Global Insights

Voices on the Ground

A Pulse on Big Brands

Welcome to InFocus

A curated content platform of COVID-19 news stories with a supplier-retailer lens by Advantage Group.

Edition 8 – May 27, 2020

FEATURED STORY

We Are In This Together: How COVID-19 Has Accelerated the Need for Partnerships

To provide our clients with global insights throughout the pandemic, Advantage conducted dedicated research to gather the perspectives on how retailers and suppliers are being impacted and are adapting in key markets around the world: China, Brazil, Italy, Spain, Portugal and the UK. We have also collected detailed feedback from the remainder of our 40 markets. Their stories explore the tensions brought about by the crisis and the need for collaboration to solve them. They also address how retailers and suppliers continue to adapt as the crisis rocks the rank and file and pressures them to future-proof their businesses without certainty of what the ‘future’ looks like. Indeed, the future holds more questions than answers, but reflecting on these questions and planning for the potential scenarios will put us in a better place going forward.

No One Saw It Coming

Without warning, the Coronavirus swept across the world driving individuals into their homes as social distancing measures were implemented across communities, provinces and nations. This necessitated retailers and suppliers around the globe to retool to adapt to monumental shifts in consumer behaviour. The first markets hit by the pandemic continue to pave the way for the rest of the world and provide valuable learnings as the grocery industry passes through the short, mid and long-term stages of the crisis.

Over the past several months, collaboration has been a fundamental pre-requisite for all suppliers and retailers. In fact, the need for collaboration, along with an understanding and empathy for the needs of others, are overwhelmingly noted as the most influential aspects of supplier-retailer relationships during the pandemic.

Adapting in Crisis Puts a Lens on Partnerships

The need to partner in support of the same end goal, getting consumers the products they need to survive, has strengthened cooperation between retailers and suppliers. Simply put, the crisis has led to a greater appreciation and understanding of the challenges that the other side faces in the retailer-supplier business partnership. Collaborative relationships built on mutual trust have accelerated and reached new levels of intimacy while adversarial relationships have rapidly shifted into partnerships as both parties gained a real sense of “we are in this together”.

Retailers and suppliers around the world share the ways that they have raised collaboration to unparalleled heights: constant communication, sharing and transparency, working for win-win outcomes, focusing on problem solving and compromise, and being empathetic to each other’s needs. While other tactical adaptations reflect the stage of crisis and other market realities, these encompass the basics tenants that got us through to our present reality, and that will continue to yield efficiencies and results as economies normalize.

Constant Communication

Daily or real-time communications took the place of more structured and planned conversations, and phone or virtual meetings often replaced or supported written communications. Adapted mediums i.e. voice connections (phone or virtual meetings) often supplanted written communications to ensure clarity of message as there was no scope for misunderstandings and no time to waste. Real-time communications have also helped retailers and suppliers exchange ideas with agility, reaching decisions with greater speed and efficiency. Alternatives to conventional communication tools such as messaging apps accelerated to make oneself readily available or more responsive as problems or issues developed.
“The COVID-19 crisis and hoarding have put enormous pressure on the entire chain. In these times it is nice to see how cooperation is strengthened by ‘over-communicating’, to be able to help each other where possible and to ensure that the Dutch shops remain stocked. This has certainly intensified the relationship with retail.”

– Netherlands Supplier

Sharing and Transparency

Real-time sharing of data and category insight, coupled with full transparency and visibility to the supply chain have been critical to ensure rapid adaptability on all fronts and to create trust between retailers and suppliers, strengthening partnerships in a time when retailers must partner with whomever they can trust to get them what they need. Sharing updates openly and honestly became critical as retailers needed to understand lead-times with an unprecedented level of transparency. Although it is not always easy to deliver difficult news or even a message of uncertainty, this is mutually beneficial compared to avoiding the conversation or withholding information. Retailers, for the most part, have demonstrated an understanding of the challenges suppliers are facing but have not tolerated being led astray.
“They have given us insight as to what they are doing about the challenges because they are at operational capacity. Having the transparency there helps us understand what we should be supporting them with, and what we should be moving away from.’

