Updated: Apr 8, 2020
It seems like so much has changed since I last wrote an article on this subject on March 5th, that I wanted to write a follow up piece detailing how the current COVID-19 crisis has impacted both suppliers and retailers, trying to forecast supply & demand in the UK grocery market.
According to Kantar, the 4 weeks leading up to the end of March were the biggest ever 4 week period in the UK grocery market, with the channel growing at +20.6% YOY. Leading the growth was Lidl at +17.6% growth, but in a rare set of results, every retailer posted growth.
Pointing to a great article by Carina Perkins in this weeks The Grocer magazine (based on IRI data), during w/e 21/03/20, sales hit £3.1bn (+40% YOY), in one of the biggest ever weeks in UK grocery. As a comparison, sales for w/e 21/12/19 sales were £3.2bn.
So what happens to consumer demand after 4 weeks of panic buying and stockpiling? Well as it turns out, kitchen cupboards do not have elastic shelves, and as the British public (mostly) started to take heed of the government's advice on social distancing, £ sales dropped the following week to £2.1bn, down from £2.4bn for the same week in 2019.
Looking at how the different categories performed, in the w/e 14/03, Vitamins grew +117.8%, cleaning products +141.3%, canned baked beans and pasta (+120.1%). According to Kantar, beer wines and spirits, saw a +22% growth in the 4 weeks to the end of March. As it sank in that pubs, bars and restaurants would be closed until further notice, during w/e 21/03/20, thirsty Brits spent £356.5m on beers, wines and spirits in the grocery market, vs £224.8m the same week in 2019...a whopping +58.6% YOY (credit to IRI's Tim Dummer).
Looking to the future, IRI's Jaime Silvester points to interesting trends emerging from the Italian market. As people look to minimise trips to larger shops, Italian Hypermarket sales are -8%. Conversely more people are doing top up shops in their local neighbourhood, driving convenience store sales +41%.
So how are suppliers and retailers coping with this sustained increase in demand? Working in the beer trade, to me it felt like sales out demand peaked w/c 23/03, and top selling brands quickly sold out thus driving availability down to 0-30% on key lines. Some retailers continued to order all categories as they normally would, putting undoubtedly massive strain on their depot network. Some retailers prioritised certain categories and sacrificed others, resulting in good availability on key categories, but empty shelves in others. Some retail supply chains are openly admitting they could do with 3-4 more depots to cope with the increased demand, and as a result are having to rotate deliveries from depot to store on certain brands. In the world of beer, sales of bulk packs have seen triple digit growth vs. the same periods last year, as people want to get bang for their buck.
Last week (w/c 30/03) sales seemed to generally calm down a bit, which gave both supplier and retail supply chains some breathing space. As a result availability in store seems to have improved close to the 98.5% target in most accounts...however some still have work to do.
So how do FMCG suppliers and retailers optimise performance and efficiency during this exceptional growth period, we are currently experiencing in the UK grocery market? I feel like there are two key areas to focus on; 1. Data 2. Stockholding
1. Data- An absolutely invaluable tool for me as an account manager during this challenging period has been Atheon's SKUtrak tool. I usually use this as a daily / weekly / monthly reporting tool and to answer queries both internally and externally with the retailer. However, during the COVID-19 crisis, being able to distil quality and robust sales and stockholding data into meaningful and visually appealing insight, has been absolutely critical. I've been using the availability and replenishment performance tools to highlight the best selling / low availability skus to supply chain. As a result, supply chains have ordered more stock where required, and have recovered their availability % more quickly.
2. Stockholding- Now this sounds really obvious, but so many suppliers will have been caught out in this area. In the never-ending search for lean working and cost reduction, supply chains often want to optimise just in time production, and minimise the cost of storing stock unnecessarily. If an unexpected sales increase happens, supply chains can dig into the buffer stock. This isn't a problem for a one-off hit of increase, say for example a sunny weekend, or Christmas, which takes months of planning and stock building. However as I said in my last article, this is an unprecedented situation, and suppliers and retailers have had to basically cope with Christmas demand in March...with no preparation. So the winners over the last 4 weeks, have been the brands who were able to react quickly and produce lost of stock quickly, or those suppliers already sat on big stockholding for their top selling lines.
It is not just about having enough stock, it is also about having it in the right place. Suppliers need to funnel more stock to their online stores as sales rocket. Retailers have also got to juggle their own depot network as more demand comes through their convenience network.
So when will this extraordinary run of demand end? I think there will be a long-term, sustained demand increase through the UK grocery market until; the schools re-open, people go back to work and the pubs, bars and restaurants re-open. That said, the new 'normal' won't be like before. Many people have recently flocked to popular online hangout apps such as 'Zoom' and 'Houseparty' on Friday and Saturday nights. I was astounded to hear from Facebook's Martin Harbech, that as of one week ago, Zoom's market capitalisation was great than that of the world's top six airlines combined! Many shopping habits will have permanently changed with many more shopping online, and those who shop in tore will have to observe more stringent cleanliness rules. And when will this be exactly? No one knows, but as a parent of two, I'm bracing myself for the likelihood schools won't fully re-open again until September, and even then we may not have a widely available, working vaccine. Only brands who demonstrate flexibility, resolve and the ability to optimise their performance in a highly volatile and fast-paced market will win out.
On a final note, I just wanted to say a huge thank you to the NHS who are doing a brilliant job during an incredibly challenging period. I also want to give huge thanks to those working on the front line in the UK grocery market; replenishing shelves, running the tills, making deliveries etc. These great British heroes are putting food on people's plates, which is critical during this ongoing crisis. Keep up the fantastic work.