For the week ending May 1, 2020, a 4-pack of Campbell’s Chicken Noodle Soup was out-of-stock across most of the country. A list of Out of Stock or De-listed/Deleted items (from our COVID-500 list) weekly activity to date is available by request HERE.
In April, online and offline consumers shifted their behaviors in unexpected ways. At an Engage3 webinar held on April 7, we provided some insights on what items were either de-listed or went out of stock on grocery websites, on a week-to-week basis. We also shared what recent events could mean for the grocery industry in the short and long term. The Engage3 panelists for the discussion were Jonah Ellin, VP of Product, Marielle Fong, Director of Marketing, and Jessica Duke, Strategic Accounts.
This is a loose transcript of the discussions from the presentation.
Current Situation and Worker Response
The rise of COVID-19 in March 2020 saw about 75% of Americans stuck in their homes during the pandemic – a result of mandates by their governors to shelter in place to help flatten the pandemic curve. Grocery stores were declared as essential businesses and they have risen to this challenge. In a surreal turn of events, grocery workers are now playing essential roles in their communities, to help consumers get consistent access to the available food and supplies in this unprecedented situation. Management at retail companies did an exceptional job in making sure that not only their own employees, but also their shoppers, remained safe and out of harms’ way, at least as best that they could as more information about how the virus spread became available. Some early moves by retailers were documented in this BLOG.
As we moved into April 2020, online and offline consumers shifted their behaviors again in unexpected ways. We provide some insights on how, where and what shoppers purchased on a weekly basis, and how these changes could possibly affect the grocery industry in both the short and long term.
Items That Were Impacted
Our data showed that both staples and stock-up items flew off the shelves very quickly as people were preparing for home confinement for an unknown period of time. Some items where we saw broad out-of-stocks were things like toilet paper, disinfectant, cleaning products, trash bags, and then in packaged meat and canned meat . We surmised that a typical consumer’s thought process was to have supplies available for them when they didn’t know when they”ll be able to go out and get them in the future.
Engage3 picked a list of 516 items that we called the COVID-500, across all categories and monitored those for purposes of this analysis. We did a historical look at it and then we watched those items daily to look for those out-of-stocks as well as price changes.
In some cases, we found that some items reached near-100% out-of-stock in some situations. One example is in Canned Soups, where one item has been increasingly hard to find over the past few weeks.
Out-of-Stock or De-listed/Deleted Items
There are two ways that an item can go out-of-stock. The first is when a consumer goes to a retailer’s site and are able to see that it’s marked as being out of stock. Usually the item is grayed out. Sometimes there’s a price, sometimes there isn’t a price, and occasionally there’s a price that doesn’t look accurate. These are all theoretically meant to deter a person from trying to purchase an item that’s not in stock.
The second way that an item is considered out-of-stock is when the item suddenly goes missing from the site. Usually, it’s a temporary activity, so Engage3 doesn’t call it de-listed or missing until it has not been seen for some weeks.
An example of the difference would be an item like eggs. Eggs are an item that people ran out to buy during the panic buying. Shelves were empty. Retailers were having trouble keeping up with the demand and being able to update their inventory systems for people trying to place orders online, that accurately reflected the items sitting on the shelf. Our hypothesis around this is that instead of having consumers trying to purchase products that are not going to be there by the time they get to the store or when they come to pick them up, they are just removing them from the site altogether.
A list of Out of Stock or De-listed/Deleted items (of our COVID-500 list) weekly activity to date is available by request HERE.
Promo Activity Declining
We saw that promotional activity declined, and that’s due to a multitude of factors, but largely when product is available, it’s flying off the shelves already. Retailers are concerned about making sure that they’re able to keep something on the shelves for consumers to buy. It’s not necessarily logical to offer products at a discounted price when ultimately you’re trying to preserve as much inventory as you can so you don’t go out-of-stock on it.
