What You’ll Learn:
- The permanence of COVID induced consumer shifts and the accompanying opportunities and threats to a fast-moving consumer goods firms
- What it takes for your brand to thrive in an environment where the consumers’ sense of reality and security have been disrupted
- A conceptual framework to guide thinking on how your organization might address this changing consumer landscape, embrace the challenge of increasing your understanding of these conceptual drivers, and the practical implications for your business strategy
- How these new consumer behaviors may shape your thinking about profitability and revenue growth
We’ve all seen charts like this. This is the US COVID cases trendline through last week (November 2020) – reported by the CDC. You can see we’ve experienced a wave in the summer. And then we went down as fall approached. Now, we’re really spiking.
Now this is interesting. I hadn’t seen this one…
How unique is it really to see an economic downturn and a health threat together?
Here’s a graph (to the left) from the Fed’s website.
The gray bars track the past recessions that we’ve experienced over the last 70 years or so. Then, I went back and marked the major health scares. You see some interesting patterns.
🩺 Asian Flu
🩺Hong Kong Flu
🩺 Swine Flu
All of these health trends line up well with the accompanying economic downturn. What we’re experiencing now is not particularly new. What is new is the extent. The economy shut down for weeks. Now, there are threats that the economy will shut down again. This experience isn’t something we’ve faced before.
CPG Sales Highlight
There was an uneven pattern of sales spikes as COVID rolled out.
The initial spike in sales after the pandemic hit = CPG sales. For the 2 weeks ended March 21, 2020 – total US CPG sales (in-store and online) increased $8.5 billion form the 2 weeks prior.
CPG Sales ⇧ Increases:
- General Merchandise (+6.4%)
- Health and Personal Care (+4.3%)
- Non-store Retailers (+3.1%)
- Building Materials and Garden Equipment (+1.3%)
15,000 – 20,000 retail outlets are expected to close this year due to COVID. Experience based spend such as foodservice, or items like clothing did not get as much of the consumers dollar when COVID hit.
CPG Sales ⇩ Decreases:
- Clothing and Accessories (-50.5%)
- Furniture and Home Furnishing (-26.8%)
- Foodservice and Drinking Places (-26.5%)
- Motor Vehicle and Parts (-25.6%)
- Sporting Goods / Hobby / Musical (-23.3%)
Recently, we’ve seen potential signs that things are starting to turn around. Examples:
- Job postings on Indeed are going up. A big improvement from April 2020.
- The stock market seems optimistic. Back in March, it cratered. Last week, it set a new high.
Signals are mixed though.
Last week The Conference Board’s Consumer Confidence Index came out. You can see, it’s been depressed throughout 2020. And it did increase a bit, but now it has taken a drop. That means consumers are reporting they’re not so confident.
Framework of Consumers’ Responses to Threats
(video time: 8:00)
Moving from left to right:
- The emergence of a threat (pandemic and economy)
- The extent of the threat (this is a large scope threat, it’s a global problem)
- Disruption to daily life (work, spending, social lives, institutions)
- Shaken ontological security (when consumers feel their world and their role is unpredictable)
- Consumers adapt (stock pile, work from home, stop travel)
- Markets adapt (how CPGs can adapt to the consumer shifts)
(video time: 11:40)
Q: How much of the growth of CPG sales are due to consumer’s stockpiling?
A: I’d say most of it. I would say 90%+. Especially on products that ran out – wipes, paper towels, toilet paper. There’s research that suggests that the more product you have stockpiled at home the faster you go through it. Now, I don’t know if that’s true with toilet paper and paper towels. But I’m sure it’s true of cleaning wipes and anti-bacterial soaps.
I think once you stockpile it, you’re more likely to go through it because you have it.
On the other hand, if you’re worried that it’s going to be out, then you conserve.
It’s a mixed bag. If you look at the repurchase behavior, shoppers must be going through this stuff because now we see another shortage in supply – at least around in some parts of the country.
Q: Do you see research showing that CPG sales online and in-store will continue to grow?
A: There’s no doubt. There’s no question that the world, at least in my mind, has shifted in terms of consumer behavior. I think that we all we have been seeing shifts. Every year, around this time – Black Friday and Cyber Monday – you see online sales ticking up, up, up. People were predominantly buying in-store, but now we’ve seen this big shift.
The question is, is it going to go back or not? That’s the question on everybody’s mind. (Keep reading & watching to learn more!)
Participant Comment: Spirit sales have surged because of the switch and consumption behavior from out of home to in home.
A: Well, I can speak for myself and say, yes, that has shifted to in-home. That’s not surprising. Things that people were used doing out of the home, they can no longer do, so people seek normalcy. They want the norm. The longer things drag out, the more they’re going to be grasping for things that help them have a sense of normalcy. That could be liquor sales, or it could be comfort foods. Finding that normalcy can take on a lot of different forms.
Will Consumers Revert Back to Pre-COVID Patterns?
(video time: 15:15)
Probably, in many cases. People have this growing sense of a need for normalcy and to get back to the way things were.
We’ll see some segments in the population that are going to revert right back – that’ll be your V shaped recovery. People who retained their jobs and work remotely. They’ll be able to go right back – they’ll be able and be able to revert to pre-COVID behavior patterns. Will they? We don’t really know.
