How COVID-19 Has Impacted Consumer Goods Industry
COVID-19 has brought unprecedented challenges leaving businesses reeling and experiencing tremendous losses in its wake. An economic slump is inevitable due to a decline in investment, employment, and production. Massive layoffs, pay cuts, and furloughs have further reduced disposable incomes, and a contraction in consumption is a direct fallout.
The impact of COVID-19 on the Consumer Goods industry – both Consumer Packaged Goods and Consumer Technology and Durables, has to be understood in the right cultural milieu, if we wish to assess the situation correctly.
The following Gartner diagram shows the Coronavirus in the context of the cultural zeitgeist of current times. It positions COVID-19 as one of the significant themes haunting societies today —in the same league as Climate Change, Economic Recession, or Racial Tensions. As a direct result, customers are in a state of heightened vigilance about their health, safety, and well-being, as the pandemic continues.
Consumers feel threatened by the prolonged uncertainty, not having had to deal with anything like it, in their lives. We see a lot of Trust Collapse, Spiritual Cocooning (desire to stay within and create a protected, sheltered Environment), and Socio-political polarization. This state of heightened vigilance has given rise to a ‘Conservation Mindset’—a propensity to consume less, save more for a rainy day, and spend only on items deemed as needs or prioritized necessities.
This shift in consumer sentiment and behaviour impacts CPG and CTD – two segments of the Consumer Goods industry – differently, due to the nature of their goods and the manner in which these goods are prioritized by consumers. This introductory blog looks to offer a bird’s eye view of the impact of COVID-19 on the Consumer Goods industry and major trends that are emerging.
Impact of COVID-19 & broad trends in the Consumer Goods industry
Based on our conversations with clients, analysts, and market research experts, here are some insights into the emerging trends and outlook for the CPG and CTD sectors over the next few months. We understand that most industry concerns stem from challenges in these three areas:
Challenges on the Demand side:
- Shifts towards essentials over luxury: A conservation approach has led people to spend on needs rather than wants. Spending on provisions, packed eatables, hygiene products, and utilities is increasing, while eating out, travel, fancy clothes, and shoes have seen a fall in demand. Even the demand for alcoholic beverages and tobacco has fallen temporarily. In CTD, low priority goods like cameras, outdoor sports equipment, watches, mobile phones, GPS & navigation devices see demand falling.
- Shifts in buying channels to digital: Traditional shopping at brick-and-mortar stores and the desire for the “touch and feel experience” has come down, with e-commerce emerging as a preferred channel for shopping. Due to the lockdown and forced restrictions, customers are ordering things online now and may continue to do so, due to the convenience it offers. For CTD the touch and feel experience of showrooms might have to be replicated virtually or digitally, to some extent, via technologies such as AR/VR.
- Demand for minimal physical interaction/low human touch products: Due to the risk of infection, customers want to pick up products with minimal human contact. Hence takeaway/ready-to-eat food has scored over fast food counters/restaurants. Demand for home-entertainment is up, as opposed to cinema/movie theatres. This trend of heightened safety consciousness is likely to continue.
- Demand for health & hygiene products: According to a senior executive, at a UK based Consumer Products giant, the demand for their sanitizer has gone up 600%, and stock-outs are common. Similar is the situation for a leading manufacturer of hygiene products in the US. In CTD, we see batteries, bread machines, fitness equipment, health monitors, humidifiers, refrigerators, and safes among the top 100 most in-demand products.
- Preference for local, national products, ads, and content: Consumers are watching the local news, and there is a wave of sentiment, in favour of consuming domestic products, leading to local and personalized ad spends, and support for local manufacturers. This is building the spirit of nationalism as well as patriotic associations for states. For CTD as well as CPG, the dependence on China as the supply chain hub is likely to be diminished.
Challenges on the Supply Side:
- Need for localized fulfilment centers: As sentiment improves, consumers will start buying, but a greater concern would be facilitating order fulfilment through localized fulfilment centers, for ensuring speed of delivery and service. CPG companies have the opportunity to create local inventory fulfilment centers. Many CPG players are tying up with new and established delivery partners, and restaurant chains. An interesting format being adopted by CTD is Click-to-Collect, wherein customers place their orders on a company’s digital store, but the orders are quickly delivered, installed and serviced by a store in the neighbourhood.
- More collaboration among manufacturer & retailers: Analysts are recommending retailers and e-tailers to be more collaborative with manufacturers. The above Click-to-Collect is a case in point, and it is being increasingly adopted by both CPG & CTD. This enhanced collaboration can also provide opportunities to gather granular data to understand various consumer segments, something CTD companies haven’t been able to do too well in the past.
