Coronavirus and consumer goods: “Help! We’ve run out of beans!”By Jake Piela-Lee on March 30, 2020
"Help! We've run out of beans!" It's a cry that will echo through the streets of the UK as domestic stocks of essential items continue to fall short over the coming weeks.
Across households, fridges and freezers are packed, and shelves are piled high with tenfold their usual and recommended weight capacity of pasta, rice, soup – and perhaps even the occasional Vienetta for the more cultured shopper.
We’ve seen a previously incomprehensible shift in consumption behavior in Q1. Not least for the consumer packaged goods (CPG) industry, March has been a highly unusual and challenging month. There’s been an average increase in demand of roughly 60% for grocery products, with pasta and soup being some of the most in-demand, up by more than 70%. In the United States, demand for toilet paper is up 212%. The knock-on effect of these huge spikes in demand speaks for itself – supply chains have been stretched beyond belief as the world struggles to comprehend the long-term implications of COVID-19.
The knee-jerk reaction for many has been to stockpile the essentials, with refrigerated meats, pasta, beans and soups now increasingly out of stock across the country. Shelves are empty, and home food delivery services, such as Ocado and Cook, are so high in demand that they’re having to turn new customers away.
Who was prepared for this? Nobody – and how could they have been? Fortunately for some, many supply chain leaders already had Brexit risk mitigation strategies that have been dusted off to help soften the blow to some extent. Nevertheless, it’s never been tougher in the CPG world to have the right products, in the right place, at the right time.
How has the consumer goods industry reacted?
Much like a responsible parent, suppliers have told us that we can no longer just have what we want, and must instead only have what we need. Choice has been limited, and product ranges have been slashed by up to 30% – the days of being able to choose between pork, apple, onion, chicken, vegan and vegetarian sausages are quickly becoming a distant memory. Suppliers have been forced to consolidate their ranges to the most in-demand SKUs, with a focus on sell-through and simply keeping up with daily demand.
Up until now, consumer behaviors and trends had forced CPGs to expand their product ranges to protect their brands and meet their customers’ growing expectations. Today, it’s all about the here and now, and focusing on the most immediately in-demand SKUs and maximizing their availability. As one of our data scientists recently put it, “planning for tomorrow has almost gone out of the window.”
Why has this happened?
The yearning of CPG supply chain leaders has been to create a well-oiled, just-in-time machine that keeps inventories as lean as possible to maximize revenue. They strove to be lean, release capital from the network, increase cash and maximize shareholder value. The trend has been to take cash and cost, at the same time while customer demand and customer service expectations increased. The proliferation of SKUs and the increase in customer service created a fragile and stretched supply chain environment.
It’s important to note that it’s not simply manufacturers that work in this way. As consumers, many of us have lean lifestyles. Our supply chains generally meet the demands of the modern consumer. Scarred by the childhood memories of the two hour Saturday morning supermarket trip, younger shoppers tend to instead buy in dribs and drabs, for two or three days at a time. These habits are repetitive, easy to predict, and easy to plan for. COVID-19, on the other hand, was not.
What will change?
Supply chain gurus have been talking about the importance of resilience and agility for a number of years – and now it’s being put to the test. Coronavirus has changed our definition of an agile and resilient supply chain. Once we eventually settle on whatever will be “the new normal,” it will set a precedent for supply chain planning, agility and resilience.
So, as consumers switch in the short term to a bulkier, less frequent shop – focused on longevity rather than convenience – CPG brands must adapt to this change. Demand is lumpier, inventory levels must be higher to cope, and buffers should be in place to accommodate the infrequent demand. The holy grail of a “perfect forecast” pales into insignificance as inventory levels increase.
We’ve seen relaxed legislation and unprecedented cooperation between brands and supply chains; COVID-19 has meant that the rule book has been well and truly thrown out of the window. Governments have encouraged intra-retail and CPG collaboration, with a newfound sense of community spirit and doing the right thing to help each other out.
Does this mean that we’re at the dawn of a new, holistic approach to CPG cooperation? Time will tell, but for now, we all just want our beans.