Preparing Your Grocery Store for a Recession
Grocery store managers understand that consumer demand is constantly in flux. In periods of economic uncertainty, customers spend less on everything from essentials to discretionary purchases. Recessions are lean times, forcing buyers to tighten their spending, even when buying groceries.
Despite the challenges a recession brings, specific strategies can help your retail store survive and thrive in an economic downturn. In this guide, you'll find a few ways your grocery store can prepare for a recession to increase its market share, boost customer loyalty, and emerge with more efficient operations.
The Impact Recessions Have on Businesses
The effects of recessions vary depending on a business's size and industry. However, some recession consequences are common across the economy.
Here are three significant impacts of a recession:
1. Reduced Profits
Given the reduction in consumer spending, reduced profits are inevitable for businesses. As sales slow and expenses remain steady, many companies experience declining profits. Although many businesses can withstand periods of slumped sales, a sustained decline in sales will likely mean companies look for ways to cut costs to remain profitable.
While recessions have the most impact on entertainment spending, luxury items, and discretionary purchases, the grocery industry is also affected. High inflation rates mean every dollar buys less at the supermarket. The United States Department of Agriculture estimates that food prices will rise between 2.5% and 3.5% in 2023. The rising cost of food items may especially impact the life span of boutique grocery stores that typically have a small financial cushion.
2. Excess Inventory
Abrupt economic downturns make it challenging for businesses to forecast demand accurately. As a result, inventory may not sell as expected, and products with low demand may expire. Excess stock represents a financial loss if companies can't move it. Until demand increases, some businesses may slow their output to improve liquidity.
Excess inventory can be especially problematic for grocery stores during recession periods. Grocers require good on-shelf availability to avoid customer disappointment. Many consumer packaged goods must also be replenished frequently, especially perishable foods. Excess inventory can lead to product loss, further cutting profits.
3. Credit and Liquidity Impairment
A common impact of recessions is tightened credit conditions. Lenders may use stricter criteria when assessing a business's creditworthiness, meaning some companies may have difficulty accessing much-needed cash. Liquidity issues impact every supply chain partner, forcing some businesses into bankruptcy.
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How to Make Your Grocery Business Recession-Proof
The best time to lessen the impact of a recession on your grocery business is before it occurs. Knowing how to prepare your grocery store for a recession helps keep your business afloat during tough times and can maximize growth opportunities. With the right strategies, you can retain existing customers, draw in new ones, and cut costs while investing in future growth.
Here are four steps you can take now to prepare for a recession:
1. Build Customer Loyalty
Understanding customer preferences is critical for building loyalty when the economy is growing, but it's equally important during a recession. Grocery stores should embrace new strategies for increasing customer loyalty. Here are a few approaches that may help your grocery business:
- Invest in eCommerce: Customers increasingly turn to eCommerce when buying groceries. One estimate predicts that 20.5% of total grocery sales in the U.S. will be conducted through eCommerce channels by 2026. Capitalize on the shift in consumer behavior by developing an omnichannel retail strategy.
- Offer rewards and promotions: Launching customer loyalty programs now can keep customers coming back to your store even when the economy tightens. Use customer data to tailor rewards and promotions to your customers' needs.
2. Sell to Build Savings
Boosting sales before a recession can help your grocery business increase its emergency fund and prepare for lean times. Those savings can also become an opportunity for reinvestment in business growth. While a recession may not be the time to make significant investments in innovation, it can be an excellent time to put more toward automation and improving customer service.
With a recession looming, you may need to pivot your current offers and strategies to increase sales. For example, many businesses may cut marketing and advertising spending during a recession, leaving more opportunities for other companies to take advantage of the pullback. A well-curated digital presence can create a lasting impression in shoppers' minds and lead them to your store.
3. Be Strategic About Cutting Costs
Grocery store managers may be tempted to increase profit margins wherever possible during a recession by passing price hikes to the consumer. While this strategy may be beneficial in the short term, it can also turn loyal customers away or limit the number of new customers coming into your store.
Instead, find other ways to cut costs that will boost long-term growth. Optimizing your grocery store's supply chain is one of the most effective ways to achieve future business growth and increase revenue. Improve your supply chain management by:
- Increasing supply chain visibility: Integrating your sales channels into one digital platform provides greater supply chain visibility.
- Standardize and automate communication: Many retailers and grocery stores already use electronic data interchange (EDI) to automate order processing and other business communications. Using EDI drives efficiency throughout the grocery supply chain.
- Review your supply chain strategies: Routinely evaluate your suppliers' and vendors' performance to determine where you can make improvements.
4. Improve Inventory Management
Avoiding overstock while maintaining a good level of on-shelf availability is always challenging, especially during a recession. When grocery stores face shrinking profit margins and fluctuating customer demand, it's difficult to strike the delicate balance of having the right products on the shelves when you need them. The increasing complexity of grocery supply chains only adds to the difficulty. You need practical solutions to manage incoming products from multiple suppliers.
One tool for improving inventory management is vendor managed inventory (VMI) software and collaborative replenishment. VMI improves on-shelf availability by streamlining communication between grocery stores and their suppliers. VMI equips trading partners to create a demand-driven supply chain, optimize inventory replenishment, and improve in-stock rates. By collaborating on inventory replenishment and establishing mutually beneficial goals, grocery stores and their suppliers can ensure the correct number of items are always on the shelf, even when they need to scale back.
Recession-Proof Your Supply Chain With TrueCommerce
Recessions are challenging for customers and businesses. The grocery stores that emerge stronger from economic storms will be the ones that create targeted strategies for maximizing growth opportunities. Implementing tactics to meet customer needs, improve your supply chain, and increase sales can help your grocery store grow, even through a recession.
With multiple solutions for managing partner communications, improving data sharing, and increasing supply chain visibility, TrueCommerce can help you prepare your grocery business for whatever comes. At TrueCommerce, we offer EDI solutions, VMI software, and other supply chain integrations built to grow your business. To learn more about what our EDI and VMI solutions can do for you, request a free demo today.