Insights

COVID-19 & the Impacts on CPG

COVID-19_Natural Products Industry_Blog

No one in retail was ready for a global pandemic. In a matter of weeks, stay-at-home orders moved much of the public indoors. Many brick and mortar retailers were forced to temporarily close. And supply chains scrambled as demand skyrocketed in some retail sectors and plummeted in others. We’ve yet to understand the long-term impacts that COVID-19 will have on retail, but the short-term effects have been chaotic and severe.

Not every sector of retail has been affected equally. According to a recent report released by Nielsen Global Media, CPG sales increased by $8.5 billion in the last two weeks of March, which was 15x the average rate. Vitamins, supplements, and other natural products were among those that boomed, especially products relating to immunity health.

As more people shifted to staying at home, consumers started shopping online at an unprecedented rate. Compared to the same two-week period in March last year, online CPG sales shot up by 91%. Much of that shopping was done on Amazon, and as more pressure was put on Amazon’s supply chain, the retailer was forced to prioritize high-demand products to keep everything running smoothly.

If there are any immediate takeaways brands should be paying attention to, it’s that consumers are focused on their health and wellness, and more of them than ever are shopping online. Here are some tips on how to react.

 

Supply Chain Agility

Demand brought on by a pandemic is different than what we typically see on holidays and promotional events. There’s virtually zero time to prepare. Distribution and manufacturing need to be rapidly coordinated to get inventory where the demand is highest, and that requires an agile supply chain.

An agile supply chain shifts quickly to get ahead of demand and avoid out-of-stocks. Running out-of-stock is equivalent to being out of business. On Amazon, where there’s a seemingly endless supply of brands for shoppers to choose from, this is especially true. If a product is surging on the marketplace, then an agile supply chain should shift enough inventory to cover it, and the same goes for other retail channels.

FBA injection is always the most preferred method of fulfillment on Amazon. Recently, however, pressure on Amazon’s supply chain caused the retail giant to limit FBA eligibility to “essential items.” For brands that aren’t eligible, SFP and MFN are both available options, but both methods are challenging and require robust fulfillment capabilities. The good news is that Amazon is broadening its list of FBA eligible products each and every day. As a result, pursuing alternative fulfillment options isn’t likely to pay off in the long run for the majority of CPG brands.

 

Demand Planning & COVID-19

The demand brought on by COVID-19 has been hard to predict. There isn’t any historical data for how a pandemic plays out in a modern retail landscape. Industries have had to react in real-time, and it’s been messy. “New normal” is a phrase that’s tossed around a lot to describe where industries and the economy stand right now, but it’s difficult to say what happens next.

Without having reliable data to inform decisions, the next best thing brands can do is to create flexibility wherever possible. Brands need to get used to constant change. This will be especially important when economies shift after the pandemic settles.

No one is quite sure how the demand between online and brick and mortar retail channels will balance back out. In the case of CPG products, retail channels like online grocery have reached an “inflection point,” which means consumers have quickly integrated the channel into their lives and will be more willing to use it moving forward. The extent of how many consumers will continue to primarily shop online is anyone’s best guess.

Brands need to be prepared for multiple scenarios, and the more flexible things are, the easier it will be to adapt to the next “new normal.”

 

Creating the Best Possible Experience

COVID-19 has accelerated the acceptance of e-commerce. E-commerce is no longer an emerging space. It’s firmly established as a necessity in many peoples’ lives. For brands, creating the best possible experience for waves of new and established e-commerce shoppers is the new priority.

This is a great time to ramp up on content strategy. Content should be refined to be as informative as possible while also being searchable. Customer service is another area to focus on. Shipping delays and out-of-stocks have left consumers frustrated. Taking every opportunity to engage and communicate with customers will go a long way to alleviate confusion and frustration.

 

Final Thoughts

Like every other industry, retail is still adjusting to the “new normal” that’s been brought on by the outbreak of COVID-19. There’s no historical data to show what happens next, both with retail and the economy. Brands will need to remain agile and adaptable as this new normal becomes the next new normal.

The current reality is that an unprecedented amount of shoppers are turning to e-commerce to fill their retail needs. Brands that can adapt quickly to meet demand will be ahead of the curve and the readiest to tackle opportunities as they arise.