As we transition out of the summer holiday period, in most geographies the COVID-19 pandemic has moved into a different phase. While latest trading updates from major CPG companies highlighted 12 broad areas of focus, five are being prioritised as companies adjust to the latest trading conditions.
Uncertainty and volatility persist
Although the virus path and nature of lockdowns continues to vary by market, we are seeing a shift in suppliers’ priorities. In most markets and regions, the easing of stay at home mandates and the gradual reopening of non-essential businesses has moderated demand in food retail stores, but remains elevated. With the initial challenge of the crisis dealt with, suppliers are turning their attention to focus on the new opportunities which have been created.
Source: IGD Research
1. Strategic planning
Several global CPG companies, prior to the pandemic, had outlined new strategic plans. Central themes included investing in core brands, reducing costs and improving efficiencies, sharpening operating models, developing new capabilities and driving product innovation. COVID-19 has confirmed the direction of travel for many of these companies. Their strong performance in the first half of the year has emboldened them to accelerate their initiatives and increase the level and scope of investment spending.
is currently assessing the impact of the crisis on consumers, its product portfolio, channels, supply chain and operations. Key to its future plans is determining the structural shifts versus those which exist only during the current phase. The company is aiming to have adaptation plans in place by the start of 2021.
2. Range development
SKU rationalisation has been a key theme of the COVID-19 pandemic for suppliers and retailers. Most major suppliers simplified their offers temporarily to ensure the supply of key items and drive supply chain efficiencies during the initial surge in demand. Many are now looking to build on this with permanent changes to their product portfolios.
Mondelez, for example, is aiming for a 25% net reduction in its SKU count, representing just under 2% of global sales. This will simplify its supply chain, reduce cost and inventories and improve customer service. Sales should also improve through increasing the space available to the highest volume items.
3. Branding and marketing
During the pandemic’s initial phase, most suppliers reduced their marketing spend. With lockdowns in most geographies and retailers controlling customer numbers, there was little value in driving traffic. However, one of the defining features of the pandemic has been the resurgence of the centre store. Several suppliers have described the increase in household penetration during the pandemic as a once in a lifetime opportunity.
The Campbell Company is a great example of a supplier that has seen its fortunes changed by the pandemic. Operating mainly in what has been a challenging part of the store in recent years, its core soup products have become highly relevant, rejuvenating the brand. Soup is well suited for a quick, at-home lunch, while several of its products can also be used as ingredients for other dishes. To support this, it launched its Crowded Table campaign, celebrating how its brands can play a role in comforting people during a period of separation. The advertising has driven strong base velocity lifts while on air, while also increasing brand perception and relevance.
4. Shopper and category understanding
During the pandemic, especially with consumers spending more time at home, new behaviours have been established. For most suppliers, the key question is whether or not these behaviours will stick or will consumers revert to their pre-COVID-19 behaviours?
Conagra Brands has identified how consumers’ behaviours have shifted in response to COVID-19. Many are rediscovering the joy associated with at-home eating, including baking, cooking as a family and movie nights with snacks. Consumers are also discovering new things about food. Many are learning to cook for the first time or how to create restaurant favourites at home. The company believes many of these behaviours will remain beyond COVID-19, particularly cooking at home given the expected recessionary environment. Its broad food portfolio positions it to capture many of these key opportunities.
5. Digital commerce
With companies reporting growth rates from 40% to over 200%, depending on the market, digital commerce has seen explosive growth during the pandemic. The channel has offered consumers safety and convenience, with many moving into the channel for the first time. Several suppliers have seen ecommerce grow to represent more than 10% of sales, making it a meaningful channel. Consequently, resources are being reallocated, new partnerships are being formed and different routes to market are being tested.
As part of its partnerships strategy, The Coca-Cola Company has worked with third-party delivery aggregators as consumers have moved to mobile delivery. In North America, it added value bundles to over 4,500 restaurants and related outlets in the second quarter.
Retail Analysis subscribers: view our new report, Post-COVID-19: suppliers’ shifting priorities for H2 2020, to see how these five priorities stack-up against their wider agenda, and further examples of how they are adapting.
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