Photo: Getty Images/ArtMarie
How should grocers prepare for a possible pandemic stockpiling redux?
Through a special arrangement, presented here for discussion is a summary of a current article from the bi-monthly e-zine, CPGmatters.
New research by Acosta suggests 53 percent of shoppers plan to stock up on groceries if another pandemic shutdown occurs.
“As COVID cases continue to rise, most shoppers believe we’re headed for another shutdown and plan to respond accordingly, so retailers should be prepared for a new surge in stocking up,” said Darian Pickett, CEO of North American sales at Acosta, in a statement.
Acosta’s tenth round of COVID-19 research revealed:
- Sixty-seven percent of shoppers think another shutdown is extremely or somewhat likely to occur.
- Thirty-eight percent of shoppers stocked up at the start of the pandemic and plan to stock up again.
- Fifteen percent of shoppers did not stock up at the start but plan to stock up this time.
- Seventeen percent of shoppers stocked up at the start but won’t this time.
- Twenty-four percent of shoppers did not stock up at the start and also won’t this time.
Commenting on Acosta’s research, James Tenser, principal of VSN Strategies and a RetailWire BrainTrust panelist, said grocery suppliers in many categories were caught flat-footed by the panic shopping in March and April, depleting four months of supply chain inventory in a couple of weeks.
“Shoppers naturally interpreted shelf voids as an urgency to stock up more. In response, many brands elected to concentrate manufacturing and distribution on the highest-demand SKUs, while pulling back on promotions,” he said.
Mr. Tenser believes some soul-searching is now underway for trading partners over what space and assortment plans will look like and how promotion dollars should be invested with another potential stock up.
“Manufacturers of shelf-stable products will load their warehouses to the extent possible,” said Mr. Tenser. “The boom in supermarket sales and digital ordering has been challenging, but it also reveals considerable sales opportunity. You can’t sell what you don’t have. The tricky question is, how aggressive should they be? Excess inventory adds expense, in terms of cost of capital, storage, shrink and markdowns. CPGs need to keep sharp eyes on consumer demand and use best-available forecasting tools.”
Discussion Questions
DISCUSSION QUESTIONS: What lessons should grocers and CPG brands take away from the first pandemic stock-up about preparing for another possible wave of shutdowns? Will the bigger hurdle be improving in-stock levels or discouraging hoarding behavior?
Poll
BrainTrust
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Georganne Bender
Principal, KIZER & BENDER Speaking
Given the unprecedented demand seen during the first lockdown, most grocery retailers coped admirably. The circumstances were exceptional and there is no business case for building supply chain capacity to cope with such an exceptional elevated level of trading; indeed, to do so would be completely unprofitable. That said, there are tactical lessons that retailers learned. Limiting quantities for consumers, removing volume driving promotions, allocating staff to key parts of the supply chain, and quickly finding new suppliers, were all among them. I suspect retailers will employ these things if there is disruption from another lockdown.
Grocers and CPG vendors learned a lot of valuable lessons during the first wave of the pandemic and I believe they are in a much better position to handle another wave of shutdowns and hoarding issues.
Inventory positions and strengthening of the supply chains are a given and have already been underway. The real change necessary is to create greater awareness and measures to assess – daily – the course of the pandemic via reliable data combined with policy statements and behind the scenes discussions. The policy and dynamic regulatory environment play a significant role in forming consumer expectations and panic buying.
Retailers should be looking at enhancing those capabilities that allow them to monitor specific activities in their markets at a hyper-local level. Keeping track of things like changes in selling patterns and accelerating demand of specific key items. Being able to correlate that data with infection rates, traffic patterns and consumer behavioral data to name a few metrics, can provide indications of where stockpiling might be more likely to occur. With all the data that was accumulated in March and April, when the pandemic and lockdowns were just starting, I would suspect there are patterns in the data that can help them understand the triggers in their local markets that would enable them to predict when and where these behaviors are likely to occur again.
