Based on conversations with a dozen key FMCG industry leaders across Europe, and as presented in our last webinar, it was clear that the Covid-19 pandemic was accelerating existing trends towards digitization, automation and online shopping. They were united and clear on three priorities for in-store execution:
- Safety: as long as the virus remains a threat this will be the first priority.
- Simplicity: identify and focus on doing the priorities really well. Eliminate or reduce activities that don’t add value (e.g. collecting data that is not used).
- Systems and data: use digital technology and data to guide daily activity; identify where issues and opportunities exist and get that information quickly and directly to the people in the field to act on it.
How are things looking five months on? Are these still the priorities? Over the summer we saw a relaxing of restrictions across Europe and the reopening of many channels, like the hospitality industry, that had been closed or operating under severe restrictions. Now, in most countries across Europe we are seeing the rate of infections increase and governments are again increasing restrictions including closing bars and restaurants. How have these changes affected the industry and its shoppers/consumers?
What’s the same?
Shopping remains uncomfortable
The move toward fewer trips and bigger baskets has continued as shoppers limit their interactions with others. YouGov’s tracker of personal measures taken to avoid Covid-19 still shows the larger European markets having 60-80% of people saying they avoid crowded places. The survey, updated to mid-October also shows 40-60% of people also saying they avoid touching objects in crowded places. So the picture remains one where shoppers will be hurrying through the store and limiting time spent browsing.
Online goes from strength to strength
Having your groceries delivered or using a click and collect service is an even more effective way of limiting physical interaction. For those in vulnerable categories it is essential. Since June retailers have invested in more capacity despite challenges in making it profitable. This includes chains like Aldi which up to now have had a limited online offer. Consumer demand has taken up the capacity continuing strong growth with some retailers reporting their online business doubling. Manufacturers too are focusing their attention and more investment dollars in online and digital. We see this most prominently in the Pharma channel where the digitization of the sales process is moving rapidly in response to the very limited space in the channel.
If online is the clear winner then the lack of an online offering has weakened the relative position of discounters. Proximity was a key factor during the first wave of Covid but as restrictions relaxed we noticed shoppers beginning to revert to former patterns. This is seen in data up to the 23rd August from IRI, which shows some strengthening in markets like France, Spain and Germany for Hypermarkets where the ability to find everything in one store and the space for social distancing is an advantage.
Simplification is happening
The expected simplification of supply chains is beginning to happen with some variations by category and country. Taking the number of items sold as an indicator the IRI data shows a decline of 1.3% in the number of items sold across Europe. This is most marked in the UK where the decline is 6.5%. Non-Food categories are most affected with Private Label ranges seeing the biggest declines. This is likely only the beginning of the simplification trend and as range reviews occur the pressure to simplify will continue.
Time in-store is precious
As retailers and manufacturers put safety first the time available for sales people and merchandisers to work in store has been cut, impacting in-store execution. Retailers may even ask their suppliers not to send staff to store for a period. The number and duration of store visits has been reduced. Depending on the complexity and extent of a supplier’s offer, visits that used to be scheduled for 1 hour to 90 minutes can be cut to 30 – 45 minutes. In the Pharmacy channel the effect is even more dramatic with visits and time in store being cut to 25% of pre-pandemic levels. Naturally, companies want the focus of this time to be spent on increasing orders and improving shelf space and visibility, rather than checking and collecting data. As a result there is growing interest in productivity tools and in using solutions like crowd-sourcing to give visibility to what’s going on in-store. This includes the movement of some interactions with store managers to be done virtually. With some level of restrictions likely to be with us well into the spring of 2021, these trends are set to continue and some will become permanent.
The economic effects are being felt more sharply
The economic effects of the pandemic are being felt unevenly. One obvious driver of this is the impact of restrictions on different sectors of the economy. In this context the most relevant example is the range of restrictions and at times, inability to trade at all, of the hospitality sector. As many countries face renewed restrictions this will put severe stress on businesses and workers. A second factor is that the stresses of the pandemic are most acutely felt by those who were already disadvantaged. Nielsen has noticed the development of what it calls “Constrained” and “Insulated” shoppers in many markets. Insulated Shoppers are those whose jobs/income and health have not (yet) been impacted by the pandemic. Constrained Shoppers are those who have already been directly affected and have seen their incomes cut. The behaviours of both groups will be affected and shoppers will generally be more cautious. However, the constrained group will need to be much more conscious of price and there are already signs of this in online behaviour where shoppers are using the ability to compare deals and prices to stretch their incomes. Monitoring and adapting to serve these emerging needs will be critical to success.
Promotions are returning
In the early stages of the pandemic when supply was an issue and organising to provide a safe shopping environment was the priority, many promotions were canceled. They are now returning: across Europe in the 4 weeks to 23 August there was a 6.4% increase in value sales sold on deal (IRI Infoscan). Some of this may be accounted for by promotional budgets being rephased. The return of promotions combined with new shopping behaviour (less time browsing, more pre-planning) means great in-store execution is even more important to ensure the promotional spend delivers value. However, as stores have allocated space for social distancing, there is more limited space for promotions which means it is even more important than ever to have perfect execution.
There is a new wave of restrictions
Across Europe new restrictions are being implemented as infection rates rise. Retailers, manufacturers and shoppers are better prepared this time. This time, more countries are applying restrictions locally rather than nationally and with more variations on the nature of those restrictions from city to city. This means managing more complexity and presents the greatest difficulties for the hospitality sector. For anyone managing a retail estate or a sales/merchandising team across areas with different rules there are significant additional challenges to ensure in-store execution. For all companies it means reassessing forecasts for the remainder of the year and adjusting budgets.
At the time of writing the news on vaccines is more positive, with the announcements from Pfizer and Moderna. However, the path to making the vaccines available at scale is going to take some months and some level of restrictions will continue in most countries well into 2021. This means the pressure to find new, more efficient ways of executing in-store will continue, It also means continued and severe pressure on the hospitality sector and those who supply it.
What should we do?
The developments in the market since June are consistent with the expectations of the leaders we spoke to for the white paper and they show that the industry is already moving in line with their recommendations. What has happened reinforces the need for a continued focus on safety, simplification, and systems and data.
The economic effects of the pandemic will be increasingly felt by consumers across Europe. Government support schemes will help but the effects on consumer/shopper behaviour will be profound and therefore companies should monitor these closely and develop plans for different scenarios.
If you would like to learn more about the transformation in retail execution, you can read the full outlook in our white paper “Why In-Store Execution Has Changed Forever” here.