Online grocery reached $5.3 billion in sales in April, a 37% increase from March.”
IRVINE, California — Without a coronavirus vaccine, it will likely be 12 to 18 months before U.S. retailers and consumer goods leaders can expect business to look more like it did before COVID-19 caused massive disruption, according to Dan O’Connor, an executive in residence with the Harvard Business School Managing the Future of Work project.
“As the viral and commercial cycles diverge, stores and restaurants will reopen and rescale amid the many complexities and scenarios for a return to normal,” said O’Connor during “Do Now and Do Next: Navigating the COVID-19 Pandemic and Recovery,” an Advantage Solutions webinar for brand and retail leaders. O’Connor was joined by Advantage executives Chris Butler, president, Advantage Digital Commerce; Lisa Klauser, president, Advantage Sales; and Brian Kristofek, president, consumer and shopper marketing, for a question-and-answer period. The webinar was moderated by Jill Blanchard, executive vice president, client solutions for Advantage Sales.
Reopening and recovery will look very different in different markets, especially in the New York metro area and other hot spots, but by the end of May, the country will begin to see a decline in the number of new cases, though it may be July or August before the level of net new cases will be acceptable for the population to “fully engage,” O’Connor said.
“From a commercial point of view, we’ll see a better summer than March. But as you look toward October and November, there is little doubt we will have another wave. It will differ by population density and postal code, and no one knows what it will look like, exactly. But China, where they have very tight discipline [around temperature monitoring and contact tracing] and have reopened 80% of stores and restaurants, is experiencing this.”
The Crisis Curve
Most of the data is pointing to the pandemic-fueled global crisis curve lasting 14 or 15 quarters, from peak to valley to peak, compared to The Great Recession, which lasted nearly eight years, or 30 quarters, O’Connor said. “Most would argue we are through the shutdown and in transition. The questions are about the length of the transition and what the recovery will look like.”
With consumer confidence falling across all income levels, credit card spending is down, with only online and essential retail on the rise, O’Connor said. “The spending shift has been to essential groceries and online grocery shopping. Online grocery reached $5.3 billion in sales in April, a 37% increase from March.”
Shoppers are also changing their preferred brick-and-mortar venues, moving to smaller retailers in closer proximity to their homes. “The number of trips to big box and destination mall-based retailers has been significantly impacted,” O’Connor noted.
The fast, dramatic change in shopper behavior has pushed rapid acceleration of initiatives to enhance the collection and use of data, such as artificial intelligence and machine learning, by brands and retailers, the industry analyst said. “If you look at Chinese platforms, they are way ahead of us. There, it’s a world of unified data. Every touchpoint by consumers is captured and all of that data is unified and traceable back to a persona.”
Still, retail technologies and business models have accelerated by three years, he noted. “We are realizing quickly there are too many diverse tasks to rely on humans alone. In the world ahead, entire business processes can be automated, like pricing is at Amazon.”
Do Now and Do Next
Now, retail and consumer goods leaders must focus on reopening and rescaling in a way that meets the needs of a pandemic-changed consumer, who is shopping for new occasions in new locations. “How do you market to a population who is working from home? If you have a convenience store that is outside an office center, that is going to be very tough,” O’Connor noted.
The most important drivers for the economy, he said, are: When will people be ready to go back at work? When will they feel safe to shop in stores, dine out and travel?
“A recent survey showed that time, for many people, won’t be for another six months — which is solidly in the timeframe of when we may have an echo in the virus,” he noted. “For now, deferring is the key behavior. ‘I don’t want to go to the workplace unless I have to and won’t go unless I can be assured it’s safe. I don’t want to go to the store, but when I do, I’ll go where I’ll have the least [chance to be infected].’”
As business reopens, CEOs must make fast decisions about rationalizing distribution networks, product size and assortments and pay attention to new consumer demands, O’Connor said.
“The shock of the pandemic to product demand and supply is still being felt. You may be an inventory allocator at a large consumer goods company whose at-home sales were 45% of volume and foodservice sales were 55% of volume and the foodservice volume has disappeared. Now, the need is to start producing products packaged for in-home sales. There are companies with inventory simply not in the right place, with foodservice packaging being resold for at-home use.”
Moving forward, the focus should be not just on e-commerce or omnichannel practices, but what O’Connor calls OMO — Online Merged with Offline. “When you use data and automation, what quickly emerges is an entirely new way to go to market that blends e-commerce and physical stores in a new way,” he said. “The physical store is used for customer acquisition and the digital is for customization and delivery options, which are paired with the physical store to get the product to consumers how they want it.”
Q & A
During the question-and-answer segment, Advantage’s Klauser laid out ways premium brands can remain viable during the recession. “Never has it been more important to understand value drivers by category and by channel,” she said. “Value drivers can be product differentiation or claims, price/pack architecture or marketing programs designed and delivered to different shoppers. Premium brands need to be more granular than ever in understanding value drivers that allow them to differentiate themselves.”
Asked if brands should “over-invest in retailers that have online-merged-with-offline figured out,” Butler said, “Yes, broadly speaking. But brands need to take a step back and understand their own data and where they are getting the most bang for the buck. What platforms are the most effective and efficient? What retailer and consumer segments are giving you the greatest return?
“We are seeing a lot of marketing dollars going to digital platforms, including online media, merchandising, search and content development, but there needs to be an increased and faster use of data to understand the payback quickly.”
On the subject of consumers who have been pushed by out-of-stocks and new online shopping experiences to try brands for the first time, Kristofek noted the “super surge of product trial is a gift, an opportunity, for brands to engage today to build a relationship that will keep them relevant into the future.”