The calm before the storm
The last hand I shook was on 5th March, in the lobby of the Radisson Blu Hotel in Letterkenny, after a fantastic 2-day client session. Within the first 10 weeks of 2020 I had visited London, New York, Dubai, Bologna and Milan via Bergamot. Covid-19 had already crept into our consciousness by mid-February when we had spent two days trawling the halls of Gulfood, sharing space with nearly 100,000 fellow humans. A few stands were vacant, a few more had ‘no hand-shake’ signage. But mostly it was business as usual. In Ireland we looked at China, and then Italy, like it was some kind of sci-fi movie. It didn’t affect us, and people drank Corona beers for a giggle.
One week later was my last in-person client meeting for 16 weeks. The day started in Newbridge by signing forms to declare my health status and when the meeting ended, we popped down to Tesco to look at some products on-shelf. The store was pandemonium, people were shopping like it was the end of the world. It was Christmas on speed, thanks to the announcement that schools would be closing the next day. I called into Aldi Kildare on the way home, it was busy but calmer since the shelves had already been emptied by the locust swarm of panicked consumers. My last stop was in SPAR Mountmellick, whose shelves were intact. I filled my tank, got a coffee and donut, and headed for home. I then stayed at home for four months, only venturing out for my daily exercise or to do a big weekly grocery shop.
It was shocking, but it wasn’t exactly a surprise. Through January and early February, the discounter’s weekly leaflets had looked decidedly ‘light’ as the flow of non-food specials coming from the far east was interrupted by port closures in China. My Irish retailer contacts had told me about uplifted sales of canned goods from mid-February. Suppliers shared stories about retailer head-offices head-offices closed to visitors from late February. Some quick-thinking factories had already started segregating shifts before the 12th March announcement. And through March and April, we could look at Italy as a crystal ball for what would come to Ireland within 2-3 weeks.
There were two drivers for shopper behaviour since March 2020: Restrictions & Fear.
Firstly, restrictions on movement and businesses activity. For several weeks, we were told to stay within 2km of our homes and to keep a physical distance from anyone outside of our family cell. And, since most businesses were closed, there were very few reasons to go beyond 2km anyway. So, grocery shopping became highly proximity-focused, and sales uplifted by around 25% as the entire ‘out of home sector’ came quickly to a halt and supermarkets became the only option to buy food & drink.
Secondly, there was fear. People were heavily impacted by the daily reports of new cases, new deaths, the number of ICU beds, the curve, flattening the curve. As the job losses mounted, it quickly dawned on people that there would eventually be severe economic impacts from the pandemic.
These two drivers created four dynamics that defined shopping in the pandemic lockdown.
- Increased in-home consumption: because there was no other choice
- More online groceries: especially for vulnerable people who needed to stay at home
- Less frequent shopping trips: to reduce exposure to other people
- Mixed spending power: with some people losing jobs, but others increasing their savings and disposable income through heavily reduced living expenses.
The lasting impacts on grocery shopping
As the year evolves, these two drivers and four dynamics will continue to play a role, even if restrictions are lifted partially or fully.
In-Home Consumption will remain strong: More people will be working from home as staff remain nervous about using public transport, offices implement social distancing and employers get to appreciate the benefits of location flexibility. There will be very minimal foreign travel this summer, and not everyone will be able to find an available holiday house to staycation. Roll on September and the likelihood is that children will return to school but clusters are expected and the situation will remain dynamic. The signs from the continent, and from here in Ireland, are that many cafés and restaurants are back open but operating at 50% to 70% of capacity. So take-home grocery will not maintain the +25% growth we’ve seen, but +10% seems very possible.
How this impacts shopper decisions will depend on two factors – time and money. If the shopper is employed and working from home, they will have more money to spend and less time to cook. If the shopper is unemployed at home, they will have less spending power, but more time to cook. This will become more visible into 2021 as we get to see the full reality of the pandemic recession.
