“I see supermarket chains in this crisis that have already decided to stop their online activities.”

More retail observations about the next phase of the crisis from Antonio Coto, ex Dia CEO.

By Hans Eysink Smeets, Published on April 8, 2020

We are now more than three weeks into the Covid-crisis, depending on where you are. Antonio Coto and I have continued to talk to people in our retail networks in many countries since. We kept exchanging what we observed. We share that now again with you.

Antonio Coto, who has steered discount supermarket chain Dia Latin America as CEO through many devastating crises. We have done projects with Antonio in many countries, and he told me already years ago how he got Dia through the Argentinian currency crisis. A crisis that rocked that whole society to the core. A crisis that can teach a lot of lessons for today’s Covid crisis.

That story we described in the first amazing interview. (Click to this first interview here.)

We received many compliments from retailers and suppliers for Antonio’s wisdom and insights. His experience from earlier crises was seen by many as very helpful. Antonio’s prediction that “the hoarding will not last more than two weeks” turned out to be very true. Which gives a lot of trust in his other insights.

Here his take on the next phase.

ECONOMIC CRISIS SINKS IN.

Antonio, it feels as if the initial positive “we-can-do-it-together-in-the-crisis” atmosphere of the last weeks is slowly turning around. The health crisis got first attention, of course. But retailers and citizens are starting to understand by now that the economic crisis which is the result of this health crisis is becoming more and more real. Do you observe that too?

Yes. We are all starting to feel that economic crisis. Many families just do not have any income anymore. Many receive far less than before. It is good to see that some governments are putting social help in place. We also observe that in some countries the citizens believe that the government is indeed going to rescue them.

So there is the mix of a) hope in the governments and b) lack of income. But the good spirit atmosphere is slowly evaporating and that can swiftly turn to the other side. How long can our governments finance all those households? For more than one and a half month?

Non-food retail, but also sectors like tourism, restaurants and agriculture are really feeling the pinch now. You see that too?

Yes. Everywhere. And it will be going to go worse for most industries. People are going to avoid or postpone non essential purchases, such as a car or a TV. 

Do you believe that retailers with those kind of products will pick up after the crisis where they left off?

Not at all. The recovery will be very slow. We can see it happening now in China, and that decreased demand is also in line with the previous crises that I experienced.

The lower incomes and the fear that the future might get worse is going to be the driving force that will slow consumption down.

SOCIAL UNREST.

For real people in real households things are becoming more and more stressed right now. The pinch of today’s reduced income becomes very painful. What reserves do they have? Most households never had much left at the end of the month anyway. On top of that we are prisoners in our own home. Will that create unrest?

Certainly. We see the first signs of social unrest when monitoring the social media. But it is real too: in Latin America some supermarkets have been looted already. 

In Italy we saw attempts at rioting last week. So far controlled by the police, but that can easily escalate and get out of control. 

People are imprisoned in their homes. That is bad in itself. But if your income is gone, your family will start to go hungry. And be aware that if the family is at risk, people start doing strange things: “I need to do something, I have to provide food for my family.”

I have seen that happening too many times.

The perceived supremacy of supermarkets and those other so-called essential retailers that are allowed to stay open is slowly starting to change into a feeling of jealousy. A feeling of inequality. A restaurant owner is jealous of the beef steak that is sold in the supermarket. He could have sold it too. A waiter in a bar is jealous of the beer and wine that is sold in the supermarket. Etcetera. Do you sense that as well?

In the countries that I am following more closely, the jealousy between businesses is not yet explicit. Not yet on the table.

Restaurants and hairdressers are not blaming the supermarkets so far. But that could easily be the next step. Some of them may blame the government, but they also know that with the massive scary health campaigns, they are considered risk activities. Not only by the government, but by the citizens too. 

If they would stay open, they would have very few consumers anyway in their restarant or hair salon.

CHALLENGES FOR RETAILERS.

I am constantly checking with my international network. You do the same. What do you get back from retailers right now?

A lot of strategic thinking is going on. I am monitoring the situation very closely with a lot of people in my network of both retailers and manufacturers. Mainly in Latin America and in Spain, but I also monitor what is happening in China. As we all know, China is ahead in this pandemic.

That strategic thinking is going on in many countries. About all kinds of subjects: the shortage of staff in the stores, the possible riots mitigation, assortments and pricing, social help, and supplier negotiation. We see that some suppliers are already running out of cash. We see transportation shortages and many other issues.

That doesn’t surprise me; that is what has happened in the crises that I experienced before.

Do you see the retailers making contingency plans?

Not all of them. Some are preparing more in advance than others and they do that very seriously. But most of them are so busy reacting to what is happening right now that they are not having time to prepare for what is going to come. 

Retailers have to make contingency plans to protect their assets, as experienced retailers in Latin America are doing right now. They have lived through it before! Just as I did.

I have learned the hard way that it is worth it to plan for the worst and not to be frozen or overreacting at this moment. I know, things can happen very quickly.

PROMO IN A CRISIS.

A more mundane topic: communication and promo-policy. In some countries promo’s were or still are forbidden. Did you make multi-promo’s in the Argentinian crises? Like two bags of easter chocolates for the price of one?

No. Hahaha. Of course not. We need to be very simple in a crisis. Do not create problems for the consumers. And do not create problems for your organisation. Do not stress your supply chain with promo’s that add complexity in your system. 

The game is not about offering three products for the price of two. That just creates problems to customers that live day by day, hand to mouth. Give them solutions instead. Offer pasta plus tomatoes plus cheese: at a very good price you will have a complete meal for 4 people. 

