Malachy O’Connor charts the key changes in our industry since lockdown began and looks at COVID-19’s lasting impact on grocery shopping
The last hand I shook was on 5 March in the lobby of the Radisson Blu Hotel in Letterkenny, after a fantastic two-day client session. Within the first 10 weeks of 2020 I had visited London, New York, Dubai, Bologna and Milan via Bergamot.
Covid-19 had already crept into our consciousness by mid-February when we had spent two days trawling the halls of Gulfood, sharing space with nearly 100,000 fellow humans. A few stands were vacant, a few more had ‘no hand- shake’ signage, but it was mostly business as usual.
In Ireland, we looked at China, and then Italy, like it was some kind of sci-fi movie. It didn’t affect us, and people drank Corona beers for a giggle.
One week later was my last in-person client meeting for 16 weeks.
The day started in Newbridge by signing forms to declare my health status, and when the meeting ended we popped down to Tesco to look at some products on-shelf. There was pandemonium in the store.
People were shopping like it was the end of the world. It was Christmas on speed, thanks to the announcement that schools would be closing the next day. I called into Aldi Kildare on the way home. It was busy, but calmer, since the shelves had already been emptied by the locust swarm of panicked consumers.
My last stop was in SPAR Mountmellick whose shelves were intact. I filled my tank, got a coffee and donut, and headed for home. I then stayed at home for four months, only venturing out for my daily exercise or to do a big weekly grocery shop.
There were two drivers of shopper behaviour since March 2020 - restrictions and fear. Firstly, restrictions on movement and business activity. For several weeks, we were told to stay within 2km of our homes and to keep a physical distance from anyone outside of our family unit. And, since most businesses were closed, there were very few reasons to go beyond 2km anyway.
Grocery shopping became highly proximity-focused, and sales uplifted by around 25% as the entire ‘out of home sector’ came quickly to a halt and supermarkets became the only option to buy food and drink.
Secondly, there was fear. People were heavily impacted by the daily reports of new cases, new deaths, the number of ICU beds, the curve, flattening the curve. As the job losses mounted, it quickly dawned on people that there would eventually be severe economic impacts from the pandemic.
These two drivers created four dynamics that defined shopping in the pandemic lockdown:
1. Increased in-home consumption: because there was no other choice
2. More online groceries: especially for vulnerable people who needed to stay at home
3. Less frequent shopping trips: to reduce exposure to other people
4. Mixed spending power: with some people losing jobs, but others increasing their savings and disposable income through heavily reduced living expenses
Covid-19 and the associated marketing and messages has evolved quickly in the last four months. As the year evolves, these two drivers and four dynamics will continue to play a role, even if restrictions are lifted partially or fully.
In-home consumption is likely to remain strong
More people will be working from home as staff remain nervous about using public transport, offices implement social distancing, and employers get to appreciate the benefits of location flexibility. There has been very minimal foreign travel this summer, and not everyone was able to find an available holiday house to staycation.
With the return to school in September, there may still be an element of home-schooling as thinned-out classes attend school week-on, week-off. The signs from the continent, and from here in Ireland, are that cafés and restaurants are back open but operating at 40% to 50% of capacity. So take- home grocery will not maintain the +25% growth that we have seen, but +10% or 15% seems very possible.
How this impacts shopper decisions will depend on two factors – time and money. If the shopper is employed and working from home, they will have more money to spend and less time to cook. If the shopper is unemployed at home, they will have less spending power, but more time to cook. This will become more visible into 2021, as we get to see the full reality of the pandemic recession. Either way, I see six product level trends:
1. More scratch cooking ingredients, and progressively more private label, for households with reduced spending power. 2. More healthy foods and supplements that boost natural immunity
3. More time-saving convenience solutions for busy home-schooling, home-working professionals
4. More gourmet foods for people with money to spend who want to re-create the restaurant experience without leaving home
5. Shelf-life enhancements on fresh foods: with consumers still shopping less frequently, and more online shopping, producers will work hard to add extra shelf-life to their products
6. Less packaging: with more in-home and ‘conscious’ preparation. Consumers will realise just how much more packaging they are purchasing, so this could become a new competitive territory, where consumers choose to buy the brands and shop in the retailer that burdens their refuse sacks with the least waste packaging
Less frequent shopping trips
Shoppers have reverted to a single, large, but anxiety-ridden weekly shop, with far fewer top- up missions during the week. This will likely persist to some extent, especially with the possibility of a second wave, localised outbreaks, and an underlying sense that “we’ll have to learn to live with it,” at least until there
is a vaccine. This has led to two major dynamics. Firstly, consumers are spending much more money on each trip. Secondly, it is a well-planned mission, with shoppers telling themselves, “I must not forget anything, because I do not want to go shopping again.” This has a number of knock-on impacts. Shoppers may mis-interpret the increased spend as ‘increased prices’. They may look to switch stores, or they may look to reduce spend by buying more private label. Either way, they are less likely to buy on the impulse, so retailers and manufacturers will need to work harder to highlight their NPD.
