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This week’s Voices on the Ground features Pavel Pichler, Director of South-Central Europe, providing his perspective on how the pandemic is developing and impacting the grocery industry in the Czech Republic and Slovakia.

Q1 - Given that the Czech Republic and Slovakia were less adversely affected by COVID versus other markets in Europe, and that the “worst” of the crisis is considered to have passed, are consumers returning to pre-COVID shopping behaviors, or are there some changes in terms of shopping patterns and product demand that are likely to remain?

The COVID situation has further supported the development of an already strong e-commerce channel in the Czech Republic and Slovakia. E-commerce turnover has increased by double digits year-on-year and currently accounts for more than 11.5% of retail turnover. The largest players in the market are expanding the available assortment, and thus the food segment will continue to grow strongly in the e-commerce environment. In the case of hypermarkets and supermarkets, shoppers expect for these to return to normal soon. Drugstore chains, who were hit by a decline in purchases of more expensive goods and a shift to e-commerce, are getting back to a more favourable situation.

Despite a larger number of active COVID- cases than in the surrounding countries, there was not such a massive panic shopping surge in the Czech Republic as in Slovakia, where many basic food and hygiene items were sold out for many days.

A significant change, which has continued for months, is a reduction in the number of store visits combined with an increased value in the average shopping cart. This is not only associated with government restrictions, but also with precaution on the part of shoppers. To avoid physical contact, a growing number of transactions were encouraged through credit card versus cash. Some retailers implemented self-service shopping via a mobile application. Customers scan their selected goods themselves, put them in their bag and quickly pay at express checkouts. Another element of the rationalization of consumers’ purchasing decisions has been the growth of private label.

Many employers still allow their employees to work from a home office to a much larger extent than in the past. This affects turnover in the HoReCa (hotels, restaurants, catering) segment while supporting sales of mainly basic assortments in retail. This is supported by the continuing trend of cooking at home. Moving forward, shoppers will appreciate values such as health, family, and safety more and will behave accordingly. More than three-quarters of people wash their hands more often, and a large part of the population disinfects their household more often. Almost half of the population consume food supplements more often, compared to before the pandemic.

However, this does not mean that they will stop wanting to shop and live ”normally,” as this was the life they were used to before the crisis. Like the whole economy, they were suddenly ‘shut down’ and disconnected from their plans and activities. It can be assumed that they will try to get back to their old way of living.

Retailers and suppliers are also responding, focusing even more on their Corporate Social Responsibility efforts and the overall image they create in the eyes of consumers. It is necessary to implement much more precise and targeted marketing campaigns, especially in the online environment, and to try to benefit from this growing “responsible consumer” segment.

Q2 - Have there been any categories and channels in the Czech Republic and Slovakia that have seen dramatic growth or decline? How are they performing currently compared to the start of the crisis?

Generally, private label and A-Brands were winning during the crisis period. The disinfection and personal hygiene categories were clear winners during the pandemic. These categories saw more than double-digit growth, and even now, the year-on-year growth is significant. It is anticipated that this growth will continue, and higher sales will be maintained long-term. A trend towards a more rationalized/reduced portfolio can be expected, accompanied by more targeted marketing campaigns.

On the other hand, more expensive premium goods, especially in Beauty Care, have been suffering during the pandemic. This is due to the greater willingness of employers to allow their employees to work from their home office and a lower frequency of visits at HoReCa outlets, as well as a limited number of cultural events. Manufacturers put effort behind returning to a more stable situation. Other categories in decline during pandemic were, e.g. chewing gum, shaving products, foot care, shoe care, and energy drinks.

Contemporary sales increases in food for home baking, cooking and household products such as detergents are expected to return to pre-COVID levels. This return to pre-COVID revenues will be influenced by the further development of government restrictions and how the global, as well as the Czech economy, will evolve.

Since consumers were afraid of buying unpackaged bakery and sales declined, retailers started to pack these products in foil to alleviate consumers’ concerns and be in line with safety standards. Because of this, sales are returning to normal.

Prices of agricultural products, especially fruits and vegetables, increased due to a lack of seasonal workers thanks to the closure of borders and due to lower crop harvesting volumes in the country. Consequently, retail revenue increases were visible for these fresh categories.

Alcoholic beverages, especially beer, were also affected. Retail sales are higher year-on-year, but in the more profitable HoReCa segment, there is still a significant year-on-year decline caused mainly by the small number of tourists and the intention of consumers to reduce spend. Despite the growth in the retail channel, total volumes have declined.

Q3 - What kinds of challenges have local (i.e. domestic) suppliers faced since the start of the crisis? Have any of these challenges been alleviated over the past 6 to 7 months?

More than a third of companies saw a drop in sales during the crisis, whereas approximately two-thirds enjoyed growth. The biggest challenge was supply chain management. Due to the crisis, long-term projects for automation and digitization of processes have accelerated significantly, and the emphasis is now even more on flexibility and simplicity. Reducing implementation time, in many cases from years to weeks, applies not only in supply chain, but also to other functions and departments such as HR. Online communication towards the customer has become even more important than ever before.

Overall, there is a clear trend towards greater market consolidation, enhanced speed in decision-making and alignment with modern trends in both technology and communication with customers and retailers.

Q4 - What were some of the most significant changes that you saw in terms of collaborative behaviours and actions? Do you expect these changes to stay once the crisis period has passed?

More intense communication between retailers and suppliers with a focus on problem solving has been visible. Due to the crisis, greater emphasis has been placed on flexibility, speed, and a willingness to cooperate. This helped some smaller suppliers, who were able to respond flexibly to the changing situation thanks to a simpler supply chain. However, large players adapted quickly to the changing environment as well and are now able to react more flexibly.

Suppliers were facing supply chain challenges related to increased consumer demand/pre-stocking, in combination with transportation challenges (closed borders within EU/ Schengen, border checks, long queues/ waiting time, etc.). Some suppliers with local production were also facing challenges regarding employees being on leave to look after their children at home, or in quarantine. This may have, in some cases, created an effect on the increased preference of goods produced locally, both from the point of view of consumer demand, as well as from a supply chain view, as local producers can be more flexible in terms of deliveries during crisis periods.

Consumer and customer loyalty remain a crucial element of success, supported by the quality and safety of products, and trust. Promotional activity, generally being high in the Czech Republic, decreased during the pandemic as customers were demanding goods not on promotion. There are, however, signals of returning to higher promotional shares given the tough competition in the Czech retail environment.

The increased level of cooperative approaches amongst suppliers and retailers is reflected in the statements of respondents in the 2020 Advantage Report Program:

“The pandemic situation hit us hard at the beginning, but now the situation looks more stable and similar to a pre-pandemic state. Communication with suppliers was not easy because of ad hoc regulations, but professional and flexible suppliers even exceeded our expectations. This situation strengthened our relationship and trust.”

“Where cooperation with a supplier was good before COVID, it is still good, but the cooperation is even worse with suppliers who have communicated less frequently and were not willing to address our requests.”