Think about the concept of the meal. Not about the promo on an individual product.

It is imperative to create trust, to provide solutions. And communicate that your prices are the cheapest possible, that you as citizen don’t have to go to three stores to discover who is taking advantage. Which in many countries with a complete lock-down is forbidden anyway. 

Do not promote a product, promote your concept.

No exceptions to this rule?

As little as possible. Unless you have made some unintentional over-buying, of course. Which can happen in the unpredictable situations of a crisis and when the supply chain needs cash.

Have you seen any novel experiences so far ?

Grupo Exito, the most important retailer in Colombia, has prepared half a million boxes with 12 basic products at cost, so generous people can buy them to donate to people with needs. 

That sounds a bit like like the truck with only 8 basic products that started Migros on its way almost a century ago. From that humbke, simple truck the mighty Migros of Switzerland grew. Would that be the intention why Exito does this?

No. Exito doesn’t do this to make money, but to enable affordable food for people that need it. However, what you said would be a wonderful idea for retailers to serve underserved areas.

ONLINE UNDER STRESS.

Online seems an obvious solution, but I observe two things developing. The fear for the impact of the crisis on their incomes make consumers reduce their online spending. Especially in non-food. The other thing is that online shops are overloaded. Especially in food. Agreed?

Yes. That is true. Some consumers prefer, for health reasons, to have their food delivered at home to avoid social contact at the stores, so we see some brick & mortar retailers focussing more on on-line to attend to this increase in demand.

We also see partnerships of retailers with last-milers, to speed up home delivery. 

But others are going into just the opposite direction. 

Because of limited capacity? We see in many countries that online supermarkets cannot cope with the demand. Do you see that too?

Yes, I see the same. In Spain, for example, all webshops are completely saturated. It is impossible to get a free delivery slot. You see retailers trying to find solutions. 

Last milers are starting to make combined deliveries. In-store pick-up has multiplied by two in France. It is a real opportunity for growth of click & collect. Which is very popular already in the UK and in France anyway. It is also very logical in this crisis. 

As retailers pick the orders and the shoppers only have to pick the box in the store and pay online, social contacts are minimized. At the same time it avoids all those problems and costs that comes with home-delivery.

Can the online supermarkets solve this squeeze? Or, go the other direction and don’t solve it?

Indeed. While some retailers are transforming supermarkets into dark stores to increase their fulfilment capacity for online needs, a few others have already decided to go in the opposite direction: they stop their online business.

Mercadona, the Spanish supermarket chain, is already heading that way in most regions. Which I can understand pretty well, as home delivery is a very ineffective way of using the available labor.

LABOR THE BOTTLE NECK.

Will labor be a bottle neck in general?

Very much so. Supermarket managers are getting more and more worried that their supermarket associates get panicked from the virus and stop working. I hear stories in which ten percent, twenty percent and even fifty percent of staff is not working anymore.

I just heard that Tyson, one of the world’s largest meat processors is closing one of their plants in the USA, because a couple of dozen of their workers were tested Covid-positive.

That means you will have to pay more to the people that go to work. That is happening in the US, Latin America and in Spain already now. Not only in supermarkets, but in the whole supply chain.

There are many signals that shortage of labor is rapdily becoming a bottle neck in the agricultral sector too. Which surely has an impact on our supermarkets?

Of course. Take my country, Spain, where border restrictions and lockdowns have forced many foreign workers to stay at home now. During this peak food harvesting season. To avoid food shortages, the goverment has allowed farms to hire local people that will receive at the same time their unemployed benefits and the salary. 

Imagine the magnitude of this problem and the huge consequences that this potential disruption would have created in Europe, which sources a large part of its fruit and vegetables from Spain.

Shortages are going to be common, and retailers will have to source differently, from different suppliers, different countries and more efficiently. And overall, theye have to use their cash wisely, as I explained in the first interview.

They have to be very selective in what they do? And what they don’t do?

Precisely. Retailers and manufacturers will need to make contingency plans for all those developments that we see. That also means that they have to reduce non-essential activities internally in case they run short of people themselves. 

Stopping certain activities may be a painful decision, but sometimes that is the only way to survive.

Thanks again Antonio, for your time and your experience. Let’s keep talking and make another interview in the near future to keep a close eye on developments.

Yes, let’s do that, and keep healthy & safe.

PLEASE ADD YOUR EXPERIENCE.

If you retail executives want to talk to Antonio, and ask his insights when you are faced with a difficult decision, contact us. If you want to add insights, please do. The more insights that help retailers manage their companies in a crisis, the better.

Please share this article. And everybody: take care of yourselves and those in your responsibility! 

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DOWNLOAD PDF VERSION OF THIS INTERVIEW.

Please download here:

Read all interviews in the series of 'Antonio Coto on the Crisis'.

1. What to do to achieve double market shares in and after the crisis. Introduction to retail & crisis.

https://www.dhirubhai.net/pulse/hoarding-lasts-two-weeks-plus-many-more-from-antonio-eysink-smeets/ 

2. Things are heating up. Supermarkets stop their on-line activities.

https://www.dhirubhai.net/pulse/i-see-supermarket-chains-crisis-have-already-decided-eysink-smeets/?published=t

3. Prepare for declining sales. The crisis hit supermarkets too.

https://www.dhirubhai.net/pulse/how-prepare-sharp-downturn-supermarket-sales-hans-eysink-smeets/?published=t

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