As a second wave of the coronavirus spreads throughout much of the world, suppliers and retailers are coming to terms with the reality that the remainder of 2020’s seasonal shopping events will be marked by unpredictability.
The second half of the calendar year features milestone shopping events such as back-to-school, Halloween, and the Thanksgiving to Christmas festive period that annually serve as peak sales periods for certain food and drink categories. Social distancing requirements combined with a recessionary economic environment are curbing celebratory enthusiasm, forcing suppliers and retailers to rethink inventory planning and promotional campaigns that are often put in place over a year in advance.
With public gathering and travel restrictions putting a damper on holiday excess, CPG brands are adapting with a product and marketing portfolio that stresses intimacy and the basics over unnecessary product innovations and the roll-out of splashy advertising campaigns. Retailers, for their part, are adjusting by abandoning major in-store sales events such as Black Friday to discourage crowds and provide their staff with much needed relief. They are also switching to virtual tasting sessions and encouraging suppliers to distribute seasonal product samples to their buying teams at home.
While all parties grapple to deal with a climate of uncertainty, agility will be critical to success. Different countries and territories will be at various stages of virus containment, and outbreaks can erupt anywhere at any time, requiring rapid responses depending on the on-the-ground situation. Irrespective of geography and category, consumers will be looking to make more of their holiday purchases online in 2020, and those who do not invest in improving the online shopping experience and last mile delivery will be left behind.
Unpredictability Leaves Suppliers and Retailers on Their Toes for Back-to-School and Halloween
Easter (April 4th) 2020 arrived less than a month after the pandemic started to spread heavily and severe lockdowns were suddenly imposed across countries outside of Asia. Accordingly, confectionery suppliers were left with little advance notice to prepare for the disruption. In the US, figures from the National Confectioners Association show that the industry’s Easter season sales fell 4.1% versus the prior year. In the UK, the impact was even more dramatic, with Kantar reporting that sales of seasonal Easter categories declined 16.7% year-on-year in the three weeks leading up to Easter Sunday.
A disequilibrium of supply and demand for Easter eggs and other holiday items led to surplus inventory and significant price reductions. “We were out of product when it mattered most with key retailers,” Tim LeBel, Mars Wrigley’s US president of sales stated during a Marketer’s Brief podcast, calling attention to the fact that they and other confectionery suppliers did not have enough lead time to re-allocate supply destined to stores to the online channel when shopper footfall suddenly dropped in early March.
Despite having more time to adapt to the new realities of COVID-19, the back-to-school season, which takes place between mid-August and early September for much of the northern hemisphere, remains opaque. Many school districts are still undecided on whether students will return to their physical classrooms, and whether they will do so full time and at full capacity if they do.
This leaves makers of back-to-school driven categories such as beverages, lunch meats, prepared foods, and snacks in the dark around the extent to which sales of their products will spike as they have in previous years around this period. Parents, understandably, are delaying purchases until they know more definitively whether their children will be having lunch in a school cafeteria or will continue instead to be lunching at the kitchen table.
Adding to the aura of uncertainty is the postponement by Amazon of its Prime Day from July to September. In years past, Amazon’s Prime Day has served as the “starting gun” for the back-to-school shopping season. According to research from the National Research Federation, in 2019 71% of consumers indicated that they began shopping for school products at least three weeks prior to when the school year commenced. In a May 28th poll conducted by the UK’s Dentsu Aegis Network, 30% of respondents stated that they would defer back-to-school shopping until the return of the physical classroom date was announced, compared with 26.8% who indicated that they would start irrespective of confirmation in July.
As with back-to-school, Halloween purchases typically take place far ahead of the October 31st event, with 37% of US shoppers indicating in 2019 that they started shopping for Halloween products in advance of October. Last year, Halloween confectionery sales rose 1.4% in the US to reach a total of $4.6 billion, according to the National Confectioners Association. For major confectionery suppliers such as Hershey’s, the event accounts for around one-tenth of an entire year of sales.
With sizable Halloween parties unlikely to take place due to bans on large indoor gatherings and trick-or-treating unlikely to reach typical levels as people are reluctant to knock on and open their doors to strangers, the industry is scrambling to find alternative ways to offload their products. Mars Wrigley, which has iconic confectionery brands such as Skittles and M&M’s within its portfolio, is hosting a virtual Halloween hub with online trick-or-treating, games, and ways to purchase candy. Hershey’s, meanwhile, is partnering with retailers to make week-by-week merchandising adjustments based on continually shifting localized pandemic guidelines. They are also pulling back on seasonal packaging such that should inventory remain unsold, it can be marked down and sold for everyday snacking.
