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3 predictors of success POV
Innovation

3 predictors of success in an era of unprecedented disruption

An opportunity to innovate

How retailers and brands can unleash their potential in a dynamic environment

For brands and retailers operating in an increasingly demanding environment, there are two main ways to look at disruption: as a force to overcome or an opportunity to innovate.

From rapidly changing markets and fractured supply chains, to unexpected levels of inflation and rising labor costs, organisations have no shortage of challenges to manage as they head into 2024. Coupled with a decline in consumer confidence and ability to spend, retailers are at a crossroads.

Unlike in years past, when retailers and brands could pass modest cost increases on to consumers, today’s shoppers find themselves in the midst of their own economic crisis. Higher prices, stagnating wages and an impending credit squeeze are forcing many consumers to cut back on their cart size, even when it comes to essential purchases.

And therein lies the real issue: Manufacturers and retailers are operating in an environment where without positively disruptive technology, they can’t “do it for less.” And consumers increasingly find themselves in a position where they can’t “pay for more.”

Let’s explore how retailers and brands can navigate the latest wrinkle in a rapidly changing environment and share three guiding principles to harness the power of disruption as a driver of innovation.

Conserve with Food Waste Intelligence from Capgemini

7 in 10
Consumers expect companies to provide a wider range of discounts to help them purchase essential items
32%
of consumers have discovered a new product/brand on social media in the past six months
36%
of consumers say that ordering groceries online with two-hour delivery is important to them

The bottom line is that in this environment, the goal of every brand and retailer is to take cost out of the business to serve the customer in a time of price sensitivity.

Lindsey Mazza, Global Retail Lead, Capgemini

1. Enabling transformational cost out to better serve the business and the shopper

The unfortunate reality is that most consumers are struggling in today’s economic environment. According to our most recent consumer trends research, six in 10 consumers (61%) are concerned about their financial situations, and almost half (44%) say they are reducing their overall spending.

While the global economy shows signs of recovery, retailers and brands cannot rely on tried-and-true traditional cost out models. They need to embrace transformational cost out, identifying opportunities to reduce waste, increase efficiency, streamline processes or reduce overhead – and pass those cost benefits on to consumers.

For example, a retailer can achieve transformational cost out by leveraging advanced technology, such as traditional or generative AI, to modernise demand forecasting. With these tools, companies can gather and analyze a far wider variety of data sources to better understand and predict shopping patterns and adjust inventory locations and levels accordingly. By using AI in this way, retailers can reduce costs by optimising shipping routes and reducing waste. At the same time, it can also drive growth and profitability by ensuring the products people need are available for sale and reducing the need for promotions to manage excess inventory.  

Another trend we are seeing in the industry that stems from consumer price sensitivity is the shift to private labels. Traditionally, U.S. consumers, and much of the global market, have preferred major brands, especially for categories like snacks, packaged foods, health and beauty items, and household goods. Now, as shoppers face higher prices, we see that they are shifting purchases to private label brands that are usually more affordable.

This represents an important revenue growth opportunity for many retailers. However, to tap the potential, retailers must adapt the business to ensure it has the capabilities and skills to operate under an expanded identity. For example, if retailers are offering an in-house brand, the company now needs to operate as a manufacturer and a procurement agent, as opposed to a category manager. This evolution of the business is the key to establishing favorable margins and growing them over time.

The bottom line is that in this environment, the goal of every brand and retailer is to take cost out of the business to serve the customer in a time of price sensitivity. Brands and retailers need to dramatically rethink every aspect of the business – their organisational structure, operating practices, go to market strategy, and even their identity – to lower costs for the company and, in turn, lower prices for shoppers.

2. Connecting disparate channels to create a streamlined path to purchase

In working with some of the leading retail organisations in the world, we know that the average number of channels consumers use during any single shopping experience has grown significantly in recent years. That’s hugely important to retailers and brands since many still operate as a siloed, multi-channel organisation.

