Omnichannel 2020
A global view on how COVID19 is transforming FMCG and the retail environment
Winning Omnichannel
A global view on how COVID-19 is transforming FMCG and the retail environment
Issue 4 | July 2020
Welcome
Read on to explore how COVID-19 has transformed the FMCG and retail landscape.
Adapting to
the unknown
The extraordinary events caused by the COVID-19 pandemic have had a profound impact on our daily lives – not least in the way we shop – and there’s likely to be continued disruption in buying behaviour for some time to come.
From stockpiling at the start of lockdown, to adapting eating and drinking habits for our new routines of working and socialising at home, there has been several ways in which COVID-19 has disrupted the FMCG industry.
In this unique fourth edition of Winning Omnichannel, we will provide a global overview of how the COVID-19 crisis is transforming FMCG and retail dynamics, in turn helping you navigate the complexities of a rapidly shifting retail and shopper landscape.
The data we originally collected and analysed for 2019 was suddenly irrelevant within the context of COVID-19. It quickly became apparent that we needed to prioritise what was happening in the moment for our clients.
We will briefly touch on the pre-COVID-19 global FMCG retail picture, before taking an in-depth view of the impact the pandemic has had on individual countries, channels and categories. We will also provide our predictions on what the post-COVID retail landscape could look like as lockdown restrictions continue to ease around the world. We call this new environment Liquid Retail—a fluid space where the lines are blurred between home delivery, ecommerce, in-home and out-of-home.
Through these insights, you will be able to adapt your strategies and find new growth opportunities in these unprecedented times—whatever the future holds.
2019 global picture at a glance
In 2019, Global FMCG spend grew from 2.1% to 2.4%, thanks to recovery in the US. In this market, the rise of discounters and proliferation of ecommerce through Amazon and Walmart led to a 0.8% increase to +2.4% annual growth. In nearly every other region we analysed, FMCG growth was slower in 2019 than the previous year.
For the first time, growth in Latin America was flat—largely due to the financial crisis in Argentina, as well as poor growth in Colombia, Bolivia and Central America. The two biggest economies in the region – Brazil and Mexico – still performed well with +6.5% and +4.1% growth respectively.
Western Europe displayed a similar picture—slowing from +2.2% growth in 2017 to +1.2% in 2019. France and Italy experienced just +0.8% growth each, Germany by +0.7% and the UK by +1.4%.
In Asia, growth was fragmented. Indonesia (+6.3%), India (+5.3%) and China (+5%) all performed well. However, the likes of South Korea (+1.2%) and Japan (-0.9%) fell behind.
These figures don’t paint a positive picture, but that doesn’t mean growth is impossible.
Although growth in Eastern Europe slowed to +7.4% in 2019, it is still growing rapidly compared to other regions. All countries are growing at between +3% and +4%, and the region accounted for 24% of total FMCG growth globally. 25 out of the 52 countries we analysed displayed a FMCG growth rate above the global average (+2.4%). However, 80% of the total growth was generated by four countries— the US, Russia, China and Brazil.
Slowing global population growth is the one trend that will impact every region, with FMCG growth likely to follow suite. By 2050, global population growth will slow to just 0.5% per year, compared to 2.1% in 1969.
COVID-19 dynamics: FMCG under lockdown
We entered 2020 with similar expectation for the FMCG industry as recent years—that it would continue to row at a sluggish pace in most regions, but we were wrong.
Looking at five key markets during the period since China went into lockdown in January, the message is clear that FMCG is growing—and growing fast.
The UK, Spain, France and Brazil all grew by 17% between 20th January and 19th April—representing a rapid
improvement on the 2.4% global average in 2019. China was the only market in decline due to the period clashing with Chinese New Year celebrations.
Drivers of growth during COVID-19
This astronomical rise in FMCG value can be attributed to four key trends:
- Stockpiling before lockdown
At the beginning of lockdown, it was inevitable that shoppers would add extra items to their baskets when faced with restrictions on their movements and possible isolation on becoming unwell. This led to people making additional shopping trips and buying slightly higher volumes than normal. Essential, non-perishable categories such as rice, pasta and detergents all performed well.
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Out of home transfers to in home
With restaurants and cafes closed in many countries, the opportunity for out-of-home consumption disappeared overnight. In the UK alone, it is estimated that an extra 503 million meals – mainly lunches and snacks – will be prepared and eaten at home every week for the foreseeable future. However, a transfer from out of-home to in-home is not enough to generate incremental value growth – in fact, the combined out-of-home and in-home spend dropped between 10% and 30% during lockdown, despite volume increasing. The primary cause of this decline is price – for example, the average spend for in-home occasions in the UK is £1.30 compared to £4.40 out of home.
