How to Develop a Future-Proof Retail Execution Strategy

Successful retail execution requires ensuring that the right products are on the right shelves at the right time in the right quantity. The data and logistics involved in that process have never been simple, but they are now facing a level of disruption last seen in the early days of the 2020 COVID-19 pandemic as tariffs and fears of an economic downturn cause widespread uncertainty for companies and consumers.“CPG companies are trying to guess what’s going to happen,” PwC partner Carla DeSantis tells CGT. “Some consumers are stockpiling nonperishable goods. Some are considering what perishables they can continue to buy and afford.”Americans are putting off major purchases because of tariffs, and the uncertainty is so great that many companies have opted not to release financial predictions. Still, brands can navigate the volatility by following a playbook that mixes old-school relationship building with cutting-edge technology.1. Don’t panic, but plan for the futureCPGs have been preparing for the potential impacts of tariffs since November, with brands such as Yeti and E.l.f. Beauty working to move some of their manufacturing outside of China, while Diageo constructed a new manufacturing and warehousing facility within the U.S. However, companies should be tactical about their response, as reacting to the latest news can be a waste of resources, given how quickly tariff policies have changed.“Whatever your solution is, do it for future purposes, don’t do it in response to the tariffs or a risk scenario that you’re not even sure is going to pan out unless it’s in service of your strategy,” DeSantis says. “Your strategy may have to change a bit given all the circumstances, and that’s okay too.”Tariffs are exacerbating problems that go back to the spike in inflation during COVID, which added financial pressure to consumers already coping with stagnant wages. Companies that used the last crisis to make their business operations stronger are better poised to deal with the latest disruption.Some companies had begun to roll back the strategies they adapted during COVID, particularly portfolio rationalization, but have had to change course again in the past six to eight months as they try to find the best path to sustained volume increase, profitability and growth. Brands need to be clear with consumers about what their product’s value proposition is to ensure their SKUs will still be purchased under inflationary conditions.Beyond tariffs impacting the supply of materials, CPGs and retailers are still grappling with a wide variety of other challenges, including rising egg prices due to bird flu, sustainability considerations, and new advisories at the state and federal level on the removal of food dyes in foods.“This creates a confluence of companies looking at their portfolios to really examine what makes sense and what doesn’t,” DeSantis says. “That can mean divestitures or adjacencies that now look a lot more attractive. It could mean reformulations for better flexibility.”2. Expect more competition from private labelsPrivate label brands were first popularized during the stagflation of the 1970s, and with similar economic indicators, they are likely to get another significant boost from budget-conscious shoppers. Retailers have been making big investments in using their data on shopping trends to roll out new brands and products across categories, with some of these products becoming trip drivers by themselves. In fact, all consumers buy at least some private brands, and 80% of CPG categories by sales have at least 5% private label dollar share, according to Circana. However, private labels produced by overseas contract manufacturers may still be impacted by tariffs, so brands should do their best to reinforce their value proposition.“Assure consumers that the value they’re getting for your product is being maximized to its greatest potential,” DeSantis says. “Tell them about promotions, price changes, volume discounts — anything of that nature.”Price pack architecture is another way to cater to shoppers impacted by inflation who might otherwise trade down. Trial sizes can reassure new buyers, while family-size packs provide value while boosting consumption. Brands should be wary of shrinkflation, which can sour customer sentiment.3. Get rid of manual data crunching“If you haven’t started using AI, you’re behind already,” DeSantis says. “AI lets you take your data, infuse it with market trend data, climate information and macroeconomic data, and put that into a model. You’ll still have to curate it, but it’ll get you there so much faster than an Excel spreadsheet.”Crunching that data is important to finding patterns in chaotic times, ensuring the product is in regions where shoppers are looking to stock up and not sitting in the back of a store that is facing declining trips. Texan grocer H-E-B has made monitoring the weather a key part of its merchandise planning, working with brand partners to manage inventory to prepare for spikes in demand.“We understand that weather doesn’t just influence shopping in extreme weather events,” H-E-B senior product manager for inventory management Randy Bermea said in January at a panel at NRF’s Big Show. “Weather can impact daily shopping, and at a macro level, we can use data to correlate how rainy days might depress demand across specific categories. At a micro level, we can work out how unseasonably warm weather during the winter in Texas might get more people to buy, say, grill items.”Ahold Delhaize USA is using AI to get hourly forecasts on how many items will be purchased in its stores and ordered online in order to keep shelves full and ensure products are delivered on time. During a keynote presentation at Analytics Unite, the company’s vice president of AI and data science, Karin Chu, advised companies looking to utilize AI to develop a strategic roadmap and then start small with the intention of scaling up fast.“Build with a vision of how you're going to scale it, because it’s expensive, and bake in your active user feedback to make your algorithm better,” said Chu.AI isn’t just transforming internal operations but the way consumers shop. Much like brands needed to shift their retail marketing strategy away from relying purely on legacy tactics like in-store displays and circular ads to incorporate emails and social media posts, they now must consider whether they’re being recommended by digital assistants. Investing in technology can provide a competitive advantage. For instance, ScottsMiracle-Gro is seeking to deepen its retail customer experiences with AI assistants accessible through mobile devices that can provide gardening advice. A pilot rolled out to 1,000 field sales reps in October.CPGs and retailers also need to spend more on cybersecurity to protect their operations. Marks & Spencer lost millions of dollars worth of sales each day for more than a week after a cyberattack paralyzed their online ordering systems and inventory tracking systems, leading to empty shelves and significant food waste. Clorox was hit by an IT breach in 2023 that hurt shipping and product availability. That forced the company to double its spending on cybersecurity and invest in a comprehensive digital restructuring that impacts its merchandising, supply chain and customer relations. The company is already starting to see that work pay off and expects the impacts will continue to be felt throughout the next two years.4. Hone those communication skillsRetailers and CPGs should be having more frequent conversations in order to communicate strategies for handling the impact of tariffs and other disruptions and share insights that can benefit their consumers. Retail traffic is down, and U.S. consumers are shifting the channels where they shop, with more looking to secure the best deals from club stores, big-box retailers or online transactions. Brands and retailers that cater to a large number of Hispanic/Latino consumers have been especially hard hit as those communities are being targeted by immigration enforcement, leading to fewer shopping trips and smaller basket sizes.There are several strategies for responding to plunging consumer sentiment, from using promotions to ensure brands stay in baskets to changing prices, and companies should work to choose the best path forward together.“Nobody is saying it would be a great thing if we raise prices,” DeSantis says. “We went into (the 2024 U.S. presidential election) with an affordability problem, and now we’re in a very serious affordability situation with uncertainty wrapped around it. The worst thing CPGs and retailers could do is make assumptions around each other because there is no silver bullet.”

How to Develop a Future-Proof Retail Execution Strategy

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