To mitigate future out-of-stocks this data can inform strategies to better stage those items that are most impacted by stockpiling and hopefully give them a better chance to mitigate the effect on their business.
The problem the first time around had nothing to do with the retailers or the manufacturers. They were caught in an unprecedented situation where they had no experience.
The problem had everything to do with the nonsensical shoppers who are only concerned about their own toilet paper (and other things) and not about their fellow citizens.
There is only one solution if this were to happen again — limit the purchases. Of course then we will have discussions about how some customers react to the limitations just as we have had about being masked.
Grocers and brands can expect more irrational consumer behavior this fall. Avoiding out-of-stocks is imperative, as empty shelves trigger consumers’ sense of scarcity and greed.
Suppliers and retailers need to evolve to real-time collaboration to adapt faster, especially during shutdowns. Companies can focus on factors within their control like supply chain visibility and agile forecasting.
Expect shelf-stable, frozen and cleaning products to see heightened demand, and less frequent store visits as consumers seek to minimize health risks. Smooth e-commerce capability will set grocery winners apart, including offering enough BOPIS and delivery windows to accommodate online demand.
Unless they know the store is doing a remodel, shoppers get nervous when they see a nearly empty aisle that should be fully stocked. If that gondola houses paper towels, toilet paper or cleaning supplies – things that were hard to find at the start of the pandemic – customers will be triggered to stock up on whatever is left.
The aisles housing these products are still lighter than normal in the grocery stores where I live. Since the start of the pandemic the owner of Blue Goose Market, a local indie grocery store, has taken to Facebook Live and other social media outlets to explain to customers the status of various products, how they are sourced and received, and what he is doing daily to stay in stock. Customer appreciation for Blue Goose is at an all time high. Perhaps more communication and in-store signage will help calm customers who are worried shortages could happen again.
There are a few things that come to mind. Now that we know what we’re dealing with…
Enforce minimums. Stores have the right to limit quantities purchased, but many stores were unprepared and not enforcing these (understandably so).
Introducing subscription models would be a great way to steady out business. Hopefully they’re all better e-commerce equipped for the second wave – a subscription may abate some consumer anxiety knowing thatthey’ve got a recurring order coming.
Facing up power SKUs, and taking out SKUs that don’t perform as well. Transparently, I don’t love this one because it tends to impact smaller companies.
Encourage smaller stock-up trips – find a way to suggest new SKUs, new recipes that incorporate new ingredients that might lessen the pressure on stock-up products.
I always like to start by deconstructing the numbers. First of all, what was the sample size? Also this is, I believe, an Internet intercept survey, hardly projectable in my experience, especially today where we have become a nation of professional respondents. Now if my math is correct, the total respondent count is 94 percent. What happened to the other 6 percent? Are these people who did not respond? Are these percentages calculated off the gross number of surveys deployed or the net number completed? In other words, did 67 percent of the total say they expect another pandemic, or 67 percent of respondents to that question, and if that’s the case, how many respondents are we looking at? Also, while 67 percent of respondents feel there will be another pandemic, they are roughly split 50/50 — accounting for the margin of error, which we don’t know but I’m guessing is somewhere in the 3 percent to 5 percent range — as to whether to stock up or not. And let’s not forget, large portions of the country have learned how to live during a pandemic and supplies in many critical categories like toilet paper have stabilized. All that said, stocking up and/or hoarding will increase a bit, in fact it probably already has in certain categories. Some products — anti-viral wipes and sprays and paper towels — will be the most in-demand SKUs, but we probably won’t see a repeat of hoarding of PPE on the same scale because people have stockpiled masks and gloves already. And finally, there are wild cards. Will we have a vaccine? How many people will take it? Will it be an easy or hard flu season? If things do start to heat up the most immediate change retailers should make is limiting purchases in some categories ahead of a panic, but that’s ongoing in many areas anyway.