More online groceries and deliveries
We know that shoppers around the world are shopping more online for groceries, and in most countries the only limiting factor has been the retailer’s capacity to meet this increased demand. But exactly what shoppers are buying will depend on the specific dynamics in the different supermarkets. This boils down to the margin dynamics of brands and private label.
In a store where brands deliver higher margins, in both % and cash, then the retailer will push brands online. And even in markets where private label delivers higher % margins, their Average Selling Price is much lower, so cash margin is less. So, it’s hard to see how retailers can aggressively push private label online because the bottom line is that online picking and servicing, especially the last mile of home-deliveries, is very expensive. And the fact is that big brands are much more likely to pay for visibility online, which gives them an advantage over private label.
But if retailers can deliver an online solution with lower ‘last-mile’ costs, then private label could flourish online. A good example is Tesco UK’s rapid expansion of ‘click & collect’ or the ‘Drive’ approach in the French market. Lidl Ireland’s work with Buymie.ie and Aldi’s with Deliveroo both focus on eliminating ‘last mile’ costs, thus enabling the retailer to differentiate through private label and online at the same time. This will be a fascinating space in the next few years.
More private label from 2021
We know from the 2008 global crash, and the following recession, that hard-pressed consumers seek to save money by switching to private label. This was a period of unprecedented growth for private label penetration, fuelled partly by a growing discounter store estate. And we also know that when consumers switch to a discounter store or a private label product that they generally don’t switch back when the economy improves.
So, will private label grow in the next recession? Again, it depends on the dynamics of the specific market, and since many Irish manufacturers export to various countries, it would be useful to consider this. If private label penetration and discounter market share is low in the market, then expect both to flourish strongly in the coming years. If private label is already strong, and discounter share has plateaued, then growth will be slower, but there will still be growth, especially for retailers that wish to differentiate their proposition. There will be growth in ‘value tier’ sales in a recession, but there will also be growth in added ‘value’ premium private label and in higher ‘values’ sustainable private label, such as organic and ethically sourced. And this is vitally important, not just to satisfy consumer needs, but also for retailers to balance their margin mix.
Covid-19 and the impact on brands
Covid-19 has had a phenomenal impact on the big brands this year, some positive and some negative. These fall into three categories:
1. Hygiene, health & beauty: Dettol is currently the brand. It is the one range that retailers have consistently struggled to achieve availability on, thanks to demand for products that kill germs. Interestingly, shoppers have been happy to revert to ‘old-style’ products such as block soaps to assist with the ‘wash your hands’ call to action. Cussons Pearl has capably filled this need. Seven Seas have seen considerable uplifts as consumers seek to boost their health and immunity. Even sales of foods like citrus fruits have seen major uplifts. There is an opportunity for the citrus equivalent of the ‘Pink Lady’ apple. Finally, there has been a huge uptake in DIY beauty products. Fake tan, nails, and hair colours have enjoyed a great year to date, with brands like L’Oréal leading the way.
2. On-the-go convenience: With kids off school, travel restricted, and workers at home, the convenience and newsagent sector has been badly impacted. Think of all the cans of pop, bags of crisps, and bars of chocolate that might have been consumed if we hadn’t been in a pandemic. These categories will recover, but it will take time.
3. Staying at home: The stand-out category here has been home-baking, so brands like Odlum’s flour and Dr Oetker baking accessories have seen incredible growth. Dolmio and other cooking sauces have benefitted from the closure of the out-of-home sector. Barry’s Tea, Nespresso, Tassimo and Dolce Gusto have experienced unprecedented sales uplifts as workers take their caffeine breaks at home. Unfortunately, the knock-on effect of staying at home is that there are no lunchboxes to be filled. I’m sure that the plant bread, kids yogurt and sliced meat brands have been looking forward to September, when some semblance of lunchtime normality has returned.
The pandemic has created huge upheaval in our industry, and with increased costs and a recession looking highly likely, there is a bumpy ride ahead for suppliers and their retailer customers. But one emerging question is the topic of sustainability. Alongside Brexit, it was the biggest topic before the coronavirus grabbed our attention. And as we emerge from (hopefully) the worst of the pandemic, people appreciate the cleaner air on quieter roads, they are highly aware of the packaging and food waste being generated at home, and they are more tuned in to provenance and supply chain transparency.
So, for brands that need to reconnect with their target markets, and retailers that need to manage costs, adapting to lean, low-waste, ethically-sourced products and policies might be an area on which both suppliers and retailers can agree.
© 2020 Checkout – your source for the latest Irish retail news. Article by Malachy O’Connor. Click sign-up to subscribe to Checkout.