A Real Economy publication

Retail and restaurant industry outlook: Summer 2022

May 31, 2022

Retail and restaurant industry outlook key takeaways

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Companies that understand customers and supply chains stand to gain the most as they look to remain agile through the rest of the year.

growth chart

The winners will be those that have learned from previous years and adopted strategies to improve margins. 

The focus on margins involves not just tracking product profitability, but continuing to find opportunities to automate and to leverage technology to support consumer preferences.

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Economics Retail Restaurant

Leveraging past improvements for future success

With the opening of new sales channels early in the pandemic, followed by labor and inflation pressures in 2021, retailers and restaurants are looking to protect and increase margins for market share secured in the last two years. For many, the focus is not on how they fared during this tumultuous period, but on forging a successful path forward.

Consumer behaviors challenged

In the early days of the pandemic, retailers and restaurants faced similar challenges as they struggled to quickly adapt to rapidly changing consumer preferences. Faced with headwinds of supply shortages and lockdowns, companies learned quickly how to leverage existing technology to create new sales channels that met the needs of a changed consumer landscape.

Following the initial wave of the pandemic, companies headed into an uncertain holiday season in 2020, which kicked off in October of that year. With consumers forced to spend less on services in the lead-up time, they entered the season with a high savings rate, which led to a record fourth-quarter year-over-year increase in core retail sales, at 8.53%. Retailers that had weathered the initial storm saw their efforts rewarded by consumer savings buoyed by stimulus checks and government programs.

At the close of 2020, the companies that emerged as winners had taken at least one of the following measures: adapted quickly to meet the changes in consumer behavior, invested beyond brick-and-mortar stores, or created new sales channels.

Retail sales compared to 2019 chart | Retail and restaurant

Retailers rewarded

In 2021, consumers continued to see unprecedented growth in household savings, which reached a second high of 26.6% of personal disposable income in March 2021. Retailers sought to create new or improved sales channels as they gained a better understanding of their consumers through the data they captured. For middle market retailers, gathering and analyzing this data provided a new level of detail, allowing better insight into their end customers.

The personal savings rate remained elevated throughout the year, with the rollout of the child tax credit supporting spending through the second half of 2021. With the availability of vaccines and a reduction in lockdowns, spending started to shift back toward services. When restaurants returned to January 2019 levels in April 2021, at $66.48 billion, the demand for talent was on and would force all sectors to compete, causing base wages to rise.

As companies reflected on 2021 total retail sales growth of 19.42% year over year, they needed to understand two main reasons why their revenue had grown by double digits from previous years: 2020 had been flat compared to prior years, and government stimulus had increased consumer savings like never before. Companies that did not take stock of the unprecedented growth or that were unable to maintain market share likely struggled going into 2022.

Food services and drinking places percentage change vs. 2019 chart | Retail and restaurant

Understanding consumers

While 2021 saw double-digit revenue growth year over year, increases in the costs of both goods and labor dampened profits for those unable to increase prices at the same rate. The year 2022 opened with consumers looking to solidify their new routines and adjust to external pressures. Pricing on consumer staples continues to directly affect discretionary spending that saw a boost in 2021. Companies that have invested in better understanding their customers and supply chains have the most to gain in 2022 as they look to remain agile through the rest of the year.

The winners will be those that have learned from previous years and adopted strategies to improve their margins. The focus on margins involves not just tracking product profitability, but continuing to find opportunities to automate and to leverage technology to support consumer preferences.

RSM contributors

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