Grocery CPG Manufacturers Share COVID-19 Impacts and Insights

Here at Blacksmith, we are talking to foodservice and CPG manufacturers via virtual discussion groups about how COVID-19 has impacted business – whether that’s finding new opportunities with retail customers or brainstorming solutions to serious challenges (baseline anomalies, anyone?), and we’re thinking about life and promotions post-pandemic.

In this article, you'll read about the musings and observations of our discussion group participants. Please note that the content is sourced via the discussion groups and participant information will be kept strictly confidential. 

 

Ch-Ch-Changes: Current Events

We’re not the first ones to say it – it’s an unprecedented time for the world – and specifically, the CPG industry. Not only has the novel coronavirus interrupted our daily schedules, it has changed consumer shopping behaviors.

Statistics:

  • Total US CPG sales increased $8.5 billion during the 2 week period ended March 21, 2020.
  • Kroger reported a 30% increase for March 2020.
  • 25% of shoppers plan to shop online more frequently in order to avoid germs and public places.
  • US grocery apps experienced record numbers of daily downloads in March 2020.
  • 45% of global consumers are spending more time on social media.

Target shelves display no butter for shoppers in Pittsburgh last week.

Photo Credit: Instacart shopper for a Blacksmith employee

 

Our discussion groups have a lot to say about current and future challenges in light of these dynamics.

Let’s break down the commentary into a few categories:

  1. Supply Chain & Promotions
  2. S&OP & Baselines
  3. Retailer Relationships 
  4. General Outlook

 

 

1 🛒 Supply Chain & Promotions

 

Promotions are being mitigated and pushed because grocery businesses are already swamped – dealing with spikes in demand associated with panic buying. Many of the group’s participants expect promotions and new items to become relevant again when there’s not a consumer stock-up situation.

The supply issue is #1 and the ripple effect is causing CPGs to rethink promotional events. Many CPGs don’t want to spend trade dollars at retailers when they are furiously trying to get products out to keep up with demand.

Orders are on the rise all around – both small and large retailers have increased their order size. Smaller retailers, who typically order half a truckload, are asking for two truckloads. Some are quadrupling orders. There’s a big issue getting to the distribution centers (DCs) – CPGs are trying to get trucks out the door, but there isn’t necessarily room for all the products in the warehouses. There are CPGs who are running into supply issues.

Per the discussion group, consumers did amp up trips to club stores initially while convenience, gas, and drug went way down. Grocery is obviously way up and participants expect to see grocery continue to stay above the normal level for some time. Alternatively, the participants expect to see the club channel (like Costco) return to normal order patterns more quickly.

 

Learn more about the anatomy of a baseline.

 

2 🛒 S&OP, Baselines

 

The biggest hurdle our discussion group expects to see coming out of the pandemic relates to baselines – understanding where the real baseline is and how to build solid plans off of that data. The participants are concerned about getting the forecast right.

CPG manufacturers are too aware that baseline data coming out of this stock-up situation and industry upheaval will be full of anomalies. Pantry-loading. Out-of-stocks. Panic buys.

Other baselines anomalies CPGs should think about include promotional holidays like March Madness and Lent (which moves every year).

Concerns exist with regard to growing YOY amid anomaly performance associated with the COVID-19 buying year. If this becomes the “new number” business performance expectations may not align with reality. Participants are hoping projections are realistic and that they will be tasked with finding ways to grow in light of all past and future conditions.

Participants talk about the need for the baseline data to be 100% accurate in order to make their case for what the baseline and growth can/should be going into 2021.

 

3 🛒 Retailer Relationships

 

Discussion groups reveal that retail customers have different reactions to the surge in demand; receptive or resistant. Some retail customers have cancelled promotions outright. Some are receptive to pulling back and working together. Other retailers are just too overwhelmed to think about changing promotional activities.

CPGs have heard that retailers are having issues with automated ordering systems. Retailers are not interested in taking new items at this time.

 

 

4 🛒 Outlook

 

CPGs expect 2021 planning to be very difficult due to the remarkable volume spikes we’re seeing today and a lack of certainty around how consumer behavior may or may not go back to normal moving forward.

The discussion group’s participants identified some scenarios that may unfold:

  • Behavior goes back to “normal”
  • Brand and product shift in shopper preferences might come as a result of scarcity – if a consumer’s preferred product is not on the shelf, they may buy something different…they might like it better and continue buying it down the road
  • Private label may come back even stronger
  • Increased need for click and collect models
  • One participant saw Conagra’s executives (NOTE: this participant is not an employee at Conagra Brands) talking about how people are migrating to frozen during the pandemic and this could be good for their brands (and sales) long-term because they are rediscovering the category and having a positive experience
  • The discussion group expressed some hypotheses around new promotional holidays because trade dollars are not being used now and will be expected later, we might see promotions that differ from year’s past – maybe Halloween is even bigger and goes beyond candy?
  • Saved trade dollars now will be used later – exactly how is TBD and this will impact baselines and PEA further

If you’re interested in talking 1:1 to navigate challenges within your business, we’re holding open office hours to support CPGs through the pandemic. You do not have to be a customer to reach out. CLICK HERE to schedule time.

 


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