Promotion Analytics in a Disruptive Supply and Demand Environment

We continue to hear about the disruption to businesses and communities around the country due to COVID-19. The grocery channel is adapting to changes – state to state, market to market. Grocery stores have seen unprecedented consumer demand and pantry loading.

We held a virtual discussion group on Friday April 10 to talk with CPG companies about the state of the industry.

Here’s what we heard:

  1. Promotions are being cancelled
  2. No one knows how consumers will behave in the coming months
  3. Out-of-stocks & logistics are real challenges
  4. Lines are blurring between foodservice and grocery channels
  5. It will be important to smooth baselines 

Promotions are off the table (and might be for a while) as retailers scramble to keep up with stock.

One participant notes that her company shut down promotions, with retailer support, as of mid-March. These promo cancellations could continue through June. She mentions that they’re tracking all of the changes happening so that next year they’ll understand why trade spend was so low and they will have that data to refer back to.

Another CPG mentioned that they’re proactively cancelling promotions, saying that it’s mutually beneficial for supply and demand.

Most participants agree that they’re reaching out to retailers and are having a pretty good, even receptive, response to pulling the promotions. One person adds, “I echo everyone else. We’re focused on a combined effort. The goal is to get product to the customers.” For the most part, “retail customers are extremely cooperative. There hasn’t been push back,” notes another participant.

The group talked about what everyone is seeing from mega-retailers like Walmart. One person mentions that on weekends they would usually see spikes, but now they’re seeing spikes in the middle of the week. What we once considered a typical day, is different now, when we’re looking at the data today vs. last year. Generally, the group is seeing dramatic volume increases for their business.

 

Theories abound when it comes to wondering what consumers are doing with their stockpiles and how they will behave in the future.

  • Are people actually consuming/using the products they are buying? Shoppers are buying so much, but will they still have these items on hand in a few weeks or will they have gone through them because so many more meals are being eaten at home?
  • Will it depend on the product? Participants seem to feel that food items will be eaten in higher quantities to some degree, but maybe the panic buying of cleaning and toiletry items will not be actively consumed in these months, resulting in category sales dips when stay-at-home orders are lifted.
  • Will orders die off in June? July? August? No one seems to be very clear on when things will “get back to normal”.

The group also talked about the club channel. Are club stores looking for alternative sources of product and dipping into traditional retail supply? One company shared that club buyers were asking to stock their shelves with grocery SKUs to avoid outages, but unfortunately they couldn’t accommodate the request. There just isn’t enough product to go around.

It seems that every channel in every food-distribution segment is trying to get more product into the hands of consumers.

 

Production capacity, logistics and out-of stocks remain the most impactful challenges right now.

When we asked what the biggest obstacles have been in supplying retailers, the answers vary.

One participant calls out the packaging itself as a significant challenge, saying, “if you can’t put food in the box – you’ve got a problem. That’s what is sneaking up on us, and our fellow vendors.” She continues that it’s important to get ahead of those little hiccups – and right now that seems to be packaging.

For another CPG participant, logistics is a bit of an issue. There are out-of-stock, inventory issues. She notes, “We’re trying to react quickly.”

When out-of-stocks are the biggest issue, the discussion group said that you have to think about losing value share – “is it because we can’t keep up with the demand and how fast the demand is increasing. It’s a good… and bad thing.”

The group pointed out that new items set for placement in the perimeter are being cancelled. With staff being assigned to never-ending stocking activities, there isn’t time for laborious perimeter products to take precedent today.

Anything that comes into a retailer that can be placed directly on a shelf – totally ready to go – seems to be running as usual. The category is important. Rapidly consumable products are easy to buy and use.

 

Lines are blurring between foodservice and retail with changing consumer behaviors and supply chains scrambling to meet demand.

The group is expecting to see a shift from the foodservice distribution to retail for the next few months since more people are cooking at home and enjoying meals at home.

Right now, one participant says, it’s really a share of stomach issue. There’s a shift to the consumer side and we’ll see that growth for a while. It’s the same amount of food, it’s just not away from home.

But, think about retail’s new challenge. They are making it more complicated to shop… Consumers must wait in line, and only so many individuals are allowed in the store. Then, there’s the fact that so many households are doing online orders. The discussion group thinks it’s surprising that people will wait in line to get into stores. Do we expect consumer behavior to continue if this lasts another month or two?

Blacksmith employee, Jon Vasatka, mentioned that he hasn’t been to a grocery store in more than 4 weeks. He’s had different grocers deliver products to him, which is a very new purchasing experience for him. He never ordered groceries online before. Now, it’s his new normal. Who knows how these changing shopper behaviors will stay the same or return to prior practices in the coming months. Another person mentioned that the quantity of food being purchased is just so much more than it ever was before – “In our house… we’ve purchased more food than I remember.”

One participant wanted to learn more about foodservice distributors entering the retail supply chain. “I’ve heard that Sysco is shifting business and investing money in supplying retailers. Foodservice distributors are trying to help on the consumer side…. It’s happening.” Schools, colleges, and events are shut down. So much of the distributor model can’t be activated. With the logistics demand, foodservice distributors are finding ways to enter the retail markets.

Restaurants that relied on dine-in customers are selling groceries. Many operators are now creating supply packs – where consumers can pick up a loaf of bread, eggs, and other grocery-like items. Instead of buying a prepared meal, consumers can now get ingredients. Everyone is trying to take a share. Panera Bread announced its nationwide launch of Panera Grocery selling pantry items including milk, bread and fresh produce.

One participant explained that Sysco reached out very early-on in the pandemic to ask about how they could be ready to sell items into the retail channel. Which products have the proper packaging for individual sales. Other distributors are interested in diverting product to retail as well.

It’s important to note that those UPCs would have to be added for syndicated data tracking if a company wants to track the movement of these products now that they are being sold to grocers. Make sure to talk to team members across segments to ensure proper product tracking for all businesses.

Distributors are making the business shift for shelf life. After all, many restaurants are closed or down 50-70% in sales. Take out and drive up service is all that works in many areas right now. distributors need to move the product to avoid spoilage.

 

Take Control of Data Today with TPO

In one example, during the first week of stay-at-home orders, promotional volume was up 2x higher than any previous 15 weeks at the same price or lower. Using this data, overspend could be as high as 44%.

But, you can adjust for that. Use your TPO functionality to take that week out of your predictive lift to normalize data going forward.

Blacksmith Baselines: What’s happening?

Use the TPO consumer event field to add major events taking place in the market (beyond the pandemic – this field is useful for things like hurricanes and blizzards).

After you set the event, it just takes two clicks to address the anomaly within the application, smoothing the baseline to ensure proper planning next year.

 

 

Consumer goods companies are working through the challenges that COVID-19 has brought into the industry. As stocking up remains a consumer purchase driver, CPGs will continue to focus on keeping their product on the shelves of their retail customers. The key for CPGs, our discussion group agrees, is staying informed, collaborating with customers, and adjusting strategies as needed.


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