Coronavirus - 5 implications for FMCG Suppliers

1,200 words, a 5-6 minute read

As the nation fights day by day to deal with the Coronavirus outbreak, Grocery retailers, their heroic staff and the wider Supply base are dealing with huge changes in market demand.

Here is our take on what this means for Suppliers in the coming weeks and months ahead... 

Supermarket shelves have been emptied by huge increase in demand

Demand for Groceries is through the roof

After years of predictable and quite slowly evolving shopping patterns, current demand means we rapidly need to develop a new understanding of how to best serve shoppers over the coming months, with huge potential implications for Suppliers.
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Whether its panic buying or pantry stocking demand is through the roof.  UK consumers continue to stockpile goods, decimating the supply chain and fuelling a vicious circle of increased concern and increased demand.

We surveyed over 500 people this week and found that over half admit to increasing the amount of food in their house, with an average of almost 2 weeks more food compared to a month ago (though this almost certainly underestimates the true figure).

​In the week ending 7th March, almost 2 weeks ago now, Nielsen data shows total Store sales increased by 8% over last year with demand for long life foods, health and personal care items more than double last year in some cases.  

Demand has clearly grown exponentially in the last few days as government advice and restrictions strengthen and has spread to fresh categories as well as panic buying sets in.

Store checks this week by the Grocer added more numbers to what we already know.  On-shelf availability of Hand Sanitiser, Pasta and Toilet Roll are all in the region of 5%, whilst Tinned Food is 40% and Frozen are only just over 50%.  

And poor availability means the vulnerable are losing out...

We can see a clear split in shopper behaviour, with stockpiling being led by younger and more affluent groups, whilst those more vulnerable shoppers who may not have the means or opportunity to do the same being faced with empty shelves.  

As demand shows no sign of abating, Supermarkets are now trying to move to a more sustainable trading platform which protects core product availability for all.

Supermarkets are now looking to cull range

Whilst in the short term this means shorter trading hours, redeployment of cafe & counters staff , and limits to the number of any one item Shoppers can buy, the focus is moving to range and space.  

Emergency decisions have already been made to sacrifice Shopper choice to improve availability in the worst hit categories such as pasta, bakery and sausages with examples of drastic rationalisation to a few core SKUs.
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​We expect it to soften over time, but demand is likely to remain very difficult to predict over the coming weeks and months and the impact on range and space across many categories could be significant as the Grocers make changes to improve operational efficiencies & keep the best sellers in stock.

Morrisons has announced plans to cut its range by up to a third and is pressing the government to suspend GSCOP rules to allow faster delists.  

This seems high, but walking around Stores it is easy to see some of the choices which could be made, even when current panic buying does subside.  With many more people working from home demand for tea is likely to remain high, migrating from the wholesale channel for offices to grocery retail, and at times like these an extensive range of herbal and premium teas (often with multiple choices in each flavour) may need to be reviewed.

And whole categories could be marginalised - how much will demand for 'on the go cereals' drop now that the nation has been told to work from home?

Implications for Suppliers

1. Range Rationalisation
New demand patterns mean every SKU will be questioned.  Volume may be concentrated into a smaller number of SKUs, creating a longer tail which could be culled by Retailers to protect on-shelf availability.  However, real choice & unique Shopper needs must be protected and smaller brands will be under even more pressure to use consumer, shopper & category insights to really prove the true value they bring to the category. 

2. Reduced Promotions
Promotions cause spikes in demand Supply Chain could well currently do without, especially those which only run on shelf with no increased capacity.  Added to this, the total amount of secondary feature space may also be reduced causing a double whammy as retailers redeploy some plinth ends to  increase shelf capacity for core SKUs, and also look to re-engineer the promotional programme to better reflect current Shopper needs.  For example they may feature less packed lunch items and more in home meal solutions, and with reduced opportunity to promote, some brands may want to re-consider their overall pricing strategy. 

3. Innovation
Major changes always create new opportunities.  Some concepts in the NPD pipeline may need to be shelved as no longer appropriate, but new ideas should be explored to take advantage of new shopping & consumption patterns.  Which products will increase and which will decline?  Clearly some on the go products may suffer mid-term declines, but fresh foods, ready meals & treats may all increase as Shoppers spend more time at home and less in restaurants & food service outlets.  

4. Online & Convenience
Increased demand was enough to force Ocado to close their website temporarily this week, and the other Grocers will be feeling the same pressure.  Whilst capacity for online deliveries is limited, retailers will do what they can to ramp this up over coming months, driving up channel growth.  Increased demand is also sending more shoppers into convenience Stores, and may be sustained as Shoppers working from home do more top up shopping at neighbourhood stores which may be within walking distance.  Brands need an effective strategy for both channels to ensure they have the right presence and visibility with the right products to maximise conversion at point of purchase.

5. Relationships
Lean in - Buyers are fighting fires day by day at the moment, without time to consider anything strategic or longer term.  They will make tough decisions in the interests of their shoppers and their business, potentially also without discussion with Suppliers.  Be proactive, and be understanding.  Think 1, 2, 3 months down the line to help them.  What does your future demand curve look like?  What can you share about new shopping patterns and consumer needs in your category which will  help retailers adjust their offer?  

Conclusion
The market is evolving quickly, and we are operating in a very different world to just 4 weeks ago.  Timely insights & rapid learning about how the coronavirus outbreak has changed consumer & shopper needs in your category, and what this means for future category and brand strategies are crucial to driving growth over the next few months.  Suppliers who can help Supermarkets develop this new understanding will be the ones to win.


Thank you for reading this article.  If you need any help understanding how recent changes in shopper behaviour are impacting your brand, and what you need to do about it to thrive and grow then please get in touch for a free initial chat.

Optima Retail is an agile, independent insights & category management consultancy working with scaling and established businesses to accelerate category and brand growth.