COVID-19 impact on CPG and FMCG

Part
01
of five
Part
01

CPG / FMCG: US Trends, Part 1

The coronavirus pandemic has affected various sectors and industries, among them CPG/FMCG sector. As a result, the CPG/FMCG has been forced to adapt to some new trends, such as more production of plant-based products and investing in omnichannel strategies to stay afloat.

More Emphasis on Plant-Based Products

  • In 2019, before COVID-19 struck in the U.S., consumers were already embracing healthy options such as plant-based products, which were the strongest performing products in the CPG industry. In 2020, and especially with the outbreak of the novel virus, this trend has continued to outperform all other products, thus becoming a lucrative trend in the CPG/FMCG industry.
  • Studies show that self-care products have hit $9.9 billion in the first quarter of 2020. Further, 62% of consumers plan to spend more on self-care and healthy products than non-essential products.
  • Demand for plant-based food has grown five times more compared to total food sales in 2019. CPG experts are learning to adjust to this trend as healthfulness has become a top priority to almost 66% of the American adult consumers.
  • CPG/FMCG companies have had to re-adjust to consumer trends, especially after pandemic-driven buying, which saw some product sales go higher than others. For instance, plant-based foods seemed to be the quarantine foods for most Americans, as the demand continued soaring after the virus outbreak.
  • According to data collected from the U.S. retail, sales of products such as fresh plant-based meats went up 279.8% in mid-March, beating a 206.4% spike at the beginning of March 2020. Oat milk sales spiked 476.7% in mid-March.
  • An article published by Fortune on May 15, 2020, provides that sales of vegetarian and vegan products have increased significantly in recent years. However, the rise of these products has gone a notch higher after the COVID-19 breakout, as sales of fresh meat alternatives grew 255.3% by the end of March 2020, year over year. Plant-based burgers and sausages generated a $97.1 million revenue in the first quarter of 2020, a 141% increase, compared to the same time in 2019.
  • CPG companies such as Tofurky have continued to monitor consumer behavior at the grocery store to meet the increasing demand for plant-based products such as deli slices, which has continued to spike in sales at 50%.
  • An article published by Wall Street Journal debates that plant-based CPGs are exploiting opportunities to fill in the gap of meat staples, especially after COVID-19 interrupted operations in various meatpacking plants across the U.S.
  • Various plant-based CPGs such as Impossible Foods Inc., and Beyond Meat Inc., are increasing production as well as discounting their plant-based products to appeal to a bigger target audience. These manufacturers are also expanding their distribution chains to more outlets, as grocery stores continue to run short of conventional meat products.

Investing in Omni-channel Strategies

  • CPG/FMCG companies have become aware of how consumers have become unpredictable. As consumers continue to adopt new strategies, CPG/FMCG can no longer assume the whereabouts of their target market.
  • They are investing time and resources to research the shopping habits of consumers and adjust accordingly. In the recent past, online channels have contributed to the growth of CPGs by almost 70%, and digital retailers are using comprehensive digital marketing plans to stay ahead of the curve.
  • The ongoing coronavirus pandemic has triggered a blur between digital and physical shopping experiences. However, CPG companies and retailers have continued to apply agile measures such as branded touchpoints to respond to consumer needs.
  • CPGs and retailers are using mobile, online and geospatial data to capture lost volume and to optimize networks and omnichannel purchases. Through omnichannel fulfillment options like buy online, foot traffic in physical stores is expected to increase again.
  • CPGs and retailers have had to meet consumers' demands, especially those with holistic omnichannel experiences. Studies reveal that retailers and CPG/FMCG companies with robust omnichannel strategies have a 91% customer retention rate. Providing consumers with more flexibility will generate more revenue growth, can be achieved through a consistent omnichannel experience, such as giving consumers the option for online or in-store purchases.
  • In light of the coronavirus pandemic, consumer buying behavior and pattern have changed in the U.S. compared to a year ago. Studies reveal that approximately 79% of American shoppers have shifted to online and internet platforms using smartphones.
  • Even though established traditional brands such as Nike, The Gap, and Trek bikes, have still maintained their brick-and-mortar stores, they have also started to embrace online platforms to reach to their virtual target audience. These brands have seen the importance of investing in omnichannel strategies where they have maintained their traditional channels while launching new platforms to keep up with their consumers that have moved to online platforms.
  • Omnichannel strategies are expected to extend post-COVID-19, as there will no longer be such thing as pure retail commerce or e-commerce; instead, all commerce will be standard. Most CPG brands will inspire both online and offline sales, and consumers will be spoilt for choice, given the multiple channels.
  • As a result, many CPGs will prioritize consumer-first and total commerce strategies. Experience will be the only channel that matters, and consumers will be able to engage brands universally and continuously.
Part
02
of five
Part
02

