Consumer Packaged Goods (CPG) In The COVID-19 Era
If you’ve followed the Coronavirus situation unfurl on TV, you’d have noticed how in the early days, consumers queued up in front of US supermarkets to stock up on essential provisions. Within minutes, the shelves were emptied of essential groceries, packed eatables, soaps and sanitizers, and, surprisingly, toilet paper. Soon, there was a mad scramble for toilet paper rolls, and police had to discipline rowdy crowds.
Back in the 1970s, a shortage of toilet paper was caused by panic buying triggered by a false scare. It was triggered by an apprehensive speech by Harold V. Froelich, a Republican congressman and amplified by Johnny Carson, host of the late-night TV talk, The Tonight Show. Millions of Americans across the country flooded their local grocery and convenience stores, totally wiping them clean of all toilet paper.
If nothing else, this anecdote offers valuable insight into the impact that uncertainty of any kind has on consumer behaviour; it triggers volatility. And this volatility is immediately mirrored in the demand in the Consumer Goods Products (CPG) industry, making it extremely difficult to predict demand, during uncertain events. As a recent Gartner study indicates, Coronavirus has given rise to an element of Fear, which is driving the way consumers behave and demand certain products.
To navigate this increasingly complex landscape, brought about by COVID-19, business leaders must take into account such fears and craft strategies accordingly.
How Consumer Behaviour Has Changed
The shift in consumer behaviour is leading to the growing demand for some product categories, as well as changing brand preferences. With a conservational mindset setting in, consumers are spending only on what they need. We might also see a shift in consumer sentiment, which might be more nationalistic, skinflint on non-essentials, etc.
Another factor to consider here is the duration and severity of the pandemic situation itself. If it lasts a few more weeks or months, some of these changes will be temporary and wear off; but if it extends for longer, the change in behaviour is likely to be more long-range. Brands need to recognize and factor this in their Demand Planning for the medium and long term.
The change in behaviour seems to shift depending on consumers’ age and income demographics. One survey of US and UK consumers found that 96% of millennials and Gen Zs are concerned about the pandemic and its effects on the economy. They are cutting back on spending, stocking up on items, and spending less on experiences, whereas the relatively older generation is less impacted. Only 38% of baby boomers say they are reducing their spending in preparation for greater Coronavirus spread, compared to 54% of Generation X, 49% of millennials and 51% of Generation Z. For CPG, it means a lot of aspirational and impulsive spending by working-class consumers will be on hold.
Consumer perception of what constitutes an essential need and what’s not, is directly affecting demand. This may again vary by geography, culture or income levels; for instance, books are considered as essentials in several developed countries, while not many developing economies view them so. We see increased demand* in product categories like:
- Hand sanitizers
- Disinfecting wipes
- Household cleaners/disinfectants
- Antibacterial hand soap
- Paper products
- Bottled water
- Canned foods
- Staple drinks (Coffee, Juice etc)
*In the first two weeks of pandemic, there is a rise of ~ 15% in the US market, and ~20% in the UK in these categories (Nielson).
Some of the demand could be simply panic or distress buying. The immediate factor guiding consumer demand behaviour in CPG is Fear— fear of uncertainty, fear of losing incomes, fear of falling sick, fear of running out of essentials etc. But it’s entirely possible that with hygiene being utmost in consumers’ minds, demand for cleaning products like sanitizers and disinfectants will see a lasting surge, at least for the foreseeable future.
So, while consumers prioritize needs over luxury, and cut back on expenditure to prioritize saving, here is a subsector-wise snapshot of the likely impact on consumer demand:
Major Challenges In CPG
As a result of the COVID-19 impact, we see a few major themes emerging in CPG, which are changing the way businesses have traditionally handled their sales, operations and supply chains. Broadly these include:
- Sudden shifts in brand preference & demand: Consumers may be buying less or switching up their brand preferences, but the thing is they are still buying. Brands that are proactively responding to different consumer concerns and customizing services such as serving via new delivery partners, offering kerbside pick-ups, contactless deliveries and more will likely manage to stay ahead of the pack.
- Shift toward digital commerce: In-store and outdoor vending has given way to e-commerce, as consumers attempt to minimize risk of exposure to the virus. Daily e-commerce sales is up by 25% in the US and by 33% in the UK, and it is likely to continue to increase, due to the sheer convenience it offers.
- Investing in customer relations: In CPG, we see a lot of companies trying to empathize with consumers, as they adjust to their new routines involving prolonged time spent at home. One example is Lifebuoy encouraging consumers to wash hands frequently, even if using a rival’s product. CPG companies are sharing a lot of content on TV, Instagram and Facebook about staying fit at home, healthy recipes and even hobby classes to utilize time productively.
- Rising need to digitally engage with consumers: Partly due to the risk in face to face sales and customer service, brands are using digital tools to find, listen to, interact & empathize with consumers around a range of products. Multichannel communication, self-service features, live chat, voice bots & others are some of the new features being introduced by many companies to improve digital customer engagement.