Either way, I see six product level trends:
- More scratch cooking ingredients and progressively more private label, for households with reduced spending power.
- More healthy foods and supplements that boost natural immunity.
- More time-saving convenience solutions for busy home-schooling, home-working professionals.
- More gourmet foods for people that have money to spend and like to re-create the out-of-home experience without going to the restaurant.
- Shelf-life enhancements on fresh foods: with consumers still shopping less frequently, and more online shopping, producers will work hard to add extra shelf-life to their products.
- Less Packaging: with more in-home and ‘conscious’ preparation, consumers will realise just how much more packaging they are purchasing. If you were not previously alert to the challenge of single-use plastics in your busy life, then you could NOT have ignored the sheer amount of refuse your family home has created whilst you were in lockdown. So, shoppers are now packaging aware, but the conundrum is that, in a post-Covid world, consumers are actually reassured by packaging and the barrier it creates between their food and the virus. So, the challenge will be to accelerate the removal of un-necessary packaging, the reduction of film gauges, the move to recycled and renewable packaging. And this is less about fulfilling the previous commitments of retailers and brand managers. Actually, this could become a new competitive territory, where consumers choose to buy the brands and shop in the retailer that burdens their refuse sacks with the least waste packaging.
Less Frequent Shopping Trips will persist: Shoppers initially reverted to a single, large, but anxiety-ridden weekly shop, with far less top-up missions through the week. This will likely persist to some extent, especially with the possibility of a second wave, localised outbreaks and an underlying sense that “we’ll have to learn to live with it” at least until there’s a vaccine. This has led to two major dynamics:
- Firstly, shoppers are spending much more money on each trip.
- Secondly, it is a well-planned mission – “I must not forget anything, because I do not want to go shopping again”.
This has a number of knock-on impacts: Shoppers may mis-interpret the increased spend as ‘increased prices’. They may look to switch stores or they may look to reduce spend by buying more Private Label. Either way, they are less likely to buy on the ‘impulse’ upon which branded innovation depends. So, retailers and manufacturers will need to work harder to highlight their NPD.
More Online Groceries & Deliveries: We know that shoppers around the world are shopping more online for groceries, and in most countries the only limiting factor has been the retailer’s capacity to meet this increased demand. But exactly ‘what’ shoppers are buying will depend on the specific dynamics in the different supermarkets.
This boils down to the margin dynamics of brands and private label. In a store where brands deliver higher margins, in both % and cash, then the retailer will push brands online. And even in markets where PL delivers higher % margins, their Average Selling Price is much lower, so cash margin is less. So, it’s hard to see how retailers can aggressively push PL online because the bottom line is that online picking and servicing, especially the last mile of home-deliveries is VERY expensive. And the fact is that big brands are much more likely to pay for visibility online, which gives them an advantage over private label.
But if retailers can deliver an online solution with lower ‘last-mile’ costs then PL could flourish online. A good example is Tesco UK’s rapid expansion of ‘click & collect’ or the ‘Drive’ approach in the French Market. LIDL Ireland’s work with Buymie.ie and ALDI with Deliveroo both focus on eliminating ‘last mile’ costs, thus enabling the retailer to differentiate through PL and Online at the same time. This will be a fascinating space in the next few years.
More Private Label from 2021: We know from the 2008 global crash, and the following recession, that hard-pressed consumers seek to save money by switching to Private Label. This was a period of unprecedented growth for PL penetration, fuelled partly by a growing discounter store estate. And we also know that when consumers switch to a discounter store or a PL product, that they generally don’t switch back when the economy improves. So, will PL grow in the next recession?
Again, it depends on the dynamics of the specific market, and since many Irish manufacturers export to various countries, it would be useful to consider this.
- If PL penetration & discounter market share is low in the market then expect both to flourish strongly in the coming years.
- If PL is already strong, and discounter share has plateaued, then growth will be slower, but there will still be growth, especially for retailers that wish to differentiate their proposition.
