If managed well, today's challenges can present new opportunities for food and consumer products companies to maintain profitability and meet consumer demands.

Lindsey Mazza, global retail leader at Capgemini, examines some of the trends that will shape the food industry in 2023 and how companies can remain resilient and thrive in tough economic times.

1. Reduced overall expenses

As the impact of rising costs becomes more apparent, consumer spending will decrease. The Capgemini 2023 Consumer Trends report found that nearly half (44%) of consumers will reduce their overall spending in 2023, and 61% are concerned about their financial situation.

Food prices are at an all-time high due to global inflation and, according to the World Bank, are unlikely to stabilize until 2024. Capgemini research showed that 64% of shoppers opt for products from hypermarkets and discount stores, and 65% prefer more. affordable private labels or budget friendly brands to meet these challenges.

When times are tough, consumers expect retailers to help by offering everyday essentials at affordable prices, and this is reflected in the report, with 67% of consumers saying brands and retailers should offer lower prices for the products of their families.

2. Operational transformation will be key

Retailers will need to rethink their operational strategy to achieve cost reductions in a way that meets changing consumer expectations for experience, durability and affordability. In addition to meeting consumer expectations, this will enable companies to address key challenges such as rising energy costs and labor shortages.

Technology can be a key tool for transformation. By establishing intelligent demand planning and automated warehousing and fulfillment operations, companies can improve operational efficiency, preserve margins and reduce costs.

An integrated supply chain, enabled by artificial intelligence, can transform the function from a cost center to one that increases agility, improves scalability and generates greater transparency within the organization. It can also provide information that enables more efficient resource management that boosts sustainability efforts.

When used effectively, technology allows companies to offer products at affordable or even discounted prices at a time when consumers need it most. This is something that will go a long way in terms of customer loyalty and giving companies a competitive edge.

3. Digital focus

To compete and adapt in the face of continuous disruption, digital will need to be prioritized so that it is at the heart of operations. From long-term planning to real-time execution, technology-enabled operations can help organizations become more agile and quickly adapt to customer needs, a key differentiator.

Digital solutions allow organizations to tailor promotions to meet the needs and expectations of their customers and also improve fulfillment options such as curbside pickup and home delivery. Stores are empowered and able to create personalized customer touchpoints and develop newer, more sustainable business models that align with brand purpose.

The benefits of digital are many, but ultimately it is a key factor in driving customer loyalty.

4. In-Store Experiences and Fulfillment Options

In-store shopping has increased in some supermarkets, but it is clear that fast delivery is increasingly important to the consumer experience.

According to the Capgemini 2023 Consumer Trends report, 43% of shoppers said delivery and fulfillment are the most important service attributes when buying groceries. On average, consumers are willing to pay an additional 3.3% of the order value for a two-hour grocery delivery.

As a result, grocery stores will benefit from redirecting effort towards the renovation of their physical stores, and retailers will see the value of investing in last mile delivery.

By taking an innovative approach to the brick-and-mortar store, brands can deliver memorable shopping experiences that will drive consumer loyalty and help create a unique brand identity that sets them apart.

5. Consumers expect improved service

There is an interesting relationship between the perceived value a brand provides and how consumers will interact with that brand. According to our research, 45% of consumers have ordered directly from brands, and 48% are willing to share personal data about how they use their products with them.

However, consumers demand better products and meaningful experiences in return. As we've seen, people are willing to pay you for convenience, expert guidance and services that are tailored to them.

6. Seamless omnichannel experiences

Online shopping is not a new trend, however we are seeing greater "discovery" through online channels. Our research found that 32% of consumers found a new brand or product through social media, and this rose to 48% for Gen Z in particular.

Retailers are therefore challenged to offer complete, complementary in-store and online shopping experiences rather than existing in silos.

About 70% of consumers who buy products through social media reported that they trust the personal experiences and reviews of influencers. This represents a new opportunity for brands and retailers to connect with customers, unlock new revenue streams and take advantage of growth opportunities.

Brands are likely to redirect their marketing budget to social channels to take advantage of this trend and unlock the potential of digital influencers to reach new markets.

7. Retailers will test multiple channels and cross-sell

When an organization operates as both a business-to-business (B2B) supplier and a business-to-consumer (B2C) retailer – the B2B2C business model – it can collect valuable customer data to inform its product sales strategy through the most effective channels at the right time.

The continued growth of online sales means the food industry will look to new and emerging channels such as social retail, livestreaming shopping or even the metaverse. As a result, we will see companies increase advertising spend on their websites, apps and in-store creative concepts in collaboration with brands to encourage cross-selling.

8. Connected products are set to continue to grow

Brands are increasingly connecting products and services to provide customers with a differentiated connected experience. This not only increases customer loyalty, helping to create a more effective customer relationship, but also creates new revenue streams.

Capgemini research shows that around 43% of consumer products companies expect more than 20% of their revenue to come from connected products and services.

9. Affordable sustainability

Sustainability continues to be an important factor for consumers when deciding which retailer or brand to shop with, but as Capgemini research shows, only 41% of consumers worldwide are willing to pay a premium for the products they charge to be durable.

It is imperative that brands and retailers reevaluate their pricing strategies to provide consumers with sustainable options that are also affordable.

On this front, artificial intelligence and other technologies can enable more accurate forecasting of demand, leading to lower energy consumption, reduced waste and lower labor costs.

10. Sustainable management

Purpose-driven organizations have a competitive advantage and can build more effective relationships with consumers. Companies that go beyond sustainability to focus on fair trade, social justice and circularity tend to win long-term customer loyalty.

Capgemini is seeing greater interest from organizations in circularity and practices that move away from the "take-to-make-waste" model.

Successful companies focus not only on generating profits for their shareholders, but also recognize their responsibility to deliver value to all stakeholders – employees, local communities or society at large.

Its research shows that seven out of ten consumers want to adopt circular practices and are increasing their spending on companies that focus on recycling, reusing it also has waste reduction.

Not surprisingly, merchants and retailers are expected to face numerous major challenges in the coming year. However, these consistent disruptions – at every stage of the value chain – present new opportunities for grocers to rethink, rework and retool the way they do business.

The food industry will need to transform its operational strategy to future-proof its businesses and pass on cost savings to customers, reaching target audiences through new channels and offering sustainable products at affordable prices.