AI pivotal to achieving profitability in retail and CPG industries

Most retail and consumer product CEOs said AI — including generative AI, deep learning and machine learning — will be the technology that most helps deliver desired results in the next three years.
Elizabeth Christenson
Editor, Retail Leader
Elizabeth Christenson

Nearly half of CEOs surveyed identify productivity as their highest business priority — up from sixth place in 2022, according to a new global study by the IBM Institute for Business Value. CEOs, though, recognized technology modernization is key to achieving their productivity goals, ranking it as the second highest priority. 

Yet, CEOs can face key barriers as they race to modernize and adopt new technologies such as generative artificial intelligence (AI), the study found. Three-quarters of CEO respondents believed that competitive advantage will depend on who has the most advanced generative AI.

“AI is not just driving significant cost savings in both business and IT operations, it is also offering a new level of cost-effectiveness that becomes particularly important in uncertain economic climates,” Sevgi Koklu, IBM’s vice president and managing director of distribution industries, told Retail Leader. “By streamlining operations, minimizing inefficiencies and delivering cost-effective solutions, AI allows businesses to operate leaner and smarter.”

Retail and consumer product goods (CPG) findings from IBM’s survey include:

  • Prioritizing customer experience: Both consumer products and retail CEOs have placed exceptional customer experiences at the forefront of their strategies. Enhancing customer experience is the top priority for 51% of CPG CEOs and 53% of retail CEOs, higher than cross-industry CEOs (44%). They recognized that superior customer experiences are vital for sustainable growth and gaining a competitive edge, the survey said.
  • Influence of technology: In the CPG industry specifically, technology plays a pivotal role in achieving business goals and profitability. Modernizing technology ranked in the top priorities for CPG CEOs (40%), with technology factors (51%) being the most influential external forces on CPG enterprises. These executives are making strategic decisions driven by technological advancements and leveraging them to shape their industries.
  • Generative AI and innovation: Both CPG and retail industry leaders acknowledge the potential of AI in revolutionizing their operations. Approximately 59% of CPG CEOs and 42% of retail CEOs said AI — including generative AI, deep learning and machine learning — will be the technology that most helps deliver desired results in the next three years. “AI has taken a front seat in decision-making processes within retail and CPG brands,” Koklu said. “It provides insights that are more accurate and comprehensive, making sense of market trends and customer behaviors in a way that was not possible before. In a challenging economic climate, these data-driven strategies underpinned by AI become even more crucial.”
  • Data challenges and future plans: CEOs in both sectors face data-related challenges, including unclear data calculation/reporting across suppliers/partners and difficulty in identifying meaningful insights. However, they have high confidence (82% CPG, 81% retail CEOs) in technology's ability to provide the right insights. Furthermore, 71% of CPG CEOs and 64% of retail CEOs believed they have a clear plan for the role advanced AI will play in decision-making five years from now.

“The future of business and management, according to a majority of CEOs, is firmly entwined with AI,” Koklu said. “As our study shows, CEOs view AI as more than just an additional tool; they see it as a competitive advantage, pivotal in shaping the future of their companies. These leaders are keen on incorporating AI into their core business functions and domains, effectively shifting the paradigm from merely adding AI to starting with AI.

 “They understand the transformative potential of AI, and the necessity to initiate and deepen discussions within their teams about its use,” he continued. “There is an awareness that challenges and roadblocks may arise during the integration process, yet they are prepared to navigate these issues, ensuring that appropriate safety measures and checks are in place. The use of responsible AI use is crucial, establishing governance protocols and boundaries that align with the organization's values and standards playing a key role.”

Dealing with challenges

Still, today's business landscape is fraught with complexities and uncertainties. IBM’s data uncovered a roadblock: a lack of clarity and consistent standards is impeding decision-making and investment. This is particularly evident in emerging areas such as sustainability and data privacy. More than half of consumer products CEOs (52%) and retail CEOs (49%) report delaying at least one major investment due to this uncertainty.  

Moreover, when considering the adoption of AI, CEOs express a significant concern around data. 

“The quality and reliability of data are paramount; without trusted data, even the best AI can deliver faulty, biased or dangerous results,” Koklu said. “Overcoming this challenge is no small task, as many enterprises grapple with issues related to data lineage and source, a lack of proprietary data to customize and security concerns. Hence, retailers need to focus on getting their data house in order as part of their AI journey.”

IBM’s data indicated the top three challenges that consumer products and retail CEOs anticipate during the next two to three years: environmental sustainability, cybersecurity/data privacy and technology modernization. 

“These should be key focus areas for retailers looking to future-proof their businesses,” Koklu said. “To thrive in the rapidly evolving retail landscape, these challenges need to be acknowledged, and proactive strategies must be implemented.”

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