COVID-19’s Long-term Effects on CPG E-commerce
How many of your recent conversations have included discussions about how you “can’t wait to get back to normal life”? It seems like everyone is searching for normalcy amidst all the uncertainty in the world. Weekly tasks such as grocery shopping that were once set on autopilot from years of routine have now morphed into new digitally subsidized versions that are rooted in overcoming short-term constraints. These iterative “new normals” continue to build momentum the longer COVID-19 restricts activity, thus inching society closer to behavioral tipping points that will affect all aspects of life.
Within the CPG industry, companies throughout the value chain have quickly adjusted to find elasticity in their business models. In addition to the immediate, short-term effects, these companies will face a number of long-term effects, as it’s possible that we may never truly return to life as it was before the global pandemic. It’s unknown how expedited and acute these long-term effects might be, but there are several that are directly relevant to CPG e-commerce executives who are seeking to position their brands for long-term success.
When the going gets tough, the tough get going, right? Currently, “the tough” are the hundreds of thousands of people who are being hired for “essential” roles at companies like Amazon, Walmart, Instacart and Dollar General. While job creation from these companies, which are the beneficiaries of enormous shifts in shopping behavior, shouldn’t be seen as a negative, it does present a potential landmine during a global health crisis.
For these companies, that landmine explodes when “tough” people feel pressured to work while they are sick. As seen by the recent Amazon warehouse closure in Kentucky, this not only results in a financial impact, but it also affects public perception due to negative press. If ever there was a motivation to speed up automation, COVID-19 is it; the virus has pressed the proverbial “pedal to the metal” for brands and retailers.
There has been a great deal of discussion about how robots are “stealing” human jobs, but they also keep humans safe when they are deployed to carry out tasks that are potentially dangerous. If Amazon closing just one warehouse is newsworthy, imagine if dozens or hundreds of different large-scale manufacturing, processing and distribution facilities shut down simultaneously because of sick employees. That would cripple supply chains and create potentially life-threatening interruptions that cannot be accounted for in the future. Fact is, “tough humans” saved us by keeping the flow of goods moving, but it’s time for machines to toughen up and take on the next global pandemic.
Areas of automation to keep an eye on are:
Real-time Inventory Tracking
The supply chains of CPG brands and retailers can become a twisted nightmare if they aren’t able to get the right things to the right places at the right times. The worst thing that can happen is to have warehouses and retail shelves overstocked in one geographical area but empty and in high demand in another geographical area. We saw this happen in early March, when certain large U.S. cities elevated restricted living orders and social media images of empty retail shelves went viral, thus sparking a national panic that temporarily shocked the system. When humans feel like they are surrounded by uncertainty, they seek to control elements in their life that are controllable, such has having ample stock of their most basic goods.
There are endless complexities within the CPG supply chain, and these have only intensified as retailers focus on omnichannel capabilities. The market is moving too dynamically for legacy systems that do not have real-time transparency into where inventory is located from manufacturer to store shelf. In a multi-level supply chain, digital inventory and network optimization can help subside the bullwhip effect, but it must be complemented by strong processes and communication. The COVID-19 pandemic will force companies that have been slow to adopt digital inventory and network optimization tools to reconsider the benefits.
Areas of real-time inventory tracking to keep an eye on are:
- Internet of Things (IoT) leveraging 5G cellular technology
- Radio Frequency Identification (RFID) leveraging blockchain
Restricted living situations and worry about the safety of public places have left even the most diehard in-store grocery shoppers choosing the lesser of two evils. These slow digital adopters are still worried that their fresh items won’t be picked with the same level of scrutiny that they perform, but that fear is dwarfed by roaming crowded stores and potentially catching COVID-19. That makes online grocery shopping the more desirable option, even if it uproots one of the deepest consumer behaviors. The coronavirus pandemic has created an inflection point for consumers purchasing groceries online.
Fact is, e-commerce has always been the future of grocery shopping, even before the current pandemic caused consumers to download grocery pickup and delivery apps at record levels. In early February, weeks before any COVID-19 stay-at-home orders went into effect in the United States, FMI substantially increased its previous estimates for U.S. online food and beverage sales to $143 billion by 2025. (The previous estimate, updated last year, predicted $100 billion between 2022 and 2024.) CPG professionals therefore must not consider if the coronavirus pandemic will be a growth catalyst to online grocery but rather how “sticky” the change will be in the long term.
Areas that will impact the stickiness of online grocery are:
- Length of restricted living, thus giving more repetition to online grocery shopping
- Additional constraints to in-store shopping, thus making the convenience of e-commerce more pronounced
- Ability of delivery and pickup infrastructure to meet new increased demand
The current global health crisis is just the latest reminder that the CPG industry needs to prepare for the unexpected in order to have elasticity in its business model. COVID-19 proved that change almost never fails because it’s too early, but it almost always fails because it’s too late. Barriers to adoption or obstacles to implementation that once felt insurmountable have started to become manageable steps towards the needed levels of change. Only time will tell how pronounced these disruptions become long term, but the CPG industry should be using this event to set the stage for transformational change.