A Real Economy publication

Retail and restaurant industry outlook

Dec 05, 2023

Retail and restaurant industry outlook: Key takeaways

The resilience demonstrated by consumers, bolstered by a robust labor market, is a trend likely to endure.

Retailers should make investments to ensure sustained growth and safeguard inventory and profits.

growth chart

Harmonious collaboration between automation and workforce can enable scalability.

Retail and restaurants sector trend #1: Consumer resilience

Consumer resilience sparks hiring boom

As 2023 comes to a close, companies are banking on the enduring resilience of consumers, exemplified by Amazon's plan to hire 250,000 workers for holiday sales. The RSM US Middle Market Business Index indicates widespread optimism, with 60% of midsize companies bullish about the next six months, largely relying on strong consumer spending amidst inflation. Real wage increases support this trend, but caution is urged as savings decline, and consumer credit rates rise.

Potential challenges include labor strikes, the resumption of student loan payments, high energy prices, geopolitical events, and persistently high interest rates. Middle market retailers must focus on delivering value, employing discount strategies, loyalty programs, and efficient pricing. The restaurant industry faces price increases, prompting consumers to dine at home, benefiting fast food and fast-casual establishments. Companies, especially middle market ones, must adapt to these trends, embracing technology and strategic planning to navigate evolving consumer preferences and market risks.


Retail and restaurant sector trend #2: Offsetting shortages with automation

Automation is the name of the game

While optimistic, consumers remain wary of inflation, seeking discounts. Excess supply and competition boost demand for value stores. Retailers use discounts to manage excess inventory, and the consumer price index suggests better shopping value. To cater to value-conscious shoppers, retailers should enhance brand awareness, convenience, loyalty programs, and margin analysis.

However, inventory shrinkage from theft is a concern, impacting profits and supply chains. Organized retail crime and digital theft are rising, demanding cybersecurity. Labor shortage and inflation push retail and restaurant sectors to adopt labor automation like self-checkout and AI-driven suggestions. Upskilling and data use optimize labor alongside automation for efficiency and growth. The aim is a symbiotic relation between automation and humans to navigate the economy effectively.


Retail and restaurant sector trend #3: Expansion into new markets

Managing inventory and labor challenges in retail

In 2023, retailers face dual challenges of managing inventory amid price hikes. Despite a strong supply chain recovery, inventory management shifts focus to turnover ratios and cost-effective strategies. Labor shortages persist, with increased 'quits' affecting the retail industry. Though job openings rise, retention remains a concern, pushing automation adoption.

Consumers demand online shopping, sustainability, and personalization, prompting retailers to adapt multichannel approaches. Amid inflationary pressures, customer spending fluctuates, driving businesses to prioritize SKU profitability. Middle market retailers can leverage unique strengths to differentiate in a competitive landscape.

RSM contributors

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