The question posed by most economic commentators 12 months ago was whether Australia would enter into recession in this post COVID hangover. Whilst statistically we have not and it looks like we won’t now enter into an official recession, there are plenty of headwinds and indicators that give cause for concern for FMCG retail as a trading channel and others. Key will be the timing of when to invest ahead of the confidence and corresponding growth curves. Confidence will return, but retailers and suppliers have to get their timing right, in a game of calculated risk, cautious optimism or gambling.
Availability of labor in the unusually low unemployment context, juxtaposed with rising costs driven by utilities/wage/super/payroll tax increases are but several of the challenges affecting retailers and suppliers alike. However, whilst these inputs are challenging for all, an adverse output manifested in weak consumer confidence dramatically affects suppliers and retailers.
According to their Westpac-Melbourne Institute Index of Consumer Sentiment confidence slipped 1.5% to 79.7 in September 2023 from 81.0 in August 2023. So, despite some respite in mortgage rate increases which paused once again as a lead indicator, the lag indicator of consumer confidence is weak. This presents the timing issue of when to restart investment in trading and marketing strategies in retail.
Investing ahead of the curve is a proactive investment which can be a source of competitive advantage. Some companies wait for the indicators to improve significantly, sometimes inhibited by waiting for their own healthier cash inflows returning, some uber conservative and risk adverse companies simply wait too long. And their competitors steal a march on them.
Understanding your shopper and consumer better than ever, together with investing in integrated, return on investment enhancing (aka efficient) activities in store and across the path to purchase, helps reduce the risk of a premature investment before the curve. This increases the need for erudite market research, data analysis/insight and planning the most optimized in store and out of store activations.
It’s rare that suppliers and retailers can get to this level of insight without outside help. Sure, there are banks of consumer and shopper insight resources available in house, but the rarity is them truly connecting all the adjacent disciplines together such as demand planning, supply chain, space planning, in store merchandising and sampling. In our experience, we are increasingly seeing suppliers in particular that work with external service providers on a very collaborative, mutually consultative basis, are best informed on not only when to invest ahead of the curve, but how and where to also. These calculations and inter-relationships should be important all year round, but never more so when investing in time for the consumer confidence curve becoming upwardly mobile.
We recommend that suppliers sense check their plans to reinvest/increase investment ahead of the consumer confidence curve. Or if necessary, start thinking about it in the first place. Get some external help from service providers who have a unique view across multiple categories and trading channels that often removes the blinkers to suppliers that are for example single category focused. Challenge the benefits of integrating, aligning and connecting your departments across the value chain even when it seems so difficult to cut through functional internal silos. Seek help to break down those silos or outsource each of the silos altogether!