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New occasions outside of core moments
The dynamics behind meals eaten in the home have been significantly disrupted by the lockdown. With the majority of people working from home and children off school for the foreseeable future, we’ve seen a renewed focus on some occasions. For example, without the morning rush, families have been spending more time preparing and eating breakfast together. People are also snacking more between meals as they look for ‘pick me up’ moments throughout the day.
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Heightened focus on health and hygiene
The constant stream of advice laid down by health authorities during the pandemic has led to a surge in sales of hygiene and health-related products. In Spain, hand soap is the product that has seen the greatest increase in sales, entering 1.5 million new homes in April. During this period, in fact, hand soap has made its way into more homes than Coca-Cola—the world’s most chosen brand. Furthermore, one in four Spaniards state that they have bought vitamins to boost their immune system to ward off infection.
Big brands winning during lockdown
As we revealed in this year’s Brand Footprint, the biggest brands have disproportionately won during the lockdown period. In the UK, the top five brands across household cleaners, beer and lager, fabric detergents and deodorants were all chosen at a faster rate than the category. During April 2020 alone, the number one brands in each category grew by an impressive +11.7%, compared to +6.1% for private label.
A big driver of the success of big brands during this period is the channel mix. Brands have a higher share of trade online and have benefitted through the strong growth of this channel to increase their sales at a faster rate than private label.
Spotlight on private label
Before the outbreak of COVID-19, private label was growing thanks to the continuing rise of discounters around the globe. In 2019, private labels made up 38% of value share in Western Europe, 22% in the US, and rose 3.3 points during the previous 12 years, globally. As we have seen, the biggest brands have been winning during lockdown at the expense of smaller brands and private label.
In Spain, private label stopped gaining share altogether during lockdown. This was caused by a reduction in the number of buyers at discount stores, where private label makes up the bulk of the product range. During this period, Lidl lost 3.1 million shoppers and Mercadona lost 2.9 million.
Channel
trends: online acceleration
Although the two overarching features of the FMCG landscape in recent years have remained consistent – stagnation and channel fragmentation – we’ve witnessed some shifts in how growth is distributed between channels and across regions.
Ecommerce continues its steady ascent. In 2017, the channel was responsible for 27% of growth. In 2019, this increased to 45%.
This acceleration has been made even more significant through the period of COVID-19. By the end of April, ecommerce had 12.4% of channel value share across China, France, Spain and the UK—having risen from 8.8% at the end of 2019. Much of this is driven by the success of pure players. Alibaba, for instance, rose from 5.7% share in China to 10.9%.
Supermarkets and convenience have also grown, while discount has stagnated. During periods of lockdown, proximity has become critical to success.
The prominence of Tesco, Dia and Intermarche in their respective markets saw their share boom, while regional convenience banners in Spain also performed well.
Ecommerce: acceleration is everywhere
Until now, the story of ecommerce has been one of regional disparities. The Asian market’s penetration far outstripped that of Western economies. And while differences in penetration remain, COVID-19 has caused a dramatic acceleration of ecommerce across markets. As the chart below shows, China has seen the most significant growth. In fact, it has only taken 4 months for Chinese ecommerce to generate the same share increase it has seen over the last two years.
Where are these new buyers coming from?
In many markets, online options have recruited more older and rural shoppers than ever before. With older shoppers more likely to have been asked to take more stringent lockdown measures, and rural shoppers being further from the supermarkets that have remained open, ecommerce is the natural channel to turn to.
The sharp growth in penetration is notable. In the UK, over the first quarter, ecommerce penetration amongst the over 65s has risen from 13% to 20%. And amongst rural shoppers, it has risen from 23% to 30%. This boom is likely to continue, with the experience of ecommerce amongst new online buyers being largely positive.
The projections certainly point to a promising future. Our initial 2020 forecast (made in December 2019) simulated a 6.8% share for global ecommerce. With the impact of COVID-19, we now forecast a new share around 1% higher—between 7.5% and 8%.
Discounters: diversifying
growth strategy
COVID-19 may have caused the discount channel to stagnate, but in 2019 we saw impressive expansion programmes that point to a sign of the channel’s future dominance. And with discounters likely to return to growth quickly following the end of the pandemic (forecast to reach 13.1% global value share by 2023), it is worth looking at where historic growth has been driven.
The UK market is a particularly salient example of the rise of discounters, where it is projected to grow from its current 12% value share to above 20% by 2025. Store openings by the likes of Aldi and Lidl will again propel some of this growth.
But the next stage of the discounters’ development will be marked by a move towards further diversification in the form of fresh and ambient groceries. In yet another sign of how discounters are firmly embedded within the mainstream population, the UK shopper profile of Aldi and Lidl now closely resembles that of Tesco.
