CPG Supply Chains & Shopper Shifts: Pandemic Impact

Not many could have forecasted the impact COVID-19 would have on had the US, as the country collectively adjusts to a new reality.

The virus is affecting every industry and every person, and the CPG supply chain and consumer behaviors are no exception.

Let’s take a closer look at:

• Logistics 📦
• Shopping Shifts 🏪
• Promotions 🔍
• What’s Next ⚠

The Latest in Logistics 📦

Imports from China plummeted in late winter 2019 as the country reeled from the impacts of the COVID-19 outbreak. The Asian nation lost a significant portion of its workforce due to its temporary quarantine, and production facilities went on hiatus. As a result, outbound truckload volume and rates from ports like Los Angeles tumbled significantly. According to an article published in Freight Waves, “Fewer ship calls in the midst of the coronavirus pandemic as well as lingering effects from the United States’ trade war with China resulted in a 17.9% year-over-year drop in imports at the Port of Long Beach in February 2020.”

As panic buying escalated before the widespread impact of the pandemic, all parts of the supply chain had plenty of freight to move. So much so that shippers, carriers, and other logistics providers had to quickly adjust to labor challenges to ensure that no disruption occurred. According to data gathered from Freight Waves SONAR at the onset of this crisis, outbound tender volumes increased at several-year-record volumes. This jump was in direct contrast to placid conditions that have plagued trucking for the better part of a year.

CPG brands that relied solely on goods imported from the Asian nation needed to find local partners or stop production themselves. Supplier issues, coupled with increased consumption among domestic customers, put a strain on many CPG brands’ supply chains.

McKinsey finds that retailers are working closely with CPGs to help reduce out-of-stocks. For the most important product categories, category captains are holding daily meetings with strategic suppliers to work through the options for securing an adequate supply of essential high-demand items. Consumer Brands Association reports that 59% of Americans have noticed more availability of high-demand products. Most consumers are well-stocked at home, 91% report having enough essentials to last for one week or longer.

Now, as post-outbreak demand has waned, supply chain parties again have to adjust. The outbound tender volume that was present in early March has disappeared, leaving many industry providers in need of freight.

Shopper Shifts 🏪

Nielsen identified $18.8 billion was spent on CPG items in March 2020 alone – directly attributable to coronavirus buying. Some $10 billion of that spend was due to increased consumption and $8.2 billion went directly toward pantry loading.

Retailers and manufacturers need look at how evolving consumer patterns lead to supply chain disruptions and how that impacts demand planning.

• Will shoppers continue to pantry load?
• What will summer demand be like?
• Will promotions impact buying behavior?

37% of consumers have more trust in the brands that manufacture household cleaning, personal care products and food and beverage staples, in the wake of the coronavirus crisis. Another 55% said their trust in CPG brands has remained steady.

Nielsen adds:

• Purchases of frozen and shelf-stable fruit grew at 3-5x the rate of fresh fruit in the year-to-date period ended April 4.
• Pantry items such as powdered milk and dried beans have leveled off some, but are still high at 39.1% and 67.4%, respectively in the week ended April 25.
• Health-safety products continue to be important, and consumers are taking interest in these items where stock has been replenished.
  • Hand sanitizer, for example, has regained momentum up 420% in sales growth in the week ended April 25.

Recent research from McKinsey says that big brands may benefit in the longer term, as retailers’ current focus on high-volume SKUs will change the consumer decision set. (In the United States, for instance, large and midsize brands captured 60% of recent growth, compared with only 20% in previous years).

ECOMMERCE 💻

By the end of 2019, online sales of CPG food products totaled more than $38 billion.

Consumers continue to shop online to safely gain access to essentials. Nielsen reports that ecommerce has seen a 46% increase in buyers since the pandemic. 40% of new online shoppers are over the age of 55.

For the week ending April 11, online CPG sales grew 59.1% compared to the same period a year earlier, according to Nielsen and Rakuten. That week, online food sales increased 103.5% year-over-year.

The pandemic could potentially “accelerate ecommerce by 10 years,” said Kris McDermott formerly of Edelman. “There are so many people rapidly adopting to the channel, where normally, we see incremental growth over time.”

Amazon is expected to build momentum in fresh food and packaged goods, especially in markets where the major grocers lack ecommerce “legs.”

In the month leading up to March 14—even before government issued shelter-in-place guidance—Amazon saw year-on-year growth:

• 41% in household goods
• 25% in health products
• 23% in groceries

REOPENING & RETAIL 🕛

Starting at the end of April 2020 and early May 2020, many states started reopening.  While many consumers load their virtual shopping carts, a Harris Interactive and Toluna poll found that still, 70% of people still like to shop at grocery stores.

Yes, CPG manufacturers share many of the same goals as retailers, they have additional pressure: Support volume growth and fulfill orders quickly and accurately. While many CPG companies have withstood the initial economic shock, all will need to prepare for the longer-lasting effects, including an erosion in consumer confidence that will drive recessionary behavior reports McKinsey.

Promotions & the Pandemic 🔍

Among the top promoted grocery categories (frozen, snacks, dairy, beverage, meat, fresh fruit, cereal, fresh vegetables, beer, and seafood) for the week ending May 2 (2020), all indexed lower against 2019. Meat promotions continue to decline. Gum and mints both showed YOY growth.

McKinsey reports that already, two-thirds of consumers are discouraged about the pandemic’s lasting effect. Despite their comparative optimism for economic recovery, 46% of US consumers said they plan to reduce spending in the coming weeks. Because of this, we can expect shoppers to become increasingly promotion-conscious. Jon Springer, Executive Editor of Winsight Grocery Business writes “the nature of promotion has abruptly changed from transactional to emotional.”

As we move forward, there will be competition for the shopper’s dollar which will likely drive growth in advertising and discounted prices.

What’s Next ⚠

A Supermarket News article asks:

• What will grocery retail and the CPG business look like in a post-pandemic environment?
• Will shoppers, whose behaviors have been altered so dramatically, return to their old habits or is this new normal here to stay?

Scott McKenzie, Nielsen Intelligence Leader, offered 3 distinct time horizons -rebound, reboot, reinvent- for global market regeneration. With each of these time scenarios, McKenzie noted, the shopper’s baskets will change. Things like pack sizes, brand, and product origins will be tailored as shoppers adjust to their economic circumstances and prioritize their health and safety.

“Retailers and manufacturers need to take a listening stance,” McKenzie said, “a listening stance that takes into account the technology demands that are coming from consumers.”

And, communication remains key. Reaching out to consumers positions CPG brands as a trusted source. Research suggests that consumers want to hear from brands they know and trust. If brands can establish trust now, they may win in the long-run.