CPG / FMCG: US Trends, Part 2

Consumers are moving to private label brands as they are equally good/ better and cheaper alternatives to their regular brands. The financial impact of the Covid pandemic has made consumers more price-sensitive and a major portion of them intend to continue buying store brands. Meanwhile, CPG firms in the US are setting up direct-to-consumer platforms to capitalize on the shift in consumer purchase behavior from brick-and-mortar to online shopping.

Consumers Move to Store Brands

  • Forty percent of shoppers are purchasing more store brands since the Covid outbreak; three in five (60%) of these shoppers will continue purchasing some of the store brands post-pandemic.
  • A greater number of millennials (56%) are buying store brands in comparison to boomers (29%).
  • Among those who tried store brands for the first time, 77% said that the store brand was either as good or better than their regular brand.
  • The top category of private label products that consumers "very/somewhat likely" to continue buying were "fresh veggies (86%), fresh fruit (84%), yogurt (83%), spices (82%), pasta (82%), frozen vegetables (81%) and frozen fruits (81%)."
  • Among consumers purchasing store brands, 57% are substituting their usual brand and 35% are doing so to cut down on expenses.
  • Costco, CVS, Kroger, Target, and Walgreens have seen a surge in private label product sales during the pandemic. According to Costco's CFO, Richard Galanti, the company saw a huge increase in demand for its private label cleaning supplies, toilet paper, and packaged food products. Costco's Kirkland Signature toilet paper and CVS's Gold Emblem snacks are some private label brands that have done well.
  • According to Nielsen, the pandemic will create two polarized segments of shoppers: those who have jobs and those who are unemployed. The unemployed shoppers will restrain their spending and opt for cheaper brands.
  • According to Goldman Sachs, unemployment levels in the US will rise to 25% before abating.
  • According to Nielsen, retailers and CPG firms will reconfigure "the repertoire, pack sizes, brand choices, product origins and more" to adapt to "changed economic circumstances" of consumers and focus more on health and safety.

Direct-to-Consumer

  • CPG firms have contemplated going DTC for a while as it gives them greater brand autonomy; more control over pricing, packaging, communication, shipping, and personalization; and direct access to consumer data.
  • Consumers largely perceive online shopping to be safer than shopping at brick-and-mortar stores.
  • Walmart saw its online sales increase by 25% in 2018, 40% in 2019, and 74% in Q1 2020. The company has seen four times growth in the number of new customers opting for pickup and delivery during the pandemic.
  • First-time online subscription (OS) consumers accounted for 55% of food and beverages OS orders, 47% meal-kit OS orders, and 46% alcohol OS orders.
  • As consumers are increasingly shopping online and brands face greater competition from private labels and DTC companies, more brands are evaluating DTC channels. The Covid pandemic has forced brands to "re-think their channel strategies".
  • The DTC channels also allow brands to create greater trust and loyalty among consumers and gives them more control over how they are perceived.
  • This is especially relevant as "consumer brands with high levels of brand equity and consumer trust, and which consistently advertised through the current marketplace disruption, have been the major beneficiaries of consumer loyalty and expanded market share."
  • The DTC channels will also allow brands to communicate better and authenticate their claims, something customers are seeking now and likely to do so in the future too.
  • The DTC channel is likely to stay viable for CPG companies even after the pandemic passes. Industry analysts forecast that DTC will grow up to 20% by 2024 for the CPG industry.
  • In the early days of the outbreak, Pepsi realized the pro-digital shift in consumer behavior and quickly responded to it. The team at Pepsi was given 30 days to build the DTC platform and it managed to successfully execute it. Pepsi launched two direct-to-consumer websites (pantryshop.com, snacks.com) in May 2020.
Part
03
of five
Part
03

CPG / FMCG in the US: SWOT

By performing a SWOT analysis of the CPG/FMCG industry in the U.S. in light of the COVID-19 pandemic, the strengths, weaknesses, opportunities, and threats in the industry were identified. The strengths of the industry include increased demand for CPG products, fast adaptability to the pandemic, and the corporate social responsibility efforts that were deployed by businesses in the CPG sector. A detailed overview of the research findings follows below.

