Over the past weeks, most countries have experienced unprecedented disruption as a result of the COVID-19 pandemic. We have seen massive mall and store closures, with only essential retailers, like grocery stores and pharmacies, allowed to open. In addition, in order to enforce social distancing, governments have put their countries on virtual lockdowns with undetermined end dates.
The potential impact of COVID-19 to the retail industry cannot yet be fully understood, as consumers turn to survival mode. However, based on early consumer reaction to the pandemic, in the short term it seems that it will benefit grocery retailers.
The growing importance of eCommerce
In the past, consumers have been slow to embrace online grocery shopping. However, with the advent of COVID-19 and social distancing, online grocery shopping is on the increase, with a significant number of customers shopping online for the first time. A lot of shoppers who were previously reluctant about ordering groceries online, in their quest to avoid long queues and face-to-face contact in overcrowded or overvisited supermarkets, now get a taste of the ease and convenience of online grocery shopping.
In Cyprus, in a recent research carried out by IMR/University of Nicosia, 38% responded that they made online purchases over a period of two weeks, out of which 43% related to purchases from supermarkets. Grocery retailers have expanded their services to provide both “pick-up” channels and “delivery” channels. Some retailers have used their own personnel and fleet to deliver, whilst others have sub-contracted the delivery service to companies that specialise in this area.
FMCG post COVID-19 sales performance - Lessons from China
China is some weeks ahead of the rest of the world in terms of the spread of COVID-19. Although there are cultural differences between countries, some of the impacts and behaviours from China are useful indicators of what might happen elsewhere.
Evidence suggests that the future performance of a product depends on its nature and how impacted it was during the peak of the outbreak.
Certain products exhibited higher growth during and post the outbreak, compared to the 2019 growth rate. Such products include products which can kill germs such as hand wash and disinfectants, but also products used for home cooking, including convenient in-home meals. Products in this segment have a real sales growth potential if this unexpected growth momentum is maintained.
Other products which are considered essentials were unaffected by the outbreak. Such products include pet food, toilet tissue and sanitary protection. A lot of these products are more likely to be purchased online, compared to other segments.
There were also products which experienced a significant drop in sales during the peak, but subsequent recovery was relatively quick, or “V-shaped”. Such products include biscuits and nutritional supplements. The fact that these products have returned to their usual weekly sales levels shows that the demand is still there. Suppliers will need to find ways to compensate for the sales losses experienced, for example through multi-buy promotions.
There are also certain products that have experienced a significant decline during the peak but are slow to show signs of a full recovery. These include skincare, make-up and alcoholic beverages. Personal care products such as beauty products were considered less necessary as people had to self-isolate. Similarly, people are more concerned with their health during the outbreak and want to keep their bodies fit and healthy in case they need to fight the virus, hence the reduction in demand for alcoholic beverages. The key for brands in this category is to emphasise the benefits their brands can offer in the post COVID-19 era. For example, consumers will be looking to enjoy family occasions and social gatherings even more than before, which could benefit alcoholic beverages.
Five focus areas for FMCG Grocery Retail
Protecting employees and customers
Retailers must have a plan that ensures the safety of employees and customers, while also trying to maintain business as usual. They should be thinking about how they will manage their workforce under various different scenarios, including COVID-19 cases within their staff. They may also consider temporarily hiring additional employees who are idle, for example from the HORECA industry.
Securing business continuity and customer relationships
Grocery retailers are faced with spikes in demand for certain products. They are also experiencing an increase in the online delivery channel. They must take time to listen to their customers most urgent needs and use those insights to both address those needs as they arise, but also to define new ways to serve customers in the short and medium terms. They need to maintain trust in their brand, their products and services.
Managing demand and supply fluctuations
The ability to predict and manage demand proactively has never been more important. Grocery retailers must simultaneously manage their supply and demand. They should consider for example offering shorter payment terms to keep their suppliers afloat, finding alternative sources of supply and safeguarding in store replacement by having extra shifts or hiring more staff where required.
The path to recovery will be different for every brand, depending on how consumers’ needs will change in the future. FMCG suppliers will need to understand and forecast future demand and how to compensate for lost sales. They will also need to identify and optimise those elements of the marketing mix that will help to drive sales after the pandemic. It is likely that FMCG suppliers will have reduced budgets for media investment, which will make it more important to identify who to reach and how to reach them in the most cost-effective way.
Transforming the business model
Retailers should take time to rethink how they could make their business models more efficient and less exposed to shocks. For example, they could transform their head office into a flexible, remote-working team. They could also consider investing in e-commerce and create a model that serves the customer better, enabling them to seamlessly switch between online and in store. They should also consider whether they are embracing technology sufficiently in their stores but also in areas such as warehousing, transportation and merchandising.
It remains to be seen whether online grocery retail will continue to grow in Cyprus after the pandemic. A lot will depend on the quality of the service and cost at which groceries can be delivered to customers’ houses. Understanding how people’s behaviour changes when shopping online, will help to identify new growth opportunities. The concept of “convenience” stores may even take an altogether new meaning.
Exploring new opportunities for growth
Although many companies are struggling as a result of COVID-19, few of them are grocery retailers. The crisis could present retailers with new growth avenues. For example, they may consider integrating backwards and potentially partner with a supplier company to keep them afloat. They could also consider forward integration by partnering with a delivery company should the demand forecast justify it.
While it is unclear exactly what the FMCG Grocery Retail Landscape will look like after the crisis, what is for sure is that the pandemic will accelerate change and force businesses to quickly adapt. Grocery retailers should identify and pursue the opportunities presented by the crisis.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.