Preparing for another epidemic is impossible for many small retailers. Having seen over the years how independents are treated, the mega stores will always have the upper hand when it comes to key items whereas we will struggle to find top national brands, and that is a simple fact. The frenzy for key supplies aged me about 10 years, as frustration set in knowing we weren’t going to get key items because allocation went to the mega stores. I will make sure our meat supply will be strong, along with our deli as well and, if this hits again, I’ll be fine. If prices skyrocket it will anger many folks, so hopefully meat packaging plants avoid the mess we had earlier this year.
Tony, thanks for this perspective. It’s easy to sit where we sit — getting your “ground view” is really important. Thank you for being available during the pandemic. I’ve really appreciate my local/neighborhood retailers more in these times.
Grocers know what consumers bought at the beginning of the pandemic. They know the basic shopping patterns. The pandemic jumped out in front and surprised us. No real warning. This time we know what could happen. Have a plan in place for when it happens again. Watch for the warning signs. If it does happen, we should have a little more warning – even if just a few days or a week ahead. In short, plan ahead and execute if there is a need.
The first wave caught everyone off-guard but grocers should be in a better position to respond now. A lot of grocers have enhanced their e-commerce efforts, built relevant partnerships to meet and elevate the customer experience as well as built in safety and health measures. These efforts should help if and when the second wave hits.
There are times when we cannot legitimately plan for every contingency. Is it possible this is such a time?
Consumers understand, far more than headlines suggest, when stores are stretched by unexpected demand. We need to give more credit to consumers than the “absolutely perfect service” enthusiasts recognize.
In fact, over-performance sets future expectations that retailers won’t be able to survive. It might be wise to anticipate a few key categories and let the chips fall in the rest.
Based on shopping patterns the first time around, grocers should be in a better position to predict demand in key products and work with their supply chains to accommodate as much as possible. Unfortunately there is no model that can perfectly account for panic buying that makes any business sense, so imposing purchase limits and other tactical options will still be necessary to make it through a second wave. One would expect consumers to also be better prepared the second time around and we would see less hoarding but, again, this is impossible to predict. The most important thing grocers will want to do is watch the virus case count around the country and try to increase those orders before any spikes become too severe so that products are no longer available. It’s more an art than a science, but with the right data analytics, some of this can be mitigated.
There were many lessons learned by everyone along the supply chain, grocers, and customers. One of the lessons would be to establish relationships with alternative sources or maintain the ones you formed during COVID-19. Second would be the need to move quickly to concentrate on the SKUs that customers hoarded this time around.
Just-in-time is embedded in every part of the supply chain and it and the customers’ instinct to get it while they can will both be very difficult to overcome.
Having some breathing room for key products in the supply chain is probably the first step. Keeping the supply chain as thin as possible just isn’t prudent when the future looks so uncertain. Beyond that, optimizing the same process and systems we have will only get us so far. Retailers should be re-thinking e-commerce entirely (and maybe their whole business strategy): Pre-ordering, reserving products (maybe an approach for selling products the retailers doesn’t yet have), automation, special access for VIP customers, etc. can all reshape their businesses and their ability to deliver great experiences.
Yes, panic will undoubtedly ensue during the next crisis (of any kind), so as opposed to simply stockpiling CPGs and retailers should have a coordinated plan to ramp up production and logistics in an extremely short time, such as 24 hours or so. Discouraging hoarding has not worked and will not work.
Retailers have systems in place that can alert them within an hour if there is a spike in sales. When that happens local managers need to be notified and authorized to immediately limit the number of items one consumer can purchase. That allows availability to be spread out across more families whether they are ordering online or purchasing in person. However, this only works is companies have close to real-time inventory technology in place and are monitoring activity or have alarms built into the system alerting managers to deviations.
Understand that many supply chains are built for efficiency and not necessarily effectiveness — specifically for CPG companies that are focused on LEAN principles. LEAN is about waste reduction and not over producing or allocating resources that are not necessary. Hence a pull system that assumes that demand has very little variation.
