Easing out of COVID-19’s strain on the global supply chain, shipping capacity is finally looking up. But as inflation climbs and a recession looms, what will the New Year look like? And how can food suppliers, retailers and distributors set themselves up for supply chain success?
Companies will need to closely monitor consumer demand; particularly as economic concerns play out differently across different markets. Demand will shift more quickly than ever thanks to accelerating digitization, so adapting to this speed will be crucial to capture new opportunities. On top of inflationary concerns and quickly shifting demand from consumers, companies will have to counter the global uncertainties affecting pricing and availability in upstream markets.
To transform next year’s supply chain challenges into a competitive edge, retailers and brands need to analyze the incentives and resources of their shoppers while setting up data-driven systems to account for the acceleration of demand and the unpredictability of supply chain disruption.
A tale of two consumers
Just as economists noted what they called a “K-shaped” financial recovery from the pandemic, 2023 will see two groups of consumers emerge. On one end of the spectrum, consumers with more financial flexibility will be willing to spend money on products that match their values and aspirations, prioritizing healthy options and valuing supply chain traceability bolstered by ethical production and sustainable practices. On the other end of the spectrum, many consumers will be increasingly price conscious as inflation persists and a recession looms.
For the second group, saving money and spending wisely will be top of mind, and they will be monitoring for shrinkflation and trading into private labels. In this space, companies should be hyperconscious of how they can optimize their supply chain to offset cost pressures and prevent price increases for the consumer, as that can be enough to turn them away.
For consumer packaged goods (CPG) brands, suppliers, distributors and retailers, it will be increasingly important to understand where their consumers fall between these two poles. If your audience is seeking healthy and sustainable options and is willing to pay more for those features, companies should focus on leveraging sustainable harvesting and low-impact shipping as well as marketing how their products meet the buyers’ priorities. If more of your consumer base is focused on saving money, adjustments in the supply chain to keep prices low will be rewarded above all else.
As individuals navigate life between these two realities, certain segments of the population may experience a shift from one group to the other, depending on their situation. Particularly in light of economic and global supply chain fluctuations, the analysis of these sectors is not static, highlighting the importance for organizations to be able to intake data, draw insights, and respond faster than their competition. Real-time data into purchasing decisions can help companies determine and track where their consumers fall in this new K-shaped landscape, informing what they should prioritize in their own supply chain optimizations.
The increasing speed of demand
The pressures of an increasingly digitized global economy will shape supply chain challenges in 2023. Fueled in part by lockdown, shoppers have become accustomed to ordering groceries online and receiving them within hours. For supply chains, this emphasizes the importance of reducing lead time, becoming more agile with inventory management, and ensuring products are on the shelf stock or able to ship. If you can’t source the product and deliver it to the customer today, someone else will.
In a culture where customers expect near-immediate results, it's not just about predicting what people want and how quickly they want it, but also how long that demand will last. When certain foods suddenly fly off the shelves because of viral videos on apps, CPG brands and retailers’ first reaction might be to increase production or stock on those items. But to be effective in these calibrations, companies must first examine the reasons behind the trend. Is it based on a fad or meme that will soon be buried by pop culture’s lightning turnover rate? Or is the viral food’s spike in demand indicative of a larger and longer lasting behavioral shift?
Digging into the reasons behind a food’s internet popularity and subsequent spike in demand will be crucial for brands to appropriately allocate resources. Foods that trend on social media because of their health benefits, for instance, tend to see a more sustained increase in demand because they support consumers’ overall goals of health and wellness.
Agility in precarious times
The effects of a potential recession and increasingly digitized commerce only become more unpredictable when considering Russia’s war in Ukraine. The war — and its consequences for the European and world economy — underscore the magnitude to which the global supply chain is interconnected. The cost of raw goods is up, and inflation is climbing around the world, both fueled in part by the war’s impact on oil prices and supply shortages.
Facing a buffet of conflicting variables and unknowns, suppliers and retailers need to arm themselves for the new year with data, information and partnerships. Understanding demand will require data to map the decisions of consumers as they navigate life after the pandemic, whether that means being able to spend on ethically sourced fresh foods or buying smaller sizes to save money — or a little bit of both.
While identifying these trends is crucial, it’s equally important to be able to react quickly enough to capture the market shift. Establishing contingency plans and backup partnerships that allow for swift adjustments will be what sets apart those who are successful at navigating supply chain challenges in 2023. And these contingency plans need to be aligned across CPG brands, suppliers, and retailers to have a significant and lasting impact after the initial adjustment. Social media and the internet will drive demand shifts more quickly than ever, making corporate agility crucial. In a world where consumers want their goods the very same day, speed will reign supreme.
While no one can say for sure if the United States will enter a full-blown recession, how long inflation will last, when the conflict between Russia and Ukraine will subside, or even what the next viral food trend will be, real-time data from across the supply chain can be leveraged to mitigate the risk of these conflicting variables as they unfold. The value of this asset — information — will increase exponentially as the speed and unpredictability of commerce accelerate alongside the fragmentation in consumer desires.