It’s still early in 2023, and I can’t help but think how strange the last few years have been. Just three years ago, Americans were hearing about a virus in China, but perhaps not thinking much about how it would impact their lives. My, how things have changed.
Decades from now experts will talk about the long-term effect of a global pandemic on literally everything. And young people won’t be referred to as Gen Z, but the Pandemic Generation. (I actually prefer the term “Covidian.”)
It has been strange, indeed, but looking back doesn’t help manage businesses now and next year. So, what’s next in 2023? The independent grocery industry will be impacted the most by these key areas: inflation and the economy, labor market, housing, shopper behavior and China.
Inflation and economy
The old economic models suggest that when interest rates rise, inflation slows. The Federal Reserve and its equivalent in many IGA countries across the globe is running that play, but it is hard to see much impact.
Inflation continues to accelerate, albeit more slowly, but there is some sort of strange economic surrealism occurring – rising costs aren’t slowing consumer spending, luxury goods retailers still have lines to get into their boutiques and airline travel has never been busier.
Black Friday holiday spending set new records, with more than $9.12 billion spent in the U.S. and nearly half of that made via smartphones.
I predict the “times are good/times are bad” phenomenon will be short lived. Mounting consumer credit card debt (up 15 percent versus a year ago) and rising prices will eventually collide. Only when consumers slow purchases will inflation begin to reverse, no matter what the Fed does with interest rates.
And when that happens, expect lower income and marginal middle consumers to be hit hardest. The poor seem to always pay the most for everything, and the combination of high prices, soaring housing costs and rising debt service will push more Americans out of the middle class.
Labor markets
Many people thought that when the artificial stimulus injections issued in the first two years of the pandemic ran out, workers would flock back. It didn’t happen. Economists think that rising inflation will force them to return, though that hasn’t happened yet.
Businesses need to stop wishful thinking and sign up for the new normal of the modern labor market. There were problems finding service workers before COVID began. And that struggle will continue long after the last mask is thrown away because the job market has changed.
Today’s workers have choices they didn’t before – 36 percent of employed Americans identify as freelancers. The gig economy – featuring employers such as Uber, Lyft, Door Dash and thousands of others – has permanently changed the landscape for traditional employers.
In 2023, the gig economy in the U.S. will hit $455 billion, with 78 million people who used to apply for warehouse, restaurant and retail jobs opting for flexible work options.
The No. 1 reason workers flee service jobs? It isn’t money. They want more flexibility in their work lives. Young people especially are prioritizing work-life balance.
Employers must stop thinking workers will quit their gig economy jobs and hop back into stores when the economy stabilizes and inflation and out-of-stocks return to normal. Instead, they must focus on how to modernize jobs to appeal to what workers want.
Housing
America has a housing crisis – there aren’t enough homes to meet demand. In a way, this is good as it means the total population is growing. (When population growth stops, economic chaos follows, as seen in Japan, Western Europe and increasingly in China.)
But the bad part is that young families and low-income Americans are increasingly being left out of the housing marketplace. And when home ownership declines, it causes rents to increase.
The Fed has been pushing higher interest rates to slow inflation, but instead of helping it is hurting those who need help the most.
Over the long run, this will push out the definition of suburbia, as more affordable housing is built farther from the city center. Meanwhile urban centers are being refurbished and gentrified, pushing low-income families out and centralizing younger, white-collar wealth.
Over the short run, the squeeze between housing costs and high inflation will tip more Americans into economic crisis, especially two-income working families struggling to stay “above water.”
Consumer behavior
So far, consumer spending has been unfazed by the massive economic, social and political upheaval of the last few years. People have continued to spend.
But reality is coming, and I predict it will arrive soon. Stimulus checks are spent, credit card debt is up and the cost of everything is rising. I would predict massive consumer purchase rationalizing in the back half of next year.
The good news for the food industry is that, among all the things Americans spend their money on, quality food and nutrition is the least likely category to get cut.
It isn’t just because everyone has to eat. Instead, it is the ongoing connection between food and health that makes so many consumers prioritize quality of ingredients, farm to table, organic and other attributes. And as the country (and most countries worldwide) ages, this desire to be healthier by eating healthier will accelerate.
That is good news for the food industry, but only if it modernizes how to sell. Shoppers might switch out of name brands and go to private label in one area, but still buy fresh produce and hand ground meat in another.
Grocers need to understand this need. If they can help shoppers save money without nutritional compromise, they could navigate the tough waters ahead and come out with higher market share and more loyal shoppers.
COVID-19 crisis
In much of the world, the global pandemic seems to be a fading memory. But until recently, China held onto its strict lockdown protocols that included rolling shutdowns, restricted travel policies and other extreme outbreak containment methods.
With those protocols rolled back, the country saw a massive outbreak due to lack of hybrid immunity, vaccine hesitancy in the elderly and concerns over the effectiveness of their vaccines.
Since China is such a critical part of the manufacturing process for what seems like everything, everywhere, it is important for grocers to know why this changes now, and what would it mean in the short run.
The why now is simple: China’s GDP growth was half of what the country hoped. Every border closure and provincial shutdown has caused a ripple effect of economic mayhem. All of us have been living that through supply chain disruption for the past three years.
But it is also a competitive risk for the country. If international companies can’t find reliable supply of parts and finished goods, they will seek other suppliers. And once supply lines reconnect, it is expensive to earn those customers back.
New manufacturing supplies for everything from computer chips to plastic bottle tops have already been opening up in other countries throughout Asia, South America and other developed nations.
For IGA families and customers in China, I wish the absolute best as they deal with ongoing COVID infections. For the world economic stage, COVID may have broadened and strengthened the global supply chains.
In the future, cost, availability and reliability will be determining factors for how goods are sourced and in the long run, that is probably good for all of us.
For more information about Ross and the Independent Grocers Alliance, visit iga.com.
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