3 April 2020
Since our update last week on How Food Retailers and Manufacturers are Serving and Protecting their Customers in the midst of the Coronavirus, food and pharmacy retailers and their suppliers continue to work tirelessly and heroically - in the face of health risks to themselves - to ensure their customers are able to feed themselves and their loved ones.
As the crisis continues to escalate, this week we look at how retailers are putting employees first and protecting them as part of a Customer First strategy, as well as determining the right way to offer value for money to customers and future considerations for pricing and promotion strategies.
Many governments around the globe have turned to formally classifying grocery, pharmacy and convenience store employees as “essential” and “emergency” workers due to the critical nature of their role in keeping stores open to feed and care for their communities. However, also understanding that these workers are exposing themselves to possible health risks, many retailers rolled out a series of safety protocols over the last week including:
In addition to the physical protection tactics noted above, we applaud the many retailers who are also continuing to increase employee benefits, offering even greater salary increases (up another 10% in a recent example) and increased discounts on employee shopping baskets.
Sharing Resources between Sectors
Over the last week, we have also seen associations and outside industries providing resources and sharing workers with the grocery sector. The International Foodservice Distributors Association (IFDA) has partnered with The Food Industry Association (FMI) to provide excess foodservice resources to the grocery sector. In addition, foodservice distributors with unused capacity — including products, transportation and warehousing services — are connecting with food retailers seeking more supply. Some quick service restaurant franchisees have agreed to provide their staff to local grocers to both help their employees continue working and to fill manpower needs for the grocers. Some grocers have partnered with hard hit sectors in the service industry including travel, entertainment and hospitality to have their furloughed workers transition over to grocery stores and distribution centres.
Early take-aways for Price & Promotions Learnings
Each phase of the crisis will necessitate a different level of promotional intensity by retailers. For those regions still in the early weeks of the pandemic, retailers need help in managing intense demand in order to relieve the pressure on store operations.
Here are some of the actions retailers are taking now in Phase 1 of the crisis:
After the initial phase of stocking up subsides and customers regain their faith in the store’s supply chain, retailers can gradually add promotions back into promotionally-sensitive-core grocery, health and beauty, pet, and household items.
Key recommendations for Price & Promotions
Key Price & Promotion Strategies Looking Forward
1. Value for money will become a heightened driver of behaviour as consumers face a depressed global economy. We see this leading to 1) Further Private Brand differentiation and expansion; 2) Deeper investment in base prices on key lines; 3) Fewer, more efficient promotions; 4) Focus on driving cash profit over % margin.
2. A Customer First approach to pricing and promotion (and ranging) is still the right answer. The good news is that consumer-data-led frameworks such as Key Value Items (KVIs), the Balanced Matrix and Category Roles, Seven Levers of Value Perception – will continue to be appropriate for informing strategic and tactical decisions going forward.
3. Disruptive pricing and promotion models are expanding as a result of consumer behavior changes during the pandemic. We believe that the crisis will trigger a tipping point for retailers to switch from the paper flyer to more digital communication through their website and app, with a more urgent value in making this personal. In-store media will become more important and impactful as well. Subscription models are being adopted by retailers such as “Delivery Savers to help manage online demand. Online pure-players are pointing the way to opportunities for new pricing bundles and subscriptions on “destination” areas, in concert with suppliers.
Implications for Retailers and CPGs
Before the pandemic hit, the percentage of retailer sales on promotion hit an all-time high, ranging between 38% and 50% of sales across the sector, according to our data and observations. Ever-increasing promotional dependence is not sustainable against the growing Discounter/ Modern Convenience format and customer value proposition. Getting the price versus promotion formula right will be even more critical post pandemic. Some retailers plan to reflexively return to executing the remainder of their promotional calendar as originally planned after the crisis subsides, but we believe, instead, that this is an opportunity to reset. We will need different thinking a year from now when we strive to match the current sales spikes.
In this time of unprecedented challenges for businesses, employees, and shoppers, Customer First principles should play a key role in every retailer's strategy. Not just for protecting employees and frontline workers so they can continue to serve their communities, but to prepare for the changing Customer needs as the pandemic develops.
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