What LEAN does not teach you is about exponential growth that happens in days or weeks. The pandemic has taught us that LEAN can be “brittle” when demand, for example, of Paper Towels (House Hold Paper Products), spikes by 150%. Sorry no contingency planning is going to help you and no CEO or EVP of supply chain is going to invest millions of dollars for plant expansions to deal with short term demand spikes.
However, there are things that CPG companies are doing to increase their throughput (capacity) and they are getting an additional 20% to 25% out of their supply chains. But note it is more than just manufacturing capacity that is required, you have to have the transportation capacity as well.
Grocery stores absolutely should prepare for stockpiling and limit consumption of key items and categories. But understand we need to control the demand because CPG supply chain capacity cannot and will not keep up with 150% demand spikes.
Ultimately, of course, it will be the consumer who determines whether or not things turn out well. Be a good citizen and stock up slowly — if that’s even necessary — or panic like a headless chicken and empty the shelves overnight. The key for retailers is to have policies (buying limits) and procedures (as Georganne mentions, avoiding that “empty shelf” look) that encourage the former more than the latter. But it’s a tough balancing act: over-preparedness, and (providing) too much information may create the very anxiety they’re trying to avoid.
If there is a second wave of COVID-19 over the winter months, there surely will be panic stock-ups. Brands and grocers should prepare for that possibility now. Those that so will be the winners in the minds of shoppers. There will be no excuse for getting caught “flat-footed” as Mr. Tenser described.
One of the lessons learned during the onset of the pandemic in March 2020 is that “not all products are created equal.” As an example, we all know by now hard scarce toilet-paper became by April and it quickly became the # 1 stock-up item in the U.S. Over the ensuing weeks and months, manufacturing disruptions, supply-chain issues and shifts in stock-up behavior resulted in dramatic shifts in in-stock position and on-shelf availability across many categories — some intuitive, some less so at first.
There are definitely lessons learned from the first pandemic that retailers can use in anticipation and planning for the future and potential additional waves. In our work with grocery retailers and mass merchants globally over the past six months, we have learned that the rise in out-of-stocks and changes in availability reveal consumer choices and preferences across brands. By understanding “switching” behavior and understanding the true item value of an item and its substitutes and complements, retailers can understand which items matter most.
Faced with continuous pressure on inventory and supply chain planning, grocers can focus on rationalizing the assortment to those most important items and maximizing inventory on-hand and availability to meet customer’s needs. Further understanding which items are most prone to stock-up by analyzing past trends, further enables retailers to forward-buy — where you have DC/warehouse space to have excess inventory available in the event of future shortages. While increasing carrying costs, for those items that be stored, it creates a future ability to meet shoppers changing demands. By monitoring the state of the pandemic by market and by tracking early-indicators of shopper behavior change, retailers can anticipate future trends and meet the needs of shoppers in the next/new normal.
The best thing retailers and CPG companies can do is manage in-stock inventory. As long as consumers see shelves are full, fear of running out can be calmed. However, once shelves are bare, out-of-stocks will only fuel panic and drive hoarding.
No one has a crystal ball to know exactly when wave 2 will hit but, by all accounts, the expectation is that it will be worse than wave 1. This is an opportunity to use wave 1 learnings and not get caught on our heels again. If there were ever a time for CPG companies to manage a lean into building up inventory reserves, now is that time. Retailers also have to do their part in managing hoarding with purchase limits.
With good collaboration and planning now, not later, retailers and CPG companies may be able to minimize the impact wave 2 may have on the economy.
The whole purpose of retail is to meet consumer demand efficiently and profitably. Focus should be on meeting that demand instead of limiting it. Plans need to be put in place today to ensure the right products are available in the right channels at the right price if another event occurs. Using the best analytics and the wealth of data and insights from COVID should give retailers an edge when planning for the future as will developing partnerships with vendors who have a global perspective on evolving trends/crises.