– UK E-commerce Supplier

Working Together for ‘Win-Win’ Outcomes

Retailers and Suppliers are partnering where the need is the greatest – supply chain. Examples include suppliers and retailers of closed industries stocking shelves for essential service retailers, which is also helping keep more people employed whilst serving the common good. Suppliers have switched production to support the demand for products like masks and hand-sanitizer (e.g. the beer and spirit companies have shone with this contribution as have many other companies).
“Cooperation with retailers has even improved on some fronts because there is a common interest: getting as many products on the shop floor as possible. In addition, we have tried to support the retailers as much as possible by deploying our field staff on the shop floor to replenish shelves (not only for our category, but also for ‘hoarding products’). We also came across with the field service at retailers where we normally should not enter. There is a lot of contact with each other, really a lot. In addition, we set up an exclusive activation with a single retailer to support the catering industry. The same applies in the area of supply chain. Communication is key and this was rock solid from both retail and ourselves.”

– Netherlands Supplier

Focus on Problem Solving and Compromise

A necessary outcome of the crisis has been that retailers and suppliers have had to focus on problem-solving and be ready to resolve issues. This has required putting aside their agendas and reaching a compromise to make decisions and execute under pressure in the tightest timelines imaginable. This has brought a new emphasis for working towards creative solutions, rapid ideation and a real demonstration of “fail fast” innovation in processes. As an example, upgraded category insight capability has grown out of the need for enhanced processes for acquiring feedback and turning around requirements in real-time (e.g. greater ‘watching’ of social media platforms, etc.).
“A positive aspect is that we cooperate more closely in the logistics field than before and that we both better understand each other’s difficulties (e.g. out-of-stocks) and thus come up with creative solutions for which we can subsequently evaluate the results.”

– Belgium Supplier

Empathy to Understand Each Other’s Needs

No one wins in a time of crisis, and retailers and suppliers cannot afford to carry over some of the legacy business practices, such as making zero-sum demands or working toward a one-sided outcome. Retailers and suppliers have had to be flexible and understanding of one another’s needs and capabilities. It is not “business as usual,” so in some cases, this required a break from the usual ways of doing business, which may set a pathway towards stronger collaboration in the future. When business partners demonstrate a desire to listen, learn and collaborate, win-win outcomes can be created without all the process and stress of negotiation. Supply chain flexibility and adaptability have been the predominant requirement with suppliers looking at all sourcing and delivery options with retailers to supply where it is needed most. Suppliers have been appreciative of retailers who have withdrawn standard penalties for delivery and promotions non-compliance.
“… The current landscape between retailer and supplier is transforming into a more collaborative one where the two sides are willing to work together to review a marketing campaign or new counter measures, and jointly operate. This epidemic is at a tipping point. In the process of solving problems together, the supplier and the retailer will collide with more ideas. During this period, the two sides have further strengthened communication. This epidemic is like a catalyst, making the supplier and the retailer develop closer relations.”

– Chinese Retailer

The outcome of the crisis is what we are seeing evolve in real-time and what showcases the industry’s ability to respond to a crisis. The industry established capacity and capability for new ways of working with agility and efficiency and in many cases doing “better with less” i.e. fewer people, less time and less information. It continues to be a credit to the industry how well suppliers and retailers have each and collectively managed through this COVID-19 crisis – for the most part a shining example of how collaboration can make an impact for good – keeping economies, societies and households functioning during a time when much activity has come to a standstill.

All things are not equal however, and as in all realities, it cannot be said that all retailers and suppliers have adopted or adapted the above practices as well as others, and certainly some have evolved their capabilities and competencies faster than others. Those that already had a collaborative business model in place found it easier to adapt and dial-up existing practices and ways of working, but for others it meant a shift in mindset and culture which resulted in these companies lagging behind. Some reported their business partners lacked clarity and had unrealistic expectations and were unreceptive to listening and working together.

“We notice that despite the tension and pressure on all sides being greater than ever, the cooperation between supplier and retailer takes place in a more intensive and transparent manner. We notice enormous solidarity, all with the same goal in mind: to ensure that the consumer can do his shopping as well as possible”

Netherlands Retailer

Questions to Frame Future-Planning

Many of the capabilities and ‘new ways’ of working that retailers and suppliers have implemented over the past several months will persist after the crisis subsides as they have uncovered learnings to apply on an on-going basis. The lesson of collaboration is one that continues to build across all markets as more and more news sheds light on partnerships, co-creation with competitors, and collective support to essential organizations and the wider public.