How COVID’s Uncertainty is Impacting Grocery Retail’s Peak Season From Thanksgiving to Christmas
Dubbed the “golden quarter” in the UK, the shopping period that kicks off around Thanksgiving and extends through to Christmas and New Year’s makes up the most lucrative sales quarter of the year for a large portion of retailers. Amidst a climate of job loss and economic uncertainty, consumers are likely to be tightening their quarterly spending compared to years past.
Further dampening excitement and momentum is an understandable and socially responsible decision from major retailers to close on Thanksgiving Day and cancel their Black Friday sales events that typically begin at midnight that same evening. Black Friday symbolizes the commencement of the Christmas shopping period and has been the busiest single shopping day in the US since 2005.
The motivation for closing up shop this year is two-fold. One, the likes of Walmart and Target intend to allow their staff to spend Thanksgiving with their families in recognition of the extra shifts and hard work they have put in since COVID-19 started. Two, the long line ups and crowded stores typically associated with Black Friday sales do not comport with social distancing rules and store capacity limitations.
Instead, retailers are looking to spread the shopping rush over an extended period by starting their sales earlier this year and migrating more of them online. Similar to how Amazon shifted the date for Prime Day, it is anticipated that the e-commerce giant could opt to hold Cyber Monday, the online sales event that usually takes place the Monday after the Black Friday weekend (i.e. the last weekend of November) at some point in October.
For the remainder of the year, we are likely to witness a back-to-basics approach for the upcoming string of holidays as it relates to product innovation, assortment, and packaging. Product ranges that consumers are familiar with are likely to sell better, and suppliers and retailers can ensure a lower sticker price on continued product lines versus new launches, festive-themed innovations, and dedicated seasonal packaging. The tone of communication is also likely to be more subdued. For example, an advertisement showing large gatherings of families and friends would be deemed as insensitive amidst a reality of lockdowns and social distancing. Walmart, to reflect the times, has launched various back-to-school ads depicting a high-school student learning science in the backyard of their home and an elementary school student delivering a class project presentation from their bedroom.
It is not “business as usual,” and contingency and localized planning will need to take the place of rigid national plans that have been negotiated and agreed to months in advance. Although the pace and scale of supply chain disruptions have subsided, all parties need to mitigate against the impact of further bottlenecks by spreading seasonal purchases over a more extended period. In 2020, this could mean skipping or holding back on event-driven splashes such as Black Friday and Cyber Monday sales.
The industry also needs to prepare to handle an increase in sales shifting from in-store to online. In a survey of approximately 7,000 US consumers conducted by marketing firm Fluent, 26% of respondents indicated that they would exclusively do their holiday shopping online this year. This figure reduced to 15% when asked if they would exclusively shop online if there were no coronavirus concerns. Reduced store traffic, along with the fact that people who are unable to travel and spend the holidays with friends and relatives will instead be ordering gifts for delivery, points to the importance of retailers’ expansion plans to fulfill orders online.
While job losses and economic uncertainty are eroding consumer confidence, some analysts argue that festive seasonal spending has some recession-proof qualities. This year especially, people will be craving the sense of normalcy and comfort that holiday gifting and indulgent eating offers. For the grocery industry, lockdown measures mean that celebratory food and drink spend that would otherwise take place out-of-home at restaurants and bars will instead be going towards consumption at-home.
Just as epidemiologists and health policy experts have been tracking the virus’ initial spread and containment efforts in China, retail analysts have been paying attention to China’s retail performance as a gauge for what could be expected down the line. The 6.18 (June 18th) shopping festival is China’s largest shopping event to have taken place since the virus took hold and one of the country’s two major annual shopping events, the other being Singles Day, which is celebrated on November 11th. Both JD.Com (+33%) and Alibaba’s Tmall (+16%) experienced transaction volume growth versus 2019, an indicator that despite a gloomy economic outlook, Chinese consumers’ appetite for celebratory purchases were not dampened.
The retail industry can also learn from the way that Chinese retailers opted to simplify their marketing and promotional efforts, focusing on discounts and coupons over gamifying the event as had been done in years past. “What was interesting to observe is that the majority of the purchase increase came from lower tier cities and towns that are smaller in population, economic size and purchasing power,” says Jason Gao, Advantage Group Managing Director for China. “Facing an uncertain future, retailers and suppliers need to upgrade and reform themselves. Only by closely tracking and reassessing the market, industry environment and consumer behaviour patterns in the post-epidemic era can we optimize and establish a product and service portfolio that meets consumer demands at reasonable pricing”.
While the coronavirus is not going to stop people from celebrating the upcoming string of holidays, they are going to be doing so under dramatically different social and economic conditions than in previous years. The imperative, therefore, is for suppliers and retailers to work together to make the adjustments necessary to meet shifting consumption patterns.
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