Retailers & CPG Manufacturers Innovate to Overcome Inflation & Labor Woes

Advantage Solutions: Both will focus on increased promotions to drive unit sales.

IRVINE, Calif. — Persistent inflation and labor shortages continue to affect business operations, and retailers and consumer packaged goods (CPG) companies are changing their strategies to meet a rapidly evolving retail landscape and challenging operating environment.

Advantage Solutions; "Q2 Advantage Outlook" provides insights on the state of the operating environments for the largest U.S. CPG manufacturers and retailers, and its downstream impact on shoppers.

[Read more: Consumers Rethink Retail Spending Priorities]

The report's key findings include:

Product innovation is getting a high-end makeover.

Retailers are hungry for more innovative products to spur sales. Nearly three-quarters (72 percent) of retailers say they expect to accept more innovation over the next six months and 95 percent indicate they will accept new item cut-ins outside of traditional reset windows. 

Most manufacturers are no longer raising prices to combat inflation.

Sensing increasing price sensitivity among consumers, 96 percent of manufacturers say that disputing fines and fees remains their top strategy to address increased costs, and less than one-third anticipate raising list prices.

Labor shortage is leading to more self-checkout.

Retailers plan to increase self-checkout options to address labor shortages, while manufacturers say those shortages and a lack of planogram oversight are the top two factors affecting on-shelf availability.

Expect more reliance on promotions to drive sales.

Manufacturers and retailers will focus on increased promotions to drive unit sales, with some retailers looking to zero in on major holidays, their rewards programs, club-pack sizes and extended promotion periods.

Retailers are also keeping an eye out for the impact the reduction in Supplemental Nutrition Assistance Program (SNAP) benefits will have on business. While the majority of retailers expect a net sales impact of at least 3 percent over the next six months due to adjustments in SNAP benefits, most manufacturers aren't making any changes in response, Advantage Solutions found.

In March, SNAP ended COVID-19 relief benefits across the United States, reducing food and beverage aid by $23 billion annually. As a result, in the initial months after the benefit cutbacks, SNAP households reduced their monthly food and beverage spending, on average, by about 35 percent of cut benefits, as Convenience Store News previously reported.

Based in Irvine, Advantage Solutions is a leading provider of outsourced sales and marketing services to CPG manufacturers and retailers.