Analyst Insight: Economic disruptions tend to make consumers become more cost-conscious. Still, post-pandemic, many consumer habits are returning to some semblance of normal as the economy recovers. But consumers aren’t adopting old habits with the same elasticity, and the typical shopper is more discerning than ever. Fortunately, smart retailers are adapting just as quickly. 

State of the Industry

Virtually all consumer product manufacturers and retailers are navigating challenges in this new reality, including ongoing supply chain disruptions, stiff competition from e-commerce stores and direct-to-consumer brands, increasing fluctuations in demand, and rising costs that threaten to erode profit margins.

These enterprises in particular are confronted with a new breed of consumer. Shoppers traditionally have loyalties to brands and stores, but the pandemic short-circuited these behaviors, as certain products became scarce. Shoppers that previously visited the market frequently began buying in bulk, in some cases switching to warehouse clubs like Costco. As inflation set in, shrewd shoppers swapped big-name brands for private-label products, finding that many were of the same quality as the costlier varieties. If the store-brand milk tastes just as good at a lower price, why switch back? 

As the value of the dollar dropped further, shoppers became more selective. Today, it isn’t uncommon for a consumer to visit one grocer for produce, and a different supermarket for meats. The ingredients for one meal may be the result of two or three store visits. 

To adapt, clubs and supermarkets are scrutinizing their inventories, and enhancing the experience they want to provide their customers. Costco, for example, is optimizing its SKU count to become more efficient and economical, focusing on SKUs that move quickly and generate higher margins. The company recently announced plans to phase out books (which must be stocked by hand) at most stores. 

Walmart, meanwhile, has upped its game, introducing high-quality, private-label brands such as Bettergoods, which competes with Target’s Good & Gather. Vertical integration is also central to Walmart’s strategy; the company announced the acquisition of smart TV brand VIZIO in 2024. This move gave the retailer access to valuable data about which ads are reaching its shoppers.

Vertical integration applies to grocery-store commodities as well; Costco owns its own farm to produce its popular rotisserie chickens. Not only does this ensure a steady supply, it also enables the company to beat its competitors on price. Kroger has a meat plant that delivers cut and case-ready meat to stores, freeing up store personnel to focus on improving sales and service. 

Outlook: As the savvy consumer continues to evolve, manufacturers and retailers are evolving with them. They are studying point-of-sale data to determine what people are buying, and at what price points. Retailers are experimenting with nudging up prices for their private-label products as they capture loyal repeat customers. Store layouts are constantly changing and new features are being added — coffee shops, in-store banks — which encourage longer visits, and increase foot traffic. Inventories are being monitored in real time, often with sophisticated AI-driven tools, to make sure that the right products are in the right place, at the right time, at the right price.

It's an exciting time for the industry. The supply chain is humming, and consumers have more choice, flexibility, and power than ever before. We just need to keep up. 

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