Strengths

Increased Demand

  • In the U.S., demand for CPG products has been increasing amid the COVID-19 pandemic. This was witnessed when CPG consumers started to panic buy essentials in preparation for the restricted living conditions that were imposed on the U.S. by state and federal governments.
  • The COVID-19 pandemic has "shifted even more demand on consumer goods marketers to offer their products and experiences online, further accelerating CPG trends and innovation."
  • The level of demand for CPG products during the COVID-19 crisis is evident in the fact that U.S. CPG sales increased by $8.5 billion in the two weeks that ended on March 21, 2020. This shows that demand for CPG essentials in the online environment has been increasing in the U.S.

Fast Adaptability

  • Another strength of the U.S. CPG industry is how fast the industry adapted to the COVID-19 crisis.
  • It is evident that the COVID-19 pandemic resulted in a drastic change in the purchasing behavior of U.S. consumers as they moved to the purchase of daily essentials such as groceries and self-care products.
  • CPG businesses in the U.S. quickly responded by making improvements in technology, infrastructure, and experience and reducing barriers to trial such as delivery time and shipping costs. In turn, the fast adaptability of the CPG industry resulted in the increased adoption of online CPG shopping in the U.S.
  • Examples of CPG companies that adapted to the crisis to remain competitive include PepsiCo, which launched two DTC websites after online demand surged.

Corporate Social Responsibility

  • The U.S. CPG sector is full of businesses that feel that they have a responsibility in assisting the country fight the COVID-19 pandemic.
  • Examples of CSR initiatives that companies in the CPG sector have come up with include making supply chain changes to produce hand sanitizers for use by vulnerable communities, and billions of dollars in donations to assist in the response against the pandemic.

Weaknesses

Supply Chain Issues

  • The U.S. CPG sector experienced a sudden spike in demand when the federal and state governments in the U.S. imposed restrictions on the daily lives of Americans to stop the spread of COVID-19.
  • This increased demand resulted in issues in the U.S. CPG supply chain as companies struggled to meet the demand for CPG products.

Low Capacity to Handle Increased Demand

  • In business, product and service demand is usually a good thing because it results in revenue for the companies that will develop innovative ways to address the demand.
  • Amid the COVID-19 pandemic, the CPG sector in the U.S. experienced overwhelming demand for essentials goods and medical supplies that businesses struggled to meet in the presence of government-imposed restrictions and lockdowns. The U.S. CPG sector was caught off guard in terms of meeting the rising demand because of rapid turnover and frequent out-of-stocks.

Opportunities

Potential for Growth and Innovation

  • The U.S. CPG sector has many inherent weaknesses that were exposed by the COVID-19 pandemic. These weaknesses include the low capacity to fulfill consumer demand when demand spikes and issues in the supply chain that resulted in business inefficiencies.
  • Consequently, if the CPG sector develops business strategies that address all weaknesses within the sector, it can leverage the high potential for growth and innovation that exists within the sector for higher profitability.

Continued Demand for Essentials

  • Experts predict that the new normal post-COVID-19 will be characterized by continuing demand for essentials such as pantry foods, drugs, cleaning and paper products, and self-care products.
  • U.S. CPG businesses can leverage the business opportunity that will come about in the new way of life which is expected to develop post-COVID-19.

Threats

Price Sensitivity

  • With over 40 million jobless claims filled by Americans, it is evident that the COVID-19 pandemic resulted in widespread loss of jobs in the U.S. Additionally, a recession is also expected to develop as a result of the pandemic.
  • These factors have led to American consumers being sensitive in how they spend their money with many consumers economizing their food budgets.
  • Consequently, Americans "may abandon their go-to brands in favor of lower-priced alternatives" because of decreasing disposable incomes. This situation is a threat to the CPG sector because price sensitivity will most likely result in a loss of revenue in the sector post-COVID-19.

