Ernst & Young LLP (EY US) today announced the release of its second Consumer Products and Retail Executive Pulse, which highlights the pressure that CPG and retail leaders are under to showcase AI proficiency, with a continued focus on technology modernization and innovation investment and identifying new levers for growth.

The Pulse, which surveyed over 250 US executives in the retail and CPG industries, found that 74% of leaders consider their companies to be AI mature (rating themselves a 4 or 5 out of 5). But the anxiety surrounding the pace of AI coupled with where companies are from an investment standpoint, may call that perspective into question. Fifty-two percent still note that the rapid introduction of new and emerging technology keeps them up at night. Plus, strategic investments are just now starting to ramp up as 47% of executives plan to increase investments in GenAI or ML in the next year, which is up from 31% from the Pulse at the end of 2023.

"AI's incredible opportunity offers CPG and retail executives the ability to mine data, create new efficiencies and streamline operations in ways never before imagined, and at the same time drive new paths to growth and innovation. But AI and GenAI technologies are still emerging and although investment in this area can create differential value, progress can't happen overnight," said Rob Holston, EY Americas Consumer Products Sector Leader.

"We're still seeing many brands and retailers in the use case testing phase, and they have to balance the pressure for progress with the reality of the journey to a responsible, strategic and long-term AI agenda," continued Mark Chambers, EY Americas Retail Sector Leader.

The use cases for AI are compelling, with 41% of the retailers and brands navigating shrink challenges saying AI and enhanced predictive analytics are the most effective solution, more than any other prevention method. Further, one in three (33%) of executives are using AI to drive more personalization in the customer experience, improve decision support across forecasting and scenario planning and for customer service chatbots. But the opportunity to embed AI to accelerate the strategic agenda could be even bigger.

Additional findings from the Pulse include:

As profitability and margin pressures persist as the top source of anxiety (53%), leaders look to supply chains as a source of value.
Supply chain continues to take center stage, as leaders, especially at CPG companies, understand the value it will bring to their organizations. In fact, 47% of CPG leaders think supply chain transformation will create the most value at their organizations in the next six to 12 months, compared to only 27% of retail executives. At the same time, when asked the top three areas they plan to invest most, supply chain operations (21%) fall out of the running for CPG leaders, falling behind inventory loss (43%), talent (40%), technology (36%), D2C (34%) and more. While the supply chain can help drive and improve cost optimization in the short term, with 45% of CPG leaders saying they are trying to create a more efficient supply chain, it's also important to think about the long-term, where supply chain can be leveraged as an integral growth driver. 

"Historically, the supply chain has been viewed as a lever to take cost out of the business for many CPG leaders," says Holston. "But supply chain transformation represents a considerable growth opportunity as companies look to drive increased volumes, innovate and open new revenue streams."

Cost optimization has been high on the retail and CPG agenda for years, but we're seeing companies pivot from cost to growth.
Investing more in revenue growth opportunities bubbles to the top of CPG company (57%) and retailers (43%) approaches to responding to the current economic environment. In fact, 66% of CPG and retail leaders plan to make significant investments in alternative revenue streams in the next two to three years.

You can't talk AI without talking data.
Leaders are doubling down on data to drive profit and create customer loyalty. Forty-two percent of executives believe the shift to online shopping has impacted their business strategy by adding more rigor and investment in consumer data. However, when it comes to data, security must remain top of mind, with 25% of leaders increasing investments in cybersecurity and 31% agreeing that data security matters most for consumer experience in 2024.

"Retailers understand the immense value and potential of consumer data to drive customer lifetime value. However, an ongoing paradox remains. Consumers are still hesitant, in some cases, when it comes to the safety of data sharing," says Chambers. "With data powering everything from inventory and merchandising to store and e-commerce experiences as well as the technology and AI applications that enable them, the companies coming out ahead are those that are able to capitalize on data without risking consumer trust."

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