5 Retail & Consumer Products Trends to Watch in 2022

#1 Shifts in Channel Demand 

As has been well documented, the pandemic accelerated technology investments for both retailers and consumer products companies as each was forced to “find” a way to meet consumer/shopper demand outside the traditional store. For retail, the omnichannel concept moved from cool buzzword to reality for most traditional retailers in the last 4-5 years so were relatively prepared from a channel perspective. Most had never had to close stores or use stores as shipping warehouses and for many traditional retailers, the ecommerce channel grew separate from the traditional retail POS channel fueling operational challenges during the pandemic.

Many digital-native ecommerce retailers were positioned to quickly take on additional demand. What most were not prepared for was the scale, scope, and demand for personalization capabilities, new analytics views and insights, and supporting infrastructure to handle excessive volume and demand shifts. Also, for many in the grocery sub-segment, technology investments in ecommerce were behind those of traditional retail – and were forced to quickly accelerate as well as leverage partners like Doordash, Shipt, and Instacart.

What about CPG? In 2021, direct-to-consumer investments were top of mind allowing CPG brands to market to and sell directly to consumers. From a P&L standpoint, many CPGs don’t find their DTC channel to be highly profitable (e.g., the cost to ship a two-liter of diet soda vs. revenue from the sale). This dilemma usually occurs because the brand hasn’t designed products specifically for the ecommerce channel. Instead, they sell existing retail channel products in the DTC channel, and high packaging and shipping costs erode margins. In 2021, the DTC interest decreased, or shifted, back to a hybrid of in-store and online/ecommerce and forced many CPG brands to reconsider the costs of handling small quantities to meet DTC demands. Investment in ecommerce increased as CPG brands continued to look for new channels to drive volume.

In 2022, count on increased CPG investment in ecommerce, personalization, service (e.g. customer contact center), and new technology to support channel go-to-market logistics. For retail, expect retailers to accelerate investment in harmonizing disconnected operational systems, customer experience (linking online and in-store), and omnichannel fulfillment as shopping across various channels continues to grow and evolve.

#2 Shifting Consumption Occasions

With many employees working from home and more employers embracing hybrid work models, breakfast and lunch are becoming important innovation battlegrounds for CPG and grocery retail as highlighted recently by Nestle. Building on this idea, a report from Acosta found that 47% of adults have eaten breakfast and lunch at home every day since the pandemic began, compared to 37% for breakfast and 26% for lunch pre-COVID. As a result, consumers are looking for greater at-home breakfast and lunch options. Also, remote work is “stirring up” coffee routines, powering an interest in at-home coffee products and experiences; also a new set of retail products for grocery in the self-service coffee category.

What about snacking?! According to a report from The Hartman Group, more than 35% of consumers report snacking more often now than one year ago, with snacking occasions accounting for 48% of all food and beverage occasions.

And for many younger consumers, they are looking for plant-based, dairy-free, better-for-you options – at home.

If you consider the consumer “schedule” shifts in breakfast, lunch and snacking, retailers must be prepared to offer products to meet these growing consumer occasions by setting the store to appeal to the shopper looking for these products (including rack placement, merchandise planning, bundling, advertising, shifting space away from traditional brand laggards, and promoting on shelf).

In addition, CPG brands must shift as related to price, package, and even core product to meet these demands (in addition to traditional shopping patterns). With these shifts, there are new occasion sizes and formats (e.g. bundles, grab-and-go, deli buy-withs, and impulse). These trends are opening the door to new food and beverage brands that are digital natives and focused on these consumption occasions as consumers are eager to test/sample and find new brands (e.g. oat milk, dairy-free creamer, cauliflower pizza, etc). In some ways, these entrants are creating new food and beverage categories. Expect M&A to pick up in CPG in the next 12-18 months as legacy brands look for new growth through these new category entrants.

#3 AI in Retail and CPG

A Juniper Research study found that investments in artificial intelligence (AI) in the retail sector are growing with each passing year, so much so that global retail spending on technology will reach $7.3 billion annually by 2022. It’s easy to see those investments trending upward during this year as retail businesses accelerate their AI implementations to catch up with new consumer habits. AI can be used for predictive analytics and allows retailers to offer customized experiences both online and in-store. AI can help with data analysis to better understand customers and provide the experiences retail clients are now demanding. Furthermore, in retail, AI is driving new methods of inventory optimization, workforce management, planogramming. and price compliance.

On the CPG side, AI is out of the lab and being used by CPGs to enhance consumer experiences, media buying, forecasting, and smart products. AI works by combining large amounts of data and computing power to automatically learn patterns and solve otherwise intractable problems like image recognition. AI allows CPG manufacturers to manage contract compliance, convert in-store shelf images into data and insights, enable category planning, and price/package/promotion execution. Other examples of where you can expect to see AI investments in 2021 include product/content recommendations, fraud in e-commerce, ad creation/programmatic, contact center (chatbots, transcoding, translation), document analysis and search, demand forecasting, inventory optimization, predictive maintenance, and manufacturing defect detection.

