Higher inflation in the retail ecosystem

It is a tough time for the retail industry. With inflation rates rising, the consumer and business confidence has turned a bit more pessimistic from where it was a couple of quarters ago. There is a need for a fundamental shift in the way retailers look at their priorities, business models and retail operations.

In an inflationary environment, unevenly rising prices are inevitably reducing the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. The Indian retail sector is mostly dominated by small retail outlets, “kirana” stores, and family stores. Most of the retail outlets/shops are being run by individuals or households.

A report says, the demand volatility due to supply chain disruption coupled with changing shopper behaviour is causing havoc leading to frequent stockouts and poor on shelf availability. With retail operational costs climbing, a knee jerk reaction to optimize is leading to poor in store execution which in turn means unhappy customers. The ripple effect of price increase reaches to the shoppers, they are in fact now getting less for more!

With this we are seeing where the large retailers are announcing cost cuts, layoffs, delayed spending apart from setting expectations that the worst is yet to come. Going forward, the retailers need to be ready to anticipate demand by analysing customer trends and applying automation tools. This will be essential to keep pace with both small and large shifts in demand in real-time.

As a result of this, both brands and retailers will have to increase their spending on digitization and automation. This will mean integrating their systems, getting suppliers to collaborate, and working with retailers to get real-time analytics.

Due to the focus on convenience and the rise in online shopping, most brands are now focusing their attention on D2C channels. This gives them more control over customer touchpoints and makes them less dependent on retailers. The shift is evident in all sectors from household goods to FMCG.

Consumer expectations have shifted dramatically in the past couple of years. The biggest change that we have seen is the consumer discovery and shopping journey– which is now a combination of offline & online.

S Mohini Ratna, Editor, VARINDIA