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We interview Joe Flanigan, Managing Director, Advantage Group USA to collect his team’s perspective on how COVID-19 is impacting life and retail in the United States.

Q1 - With lockdown measures beginning to relax in some states, how is the industry preparing for the next phase? How are they preparing for a reality where different states will have different restrictions on business?

There is not a clear understanding of what the opening of states will look like. There are few official guidelines for those businesses that are reopening under restrictions. For example, there have been no guidelines on how to operate restaurants with fewer customers or whether to enforce rules requiring masks and social distancing. Starting this weekend, Costco stores are offering a mask (inside a Ziploc bag) to each shopper upon entering. Costco and Whole Foods are among the grocery stores now requiring shoppers to wear masks. However, this is an example of a proactive approach rather than a mandate.

Guidelines and rules vary within states and districts. Broadly speaking, states west of the Mississippi River (nearly 2,000 miles) have been much less impacted by the pandemic than those along the coast and in larger population centers. The retail landscape in the USA is quite fragmented with many retailers only operating in a few states. This will help them manage the rules better than national chains like Walmart or Target, who will have more rules to sort through.

Q2 - The USA is one of the most advanced e-commerce markets. To what extent did this help the industry cope with the challenges posed by social distancing requirements? How did the industry ramp-up capabilities even further to cope with increased demand for online orders?

One expert in building social media and web-based capabilities we spoke with, indicated the necessary e-commerce infrastructure was already in place, and the pandemic just forced those retailers that were reluctant to engage to finally jump in. The direct-to-consumer infrastructure through the post office, FedEx, UPS or through Amazon already existed. However, its viability as a channel became more apparent to new demographic groups and expanded into other geographies. The pandemic gave the platform the impetus to scale e-deliveries and “pick up and go” at the store for Kroger and Walmart.

E-commerce grocery sales have more than doubled. The estimate from IRI is that channel sales went from 2-4% to 9-10% of grocery sales. Acosta said that 33% of Households making an online grocery purchase in April did so for the first time. Retailers saw massive challenges supporting this increase in demand. Some had to set up order online / pick up in-store services. Others had issues hiring staff to make deliveries. Here in Nashville, in the first couple of weeks of the lockdown, it was virtually impossible to secure a delivery slot from Walmart, Kroger or Instacart (a delivery service used by many retailers). Impulse categories are negatively impacted by the rise in online shopping. Acosta said impulse sales seem to be taking a hit as shoppers move online and conduct “contactless shopping trips” i.e. touching as few things as possible and getting out of the store quickly.

The consensus seems to be that this will help accelerate the e-commerce grocery trend and some consumers will not go back to stores when they are permitted to. We have heard people say this puts e-commerce 2-3 years ahead of where people thought it would be in 2020. Having said that, even if sales are at 10%, 90% is still through brick and mortar, so brick and mortar is far from dead. Broadly speaking, e-commerce is a less profitable channel for retailers than in store. Additionally, it can impact out-of-stocks when a store becomes a delivery center. Retailers that use Instacart and other 3rd-party services lose connection to the customer and shopper data which can impact a retailer’s ability to target shoppers in the future. Most retailers have grown e-commerce sales, but many websites are still not optimized with good product images, search functions and product ingredient information, and their cost to serve will be higher compared to Amazon due to logistics. This may create opportunities for Amazon in grocery. This could impact their online sales potential and is a space where suppliers and retailers can really partner to capitalize on this surge in demand.

Q3 - What have been some of the shifts in the type of stores American consumers are choosing to visit for different occasions and types of shopping visits?

So far, everyone I have read about seems to be doing well. Acosta has said that their data shows that the Grocery channel has gained a little share and Mass/Club has lost a little. Long term, I have heard some analysts say they think Amazon, Walmart and Dollar General will pull away from others. The US could go into a bad recession. Low price retailers will appeal to consumers hit the hardest. We have already heard of the consumer going back down the value chain in pet food, moving from a super-premium to a grocery brand, which did not happen in the crisis of 2008. Walmart has a national footprint and leverage with suppliers to position its business for future growth. Private Labels could also get a boost. Not all retailers are as developed in Private Label as Walmart and Target. That too could have an impact on those retailers’ long-term potential.

An Acosta shopper survey released this week said 53% of shoppers are shopping less but buying more on each trip. Bulk and higher count items are in higher demand. This means grocery stores may have to change their assortment in the future with higher demand for “club style packaging”. Three to four years ago, some suppliers would not sell “club packaging” to grocery retailers, due to lower margin and the fear of keeping the consumer away from the store for longer.

One big question remains: will consumers want to go back to stores for ‘experiences’ once social distancing is rescinded? Do they want to browse the aisles of Costco, Trader Joe’s or Mariano’s to sample foods and drinks? This could impact some retailers and more niche/experiential brands and how they will deal with sampling and new product launches. Acosta said, after discussions with their retailers, that they are not likely to open salad bars and self-service counters anytime soon. Prepared meals will be popular. This is especially important for younger shoppers who have tended to eat out more than older shoppers.

What about promotions? At this time many retailers have essentially stopped promoting. Acosta said prices have risen for the consumer because of a lack of promotional pricing. Retailers told Acosta that they think there will be promotions in the latter half of the year.

At what point does a brand that switched its manufacturing line over from foodservice to retailer need to switch back? And will there be the same demand from foodservice as before the pandemic? If it does come back, how soon and to what extent? These are the questions the c-suite within our supplier clients are wrestling with as it impacts how they structure their business and which “channels” they need to serve.