EY Consumer Products and Retail Executive Pulse reveals consumer behavior and uncertain economy keep leaders up at night

In response, 2024 outlook sees investments in emerging tech, supply chain and industry convergence

• More than half (53%) of consumer packaged goods (CPG) and retail executives are concerned with keeping pace with constant shifts in consumer preferences and behaviors.
• Almost half of CPG and retail executives (48%) say the current economic environment has changed their business strategy.
• Nearly all (99.6%) executives are experimenting with generative AI (GenAI) in some capacity.

A majority (65%) plan to make significant investments in industry convergence or alternative revenue streams.

Ernst & Young LLP (EY US) today announced the release of its inaugural Consumer Products and Retail Executive Pulse, which shows that amid ongoing economic pressures, CPG and retail leaders alike are planning to invest in artificial intelligence (AI), supply chain and industry convergence to tap new areas of growth and better meet consumer needs. The poll, which surveyed over 250 executives in the retail and CPG industries, found that 53% of leaders feel that economic and inflationary pressures as well as keeping pace with constantly changing consumer preferences are among their top three pressures keeping them up at night. Another 51% say profitability and margin pressures are a key source of anxiety.

As a result, leaders are seeking ways to create more value across the business, with an overwhelming 99.6% of executives saying they are experimenting with GenAI in some capacity and 91% planning investments in alternative revenue streams.

“The last year has been challenging for consumer leaders, but in 2024, I think we’re going to see a swing from cost to value,” said Isaac Krakovsky, EY Americas Retail Leader. “Brands and retailers will look to make smart, strategic investments in areas where value is created — with many expecting it to come from transformation in finance (27%), technology (26%), supply chain (26%) and customer experience (25%).”

From new rules and regulations to ongoing retail shrink and economic uncertainty, CPG and retail executives are going into 2024 feeling pressure to create profitable workstreams while simultaneously meeting evolving consumer expectations. Nearly half of executives (48%) say the current economic environment has changed their business strategy, placing an increased focus on internal cost optimization and revenue growth management. Moreso, 51% are turning to AI and machine learning (ML) to automate processes that will drive efficiencies due to the current economic environment.

Value drivers: 2024 outlook for retailers and brands

Emerging technologies take center stage

Technology — specifically GenAI and ML — is playing a key role in executives’ 2024 agenda. More than 2 in 5 leaders (41%) say their company is implementing AI into the consumer experience through employee virtual assistants, with 32% implementing the technology for product purchase reminders. Of the companies experimenting with GenAI, 29% are doing so to remain on the cutting edge of innovation.

Looking at technology holistically, 90% of CPG and retail executives say their company has plans to increase its investment in IT or emerging technologies over the next year, with AI and ML or GenAI (31%), digital supply chain (21%) and cybersecurity (20%) of the highest priority.

“New channels and technologies — such as AI, Web3 and the yet to be coined — will continue to emerge, diverge and redefine the retail landscape,” said Isaac Krakovsky, EY Americas Retail Leader. “Retailers need to fortify their foundations in the face of these ever-changing dynamics, and a significant part of that is prioritizing the AI and emerging tech use cases most valuable to the business.”

A tempered deal market no more?

With profitability in the spotlight, consumer companies are thinking holistically about ways to drive growth across the consumer journey, whether that’s in their core competency or adjacent to it. Though the current deal market and focus on cost optimization may point otherwise, surprisingly, most leaders (91%) plan to make industry convergence-related and alternative revenue streams investments over the next two to three years. Of those leaders, 65% say they plan to make significant investments.

Retailers are more likely to desire “owning” the new capability, but comparatively, CPG companies are more likely to consider partnerships. Companies planning to pursue these investments will do so through:

• Building the capability in-house: 64% retail vs. 54% CPG
• M&A: 55% retail vs. 52% CPG
• Partnerships: 46% CPG vs. 35% retail

Among the adjacent industries most attractive are manufacturing (29%) and media and entertainment (27%) for retailers, and direct-to-consumer (32%) and financial services (29%) for consumer products companies.

“Brands are coming to a fast realization that the consumers aren’t just in it for the product, and that to really differentiate, they have to consider their role across the holistic journey,” continued Isaac Krakovsky, who is also the EY Americas Retail Leader. “That means we’re going to see increasing activity from CPG companies around where they want to play beyond traditional manufacturing — whether that’s direct-to-consumer, technology, logistics or something else. What will be important is making sure that these adjacencies align with who you are as a brand.”

Supply chain will continue to bring value in 2024

It’s clear that the supply chain is a key source of value, and companies plan to put their money where their mouth is. In response to significant shift to online shopping in the last several years, 40% of retail and CPG leaders say creating a more efficient supply chain is a core part of their business strategy, only second behind direct-to consumer/omnichannel (42%). Another 35% rank supply chain resilience in their top three areas to invest most in the next year. Finally, where technology is concerned, 21% say digital supply chain is where they plan to increase investment, ranking only behind AI/ML (31%).

“Inventory continues to be one of the greatest challenges retailers are facing,” Krakovsky said. “Whether it’s getting a handle on inventory loss — or shrink, as it’s referred to in the industry — managing excess stock coming out of the holiday season, or optimizing last-mile delivery, 29% of retail leaders believe that transforming the supply chain is going to create the most value in the next 12–18 months.”

For more information, visit ey.com/en_us/consumer-products-retail.

Survey methodology

Ernst & Young LLP commissioned Atomik Research to conduct an online survey of 255 executives from Fortune 1000+ CPG and retail companies throughout the US. All executives surveyed hold a title of vice president or higher at their organization.

Fieldwork took place between November 22 and December 6, 2023. The margin of error is +/- 6 percentage points, with a confidence level of 95%.

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