As we enter the next phase of the pandemic, retailers and suppliers will brace for the long-term and begin to future-plan. In doing so, they will need to foster cooperative ways of working for the betterment of their respective and collective success. While no one knows precisely how it will look, the following questions may help in compassing the path beyond the pandemic:

How well will companies develop contingency and crisis planning as not only a luxury, value added business competency but as a key requirement?
Businesses must document their learnings from this crisis and form crisis teams and processes. While tempting, suppliers and retailers should not move straight into future planning post-crisis without learning from this experience. If it were to ever happen again, we should be faster and even more efficient in our response.
Will virtual ways of working translate into the new way of business engagement? What decisions will companies make about office spaces and travel budgets going forward?

Virtual ways of working in many cases have saved time and money and facilitated swifter decisions to get more done. While offices will re-open and in-person meetings will slowly resume – the Industry has realized that a lot more can be done remotely. Nonetheless caution may be warranted as these have not been normal times, people have been focused on keeping their jobs and without the temptations that can distract focus, will a work from home model work as well once the crisis subsides?

There is a growing argument that “Simpler is Better”. Could the paradigm shift for the long-term?

Over time has the industry let assortment and promotions get overly and unnecessarily complicated? Category assortment may come under the microscope on a long-term basis as Retailers have seen that they can serve the needs of their shoppers with a more concentrated offering. This would challenge suppliers to be more efficient in their new product development plans to fulfill unmet needs versus offering more choice for existing products.

Many category, product and promotional plans were put on hold during the crisis. Will these still be ‘relevant’ in the ‘new normal’?

Everything is up for review, we cannot just assume that it will even make sense to follow-through on plans that were in place before the crisis hit, for the reasons above and more. What do consumers want and expect right now, what products and messages will hold the greatest appeal, and will any be inappropriate in the ‘new normal’?

How will Governments, Suppliers and Retailers react to the new business models that were borne out of necessity?

For example, suppliers have had to experiment with ways to bypass retailers and get products into consumers’ homes during the crisis and in some cases, governments have loosed regulations on sale of products like alcohol allowing new routes to market. Can retailers and suppliers find ways to collaborate to support the merging lines (and in some cases competitive nature) of one another’s business models?

Will the examples of the open mind-state of retailers supporting each other (McDonalds/Aldi) and Suppliers diversifying to produce high demand products lead to future collaborations and better outcomes for consumers?
People have long memories. Times of crisis have a way for organizations to “show their true colours” – which partnerships and ‘greater good’ collaborations will remain and strengthen, and which will subside?

Advantage Perspective

The most important takeaway from our global findings is for the industry to look back at their learnings from the crisis to plan for the next phase. Suppliers and retailers need to consider these questions and decide on their future, not letting the wealth of insight and learning available from this crisis go to waste. No one knows for sure how our global economy will evolve and whether there will be a ‘new normal’ or if after a while, things will just revert to how it was pre-crisis. There are many predictions and much conjecture, but we will continue to learn in real-time. The retailers and suppliers who continue to stay close to the pulse and respond with agility will still be in the game. Those that do this in collaboration with their business partners will set themselves up to win.

Collaboration is supported through listening and responding. This is what Advantage has been helping our clients do in 40+ countries for 30+ years: helping businesses be better together.

“It seems clear that when the crisis is over, the world will be very different than the one we knew up until now. More than ever, retailers and suppliers will need to work together as trusting and transparent partners with new values established during the crisis – united forces and shared knowledge.”

Brazil Market Leader

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Voices on the Ground

This week, we interviewed Dr. Lutz Anderie, General Manager, Advantage Germany, to hear his perspective on how COVID-19 is impacting life and retail in Germany.

1. How has the pandemic affected the German CPG industry and where does the German market stand presently?

Germany has been affected by the pandemic in a very similar way to the rest of the world. Hoarding and empty shelves due to delayed deliveries were some of the phenomenon witnessed during the early phase of the lockdown.