Regardless, many habits are going to have changed. People are cooking at home more. They’re buying online a lot more.
Historically when shoppers are looking to buy things, they’re looking for things that will save them time, save them money, obviously deliver the function and quality, and reliability. And now we’ve got safety to worry about.
It’ll be over a year by the time things revert to normal.
People will have been wearing masks for a long time. And been sensitized to be wary of getting too close to others enclosed spaces.
Research suggests that childhood experiences have life-long effects on behavior. Think about this younger generation, who have to learn online and see their moms and dads struggle, their habits aren’t formed yet. They’re forming their habits now. Gen-Z and the cohort after them will have behavior impacts.
(video time: 18:05)
What is a habit? A habit is a behavioral disposition to repeat well-practiced actions given recurring circumstances. For example, you get up in the morning, you get your coffee, you check your phone. Those are habits.
What does it take to disrupt a habit? We’ve all struggled with changing our habits. Exercise more, quit smoking. What do we have to do to change? One, change the context where the behavior takes place. Two, modify your motivation to change that habit.
With COVID, with its disruptions, we’ve definitely changed the context in the way people are living their lives. The context will go back when this is all over and the restrictions are lifted, people will be able to go back to their former context to a great extent.
Will they? That’ll be driven by the strength of that new habit those new habits they formed. I think for you with your brand to understand how your buyer’s habits have changed. That’ll be determined brand by brand, product by product, segment by segment. All CPG companies are going to get ahead of an answer as soon as possible.
Double Consumer Savings
Savings rates spiked above 30%. That’s crazy high. Before April 2020, the savings rate in the US had been around between 7% – 8% for years and years. Now, people aren’t spending their money on vacations, they’re saving.
Today (December 2020), those saving rates have come down a little bit, but it’s still almost double what it has historically been.
That means there’s a lot of expendable liquid cash out there right now with many consumers. Will they hang on to that as a safeguard? Or are they going to cut loose and spend?
(video time: 22:55)
During the Christmas season, we’ll start to see what consumers do with their savings. The net – net, the average household in the US, has saved twice as much money as before, then they have money to burn.
Shopping Behaviors Have Shifted
In terms of shopping behaviors, they’ve shifted. It’s not just in the US. McKinsey has surveyed households about every month or two so we can get a sense of the trend. It shows that consumers are really trying new shopping behaviors. India, is the biggest, 69% – 78% of customers intend to continue their new shopping behaviors. The US falls in the middle. 75% – 83% of US customers plan to stick with their new shopping behaviors.
- Online streaming (Netflix)
- Grocery delivery (Instacart)
- Restaurant / Curbside pickup
- Restaurant delivery
- Store curbside pickup
Opportunities for Fast Moving Consumer Goods Firms
(video time: 32:15)
CPG firms should:
- Reevaluate product allocation across different retail stores based on spending in urban areas to stores in less dense areas.
- Consider how to get into the consumers cart during curbside pickup.
- Estimate your role in direct to consumer (D2C).
✦ Consumers will likely not revert to pre-COVID shopping patterns
✦ All segments will react differently
✦ Many consumer habits are forever changed
✦ Mental budgets have shifted
✦ Children’s experience could have long-lasting effects
🌠 COVID-19 could be the asteroid event for many “dinosaur” retailers and firms unable to adapt
Q: Could it be that people will want to go back to their old habits (like eating out or going to the movies) even more than before? Did the crisis create a higher need for those things?
A: There’s evidence for that. Absence makes the heart grow fonder. I think there’s many consumers that really miss drinking wine with their friends, and they’ll jump back into that.
(video time: 45:20)
Q: Is there data available for Cyber Monday and Black Friday CPG sales?
A: It’s early. There were statistics that came out last week – that in-store sales were way down over 2019. Online sales skyrocketed. Black Friday 2020 was the second highest day for online sales EVER. Cyber Monday 2020 was projected to hit $13 billion… how much of that will be CPG? We don’t know exactly. For CPGs, consider what happened with Thanksgiving. Did folks buy online, in advance? Did they use curbside? That will probably sustain through Christmas.
UPDATE: 2020 holiday sales have broken records. According to Adobe Analytics, Thanksgiving Day sales jumped to $5.1 billion, up 22% compared with 2019. Black Friday sales totaled $9 billion, also a 22% increase since last year. Cyber Monday 2020 sales brought in $10.8 billion in sales, a 15% bump from 2019. Cyber Monday 2020 was the largest online shopping day in history.
Q: Re: Saving Rates slide – Who does that apply to? Where will that savings go?
A: That’s the average of savings rate in the US. It’d be interesting to see different segments. There are some people who are chomping at the bit to do something to compensate for their loss of vacation. I think we will see people shifting towards material goods (gifts) at Christmas season. People might spend some of the money they saved because they weren’t able to engage in experiences like vacation and eating out.
Q: What innovations in the digital grocery space should be top of mind for manufacturers planning growth initiatives in 2021?
A: I was looking earlier this week at what happened with the financial crisis in 2008 – 2009. What did companies do then, how did companies respond?
Opportunity: The CPG companies that innovated were able to grab an advantage that sustained them for the next few years.
Threat: Academics found that the share of private label, during recessions grows. Share of private label increases during an economic downturn because people’s habits and behaviors change.
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