The current situation is impossible to decipher and hence a paramount focus on the future is the need of the hour. Change happens so quickly at times that it’s difficult to catch up. No one could have predicted how COVID-19 would drastically change every aspect of our lives. Right from impacting the global economy to our day-to-day operational tasks, we now visualize everything in terms of life before and after COVID-19.
As COVID-19 continues its rampage, CPG companies have faced unforeseen challenges in optimally running their operations. Food companies such as Smucker, Hormel Foods, Tyson Foods and Kraft Heinz have ramped up production by as much as 40% to try to keep up with the increased demand. Many companies are also adding extra hours and adjusting their manufacturing processes to keep up. Managing increasingly stretched supply chains while also ensuring the safety of staff and shoppers is the new norm. CPG manufacturers are bereft of margins with no immediate relief in the future. As this crisis continues to evolve, consumer goods businesses should start preparing for what’s next – The New Normal.
Globally, the F&B industry is based on online & offline food chains. The COVID-19 pandemic has a dual impact on this industry. The offline chains include cafes and restaurants that have entirely shut shop in some regions whereas online food delivery has seen a rise in demand. In addition, the packaged F&B and personal care industries are witnessing an uptick in demand such as beverages including milk products, hand sanitisers etc. as consumers rush to stock their households. Once considered elitist and modern-trade categories, hand sanitisers have become an essential part of a consumer's grocery basket. A recent Nielsen report says that the demand for hand wash and sanitisers between February and March has gone up by an enormous 1,425 percent. Experts see the contribution of the hygiene category increasing from just 1-2 percent of an FMCG company's SKUs to 15-16 percent of its portfolio. To cite another example, according to recent analyst reports, Nestlé’ has witnessed an upsurge in the demand of its coffee, creamers, frozen items, and baking ingredients. Even demand for Nestlé’s home delivery business comprising the Nespresso coffee platform, Ready Refresh water and beverage service have peaked. But the changes we expect in the long term, however, are even more profound and fortunately open to as many new opportunities as they present risks to incumbents.
Prior to COVID-19, not all traditional CPG companies adopted e-commerce to tap into customer bases due to several reasons. With newer physical distancing protocols, customers take less frequent trips to the store, leading to a significant increase in online consumption while these customers also look for value and convenience. Per reports, online sales rose 35 percent and 20 CPG companies accounted for 96 percent of market share with physical stores capturing 14 percent of the same market share across digital commerce channels. With customer decision journeys encompassing more digital touchpoints and increasing in complexity, shoppers will expect CPG companies to have a consistent presence online and offline. Managing and analysing data will be essential and can help optimize marketing cost.
In the future, we will see greater numbers going online and using services like click & collect to avoid queuing at supermarkets. In Italy, higher growth figures for click & collect suggest that retailers are finding it easier to scale up this part of their business rather than develop new infrastructure for home deliveries. A notable trend in China is a greater number of the elderly population are resorting to online buying platforms than ever before. Known to be less tech-savvy, this demographic needs to have an easy-to-use interface with clear images and easy-to-read product descriptions in order to fuel the trend and increase the popularity of food delivery.
Transparency in Supply Chain
The COVID-19 outbreak has highlighted the level of connectedness in society and the associated risks. Brands might need to rethink their communication strategy as Consumers are now highly aware of the importance of hygiene and food safety. Manufacturers across the globe should consider technological advancements like blockchain to enhance visibility and transparency into their supply chain. It could be a long running fight against COVID-19, and CPG manufacturers will need to prove their safety and trust credentials.
Re-engineer demand forecasting models & inventory management
Based on a massive shift in eating patterns, Credit Suisse predicted that U.S. packaged food companies' retail sales will grow by an average of 15% to 30% from March to May 2020. Existing forecasting models will no longer be applicable given the current dynamic situation. Consumer behaviour is set to change further with a renewed focus on comfort foods and comfort brands. Beyond, consumers would prefer to have their meals at home in the short-medium term, thereby jolting the restaurant industry significantly. This will have an impact on various F&B companies based on their product offering. CPGs can use AI and machine-learning algorithms to optimize supply chain and dynamic inventory management to ensure products are on the physical as well as digital shelves by leveraging consumer shopping behaviour, search data and other dynamic demand predictors. For example, confinement at home has led to high demand for comfort food more than ever before. According to Credit Suisse, an industry contact told them food at home likely represents 80% of spending on food today compared to 50% typically. Hershey’s is positioned to continue experiencing sales growth through the pandemic, even though it closed its Chocolate World Stores.
Given the changes in buying and consumption patterns, all demand forecasting models need to be retooled to reflect consumer behaviour as it progresses through the situation and to pick up a field signal rapidly.
Reset channel strategy
With changes in consumer’s buying behaviour, it has become critical for CPGs to revisit their channel strategy and design customized direct-to-customer services. A plethora of first-party data is available through direct channels enabling development of customized offering based on specific needs in the future. Running a direct-to-consumer business will be challenging now as consumers are more likely to go to an online marketplace rather than jump from site to site for all of their essential packaged goods. Few companies such as Campbell's Soup, Conagra and Smucker have recalibrated their revenue forecasts and increased it by 11%, 7% and 5%, respectively. Their existing business models were well positioned to cater to different buying behaviors given their portfolio mix and geographic reach.CPGs should rethink and create a collaborative network of partners, distributors and suppliers to design and deliver multi-brand platform solutions with speed and scale.
This will in turn require CPG companies to relook at their customer-segmentation strategy and growth targets, and have an understanding of the capabilities required for new partnerships.
Consumers now expect CPG companies to emphasize more on Social responsibility. Non-environment friendly businesses have to reconsider their effectiveness or face drastic impacts on business valuations. Focus on ESG (environmental, social, governance) will be a new way forward. New, more compact and agile value chains will emerge, as non-essential intermediaries take a backseat. Consumers would now look forward to CPG companies communicating how their brands can be helpful in daily life. It will be imperative for companies to balance existing focus areas with emerging consumer concerns.
When the economy does kick-start again, it will be a time to let go of outdated business practices and develop newer, more creative ways to sell and reach consumers. Consumer trends are crystallizing during the ongoing crisis, and will most likely persist and bring in a new set of opportunities and expectations, accelerated digital engagement, be more socially responsible and an unprecedented focus on health and wellness. The quarantine situation has made us realize the importance of food & hygiene and how we need to be more responsible going forward. Now is the time for CPGs to seize the opportunity to become consumer-centric and build a scalable Omni-channel presence.