Labor Shortages

  • Another current threat to the American CPG sector is the labor shortages that have been witnessed across the country as a result of the COVID-19 pandemic.
  • This labor shortage has resulted in numerous undesirable situations including issues in the supply chain of the sector and a reduced capacity in terms of manpower to handle the surging online demand for CPG goods.
Part
04
of five
Part
04

CPG / FMCG in the US: Online Strategies

As COVID-19 continues to affect the world, CPG/FMCG companies PepsiCo and Walmart developed and initiated online strategies that have allowed them to remain competitive during the global pandemic.

PepsiCo

Walmart

  • Walmart is an American multi-national company that has a presence in over 27 countries across the world. The company is considered a leader in the CPG industry because of the large amounts of CPG/FMCG products in stock at various Walmart stores in the U.S.
  • During the COVID-19 pandemic, Walmart has had an impressive, best-in-class response, which included waiving April rent for its in-store tenants, installation of contactless payment systems, and metric traffic flow management into their stores.
  • Walmart's online best-in-class strategy includes the use of digital marketing channels, such as email to reach out to consumers and ensure the company remains competitive during the COVID-19 pandemic.
  • An example of how the company did this recently is in their recent email campaign that was titled "Grocery Delivery: all you need to know." The campaign featured an instructional how-to-video that illustrated how customers can buy grocery items online amid the COVID-19 pandemic.
  • Since publishing the video on March 30, 2020, it has garnered around 1.5 million views on YouTube and was number 41 on YouTube’s trending list at the time of publishing.
  • Consequently, it can be concluded that Walmart's email campaign was successful in ensuring Walmart remained relevant and competitive during the COVID-19 pandemic.

Part
05
of five
Part
05

CPG / FMCG in the US: Expert Predictions

To adapt and operate in the long term in a post-COVID-19 world, CPG industry experts predict that U.S.-based CPG and FMCG businesses will have to readjust their supply chains to cater for the new consumer demands that have resulted from the COVID-19 pandemic. A detailed analysis of the research findings and strategy follows below.

Companies Readjusting Their Supply Chains to Cater for New Consumer Demands

CPG Companies Diversifying into Prominent Digital Sales Channels

  • During the COVID-19 pandemic in the U.S., nationwide federal restrictions on movement that were imposed via lock downs, social distancing, and quarantine regulations resulted in consumers flocking to online channels to meet their shopping needs for CPG products.
  • This is evident in the fact that for the two weeks that ended on March 21, 2020, the value of total U.S. CPG sales i.e. in-store and online sales increased by $8.5 billion from the two weeks prior. In these two weeks, 35% more Americans shopped online for CPG goods as compared to a typical two-week period.
  • In the short term, experts have noted that "pressures from new and old competitors and increasing online-only consumption patterns are forcing CPG brands in the U.S. to adapt or risk losing out in their markets."
  • In the long term, experts predict that U.S. CPG brands and companies will have to diversify their sales channels by investing in digital sales channels such as e-commerce. This is because by investing in the improvement of the sales channels that have proven prominent during the COVID-19 pandemic, particularly CPG e-commerce, CPG companies will be able to collaborate digitally with distributors, wholesalers, and retailers and improve supply chain management in the future.
  • In the last 2 years, buyer adoption of online CPG shopping has been increasing consistently. Consequently, experts expect companies in the American CPG sector to be even more driven in expanding their digital sales channels in a post-COVID-19 world because "consumers will emerge from the pandemic in a new economic reality that will change commerce behaviors in profound ways."

Research Strategy:

We started research by searching for information on what experts expect U.S. CPG/FMCG companies and brands to do in order to adapt and operate in the long term in a post-COVID-19 world. In our research efforts, we targeted credible resources that included news, press release, statistical, business, and CPG industry blogs such as CNN, PRNewswire, Statista, IBIS World, Business Insider, Nielsen, McKinsey, and Business Wire. Our search efforts were not able to directly identify industry expert opinions, but we were able to identify sources that contained potentially useful information. Lastly, by looking at what was happening in the global landscape and analyzing the resources recovered through our research strategies, we were able to identify well-informed expert opinions on what CPG/FMCG businesses in the U.S. will have to do to survive in a post-COVID-19 world in the long term.
Sources
Sources

From Part 02