IRVINE, CALIF. — Product manufacturers and retailers have different views — sometimes significantly different — on the outlook for sales, pricing, assortment and digital commerce within grocery stores, according to a new survey by SMARTeam, the consumer goods insights team of Advantage Sales, a business solutions provider in the consumer goods manufacturing and retail space.
According to the survey, 6 in 10 manufacturers expect to see increases in dollar sales through the second half of 2021. Meanwhile, 7 in 10 retailers foresee decreases.
A significant gap also was noted in the amount of sales that are expected to move online. The survey found 37% of manufacturers expect their online dollar sales to exceed 21% by 2025, while only 14% of retailers believe the share of their sales being made online will be that high.
“This difference may be attributed to manufacturers’ ability to sell their products on numerous online platforms, including Amazon and direct to consumers, and barriers to cleanly identifying and measuring online versus brick-and-mortar sales,” the survey said.
The cost of consumer goods is expected to continue to climb. The survey found that 25% of manufacturers already have informed or will inform consumers of price increases, with another 55% planning to do so at some point.
Five key factors are contributing to the price increases, according to the survey. Ninety-six percent of manufacturers cited increased product material costs, followed by 92% for increased distribution costs, 82% for increased packaging costs, 62% for increased production labor and 8% for shifting channel mix. Another 10% cited “other” factors that may lead to price increases.
One of the reasons for the differing views on dollar sales projections is the fact that retailers want fewer stock-keeping units, the survey said.
The survey found 65% of retailers are in the process of reducing SKUs and none of those surveyed plan to increase their SKU count.
“This activity has impacted the business of nearly three-fourths of manufacturers, who are most often turning to product innovation and promotions (38% of those who are losing points of distribution) or discontinuing items that have lost significant retail placements (25%),” the survey said. “After a chaotic 2020, manufacturers are more confident than retailers that supply chain challenges will be resolved in the second half 2021. More than three-fourths of manufacturers expect their supply level to be greater than 90% by the last quarter of the calendar year, but only 44% of retailers anticipate fill rates to be that high.”
The COVID-19 pandemic led many consumers to shift to online grocery shopping, a trend that is expected to continue. As a result, manufacturers and retailers were more in line on a need to invest in digital commerce platforms and capabilities.
According to the survey, 89% of manufacturers and retailers said the incorporation of e-commerce is in their plans for joint business planning. Meanwhile, 94% of retailers said they plan to have broader discussions around retail media spends and activities, compared with 70% of manufacturers. SKU rationalization discussions also are expected to be top of mind, with 78% of retailers and 59% of manufacturers expected to engage in such talks, the survey said.
Few retailers are expected to share their digital data with suppliers this year, the survey said. Currently, only 15% of retailers are sharing online sales data with suppliers, with another 5% expected to make that data available in the second or third quarter. Five percent plan to make the data available in 2022 and 5% have no plans to provide it all, with the remaining 70% undetermined at this time, the survey said.
Following the release of the survey, which was based on responses by 69 consumer packaged goods manufacturers and 22 grocery retailers, Credit Suisse issued its own report factoring in Advantage Sales’ findings.
“Bulls on the food space will view this survey as proof that sales trends will continue to track ahead of the conservative expectations that the manufacturers established at the start of the year,” Credit Suisse noted in a June 29 report. “However, investors need to take into account that manufacturers in this survey are in the middle of price negotiations with their retailer customers, which might progress more smoothly if they express a positive tone about their growth. In contrast, the financial guidance they have provided publicly has been much more conservative and consistent with the retailers’ views.”
Credit Suisse also noted that food companies are in a better position to raise prices than in the past, but that it doesn’t expect such increases to yield a material benefit to earnings per share.
“Margins are getting pinched on the way up and volumes are likely to fall more than normal when pricing resets higher due to elasticity of demand,” Credit Suisse said. “Declining government stimulus benefits, re-openings of school and business cafeterias, and higher prices will pressure volumes in the back half of the year.”