The onset of COVID-19 has brought numerous developments and challenges for the consumer-packaged goods industry at a global level. The current worldwide pandemic has led the CPG industry into a host of challenges involving an imminent recession, soaring unemployment and layoffs and an all-pervading social distancing which has resulted in mounting anxiety leading to unprecedented and never seen before consumer behaviors.
Modus Operandi – Consumer Packaged Goods Industry
The exhibit below summarizes the operational network within a typical CPG Industry. Primarily any consumer-packaged goods industry has the below product- process flow within the 4 major key stakeholders listed below:
- Manufacturing Company – Any Consumer-Packaged Goods Corporation producing goods and products.
- Distributors – Independent & official company appointed “Channel Partners” responsible for delivering the products to the retail stores.
- Retail Stores – Mom and Pop Stores, typical Brick and Mortar or E-commerce.
Consumers – End customer purchasing the products for their personal consumption.
How COVID-19 is Disrupting the CPG Industry
Before the world religiously practiced “social distancing” norms, established CPG companies faced industrial disruption at the hands of start-ups which constantly challenged the status quo by questioning traditional economic models of working as a result of their transformative and experimental risk-taking approach. Data, IoT and the rise of “Direct to Consumer” selling strategy via E-commerce, in app and online sales has been the greatest disruption within the CPG industry. However, COVID-19 has brought about a record disruption across the end to end CPG network, pushing corporations into unchartered territories as their pre-emptive strategy to maintain their business continuity.
Manufacturing Companies – Axis Shift from Luxury Products to safety essentials
Who would have fathomed that luxury good brands like LVMH, Burberry and Gucci would be manufacturing and donating hand sanitizers and face masks? Automobile companies are optimizing their production lines towards creation of ventilators.
Distribution and Warehousing – New mediums of Isolation and Quarantine?
Distribution centers overly stocked up with consumer goods inventory due to less offtake from stores. In certain parts of the world, frozen food trucks are being used as mediums of storing bodies and acting as mortuaries while warehouses are being replaced as isolation and quarantine centers.
Retail Stores – Access limited to purchase of “Essential Grocery Items only”
Cosmetic, clothes and electronic sections sealed. Limited entry in stores for limited hours and that too for a limited purchase of essential grocery items only. Shelves stocked up with non-grocery/ food items and limited shelf life can lead to heavy expiries and damages. Traditional “Brick and Mortar” stores facing mixed sales however E-commerce is on a greater rise.
Consumers – Panic Hoarding and Pantry Stocking
Remember the time when in some parts of the world, stores and supermarket chains were out of stock on Toilet Paper? Pharmacies and Petro Marts were out of hand sanitizers and sprays? Gloves and face masks are now valued more than ever. Bulk purchasing on pain relievers, medicines and grocery items have led to shortages across. Not to forget, the psychological impact and spiraling effect panic buying has inflicted on each consumer’s own mind and their respective social circle.
Implications for the CPG Industry – Where do CPG companies head next?
In the midst of implementing hiring freezes, employee layoffs and withholding increments and bonus payouts, most of the companies are now in a crisis management mode. While ensuring employee mental wellbeing and health is always a core value for any corporation, companies today are struggling against their own value system in their effort to continuously provide goods on store shelves. These are indeed challenging times for any corporation be it publicly or privately held. Top management across the board in the effort of maintaining their top line and defending their bottom line are now at the brink of making the following important decisions which may very well alter the axis and growth trajectory of corporates.
- Demand Assessment: What will the next 6, 12 or 18 months look like?
- Financial Modelling: Development of forecast models to identify, analyze and reflect on consumer behavior and trends – generating valuable insights.
- Optimize Manufacturing: How to balance reduced production capacity due to lockdowns and quarantine? Build safety stocks and maintain healthy stock cover days at the distribution and warehouses.
- Develop Agile Logistics: Flexibility and innovation to meet increased volumes within transportation capacity constraints.
- Pricing Strategies and Product Launches: Reconsider and/or delay routine raw material and inflation led price increases. Delay or hold product launches as a result of consumer preference towards essential grocery items only and heavy pantry loading priorities.
- Online and Direct to Consumer Selling: Product shortages in store can lead consumers to shop online and build trust towards home deliveries. Increase social media and online presence to develop a comprehensive omni channel selling strategy.
- Marketing and Advertising Investments: Traditional media advertising to be replaced with digital and social media marketing platforms.
So, where do companies head next? How long is the travel ban going to prevent essential work travel? How long will WFH be intact? Is the world now moving towards non-conventional ways of working? Will consumers prefer and trust E commerce more than traditional brick and mortar stores?
Keeping historical patterns aside, the reality today is a prevailing unknown situation. The outcome is directly proportional to the duration of this situation and its respective economic ramifications. We have officially entered a “new normal” state, which means things will stay unsettled for the immediate future. CPG manufacturers and retailers are now leveraging available assets and resources to make the most up-to-date and informed decisions while adjusting appropriately as the situation unfolds. Companies are massively innovating towards E-Selling Strategies via Direct to Consumer Home Delivery Solutions, E Grocery apps, online portals and telesales and telepitches to consumers. Online Purchases now have been categorized under Essential Groceries and New Essentials – giving rise to evolving and novel consumer path-to-purchase journeys.
While online sales and growth is impressive, point-of-purchase sales is still relative as its highly varied across different product categories. The roadmap to success in such times is towards understanding and changing behaviors in the total marketplace—both online and offline and developing agile processes to meet unparalleled consumer demand in uncertain economic conditions.