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ON CONSUMER INNOVATION
Retail and CPG brands can be tech leaders
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| Retailers and consumer-packaged-goods (CPG) companies have a unique opportunity to lead in digital innovation. After all, they interact daily with billions of consumers who expect great tech-driven experiences. Yet few have a digital-native gene at their very core. Many retailers and CPG brands are established companies, some more than a century old, and they have deeply ingrained practices, partnerships, and supply chains. Breaking free of tried-and-true patterns is always hard, but essential. Going forward, that means exploring how AI will transform the consumer sector. We are entering the AI-to-consumer era, where shoppers will interact with AI shopping bots and agents to find and make purchases.
So, what steps can retail and CPG CEOs take to create new AI-focused business models—ones that both expand on and reinvent their core offerings to generate significant new revenue? There is, of course, no easy way to create a breakout digital business. It entails managing multiple high-growth S-curves at the same time. For example, CPG brands will need to rethink distribution models since shopping agents could soon influence consumer choices more than traditional marketing.
But there is one success marker we see again and again: Retail brands that put their customers first have a huge head start. CEOs of these companies constantly ask themselves, “Would this new technology make the customer experience better or are we releasing tech for tech’s sake?” And they actually measure the impact of every new digital offering. If it doesn’t improve customer satisfaction by X basis points, then it’s gone.
Putting customers first isn’t just a front-end challenge. It also requires back-end technical transformation. Retail and CPG companies are now competing for the best developer talent and investing in APIs that help integrate their multiple tech offerings, such as personalized shopping bots, digital try-ons, and subscription management tools.
AI is on every CEO’s mind today; our research found that more than 90 percent of CEOs plan to invest more in AI over the next three years. And we see that retail and CPG companies have a once-in-a-lifetime opportunity to become AI leaders. Agentic AI, where intelligent agents act as personal concierges for consumers, is especially promising. Imagine an AI agent that autonomously replenishes a shopper’s household essentials, finds lower-cost subscriptions, and plans vacations end to end, even purchasing sunscreen if the consumer is headed to a sunny destination—with their consent, of course.
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| | | “The retail and CPG sectors could generate up to $660 billion in economic value by deploying gen AI.” | | | | |
| Discoverability is also undergoing a profound shift. Finding the latest cool products will no longer depend solely on search engine rankings. Instead, AI agents will guide consumers directly to the products and services that best meet their needs, changing traditional search. For retailers, this means ensuring their products are optimized for agent-driven discovery.
The retail and CPG sectors could generate up to $660 billion in economic value by deploying gen AI. Combined with the value of traditional AI and analytics, retail brands could unlock trillions of dollars in new value from AI.
Workers are ready to embrace AI, so another area where AI could have a big impact is improving retail associates’ jobs. We have seen retailers provide their employees with mobile AI chatbots that can answer shoppers’ questions or recommend complementary products, for example. Some retailers are using AI to make weekly shift scheduling more dynamic, working around their employees’ other commitments. The best digital businesses are both customer- and employee-centric because empowered teams deliver great customer experiences.
Of course, true change on the front end is only possible if retailers and CPG companies also transform their back-end systems. Forward-thinking CEOs implement AI at every step of the customer life cycle, including brainstorming, prototyping, and testing new products; leveraging digital twins to optimize supply chains; and creating one-to-one marketing campaigns for each customer.
Despite the excitement around AI, there is much work to be done. Just 1 percent of CEOs believe their companies are mature users of AI, and just 11 percent of AI projects actually get deployed. Retailers investing now in AI are breaking new ground, but they might not see near-term gains in revenue or customer growth from AI just yet. However, they are learning valuable lessons that could position them ahead of competitors. And as more and more plug-and-play AI solutions become available, retailers with this head start will be the first to reap the impact of AI at scale. The most important advice I could give any CEO of a retail or CPG company today is to get their hands dirty. Don’t be afraid to try new things with technology. With AI, no one company has mastered it yet, so it’s OK to experiment. Be curious and ask questions—one of which is always, “Would this technology make consumers’ lives better?” | | |
| Share Hannah Mayer’s insights
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| | | | Hannah Mayer is a partner in McKinsey’s Bay Area office. | | |
| | | | | | | Emily Shao on the business of autonomous vehicles | | | If autonomous vehicles aren’t already on the streets of your city, they will be soon. How can industry leaders make the move from deployment to market dominance? | | | | |
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