FMI Study: The biggest problems affecting grocery retailers are theft and fraud
Although supply chain, transportation, labor and out-of stock problems have eased for food retailers, another major issue impacting profitability is on the rise.
The number one challenge currently facing the industry has become asset protection, with 85% of food retailers citing increasing theft and fraud as the biggest problems negatively affecting business, according to the Food Industry Association’s (FMI) annual research analysis, “The Food Retailing Industry Speaks 2024.”
Additionally, two-thirds (64%) of retail respondents cited societal challenges, including a lack of civility, drug use, and violence, as issues that negatively impact operations. (FMI's Asset Protection Survey found that more than 80% of retailers have plans in place to address many of these challenges.)
In other findings, the uncertain economic outlook is not preventing grocery retailers from investing in innovative strategies to improve customer experience and increase growth, with the top initiative being experimenting with in-store technologies to enhance the shopping experience (81%).
Technology is also playing a bigger role in the grocery shopping experience, with 41% of food retailers reporting using artificial intelligence (AI) for parts of their businesses — nearly doubling year-over-year.
The 75th annual report surveyed food retailers’ and suppliers’ 2023 developments and expectations for the year ahead, finding that while the industry made key strides in addressing longstanding labor and transportation capacity issues, inflation and other financial hurdles caused industry profit margins to fall to pre-COVID-19 pandemic levels.
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 that have plagued the industry. The percentage of retailers emphasizing negative impacts from trucking/transportation challenges declined from 79% to 35%, while suppliers noted a decline from 72% to 58%.
By addressing these persistent supply chain issues, retailers also reported a dramatic drop in out-of-stock rates, falling from 10.7% in 2022 to 6.5% in 2023, which is even lower than the typical historic rate of 8%.
Other insights from the FMI report are below.
•Food retailers and suppliers also note the negative impacts of inflation and the increasingly complex regulatory environment on net profits. Food retailer profit margins fell from 2.3% in 2022 to pre- COVID-19 pandemic levels of 1.6% in 2023, with both retailers and suppliers anticipating that operating costs will increase in 2024, leading just 13% of food retailers to believe their profits will increase this year.
•Retailers and suppliers report employee retention, another persistent hot-button issue for the industry, improved in 2023. Food retailers and suppliers offered more positive feedback about their ability to recruit and retain quality talent, with average turnover rates for food retail employees falling slightly from a historic high of 65% in 2022 to 58% last year.
•Retailers are responding to changing consumer habits by increasing in-store space for freshly prepared grab-and-go items (79%) and carrying more private brand items (67%) and locally-sourced foods (57%).
•Sixty-five percent of retailers also expressed concerns that inflation and economic challenges will change shopper behaviors.