10 areas of focus for CPG suppliers as they trade through the coronavirus pandemic

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 21 May 2020

As the food retail sector gravitates to a more normalised trading environment, we look at the issues which are top of mind for CPG suppliers.

Key workstreams

Over the last few weeks, several global suppliers have provided trading updates outlining their performance through the initial phase of the pandemic and their current areas of focus. While these are not all being worked on by every company, most have workstreams in place centred on five to seven of them. We look at three which have implications for their businesses and consumers.

Source: IGD Research, Coronavirus (COVID-19): 10 trading priorities for CPG suppliers

1. SKU rationalisation

Initially, much of this was driven out of necessity. The early surge in demand created availability issues, which retailers and suppliers responded to by focusing production on the highest volume items. Many companies are looking to build on this initial work and accelerate a trend which was present pre-Covid. Many CPG companies have plans in place for more significant range cuts, which in part, will help them and their retail customers to be better able to meet extreme swings in demand in the future.

Source: IGD Research

Kellogg’s CEO, Steve Cahillane, stated, “I would suspect in 2021, grocery stores, retail outlets will probably have less SKUs than they had going into the pandemic.” However, this creates challenges for brands and companies in the long-tail, potentially leading to a loss of shelf-space, with the major CPG companies gaining share for their power brands.

2. Recession preparation

Alert to the economic challenges that will be seen in most markets, suppliers are adjusting their propositions and pack sizes to emphasise affordability. Household budgets for many consumers will be under pressure due to higher unemployment levels and will be focused on week-to-week purchase decisions. Related to this, the length and severity of the crisis and economic impact are also largely unknown. Many companies are planning for multiple scenarios including V-shaped, U-shaped and L-shaped recoveries, including stress testing their financial models against each of these.

Source: IGD Research

James Quincey, CEO at The Coca-Cola Company, noted, “I think, we're also going to see a very profound theme of affordability. What we're seeing in the lockdown is not just the effect of the lockdown of certain channels. But I think that anticipation by the consumer of where the economy is going.” However, while it may be assumed that these conditions will favour private label suppliers, many branded suppliers have seen improvements at the value and premium-end of their portfolios during previous downturns. Often, consumers on tight budgets, will gravitate towards the trust and assurance of performance that is often associated with established brands.

3. Accelerating ecommerce

Most retailers expect ecommerce penetration to remain at an elevated level post-COVID-19. In response, many suppliers are re-aligning their customer teams, dedicating more resources where relevant and exploring new digital routes to market, including direct-to-consumer models. Unilever’s CEO, Alan Jope, believes that the pandemic could prove to be a “point of inflection for online grocery shopping” after the channel ‘proved’ its convenience and value to first time users.

Source: PepsiCo

Whether all shoppers remain in the online channel and continue to spend as much, the attraction and ease of buying certain products is likely to continue. This is expected to have an impact on certain categories and create new opportunities for manufacturers, with more activity expected with direct-to-consumer models.

Retail Analysis subscribers: read the full report, Coronavirus (COVID-19): 10 trading priorities for CPG suppliers, by clicking here.

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