Then the other factor is that it’s a huge investment of time and energy to plan, execute, and then analyze trade activity. Retailers are more concerned at this point with allocating their workforce to helping customers and putting product on the shelf. We started to see the activity dip in mid-March, and that’s consistent with the fact that it takes a little time for changes to be implemented. Normally, promotional goals can take a couple of months in advance with teams working together to plan and execute strategies.
Where Are Things Going?
The one definite change we saw was the consumer’s online behavior. Analysts have been saying this for the last 20 years – that there’ll be more online shopping, and they’re right. The grocery industry is definitely heading in that direction, and has been for some time. However, the current situation has accelerated it and shown which markets are adapting the fastest, especially in the UK where online shopping was already prevalent with a wide consumer base. There’s going to be those who, for safety reasons, want to continue the online shopping that they started during the crisis. But there will also be those who really hadn’t thought about it, but now that they’re doing it as they recognize the opportunity in terms of convenience and in terms of service. Given the pace of consumer adoption of online shopping, it’s unlikely that this trend will reverse.
It will obviously regress back towards where it had been, but we do expect a significant amount of online shopping behavior to continue and grow. There’s going to be a lot of transparency that comes with that. Consumers are going to be looking at the data that they find online. We continue to monitor whether they’re actually completing the purchase online or whether they’re using that information to help them decide where to shop.
Who Will Make the First Moves?
There are also questions lingering in the background: Who’s going to move first to cover their cost increases versus who’s going to wait it out? Who’s going to make an investment to take on those costs on behalf of the consumer? Right now, while volume is extremely high, there are a number of options. But once those volumes start going back down to normal levels, there’s going to be a different reality and it’s going to be one where every retailer will need to closely monitor who’s doing what and where and what the impact of that is.
Impact on Consumers
Some things are really evident, such as consumers not coming out ahead from the current situation. They’ve lost money, they’ve lost their jobs, and while there’s lots of plans to help support them, the odds that consumers are going to come out of this without taking a big hit is slim. Consumers will tend to focus on saving money post-COVID, if not already during.
One of the easiest levers to pull is how they’re feeding themselves and how they’re feeding the family, which means restaurants and grocery. The way that they’re going to look at retailers, the way they’re going to look at the industry is going to have to do with, “Can I afford this, and how does it feel?” It will come down to how they’re going to vote with their wallet, but also how they’re going to think of their retailers and brands.
Opportunity for Building Relationships with Customers
There’s an opportunity to look at how to build relationships with customers. How do you look at the relationship that you have now and even in a world where your costs will change, where distribution will change? How do you make the decisions on where to invest to build loyalty versus where do you need to pass along costs? Either because you have the ground to stand on or you have the need to maintain your business, there’s pressure to take care of your people and your community. Jon Springer of Winsight’s quote here is quite adept, in that price perception is really going to make people decide where they take their next shop and where they buy that next basket.
Grocery stores with the best Pricing Perception will do best.– Jon Springer
How This Time is Different
The last recession in 2008 was a very different market climate than a lot of the changes that are going on now. At that time, consumers understood that costs were going up because the price of gasoline was close to $5 a gallon. Commodity prices in general were well known to be going up. As a result, the methods that were being used included re-creating pack sizes. In the case of breakfast foods, manufacturers created a box of cereal that was so thin that it could almost barely stand up on the shelf. But those factors don’t really apply today.
Today, you have everyone who’s been hit hard by this emotionally, physically, and financially. Figuring out how we can maintain affordability, and at the same time winning hearts, minds, and baskets, are going to be critical. While it was very easy to understand that retailers’ costs were going up in the previous economic decline, it will be tougher today to make people understand that when they read articles about dairy providers throwing out milk. When they see articles about farmers having to destroy crops, it will be difficult for them to understand that that’s not an accurate reflection of the increasing supply chain costs. The need for education is there, as well as numerous exercises to build awareness to maintain trust and loyalty among the competition.