By: Arindam Maitra, VP – Retail, Consumer Goods, and Manufacturing, LTIMindtree

Introduction

Historically, consumer industries, such as retail and Consumer Packaged Goods (CPG), have thrived on user data and have used it to keep pace with changing customer needs. Unsurprisingly, these industries have been quick to adopt generative AI or Gen AI[i]. Consumer industries realize that Gen AI has the potential to transform their business operations, customerda engagements, and strategic goals. In fact, McKinsey estimates that Gen AI could add USD 400 billion to USD 660 billion[ii] a year to the global retail and CPG sectors.

However, compared to their American counterparts, European companies have taken a cautious approach to Gen AI adoption that emphasizes data privacy and ethics. This is expected to change significantly in 2024, with many Continental European countries expected to double their Gen AI spending.

So, how will this impact the European retail and CPG sectors? Let’s find out.

Market potential of Gen AI

Gen AI in the retail market is expected to be worth around USD 8,386 million by 2032, growing at a CAGR of 36.8% from 2023[iii]. Another report estimates that Gen AI will account for 78% of retail industry growth by 2029 from a 9% impact in 2023, adding a whopping USD 9.2 trillion to the industry[iv]. Most of these benefits will be realized when Gen AI supplements the existing AI and Machine Learning (ML) models that rely on accurate, clean, and properly tagged data. They are also projected to stem from increased sales, increased gross margins, and lowered selling and administrative costs.

This is especially important in Europe as the price hikes that were instituted after the increasing geo-political tensions in Eastern Europe have impacted customer confidence and forced nearly 8 out of 10 Europeans[v] to trade down by switching to less expensive products, shopping at cheaper retailers, or postponing purchases. While the prices are expected to stabilize in the next 6-7 months[vi], they will bring down the sales growth with them.

Thus, retailers and CPG companies will need another avenue to boost their revenues, which is where Gen AI will fit in.

Key focus areas

Our latest Gen AI report, The State of Generative AI Adoption,[vii] found that retail and CPG leaders are using Gen AI to focus on the following areas: improving customer experience or personalization, optimizing processes/increase efficiency, streamlining creative content generation, and enhancing product design. Let’s take up all of them one by one[viii].

Improving customer experience: Gen AI-driven virtual assistants can provide customers with personalized, contextualized, and real-time support to improve their interactions with the brand. A virtual shopping assistant and a try-on feature can help customers get product recommendations and see a virtual rendering of products on their bodies, respectively, allowing retailers to reduce return rates and increase customer satisfaction.

Optimizing processes/increasing efficiency: Automating redundant tasks and reducing manual intervention across business processes will help drive operational efficiency. Gen AI will also be able to maximize production, minimize waste, and achieve smoother workflows.

Streamlining creative content generation: Retailers and CPG companies can use Gen AI to create new and consistent content at scale that can also be personalized based on the region, language, and user behavior. This will help them ensure a seamless brand experience across different touchpoints and ecosystems.

Enhancing product design and development: Most business leaders see product development as an area with the most Gen AI adoption use cases. 68% of leaders in the Nordics and 66% in the UK and Continental Europe feel it will be their most important driver of generative AI adoption. Businesses can use Gen AI to draw customer trend analysis and guide creative concepts and products.  

Accelerating product design and development

Product design and development is a costly and time-intensive process that requires a sound understanding of customer behavior, global market trends, and cross-industry inspiration. Integrating Gen AI into product design can help product designers rapidly generate multiple design alternatives and focus their creativity on refining and choosing the best options. This can significantly enhance efficiency, accelerate prototyping, and reduce the Concept to Shelf lifecycle (which is especially relevant in fashion, apparel and footwear, and food sub-segments).

Anheuser-Busch’s AB InBev has developed the world’s first AI-developed beer, Beck’s Autonomous[ix], using Gen AI to analyze customer preferences. It even used ChatGPT and Midjourney to create the recipe, name the brand, and design its logo and packaging. Brands like adidas and H&M have also used Gen AI to create custom sneakers and clothing designs. Gen AI can generate unique patterns for fabrics and prints, potentially saving designers a lot of time and effort. Gen AI tools like Dall-E, Midjourney, etc., can provide design suggestions, create 3D illustrations or photorealistic renderings, and modify existing designs. They are already helping brands identify eco-friendly materials to reduce environmental impact and drive sustainable product design. As the technology is progressing, the future hold a lot of promise for Gen AI in retail and CPG.

Future focus

Brands understand the game-changing potential of Gen AI and its ability to create new ways of driving innovation and opportunities in the competitive retail and CPG market. Thus, despite challenging macro conditions and reduced discretionary spending, the investment in Gen AI capabilities is expected to grow by 115% in 2024, reaching USD 2.8 billion. French, German, and Benelux companies spent USD 362 million, USD 294 million, and USD 226 million, respectively, in 2023. These investments are expected to double this year, with the UK and Benelux fighting for the third spot. Nordics will see the biggest surge in spending. Companies like Nike, Zara, adidas, H&M, and Ahold Delhaize are already investing heavily in Gen AI-driven tools and are expected to pick up pace in 2024.

European authorities are also working on the new disclosure and sustainability claim rules, with the first Corporate Sustainability Reporting Directive (CSRD)-related reports expected to be due on January 1, 2025. So companies must spend 2024 preparing, and using Gen AI to create new sustainable product designs will help strengthen their claims.

In conclusion

While Gen AI will provide a sustainable competitive advantage to early adopters in the retail and CPG sectors, the core questions around ethics and bias must be addressed to ensure adoption at scale. This will need effective European regulations that increase transparency and prevent the spread of copyrighted or illegal information.

In any case, Gen AI has the potential to reshape industries, and the cost of risk aversion is too high to ignore the technology anymore.

Read our detailed survey to know how you can embark on your Gen AI journey.

[i] LTIMindtree, The State of Generative AI Adoption Report, https://www.ltimindtree.info/gen-ai/

[ii] McKinsey, The economic potential of generative AI: The next productivity frontier, 14 June 2023, https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-ai-the-next-productivity-frontier#introduction

[iii] MarketResearch, Global Generative AI In CPG Market, July 2023, https://marketresearch.biz/report/generative-ai-in-cpg-market/

[iv] IHL Research, New Forecast Reveals Groundbreaking Potential of Generative AI in the Retail Industry, May 2023, https://www.ihlservices.com/news/analyst-corner/2023/05/new-forecast-reveals-groundbreaking-potential-of-generative-ai-in-the-retail-industry-9-2-trillion-impact-expected-by-2029/

[v] McKinsey, An update on European consumer sentiment: Mixed feelings remain, January 26, 2024, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/an-update-on-european-consumer-sentiment

[vi] Reuters, Consumer goods makers set to post mixed sales as US prices ease more than in Europe, January 23, 2024, https://www.reuters.com/business/retail-consumer/consumer-goods-makers-set-post-mixed-sales-us-prices-ease-more-than-europe-2024-01-22/

[vii] LTIMindtree, The State of Generative AI Adoption Report, https://www.ltimindtree.info/gen-ai/

[viii] Deloitte, The Generative AI Dossier, https://www2.deloitte.com/us/en/pages/consulting/articles/gen-ai-use-cases.html

[ix] Everest Group, Generative AI in Retail and CPG, July 13, 2023, https://www.everestgrp.com/it-services/generative-ai-in-retail-and-cpg-revolutionizing-operations-and-customer-experience-blog.html