- Difficulties in forecasting & planning: Pre-COVID forecasts are no longer valid as the pandemic has entirely disrupted the market and enterprises would need to work on new models to predict KPIs. Newer models will have to take into account changed habits, buying patterns, and the cautionary approach taken by consumers—opting for ready-to-eat food in CPG, investing in bread makers rather than eating out etc. Companies need to design frameworks to evaluate impact on base sales for the next year.
- Suppliers have different product mix recalibration: Due to demand for certain categories shifting, many suppliers will change their product mixes and recalibrate their existing lines to manufacture new products. Those making rucksacks can probably pivot towards using their manufacturing facilities to produce PPEs, but in what time and with how much effort remains to be seen.
- New procurement sources required: Countries are reconsidering procurement from Chinese markets, the global hub of raw materials and components, in the current scenario¹. As the situation stabilizes, these guidelines could become more stringent and may even change into a ban, due to health & safety concerns. Countries may offer incentives to move businesses to their homeland and boost local employment.
BRIDGEi2i helped a Health Tech firm in assessing supply risk due to its China-dependence during the current crisis & helped it consider alternate sources of procurement.
- Shortages of the components threatened the client’s production of Health Tech products.
- BRIDGEi2i helped the client integrate several data sources like historical consumption for the material and its quantity, available inventory, BOM Data and Component supplier list, BRIDGEi2i estimated days of inventory in hand.
- BRIDGEi2i’s early warning system helped the client understand various supply risks, which they used to focus and identify alternate sources of procurement.
These systemic changes have led to several challenges in business planning for the consumer goods industry, as a whole. Following are various challenges that firms need to factor into their blueprints for the future.
The Way Forward
As the consumer industry struggles with various challenges, we, at BRIDGEi2i, are closely engaged with our clients and stakeholders to understand pain points. To manage the emerging and unforeseen challenges, companies need to invest in data ecosystems, analytics capabilities, and tools that can help accelerate their digital transformation journeys, for business continuity in the present and resilience for the future.
As a trusted digital transformation partner, we believe that AI-powered analytics can improve the relevance of insights, and recommend the right business actions, enabling faster and more accurate decision making across the enterprise.
Increasing Relevance of AI for the Consumer Goods Industry:
- AI and its applications are critical to help identify valuable signals both on demand and supply sides.
- Understanding consumer behaviour as a predictor is very important. Forecasting models have to be created keeping in mind this uncertainty, and key indicators need to be identified for early detection. These models, based on how the world is reacting today, will help businesses become better equipped to deal with similar future events.
- Organizations should be trained to deal with a situation like this with the help of better scenario-planning tools and simulation analysis, and be able to redirect resources where needed. They must be able to respond to trigger-based alerts.
A few focus areas:
- Supply Chain Re-orchestration: Using AI-enabled supply chain tools like IBP can help accurately forecast demand by reading into patterns beyond just trends, seasonality, and cycles. Current situations require demand forecasts for specific types of products & services, and how the customer journey cycle will impact the balance of demand/supply.
- Digital Commerce: In the light of consumer preferences shifting towards digital channels, BRIDGEi2i’s offerings can help in sentiment analysis, customer channel analytics. Our proprietary accelerator Watchtower™ with customizable rules and algorithms, and reporting and monitoring capabilities, can monitor brand performance and customer engagement.
- Digital Customer Engagement: Our accelerators, Converser™ and Recommender™ can boost customer engagement via intelligent chatbots, offer cross-sell/upsell suggestions, and enhance the personalized experience.
- Customer Experience: For commercial teams, the challenge is to measure base sales for the next year. Preferences have changed in favour of local products, news and content. Our Customer Experience Watchtower can monitor voice and text data for tracking, trend detection in sentiment, and brand health KPIs, while marketing analytics can be used to optimize spend across newer channels.
- Digital Employee Engagement: With its Talent Analytics solutions, BRIDGEi2i can help companies with their digital talent development programs. It can assist in intelligent workplace planning, with social distancing compliance. It can design programs for remote employee experience while maintaining a grip on costs and compliance.
“With newer innovations in technology and data science, we can equip the Consumer Industry to be more responsive, engaged, and resilient. This is especially true, during the pandemic, as Digital Commerce and Engagement and Optimized Supply Chains become imperative”, opines Pritam Kanti Paul, CTO, BRIDGEi2i. “With our rich experience of partnering with several Fortune 500 companies, we can help the Consumer Goods Industry with business continuity at this hour of need and make AI real for them.”
Here’s a glimpse of BRIDGEi2i’s points of view and AI solutions, crucial for navigating the continually changing normal post-COVID.