The German CPG industry has tried its best to stay calm and react pragmatically to these new challenges. The logistical challenges were, for example, described as “just like Christmas only without lead time”. One of the consequences was that many retailers decided to put a halt to promotions, which led to an increase in average grocery prices.

Another effect was that online grocery buying increased by 30%. Non-food online purchases increased by even more than 30% and have kept freight forwarders very busy.

Most shoppers have reduced the frequency in which they go to the stores, relying on one main retailer for their weekly grocery shopping. Because of this, people are tending to choose supermarkets over discounters as their primary shopping location as supermarkets provide the wider selection and ability to get all their products in one visit. Consumer surveys are showing that price is less important during COVID-19 and that this could stay the case post-virus. It is also observed that regional products are becoming more popular, and these are generally not available from discounters.

Suppliers with a significant share of sales in the restaurant and out-of-home channel are facing a significant loss of revenue.

The meat industry in Germany was negatively affected as many workers were infected with COVID-19. Thus, many factories had to shut down their production. Price increases are predicted as one of the consequences of this.

Retailers and suppliers are still facing challenges in daily business, but they are recovering slowly from the worst of the situation. Demand volatility and availability of specific goods are still challenging.

Some suppliers and retailers are dealing with period revenue loss of up to 40%, but most of them are optimistic that this will be made up by the end of the year.

Overall, while presenting challenges, the pandemic has had a positive impact on the German CPG industry as its image has improved in various ways. Grocery store employees have gained a lot of respect and appreciation from the public, and companies in the industry have increased their reputation as responsible employers.

2. With Germany beginning to ease lockdown restrictions, how are consumers and the industry reacting to this new level of “freedom”?

The industry is pushing for further easing of restrictions as they are hoping to retrieve sales losses as soon as possible (assuming safety guidelines are properly followed). While the government is withdrawing some restrictions, people do not seem to be quite ready for a complete “return to normal”. Town centers are far from being as busy as they were before the pandemic and purchase behaviour, in general, is still rather restrained due to several reasons:

Lack of spending power – some people have been hit hard financially due to layoffs.
Lack of spending confidence – people continue to feel insecure about the economic situation and would rather save money “in case of an emergency”.
Lack of positive shopping experience – retailers still have restrictions and hygiene measures in place, such as in-store security personnel controlling the number of consumers permitted in-store, and the requirement for shoppers to wear face masks. This type of shopping environment does not encourage extra spending.

Slowly but surely, normalcy is starting to return. Retailers are resuming some in-store promotions to stimulate additional sales. Stockpiling has ended and consumers are starting to purchase as they did in the past. And as a stimulus measure, the government is considering issuing citizens with “consumption vouchers” to boost spending.

The work environment of our clients is also starting to return to normal. With demand and supply stabilized, they are refocusing on production rather than on solving logistics challenges that manufacturers had to solve when the crisis first hit. Face-to-face meetings between retailers and suppliers are taking place again, although some retailers are erring on the side of caution and prefer to delay face-to-face meetings until autumn. With the worst of the crisis hopefully over, both suppliers and retailers are once again able to start planning for next year and are preparing for tough annual negotiations – a true sign that business in Germany has returned to normal.

3. What are some of the innovations and changes made in the industry resulting from COVID-19? Do you anticipate these will continue into the long term?

There were some temporary, quick fixes done to deal with some of the supply issues faced. For example, to ease logistics bottlenecks, there was a temporary suspension of the Sunday traffic ban for trucks. Supermarkets also started to produce their own yeast to cope with the shortage of this product.

One of the main longer-term impacts will be an increased reliance on people working from home offices and the resulting changes in communication. The share of home office workspaces is expected to increase significantly after the pandemic, as the flexibility and convenience have generally been viewed as enriching to the German work culture. Companies have started to rely on and accept the value of digital communication tools and software such as Skype, Microsoft Teams and WebEx; this will contribute to better and faster development of digitalization in the German workplace.

As with any crisis, there will be some winners and losers, with some suppliers and retailers downsizing, while others go into acquisition and growth mode. Dr. Oetker, which produces heavily demanded products like oven pizza and baking powder, is doing very well and has announced that they are planning acquisitions. While Karstadt, a department store, is having to close 80 of its 160 outlets.

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