Summary: As the COVID-19 pandemic rapidly spread across the globe, companies and industries leapt into reactionary mode. For many, understandably, it became difficult to plan and focus beyond the barrage of day-to-day challenges that unfolded.
As the most dramatic portion of the crisis begins to subside and some countries in Asia, Australasia, and Europe gradually ease lockdown restrictions as they transition from peak crisis to recovery periods, manufacturers and retailers are starting to prepare for the next phase of the “shutdown economy”.
Advantage Perspective: There is still a long way to go before society and the economy at large returns to pre-crisis levels. Even once things normalize, it is extremely unlikely that consumer behaviour and industry dynamics will fully reset to where they stood before the pandemic took hold.
It becomes important, therefore, to assess which of the reactionary measures adopted as a result of the crisis may fade away, which might stick around for the medium-term, and which could evolve into long-lasting changes that define the grocery industry for decades to come. This week, we examine what the next phase of the “new normal” could look like for Category Demand, Branding and Marketing, and Industry Dynamics.
The last two months have seen unparalleled volatility in the demand for and spend on various categories. However, signs of a return to stability are slowly starting to show.
“Hygiene products", such as hand soaps, vitamins and cleaning products - are seeing surges in demand levelling off from their peaks. Yet, sales are likely to sustain above pre-crisis levels as cleanliness and sanitization maintain increased importance as a category that consumers will prioritize spending towards.
As the crisis took hold, consumers rushed to stock up on staple products with longer shelf lives such as pasta, rice, canned and frozen foods. Across Europe and North America, most household pantries and freezers are now fully loaded, and it is predicted that sales for these categories are likely to return to pre-crisis volumes. At the same time, categories such as fresh, impulse, and confectionery that consumers refrained from purchasing as the crisis unfolded are starting to see demand normalize.
The categories likely to remain negatively impacted longer-term are high-end luxury products that rely on discretionary spending power and consumer confidence.
At the start of the crisis, shoppers’ psyche was dominated by panic as they rushed to stockpile essential products that they feared would run out. They did not have the luxury of being brand or channel discriminate, purchasing whatever they could get their hands on as long as the price was within reason and void of price gouging. As store shelves fill up, and the new economic realities take hold, recessionary behaviour is starting to set-in, and consumers are turning to discount and private label brands when the choice is available.
The crisis brought about a rapid halt to brand and advertising campaigns focused on product features and positioning, with CPG companies shifting their messaging to focus on what they were doing corporately regarding safety protocols and community relief. Emphasis on social responsibility efforts is likely to continue, however, product messaging will not cease entirely, especially for brands looking to tout their health and cleanliness credentials.
For categories that saw demand fall during the peak of the crisis, such as confectionery, it is anticipated that some category leaders may opt to pivot from a product to a category-focused communication strategy.
Promotions, which also took a back seat during the peak of the crisis and in some instances were prohibited by regulators to prevent certain in-demand items from being hoarded, are likely to return for manufacturers of categories with an excess stock looking to encourage bulk purchases.
The crisis could mark the full decline of some advertising platforms. For example, some are predicting that paper flyers, long a staple of supermarket outreach, could switch over entirely to digital versions.
Even once restaurants, hospitals, and schools open-up, the foodservice sector is likely to experience contraction as recessionary conditions remain. While this should serve as a boon for the core grocery industry, this does not make it immune from contraction and consolidation as well.
The grocery sector has long operated on high volumes and low margins. Non-discounters will be facing top-line margin pressures as consumers flock to discount and non-premium private label brands. While bottom-line cost pressures will be seen in the form of salary hikes brought about by “hero pay” and increased in-store cleaning measures.
Especially vulnerable will be offline retailers who have not invested in their own online delivery capabilities or partnered with an online delivery specialist. The crisis inspired many a consumer to order groceries online for the first time. Even if the online experience was far from seamless, with enhanced safety measures and physical contact apprehension persisting, it will likely be a long time until visiting a grocery store feels like a routine, anxiety-free experience.
Independent neighbourhood formats and regional grocery chains could also capture increased market share as the crisis has instilled in consumers a stronger sense of community and an affinity for supporting local businesses.
Transformation is also likely to occur within the stores themselves, with layouts changing to allow for more handwashing and sanitizing stations, as well as increased health and safety education and signage. Some grocery stores are debating whether to get rid of salad and self-service food stations entirely. Even if the virus disappears fully, new policies and configurations such as dedicated senior hours and one-way aisles could endure.
With the advent of digital grocery, larger store formats may want to exclusively assign some shelf and refrigeration space in-store towards online order fulfillment, as well as convert parking facility space to house “click and collect” bins.
