Forecasting grocery demand during 2020 has been challenging to say the least. We’ve had; panic buying, stockpiling, weekly sales higher than Christmas, demand fluctuations between different products and pack sizes depending upon the category you’re in, recession driven retail changes, national and regional lockdowns, and constantly shifting government policy.
In summary, forecasting volume demand in 2020 has been enough to make any demand planner’s hair go whiter than Philip Schofield’s.
So how on earth are we going to budget for 2021, when we can barely forecast accurately for next month? Fear not, dear reader! Once we break the process down, it is not as scary as we might initially think.
Please see my 5 principles for effective 2021 budgeting:
1. Remove the spike
Firstly, let’s deal with the elephant in the room. Let’s remove the 2020 March to June volume spike, where a combination of lockdown panic buying, followed by lockdown restriction easing celebrations, drove record levels of sales. This is extremely unlikely to happen again in 2021, so take it out.
- Instead, let’s look at the average base sales from June to September 2020, and calculate what the % difference was vs the same period for 2019.
- Once calculated, apply this % increase to your 2019 sales (or your 2017 to 2019 average if you want to be really clever!)
- Don’t forget to overlay 2021 specifics e.g. planning for events such as the 2021 Euros.
2. Use live data
- Use live sales out data to get an accurate feel for how your sales are trending vs LY and budget.
3. Recession led pricing
- We’re going to be in a recession and a lot of people will be unemployed. As a result, plan for everyday low price (EDLP) to be prominent in many retailers.
4. Simplicity and flexibility are key
- Many people overcomplicate budgets. Keep it simple and focus on the big things that can make a difference.
- Reserve the ability to flex your budget based on real world changes.
5. Don’t be scared to decline YOY
- Many suppliers and retailers will have had record sales years in 2020.
- Base your volume forecasts on data and rational assumptions. As long as your budget plans sustainable growth, over a longer time period, you don't necessarily need to beat 2020. If you plan for growth without the numbers or rationale to back it up, you're setting yourself up to fail.
2021 will be a stormy year for many, but if you can approach the forecasting process with the above points in mind, you’ll have a robust foundation for your budget. Good luck and stay safe!