The other thing to keep in mind is that commerce isn’t just in-store or online, but everywhere on demand. In today’s landscape, any digital touchpoint is a potential point of sale; every physical location is a possible point of fulfillment; and every interaction is part of the shopping journey.

Retailers and brands need to set aside existing channel communication and recognise the multi-layered, multi-stop process that shopping has become. Channels need to connect, not compete.

This concept of “everywhere commerce, on demand” can manifest in many ways: in-store shoppers using online tools for wayfinding, discovery, promotion or availability; visiting a store to view a product discovered online; using a kiosk in-store to place an order for home delivery; using computer vision or AI to allow shoppers to virtually try on clothing in-store or online. The possibilities are endless.

The challenge here isn’t to simply create those engagement opportunities, but to knit them together in a way that feels cohesive and connected to the shopper, enabling them to seamlessly shift between them on the path to purchase.

At the same time, growth in today’s landscape isn’t solely dependent on traditional consumers. In recent years, we’ve seen many retailers leverage B2B services, which most commonly involves selling point of sale data to manufacturers and brands, to unlock new revenue opportunities.  

While retail media networks is the most prominent example of the shift to services, it is merely the tip of the iceberg. Retailers have significant stores of many types of data that would be of potential value to brands and manufacturers or even distributors. For example, distribution data could help manufacturers achieve a more precise view on where products are purchased. This data could help optimise shipping routes or even prompt companies to reconsider manufacturing locations so that facilities are closer to major markets.

At a time when so much focus is on optimising operations to improve efficiency, reduce costs or lower waste, the shift to B2B services represents a valuable opportunity for top-line growth for many retailers – and an important area to watch in the coming year.

3. Leading with purpose to engage with consumers on a deeper, more meaningful level

Today’s shopper is more conscientious than ever. They are driven by traditional levers, like cost, choice and convenience, but also want to align with brands and retailers that share their values and support the causes that are important to them.

This myriad of issues – from sustainability and social justice to equality and community development – fall under the umbrella of “purpose” and it is a hugely important point of differentiation for brands and retailers. In fact, it’s moved from being the hook to the anchor in terms of consumer confidence and decision. 

In the past, operating a profitable business and pursuing a higher purpose may have seemed like a paradox. But in the current landscape, organisations are realising that business at the expense or ignorance of the planet and the communities being served is simply no longer viable. To succeed today, companies need to adopt a mindset that simultaneously serves the business, its customers, their communities and the planet. This often means adopting the technologies and tools that enable them to innovate and become change agents for our communities, our industry and the world at large.

For example, our company is working with major CPGs and retailers to leverage generative AI to improve sustainability by reducing food waste among consumers. As part of this programme, we are working with our clients to use technology to better understand how consumers intend to use the food in their home and, as a result, offer helpful recommendations during the shopper journey.

Though this programme is categorised as a sustainability initiative that helps reduce waste among consumers, it also allows the companies to optimise production and inventory levels and lower costs by reducing waste at the store level. In this way, we not only see how purpose and sustainability can create a stronger connection with the consumer, but also help companies unlock new avenues of growth, reduce costs, and improve margins.

From unprecedented disruption to unparalleled opportunity: Meeting the needs of the consumer in their time of need

The stark reality of today’s retail landscape is that consumers can’t spend more and manufacturers and retailers can’t sell for less. This is driving the need for transformational cost reductions, cross-channel growth and deeper connection to purpose. Focusing on these three areas are the best predictors of future success for brands and retailers.

Meet our experts

Lindsey Mazza

Global Retail Lead, Capgemini
Lindsey is a subject matter expert who specializes in shopper-centric, connected and convenient commerce and innovation. With nearly 20 years of experience in retail transformation, she’s served some of the world’s largest retailers. Lindsey is the creator of Capgemini’s Retail Smart Planner solution and is the Global Retail Lead at Capgemini.