A Return to Healthy Balanced Growth

June 26, 2023
By Mike Troy

Five Strategies to Grow Unit Volumes, Regain Loyalty and Increase Seasonal Sales Amid Easing Inflation

A unique growth challenge awaits grocers in the back half of 2023, and it is a situation many in the industry have never experienced. That’s because the rate of food at home inflation is continuing to decline after peaking last summer at double digit levels not seen in 40 years. Surging inflation caused shoppers to pay ever higher prices and it created a massive tailwind that drove retail and CPG sales growth. While inflation made the top line look good, in most cases it came at the expense of unit volumes which either declined or were flat as shoppers adapted by putting fewer items in their cart.

It created an unbalanced growth dynamic that is now in the process of unwinding with food at home inflation continuing to ease. The clear downward trend is evident in monthly government data (see chart below).

Inflation is expected to ease further in the months ahead although there is uncertainty regarding the size and pace of future declines. Whatever the trajectory, increasing unit volumes will be essential for grocers to restore healthy, balanced growth to their business. To do so, there are five key strategies retailers can employ to be effective at growing unit volumes while regaining loyalty with inflation weary shoppers. They include:

  1. Capitalize on the acquisition of new customers: One benefit inflation provided retailers was many gained new customers as shoppers expanded the universe of retailers they visited. However, research by SymphonyAI Retail CPG shows very few retailers capitalized on the gain of new shoppers, which contributed to half of their total sales growth and compensated for the shrinking of basket sizes. Even though inflation is easing, retailers still have an opportunity to better welcome, retain and grow engagement with this new cohort of shoppers. The most effective method of doing so involves taking full advantage of the richness of shopper data to understand specific profiles and needs and develop customer-centric assortments. Armed with this understanding, retailers can use personalized offers to promote repeat visits centered around actual spending behaviors and encourage them to shop more broadly by providing incentives on items they don’t buy.
  2. Disinvest in mass promotions: An effective combination to grow unit volumes involves redirecting investment into base price and personalized offers to regain customer confidence and loyalty. The key is implementing data-driven decision-making that leverages analytics to identify underperforming promotions that consistently yield poor results in terms of the impact on sales, margin and shopper satisfaction and loyalty. SymphonyAI Retail CPG data shows between 25% and 40% of all promotional activity is ineffective. It doesn’t need to be that way thanks to analytics which can identify the most effective promotions and determine the optimal promotional mix. Streamline and prioritize promotions that have shown positive results, and redirect investment to optimize pricing and personalized offers, targeting specific customer segments. This increases the effectiveness of marketing efforts and maximizes ROI.
  3.  Accelerate the pace of customer diagnostics: The market is very dynamic as evidenced in the chart above which shows how quickly inflation accelerated followed by an equally rapid decline. How much further and faster inflation falls, so-called stickiness, is up for debate, but whatever the trajectory retailers should be accelerating their pace of insights discovery to keep up with the pace of customer change. The ideal frequency can vary by product, category, and department, with a limiting factor being the technological capabilities of the retailer. Ultimately, faster discovery of highly accurate and actionable insights holds the key to growing unit volumes and capitalizing on seasonal sales opportunities in the months ahead.
  4. Collaborate with CPGs on customer insights: The need to increase unit volumes is a shared goal among retailers and CPGs and thus an ideal opportunity to deepen collaborative efforts. Doing so around a data-driven framework will help trading partners co-create value and more effectively serve a mutual customer. The consumer is resilient, and the nation is effectively at full employment so there are ample opportunities to develop joint category action plans to optimize the use of trade spending to improve promotional effectiveness and grow unit volumes.
  5. Store intelligence: Analytics based on shopper data are crucial, but a new type of insights known as Store Intelligence is helping transform retail operations and category management decisions. AI-powered computer vision is helping retailers and CPGs see what is happening in stores in a way that wasn’t previously possible. The increased visibility means on-shelf availability issues can be fixed faster and promotional execution and planogram compliance improved. The net result is a wide range of sales-sapping execution shortcomings can be identified and resolved to aid in the goal of driving unit growth.

These five strategies, all of which revolve around of core of increased usage of shopper and other forms of data, put retailers in a stronger position to drive the type of unit volume growth needed to offset sales challenges related to further declines in inflation.