Health & Safety
Summary: As North America peaks in the number of Coronavirus cases and testing is not readily available to all employees, retailers are having to manage through a public relations minefield when one of their employees shows symptoms of, or tests positive for the infection. Should they disclose this incident to the public and their employees? How should they let people know? And how should they respond to ensure health and safety? This is uncharted territory. With no federal requirement for public disclosure of this information and the implications of personal privacy leaks, retailers need to weigh the pros and cons and make their own decisions as they feel their way through this potentially disastrous situation.
Some retailers believe going public with an announcement is the ‘right thing’ to do providing customers and the public with transparency so they can make choices about where they shop. Others express it is a way of caring for their shoppers and their store communities and hope that it will build trust post-crisis. Many others are taking a less proactive approach but are stepping up internal protocols to limit associate and shopper exposure to the Virus. No matter the impetus, all parties are doing their best to keep their team members and shoppers safe and their reputations clean. Two of the ways in which retailers are making an impact during this challenging time are (1) messaging to shoppers and the community and (2) health and safety measures post-diagnosis.
Advantage Perspective: The decision to bring forward information about employees diagnosed with COVID-19 is with the retailers. Ultimately though, shoppers will vote with their wallets as we come through the crisis. This pandemic has brought out a spirit of humanity and consideration for people. We have seen many examples of companies supporting each other, the public and the frontline heroes, both essential and non-essential during the pandemic. As retailers consider how they want to be perceived as the world comes out of the pandemic, gestures made, and directions taken by some may be inspiration for others.
The coronavirus was first confirmed to have spread to Belgium on February 4th, when a Belgian national, upon returning from Wuhan to Brussels, tested positive for the COVID-19 virus. Transmission within Belgium was then confirmed in early March at the end of the school holidays and around the carnival period. At this time, many tourists, who were returning from Northern Italy, went back to work or school, leading to an epidemic with a rapid increase in cases.
Effective March 13th, Belgium announced a lockdown and ordered the closure of schools, discos, cafes and restaurants. Public gatherings for sporting, cultural or festive purposes were cancelled, non-essential travel was prohibited, and non-essential shops were closed.
These strict confinement measures will remain in place until May 3rd, at the earliest. If circumstances permit, from May 4th, Belgium will begin to phase out these measures.
In Belgium, shopper habits have followed a pattern similar to that observed in other countries.
The impact of the lockdown on shopper behaviour has been massive. Even before the lockdown, traffic in shops increased. Customers were buying essential items like toilet paper, hand soap, rice, pasta, etc. Most retailers and manufacturers were not prepared for this peak in demand which subsequently hit their entire supply chain. Additionally, shops needed to re-organize in order to be able to follow the safety instructions and make sure products were getting onto shelves. Most retailers sent their HQ staff to shops or warehouses in order to get the job done. Even personnel of sister companies (e.g. Dreamland of Colruyt) started working for the supermarkets. Several retailers are also taking financial measures to cover the extra costs of this crisis.
Nielsen calculated that in the week before the lockdown, supermarket sales increased by 45% due to the stocking up of essential products. In the first week of the lockdown, sales increased by an additional 37.5%. Despite these increased sales in supermarkets, big CPG players in the market are facing huge turnover loss due to the closing of their professional and foodservice channels and events. Retailers with a big focus on B2C, such as Sligro and Metro are also suffering.
To relieve some of the pressure on grocery personnel, the government prohibited all promotions as of March 18th. This led to a price increase of around 6.6% for some shops (Test-aankoop, the Belgian consumer organization). Starting March 31st, planned promotions were allowed again, but retailers reacted differently to this. For example, Delhaize installed a solidarity action giving a 5% discount over several weeks, while others simply restarted their promotions.
In terms of shopper habits, several studies show that people are buying brands they know along with fresher and higher quality products. If they need to stay at home, they want the best for themselves. Store visits are more planned than before as people want to reduce shopping time and people shop closer to home. Home-delivery services and pre-ordering of groceries have also increased significantly in the last few months.
All retailers implemented a wide range of safety measures for their staff, suppliers and clients. Plexiglass shields were installed relatively quickly at check-outs to keep the cashiers safe. Shopping trolleys are disinfected before going in-store and sometimes you need to follow a certain route around the store. Retailers are creative and working together with other companies to create a safe shopping trip. Carrefour has tested and will even install a disinfection tunnel at hypermarkets.
Focus on the supply chain remains important and business is very slowly getting back to normal. Manufacturers still work closely with retailers to help them with store deliveries by installing a direct delivery and mixed pallet service.
Additionally, retailers and manufacturers have set up initiatives for community and business support:
Belgium has shown during this Covid-19 crisis that "L'Union fait la force" - "Eendracht maakt macht" - "Einigkeit macht stark" - (Strength lies in unity), a slogan created at the time of independence in 1830, is still relevant today.