For sure, there will be growth in ‘value tier’ sales in a recession, but there will also be growth in added ‘value’ premium PL and higher ’values’ sustainable PL such as organic and ethically sourced. And this is vitally important, not just to satisfy consumer needs, but also for retailers to balance their margin mix.
C-19 and the Impacts on Brands in 2020
Covid-19 has had a phenomenal impact on the big brands this year, some positive and some negative. These fall into three categories:
- Hygiene, Health & Beauty: Dettol is THE brand currently, it’s the one range that retailers have consistently struggled to achieve availability on, thanks to demand for products that kill germs. Interestingly, shoppers have been happy to revert to ‘old-style’ products such as block soaps to assist with the ‘wash your hands’ call to action. Cussons Pearl has capably filled this need. Seven Seas have seen considerable uplifts as consumers seek to boost their health and immunity. Even sales of foods like citrus fruits have seen major uplifts. There’s likely an opportunity for the citrus equivalent of the ‘Pink Lady’ apple. Finally, there has been a huge uptake in DIY beauty products, fake tan, nails, and hair colours have enjoyed a great year to date with brands like L’Oreal leading the way.
- On the Go Convenience: With kids off school, travel restricted and workers at home, the convenience and newsagent sector has been badly impacted. Think of all the cans of pop, bags of crisps and bars of chocolate that might have been consumed if we hadn’t been in a pandemic. These categories will recover, but it will take time.
- Staying at Home: The stand-out category here has been home-baking so brands like Odlum’s flour and Dr Oetker baking accessories have seen incredible growth. Dolmio and other cooking sauces have benefitted from the closure of the out of home sector. Barry’s Tea, Nespresso, Tassimo and Dolce Gusto have experienced unprecedented sales uplifts as workers take their caffeine breaks at home. Unfortunately, the knock-on effect of staying at home is that there are no lunchboxes to be filled. The plant bread, kids’ yogurt and sliced meat brands are likely looking forward to September, when some semblance of lunchtime normality can return.
Impact on Store Designs
The level of investment in the current store estate is so incredibly large that we cannot expect a significant redesign of the standard supermarket, c-store, or discounter store design. However, this doesn’t mean that there won’t be innovations. It’s just that the innovations will likely be in the form of apps and tech solutions for customer problems. For example, it’s just about palatable to queue outside a supermarket during a sunny spring/summer lockdown.
But with a wet June and Autumn/Winter approaching this becomes a much less appealing way to spend 15 minutes. So, will the supermarkets build covered areas? No, they will introduce body imaging and customer counting tools. And they will sign us up to virtual queuing apps, or notifications to highlight how quiet the store is of a Monday evening. Some retailers may invest in more permanent solutions for trolley sanitising and hand-sanitising and with all 5 major retailers now either fully active or trialling in online groceries, we may see innovations around drive-through and collection solutions.
There is no doubt that the pandemic has been the single biggest event in most of our lives. It is constantly evolving, and consumers are adjusting and adapting as it moves from phase to phase. It has created huge upheaval in our industry, and with increased costs and a recession looking highly likely, it looks like there’s a bumpy ride ahead for suppliers and their retailer customers. But one emerging question is the topic of sustainability. Alongside Brexit, sustainability was the biggest topic before the coronavirus grabbed our attention. And as we emerge from (hopefully) the worst of the pandemic, people are thinking more and more about how we live on this planet. They appreciate the cleaner air on quieter roads, they’re highly aware of the packaging and food waste being generated at home, they’re more tuned in to provenance and supply chain transparency. So, for brands that need to reconnect with their target markets, and retailers that need to manage costs, adapting lean, low-waste, ethically sourced policies might be one area that both suppliers and retailers can agree on.
Retail Industry Consultant & Director at Food First Consulting www.foodfirstconsulting.ie
Partner at International Private Label Consult www.iplc-europe.com