Gearing up to meet supply chain disruptions: CPG companies generally have a fairly distributed global manufacturing and sourcing network. They have relatively short lead times to their consumers and therefore, can react to changes from a demand standpoint quite quickly and relatively. They also have better data and analytics sophistication like third party aggregation of data and a fairly sophisticated analytics stack.
But in the light of the current volatility, CPG firms are facing new challenges. Product segments that have historically clocked 5% growth YoY, like disposable masks and gloves, are now seeing a 200% growth. Certain sub-segments in the food industry, as well, are seeing major shifts in their demand patterns. Consumption patterns for ready-to-eat foods snacks and beverages are seeing an uptrend. Distribution channels, especially in emerging markets, are severely strained economically. So we see a lot of new delivery channels being explored, e.g. tie-ups with food delivery platforms like Zomato, Swiggy and chains like Dominoes Pizza in India, as well as D2C models.
Dealing With Challenges: A Case For Digital Transformation
While most of the CPG firms have experienced temporary disruptions in their supply chain, they are right now in a crisis management mode. Keeping up with disruptions, addressing supply chain gaps in sourcing, and maintaining operations in a remote collaboration mode – these are some immediate focus areas.
But as the fog lifts, and they learn to cope with the new normal and plan what’s ahead for the next 3, 6 and 12 months, they will need to regroup and recalibrate their forecasting models, in accordance with market signals, in the light of the changed consumer behaviour.
While CPG categories like Hygiene, Cleaning, Homecare, Food and Snacks are likely to significantly benefit from the changes wrought by COVID-19, experts predict that the only way firms could tackle new and emerging challenges is by embracing digital transformation, and allowing AI and analytics-led solutions to power their businesses in various focus areas.
Digital Commerce: With consumers shifting to digital, AI powered solutions can transform the omnichannel shopping experience, improve click-through rates & conversion, thus driving revenues, allow better retargeting & personalization, and provide next best product recommendation, in cases of product unavailability. All these go a long way in boosting customer experience, and hence, sales.
BRIDGEi2i’s Digital Campaign Effectiveness WatchTower™ can be used to test various reach out strategies and optimize them. It can be used to predict traffic intent and offer omnichannel personalized solutions for digital commerce and via self-serve portals.
Digital Customer Engagement: By embracing digital transformation, companies can analyse which channel suits their requirements best & drive Net Promotor Score (NPS) figures. They can have a better understanding of user search intent, and optimize the website to drive traffic/leads. They could harvest the benefits of investing in chatbots and enhance the effectiveness of online support content.
BRIDGEi2i’s CX WatchTower™ can be used to aggregate and consolidate all customer queries, feedback & sentiment from different interactions, to address evolving needs & issues proactively. We can offer digital self-care recommendations to reduce assisted support requirements.
Commercial Excellence: AI can help commercial teams develop playbooks for base sales impact for the next year. With consumer preference leaning toward local products, news and content, BRIDGEi2i’s Customer Experience Watchtower can monitor voice and text data for tracking, trend detection in sentiment, and health of brand KPIs, while media mix/digital marketing watchtowers can help optimize spends across digital channels.
Learn how BRIDGEi2i helped a Fortune 500 company in improving its assortment planning with the power of AI.
Managing Supply Chain Risks: With Digital Transformation, leveraging cutting-edge technologies like AI, ML, IoT & others, CPG companies could allow suppliers’ & sub-contractors’ networks to be optimized for on-time delivery, ensuring business continuity. They could help in better demand forecasts in the face of volatility.
BRIDGEi2i’s Integrated Business Planning (IBP) solution can offer consistent predictions for sales and marketing, demand planners, supply planners and finance. Our E2E forecasting tool can provide insights into the orchestration of order fulfilment, by managing upstream operations to full capacity. We can help you refine your demand & inventory models with the help of simulations, factoring in new COVID-19 attributes.
“While CPG has a robust supply chain that can tide over disruptions like COVID-19 in a few months, it needs to track the pandemic’s lingering impact on assortment, changed habits and brand preference over the long run, and this is where our AI and advanced analytics solutions can help.” Said Pritam Kanti Paul, CTO & co-founder, BRIDGEi2i. “By helping them chart out a digital transformation journey, we can make their systems and processes resilient, and ensure business continuity to stay ahead,” he added.
Check out BRIDGEi2i’s customised solutions for CPG.
Here’s a glimpse of BRIDGEi2i’s points of view and AI solutions, crucial for navigating the continually changing normal post-COVID.
Authors: Jagriti Khiste, Siddhesh Kharode & Mukesh Saharan
Here is an interesting podcast highlighting the challenges faced by the CPG Industry, and the role of AI and analytics in helping businesses stand out and achieve transformational outcomes