COVID-19 – Product Demand within “Essential” retailing – What’s Ahead?

This week I attempt to lay out my musings reflecting on the last month and bring together my thoughts as we try and make sense of where we are and what might happen “this week” within “Essential” retailing. As they say in politics, a week is a long time on the front benches. At the rate of change in our understanding of COVID-19, re-orientating messaging, moving timescales and further personal appraisal of degrees of uncertainty; a day can seem an eternity right now!!

I start off by shining a light on a possible area where a sense of scarcity arose with my quick overview of the “Toilet Roll Derangement” which has inspired many a meme, and dare I say confusion. Here’s an extract from the draft report I compiled from my work with some of Canada’s top retailing thought leaders during March:

“Awareness of COVID-19 is being amplified through social networks and 24/7 media. The “toilet roll derangement” arose when Australians were led to believe China produced all its Toilet Rolls. With production having stopped for the Chinese New Year and the subsequent quarantining of Wuhan, this sparked panic buying across Australia. This quickly became amplified across the Western World via social media and so the mass panic buying started for no clear “essential” or preventative reason. In Canada, Irving Tissue is a key provider. They are running extra shifts to help allay fears of supply shortages and retailers are imposing buying restrictions to flatten the spike.”

It is clear, consumers are increasingly experiencing raised levels of anxiety and government intervention has been delayed. Family health and economic well-being are under threat. Given the fragility of many consumer’s financial positions (check last week’s article which can be accessed here), they need clarity and direction. Ongoing scarcity is high in consumer perceptions, fueled by continual social media images of empty shelves and COVID-19 misinformation and #fakenews (it would seem everyone has become an armchair virus expert over the last month or so).

Consumers are facing emotional stress (Will their income stop abruptly? Will their savings see them through? Are their credit card bills amassing?) and fear an economic situation much sharper and deeper than the Great Recession and credit crunch twelve years ago. Stirred by a sense of abject scarcity in key lines, they have suspended their discretionary spending, opting for “primary needs based” shopping missions. They feel an imminent danger to them and their families on many fronts. Their confidence of hoping the system will provide is deteriorating.

What factors are behind the apparent “Panic Buying” experienced across the food supply chain?

I offer a contrarian view to explain the erratic demand patterns experienced by grocers in particular. I argue it was not irrational panic buying driving high and sporadic demand for essential retailers. Rather, the majority of the activity was performed by “rational’ consumers executing a couple of purposeful activities as they approached their weekly shop:

1)     Adding in extra items they might buy on a longer replenishment cycle and increasing their purchases of what they would normally shop for – average basket sizes rose quickly. Shoppers found themselves advancing their normal shopping day, driven by a sense of scarcity and re-prioritising their weekly schedules

2)     Consumers visited their favoured store on a more frequent basis, perhaps moving to two trips per week, rather than weekly, often to pick up things which may have been out of stock, or items they thought they had at home, but discovered they didn’t. In fact, I am sure I am not alone, I moved my shopping cycle from once every ten days to once every four days during the impending lock down.

Families seemed only constrained by a couple of factors:

·        Financial Capacity: Their ability to find finances. To an extent when scarcity sets in, one can be driven to buy and resolve the bills later

 ·        Physical Capacity: Many families have not experienced much other than abundance (and have learnt they can shop “just in time”). Their means of storing their purchases in pantries, fridges and freezers now formed a perceptible restraint. Additionally, the make up of baskets has moved from fresh to hard and frozen goods in anticipation the lock down might be extended beyond the first full week of April which looks highly likely it might extend to May, even longer

In Ontario, we are into the second fortnight of a lock down of non-essential business and retailers covered by a declaration of a state of emergency (SoE). The first week of this SoE saw a massive spike in Canadian EI claimants, not seen since WW2; nearly 1 million claimants in one week (The US also have their own challenges with 6.5 million registering last week). Many malls have closed as “non-essential” retailers and food courts closed. Given this situation there is a big fight transacting between retailers suffering from this state mandated closure, and landlord’s keen to stick with their legal expectations. With 1st April (rent day) in the rear-view mirror, many retailers defaulting on their commitments may face eviction during May. Landlords are starting to realise the gravity of the situation and looking to collaborate with their retail tenants, the RCC (Retail Council of Canada) and government to find a solution.

It begs the question will malls, when they reopen, be an attractive place to visit if they are populated with boarded up storefronts, eviction notices and time expired “closing down sales”?

Given the number of retail businesses able to re-open are likely to perceptibly decline from March, will this tough approach by mall managers serve the future of malls effectively and their earning streams? Will American managed chains withdraw from the Canadian markets (they too have similar serious cost and relevancy problems)?

When there is widespread independent failures, along with mid market players, (including anchor department stores), the forward picture looks dire for landlords, and dire for Canadian retailing. I have been advocating rent free periods to help retailers get back on their feet and have been arguing what economic circumstances would leave retail banners facing closure, with no direct impact on landlords? I am not sure, within free market dynamics, whether this is even possible.

What are the key challenges and obstacles impeding full shelves at our local grocers?

Consumer confidence which drives spending habits define retailing success or failure. Retailers must read the buying signals from their data feeds (including the impact of substitute purchases) faster than ever before and NOT judge through the lens of “what was known to be true”, even four weeks ago, or this will continue to result in empty shelves.

To form a checklist to help “Essential” retailers, I collaborated with John McClymont on what Essential retailers should focus on to ensure shelves are stack and they stay ahead of demand patterns. The outcome of this collaboration can be accessed here.

So, what seems to be happening NOW?

Empty shelves are still a function of many grocers’ attempts to throw resource at a retailing bonanza coming after a flat Q4/2019 and a slow start to 2020. Monitoring “Essential” retailing reports and also a degree of empirical research would indicate demand is slowing as more people are staying at home (and cupboards are full). The challenge now is to watch perishable food items as suppliers over produce against recent demand patterns, resulting in waste. What will retailers do to convert these perishables into cash quickly? Will cash strapped consumers be persuaded to buy?

RCC’s current advice to consumers is “don’t use essential retailers as community hubs to take your family and meet your friends for a catch up. Shop on your own! Buy what you need, but there is no need to hoard, our retailers and food supply chains are world class”. The latter would have a ring of truth if shelves were fully stocked, I would argue. Neither Canadian supply chains, nor most of our retailers merit this accolade over the last decade, however patterns are likely to develop during 2020, some retailers and their supply chain operations may emerge as winners through correct reading of consumers’ changed behaviour, transformational adaption speed, process innovation, the deployment of highly talented transformational leaders, a focus on differentiation and the rise of both marketing and supply chain operations key to future retailing success.

If demand is, in fact, showing signs of slowing, this may take a sudden dip during April as consumers turn to their pantries when credit card bills arrive, and things become very tight for household budgets with individuals facing reduced income (or no income in some cases).

The future remains very uncertain. Consumers’ perception, learnings and revised motivations still should be top of mind for all “non-essential’ retailers looking to re-open.

My recommendation is simple. Retailers must use this current period for cold, objective reflection, to understand how their retail business model need fundamental change, designing roadmaps to realise such transformational change, and long overdue recruitment of experts executives who can strategise AND execute the changes demanded by the evolving consumers behaviours which we will only gain a more comprehensive understanding of during May/June as the factors surfaced earlier, really start to change consumers’ expectations.