Covid-19: The impact for manufacturers
Updated: Mar 30, 2020
The global impact of the Covid-19 pandemic on the consumer goods landscape will only truly become clear over the coming weeks and months.
The impact is undoubtedly a significant one, as the media reports rows and rows of empty shelves and queues winding outside supermarkets across the globe. Vast portions of the population are finding it increasingly difficult to get hold of day-to-day items, with this increasing almost daily as the virus takes hold in the west.
Consumer purchasing habits have altered and our new ‘socially distant’ way of life means suddenly luxury items are no longer in-vogue. In place of these comes the less glamorous items such as toilet roll, tinned vegetables, and UHT milk. Truly the spirit of the blitz.
It’s a tricky line to tread if you happen to supply these new in-demand goods as volumes soar and supply chains are pushed to the maximum. But unfortunately, there are drawbacks. Being seen to take an advantage during a global pandemic doesn’t convey the best brand image. Furthermore, demand challenges will arise later in the year as consumers realise they’ve stockpiled enough toilet roll and hand soap to last a lifetime. In light of this, manufacturers have to face up the potential decimation of brand loyalty that once existed.
For those companies who supply items which aren’t flying off the shelves at present, the situation is a very sorry one and it will take time to recover. Segments like alcohol and cosmetics will see a big decline in sales and we can expect to see profit warnings to shareholders and restructuring (job losses) as they exhaust options to stay afloat.
Furthermore, the balance between on and off premise is predictably shifting more to in-home consumption as bars, restaurants and in fact any place for social gathering are shut. This pushes the volume mix further towards a lower margin channel, impacting overall profitability if not absolute boxes sold.
So, not great for suppliers.
But what about the retailers in this situation? Looking specifically at grocery, Q1 2020 could end up being a record breaker thanks to huge increases in basket size. But don’t expect any celebrations at Walmart HQ just yet. Margins are widely known to be wafer thin in the industry, so the loss of sales on higher margin products will cause problems, before they too see a decline in sales as things return to normal.
Suppliers and retailers will have some tricky conversations later this year and early next as the epidemic begins to subside (which it will) about what actions they can take to recover as quickly as possible.
At Acumen, we’re continuing to support our clients in any way we can during this period. Some of the questions we’re working on now include:
· What are the best promotions I can run to regain lost volume?
· Which of my online promotions are the best to run in a period of increased demand for online shopping?
· How can I leverage product mix to recover profit margins?
· Which revenue management initiatives can I push forward with to get myself in best position for a fast recovery?
We’re happy to have a conversation about any of the above, or any other questions you may have. A virtual coffee perhaps? If you'd like to get in touch to talk about the issues mentioned above, contact us at firstname.lastname@example.org for a chat.