While the last five years have been a roller coaster of changes for the CPG industry, the magnitude of disruption is nothing compared to what is to come in the next three years, John Carroll, president of connected commerce at Acosta Group, said at Groceryshop in Las Vegas last month.
He explained the practical applications of AI will revolutionize operations, retail media networks will force new ways to connect with consumers, and a flurry of mergers and demergers will alter the competitive landscape – requiring brands and retailers to rethink their marketing strategies to be more collaborative and embrace new technology.
“There is a lot of change going on because of our refocus as an industry on growth and getting back to growth. And when I say growth, it’s not just dollar growth, revenue growth, value growth, it’s also unit growth,” Carroll explained.
He noted for decades industry stakeholders could rely on a steady 2-3% growth rate per year based on a combination of volume, price and package mix. But since inflation gripped the nation during the pandemic growth primarily has come from price while units stagnated – not ideal, but growth is growth.
That’s changing, though, he warned.
“In the last I’d call it six weeks, if you look at Nielsen and Circana [data] we’re seeing some significant declines, not only from a unit perspective, but also from dollar perspective,” he said. “There needs to be a change to get back to a growth algorithm that works for the retailer, that works for CPGs, and then obviously is on behalf of the consumer and the shopper.”
How are grocery shoppers using AI?
One way retailers are driving growth is by adopting artificial intelligence to help consumers build shopping lists and more quickly add items to their carts. They also are leaning on AI to improve efficiency within business operations.
An Acosta survey of more than 1,000 US shoppers found a whopping 99% of shoppers are aware of AI and 70% use AI tools or features in the purchase cycle – either when searching for a product or actually buying it.
While this engagement is promising, Carroll notes consumers may not be using the specific tools that industry stakeholders want them to use.
He explained most consumers currently are more likely to use mainstream AI tools, like ChatGPT or CoPilot, to support their shopping rather than retailer specific tools, like Walmart’s Sparky or Amazon’s Rufus.
“Our study found that only 14% to 15% of people were even aware of Spark from a Walmart standpoint or Rufus from an Amazon standpoint,” he said. “It is not that they are bad programs. They are very good programs. So, I think part of it is an awareness thing and a comfort thing.”
No matter which tool consumers use, how they engage with AI is different than how they engage with other marketing tools, Carroll said. He explained consumers are not use AI to find specific products, but rather ideas, recipes and menus with shopping lists.
“This is not performance market search anymore. This is AI having a conversation with the shopper and the consumer that is really leading to a very different way of shopping and buying,” he said.
From an industry perspective, Carroll said he sees retailers increasingly adopting AI to implement top-down strategies to boost supply chains, sales planning and marketing.
Retail media 3.0
Another way retailers – and brands – are driving growth is by working more collaboratively to finetune emerging retail media marketing to better engage consumers.
Whereas retail media networks used to be siloed, Carroll said he sees stores and brands working together to incorporate retail media into the joint business planning process with the ales team, merchants and shopper marketers. They are considering the benefits and goals from the standpoint of the category, brand and shopper, now, he added.
One reason they are doing this is because many of the legacy in-store tactics, such as displays, are not as effective as they were before inflation became entrenched.
“We are seeing retail media tactics that are really effective when it comes to targeting the shopper, getting the right offer to the right shopper at the right price, that are getting really good returns on investment,” Carroll said.
He noted that not all retailer media networks are created equally. Amazon, Walmart and Target all much stronger from a sales standpoint that many smaller retailers, but regional players may be more willing to collaborate with local brands to bring a great program to life, he said.
Brands and retailers can also use AI to boost sales by dropping consumer reviews into a language model to come back with a description of their core consumer and how best to reach them, he added.
Relationships sit at the center of AI
For AI to most effectively help the industry grow, stakeholders need to rethink their relationships, which may include reconfiguring businesses through mergers and demergers, or through more intentional joint business planning.
“The days of walled gardens and keeping data to yourself need to be over in order for AI to work well – it needs great data,” Carroll said.
One way that retailers and brands can come together to safely share data and leverage AI is through clean rooms, which Kellanova recently used with great success to boost sales of its snack brands.
Carroll added collaboration and join business planning that enables technology is “the secret of how we can better work together.”