Beyond COVID-19: Recovering from Pantry Loading on Steroids

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Beyond COVID-19: Recovering from Pantry Loading on Steroids

By Charlie Chase, Chad Schumacher and Dan Woo - 06/02/2020

During times of crisis, retailers and consumer goods suppliers have always gotten creative. But many executives are now struggling to answer a multitude of key questions about COVID-19 and its aftermath: What will be the new normal? How will consumer demand patterns change as a result? How long will it take for the economy to recover?          

While those are good questions, finding the answers to more pointed questions may help companies recover faster from the COVID-19-fueled consumer-pantry-loading-on-steroids event experienced by retailers and CPG companies. 

How much increase in demand is due to pantry loading and changes in consumption patterns due to the crisis?   

One key insight will be to estimate of how much consumer inventory is sitting in households compared to what was consumed. Analyzing point of sale (POS) data collected through store scanners and syndicated data can help lead to a proxy for determining a “consumer weeks of supply” measure by category. This can help companies predict the length of the demand inflection to understand the potential impact to their supply plans.     

How will demand be different in the post-COVID-19 world?

We’re experiencing extreme changes in demand patterns now, and those changes will likely influence post-COVID-19 demand too. Companies will need to determine which products will experience new demand levels as consumers shape the new normal. This will open the doors for product and service innovations and reduce demand for some existing products. 

For example, will consumers shy away from self-service bulk items in grocery stores or self-service refillable beverage systems?  What will be the impact to non-essential and luxury items? Will there be pent-up demand as consumers reward themselves with shopping trips as the stay-at-home orders are lifted? If so, companies need to determine the “must-win” products that need to be on shelf. 

See also: Retail’s Moonshot Moment: Once-in-a-Lifetime Opportunity

Consumer goods companies will need to assess where their retail partners have minimal inventory and adjust their pipeline fill guidelines with post-COVID-19 demand projections. Also important is understanding if e-commerce will sustain increased market share due to the extreme lift in transaction volumes during the crisis once brick-and-mortar stores reopen. 

How will the post-COVID-19 economy drive business decisions and consumer behavior? 

Companies will need to be able to quickly understand the impact of the economic recovery on consumer behavior and make the adjustments in their planning process. They will also need to consider the economic recovery impact on their value chain partners. 

For example, will there be a heightened focus on SKU rationalization and reducing spend that changes current go-to-market strategies? Some companies may find that this event drove significant trial of a brand or category of products. A company may want to sustain momentum by shifting brand building investment, and this shift to another brand is a significant demand signal and absolutely should be built into the modeling process.  

What do business processes need to adapt in the post-COVID-19 world?

Executives will want to consider what new safety and quality processes needed in their operations. Supplier strategies should be evaluated to account for the needed control, safety and flexibility. There will be new factors considered when determining whether to source materials and products domestically vs. internationally. 

Companies will need to evaluate their automation strategies in production and fulfillment operations to determine where material handling automation and robotics can improve to reduce future business risk.

Companies will also need to evaluate their automation strategies in production and fulfillment operations to determine where material handling automation and robotics can improve to reduce future business risk. It will be important to evaluate how  these potential upstream changes affect the planning and execution processes.  

Evolve your approach to analytics

Many traditional forecasting approaches rely heavily on internal historical data  exactly what we are trying not to do. It’s time to move away from one-model-fits-all forecasting into a series of more advanced models that glean insights from both market and internal data. Market impacts are best modeled with data as close to point of consumer purchase as possible. CPG companies can use these consumption models as an input to a better market-driven shipment forecast.

While this isn’t new to retailers, it certainly might be a new way of thinking for CPG companies. POS and syndicated data are often cleaner and more responsive to changing market dynamics than internal shipment or order data. Companies often use syndicated data to understand market opportunities  examining the effect of promotions and merchandising while also gauging trends in distribution. And strategies around these areas are easily integrated into predictive forecast models providing opportunities for tactical scenario planning.

Companies should now determine how their business moves with macroeconomic indicators  especially leading indicators. Look at past business results to model this relationship over time. What are those three or four reliable critical metrics that can serve as a two- or three-month lead?  Regardless of whether we enter a sustained recession or the global economy rebounds, this is great information for companies trying to understand the impact to long-term demand. 

Executives can  leverage early data coming from Asian countries moving into recovery for early insight into consumer behaviors. Some of these early demand patterns may prove useful in predicting consumer behaviors in other geographies.

All these factors can integrate and inform an entire demand management suite of analytics. For example, economic response and marketing factors are realized over time in the ebb and flow of base sales. This is different from promotional models where an added promotion adds immediate volume. These are two different models, but they can inform each other. Multiple models integrating signals on the current state of the business work together to create the best possible forecasts.  

Everyone will refine their marketing and sales strategies based on their assessments with fine tuning based on the global economic situation. Further enhance your insight by predicting your competitors’ marketing and promotional behavior. This can inform your own internal strategy and can also feed your forecast models. Evaluate whether competition is following your predictions and, if not, refine your competitive forecast.

Digital intelligence keeps you in tune

Consumer product needs and quantities have changed dramatically since the crisis began. Even the timing and frequency of store visits and online orders are changing. The consequence for retailers and CPG companies is that they can better serve customers when they use more advanced analytics combined with digital intelligence to stay attuned to those changing needs by region, state and location.

Charlie Chase, Chad Schumacher and Dan Woo are retail and CPG industry consultants for analytics software company, SASFollow SAS on Twitter @SASsoftware and @SASRetail

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