#4 Supply Chain and Operational Resilience

When you read “supply chain,” depending on whether you are a retailer or CPG manufacturer, and depending on your role in the organization, your definition of the supply chain problem, operational resilience opportunity, or digital enablement capability will differ.

Regardless of your role, supply chain is in focus for both retailers and CPG manufacturers. In fact, in 2021, digital supply chain and manufacturing capabilities are the top solution priority for the vast majority of worldwide customers I work with followed closely by ecommerce, and analytics (including AI/ML).

Areas of focus for 2022 for both retail and CPG include new forecasting methods leveraging additional data types and advanced analytics, leveraging Internet of Things (IoT) in store, on shelf, and around the store; and on the manufacturing side in consumer products, manufacturing facilities, warehouses, and distribution centers. 5G will indirectly influence both industries with greater adoption of IoT. These always-connected sensors relay huge amounts of information, which can be processed, analyzed, and used to develop better processes, products, in-store inventory, and customer engagement.

Expect continued system and technology investment in this space – from big tech and small niche boutique tech providers in 2022 — and look for new industry opportunities for data sharing and collaboration between CPG manufacturer and retailer. This collaboration will enable better planning, improve forecasting, facilitate trade program execution and compliance, enable better in-stock conditions, improve communication between retailer and CPG manufacturer, and bring new innovation faster to the digital or physical shelf.

#5 Sustainability

According to the 2019 UNGC-Accenture CEO study, 99% of CEOs from large companies think sustainability issues are important to the future success of their business. Thus, retail and CPG companies are setting (and most have already set) their own sustainability strategies. Sustainability is also important to company employees, 86% of whom say they will more likely work for a company that stands up for environmental, social, and governance (ESG) issues.

So where does sustainability fit into the concept of ethical commerce in retail and CPG? To define ethical commerce, we need to look at the history and variety of terms used. The four key concepts are corporate social responsibility (CSR), sustainability, fair trade, and environmental, social, and governance (ESG). The first response to business ethics was CSR, a self-regulating business model designed to be socially accountable to stakeholders. CSR often resembles philanthropy, giving to worthy causes on a large scale.

Sustainability focuses on meeting the needs of the present without compromising future generations’ needs. However, the term sustainability is often attributed to environmental issues.

Another concept is fair trade which helps producers in developing countries receive a fair price for their products. The goals of fair trade are to reduce poverty, treat workers ethically, and promote environmentally sustainable practices; however, the term is often used to describe social, or human rights, issues.

ESG is an evolution of CSR with a metrics-driven set of standards. Environmental criteria protect the natural world; social criteria protect employees, suppliers, customers, and communities where the company operates; and governance includes company leadership, executive pay, audits, internal controls, and shareholder rights. A Harvard study shows that companies achieve the highest stock returns when they focus on material ESG issues, defined as industry relevant and directly related to operational and financial performance. ESG is not a philanthropic effort of “doing good” with leftover profits but a metrics-driven approach with long-term business strategies, or “doing well by doing good.” For retail and CPG, ethical commerce is a practice that focuses on both environmental and social issues directly related to operational and financial performances.

Demand increases for enterprises through earning consumer preference by achieving ethical commerce goals. Research shows a correlation between ethical commerce and financial performance. A Harvard study found that firms that adopted ethical commerce policies earlier than their peers outperformed over the long-term in the stock market (23% higher stock price over 17 years). Enhanced ethical commerce performance often leads to better financial resources, higher-performing employees, better marketing of products, and reduced consumer price sensitivity. Additionally, costs are reduced through positive factors such as innovation, waste reduction, economies of scale, and qualification for government credits or tax benefits.

For example, a Harvard study on pollution reduction attributed the link between environmental and financial performance to future cost savings by increasing efficiency, reducing compliance costs, and minimizing future liabilities.

Companies that are not taking an aggressive ethical commerce approach will continue to face more significant risks. Research from the Journal of Applied Corporate Finance says, “companies with a weak ESG proposition saw double-digit declines in market capitalization in the days and weeks after missteps came to light.” Companies that do not have a strong ethical commerce stance face the risk of new costs and constraints, such as emissions or single-use plastic regulations, and will have to catch up.

In summary, incorporating ethical commerce has become table stakes and successful retail and CPG companies moving forward will need strong ethical commerce strategies in 2022.

Justin Honaman is Head, Worldwide Consumer Products at Amazon Web Services, and a member of the CGT/RIS Executive Council: [email protected].

This was originally published on RIS News. 

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