Recent events, be it a pandemic, the invasion of Ukraine or inflation, have also left their mark on the food retail industry. In this blog post, we address the current challenges for retail and show how they can be countered with the help of artificial intelligence.
In a survey of more than 900 retail companies conducted by the German Retail Association(HDE), 89% said they had already noticed the effects of the war in the form of higher prices for goods and energy. It is worth noting at this point that around 50% still have ongoing energy contracts, so that price increases associated with a new energy contract will not be due until the next few months for the majority of respondents. At the same time, almost one in eight of the companies surveyed reported complications when renewing their energy contracts, as suppliers can hardly offer sufficient energy on economic terms. Thus, the HDE warns of further burdens as well as a worsening economic situation. In addition, the fighting in Ukraine and renewed lockdowns in Asia are disrupting supply chains and additionally boosting inflation. According to the German Federal Statistical Office, a real month-on-month sales decline of 7.7% was documented in April 2022, the largest inter-month sales drop since 1994. The reason for this development was the increase in food prices, which had risen by 8.6% compared with the same month of the previous year.
12% of the wheat produced worldwide is estimated to come from Ukraine. Difficulties in shipments from Ukraine left more than 20 million tons of the grain, which was actually destined for export, stuck there in June. In addition, major Chinese ports were closed in response to Corona, so global supply problems continue to worsen. According to the Munich-based Ifo Institute, just over 80% of retailers claimed in May to be unable to deliver all the goods they had ordered. According to the United Nations, this is an unprecedented food shortage. The food industry also warns of the same, forecasting price increases of up to 20% in the dairy products segment and up to 30% for bakery products in the coming months, as mentioned earlier. The reason for this is that both Ukraine and Russia are among the most important exporters of grain, vegetable edible oils and (spreadable) fats. We also source around 80% of our mustard seeds from Russian producers. In addition to these products, Parmesan cheese could also be added to the shelves in smaller quantities in the future. As a result of a dry period in Italy, too little water is available for the cattle kept there, causing plants to wither. As a consequence, the quality of the milk obtained is reduced, whereupon it fails to obtain the obligatory quality seal for Parmesan production. According to the consortium, Germany, as the largest customer, is particularly affected.
Due to prevailing inflation, which at 7.9% is the highest it has been in over 50 years, food prices increased by an average of 12.7%(comparison: June 2021 and 2021). In particular, the following products of daily use were affected by increases:
In view of these figures, it is no wonder that the purchasing power of Germans is declining. This is also confirmed by the Gesellschaft für Konsumforschung (GfK), which testifies that price is currently the most important purchase criterion for 36% of people. In an idealo survey, as many as 89% of respondents said they would consider whether they really needed a particular product before making a purchase. Similarly, the study showed that 90% are paying more attention to discounts as well as special offers and are even visiting different stores in order to pay the lowest price. According to the GfK Consumer Index, supermarkets consequently lost around 10% of their sales. However, it is not only overall that people are buying less or at lower prices; the prevailing thriftiness is particularly affecting individual product categories. Consumption of meat and fish is falling, with consumers switching to cheaper alternatives for their daily needs. While consumers are foregoing fish or buying it only when it is on sale, the Agrarmarkt Informations-Gesellschaft documents a drastic reduction in meat consumption. Lack of demand for such products prompted slaughterhouses to slaughter 10% fewer pigs and 14% fewer cattle in the first quarter of this year. This resulted in reduced consumption for meat and sausage products of -8.2%, for fresh fruit or vegetables -8.5% and moreover -7% for bakery products. In contrast, private labels gained in popularity and grew within the first quarter with a share of almost 35% of total sales.
According to surveys by the Thünen Institute, around 500,000 tons of food are not sold in German food retailing, but end up in the trash. This particularly affects products such as bread and baked goods as well as fruit and vegetables, which is also noticeable on the company side: Losses of these product groups account for more than 10% of current sales losses. In total, these waste quantities correspond to an annual value of goods of around 1.2 billion euros. Although many companies are already taking preventive measures, these investments are not sufficient from the point of view of many customers. Based on the increased awareness of sustainability in recent years, it will be obligatory for companies to choose more drastic means in the future in order to gain the trust of consumers and to retain them. This is shown by a study of the market research institute Capgemini in which almost 10,000 people from all over the world were interviewed. It could be shown that
Similar findings were made in a study by Too good to go and Danone, in which 83% of Germans stated that it was important to them that food retailers try to avoid food waste or take preventive measures. In view of these demands, retailers find themselves in a dilemma. On the one hand, as part of the food chain, it must ensure that food is handled responsibly and contribute to a greater appreciation of it. On the other hand, consumers demand a wide range of fresh, flawless products throughout opening hours. In addition, certain products, such as baked goods, no longer meet current quality standards the next day and can no longer be sold. Therefore, the most challenging task to solve the problem is to make the order quantity as accurate as possible. Markus Mosa, CEO of EDEKA's head office, also welcomes a more prudent use of goods. In his opinion, this is not only to be welcomed in the interests of the environment and society, but also in order to guarantee supply chains and, as a result, long-term supply to the stores.
DD's software offers ways to address challenges in the food retail industry and contribute to cost savings and increased efficiency. Using all available data points, the AI succeeds in predicting accurate sales forecasts and production proposals, thus accurately planning the use of goods. As a result, a one-third reduction in food waste can be achieved, offsetting some of the increased energy and supplier prices. In addition to sales forecasts, the Intelligent Day Planner uses granularly scheduled production tasks to help ensure that products are always available in the required quantities. This guarantees customers the best possible freshness and increases sales without overproduction or sellouts. The documentation of food waste in Food Waste Monitoring reveals potential for further measures to reduce waste. These and other collected metrics, such as CO2 emissions saved or meals saved, stay in view with the dashboard. In addition to communicating with customers or as part of the sustainability report, these can be used externally to gain consumer trust, build consumer loyalty, and improve the company's image.
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