Strong advances can also be seen in France, where Lidl has now achieved significant market penetration and reached 57% of the of the population in 2019. As in the UK, this has largely been driven by store openings – with 50 opened in 2019, and further 300 to be opened in coming years.
However, there is now a great opportunity for it to diversify its growth strategy. This will come through a focus on improving its loyalty rate through a variety of measures, such as activating its CRM programme and integrating e-commerce into its offering.
The post-
COVID-19 picture: less demand, more downtrading
There is a big ‘unknown’ hanging over predictions about the post-COVID-19 FMCG landscape. The latest reports suggest that global growth will struggle to bounce back from the lockdowns, and just how long it will take to fully recover is up for debate.
With unemployment levels currently standing at 20% in the US and 36% in Spain, the short-term picture looks set to be one of uncertainty. There is a strong possibility that a high proportion of the population will move to lower income bands, which in-turn will reduce their FMCG spend. For example, if 16% of British households move to the lowest income levels, FMCG would decline by 3.5% in the country as a whole—with the average spend per household decreasing from £4,200 to £4,050.
There are lessons we can take from previous economic downturns that indicate what could follow in 2020 and beyond.
Looking at the previous economic downturn in 2012, Spanish households with at least one member out of work saw a decrease in FMCG spend of -1.8% over the course of the year. Furthermore, the most fragile households with long-term unemployment (more than one year) saw their FMCG spend decrease by -6.7%. This was caused by a heighted awareness of price and pack sizes, selecting private label over brands and increasing spend at discount stores—not compensated by an increase in in-home occasions.
The resurgence of private label
Although private labels have suffered during lockdown, we predict that the economic climate will provide the ideal playground for them to thrive again in the future. A survey of French shoppers in April found that 53% are struggling to pay for groceries, suggesting that many shoppers will look to make savings at the till for the foreseeable future.
Furthermore, there is also a huge untapped potential for private label in certain markets—particularly in Asia and Latin America. As lockdowns begin to ease, we predict that private label will begin to rise in these regions.
The number of in-store promotions declined during the lockdown period – reducing from 14% pre-Covid-19 to just 7.5% in France alone. However, in the coming weeks, we predict that hyper-and-supermarkets which have lost share during the pandemic will activate promotions strongly to entice shoppers away from their competitors and discounters.
Impact on brand price strategy
The chart shows the average distribution of category sales by price in the UK, but the curve follows a similar pattern across all countries and categories within them. Generally, 37% of category sales are made on the cheapest products, and with a recession on its way, it’s likely that there will be an even greater focus on price. As a result, brands need to review their elasticity to price, while always considering that the cheapest product is never the most popular.
There are four ways to think about future category dynamics:
- Categories that are related to short-term needs will decrease as lockdown measures are eased around the world
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Categories relating to health and hygiene will remain steady as products like hand sanitisers become part of our everyday routines
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Essentials that were stockpiled at the beginning of the crisis will return to normal levels of consumption
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Categories and products that are considered non-essential will take more time to recover
Liquid Retail
As the aforementioned channel trends are amplified by the COVID-19 crisis, we have begun to enter a new phase of retail. It’s one that is constantly shifting – a fluid space where the lines are blurred between home delivery, ecommerce, in-home and OOH. This is Liquid Retail, and competition is fiercer than ever.
Two unknowns will redefine FMCG and retail: future levels of unemployment and distancing. The amount of employment across markets will dictate the extent of disposable income and the consequence of this will be more (or less) downtrading. Lower employment will see an accelerated phase for development and private label, and a price war between retailers coming under increasing margin pressure.
The second unknown, distancing, will also have big implications. A return to lockdown measures and more time spent at home will mean further development of e-commerce and home delivery. It will also mean category shifts towards more home cooking and a decrease in personal care.
A further element is the expectation for people to move outside of cities for reasons of safety and quality of life. If these factors are combined, we will see a world of less demand and more competition.
How to win in times of COVID
If there is less consumer demand, retailers will need to rethink ranging and their shelves based on category essentials. Price and promotional strategies will need to be reviewed, with more value-sensitive shoppers in mind. Private Label demand will increase as a consequence and retailers will need to ensure their offer in this space has clear value benefits, to retain shoppers and drive margin.
Manufacturers will need to adjust their product portfolio to cater for new behaviours. They will need to define specific actions based on new routines in personal care and beauty, price elasticity and packsize. A clear understanding of promotion mechanics will be needed in order to optimise trade actions, while in store price communication will be critical to attract shoppers.
On the other hand, with more competition comes the need for retailers to accelerate their digital transformation. This is no longer just an option, but a necessity. They have a fantastic opportunity to broaden their horizons and win share against restaurants through the provision of ready-to-eat meals delivered at home.
For discounters, building a full ecommerce strategy is critical—even more so if new lockdown restrictions come into place. For manufacturers too, the need to accelerate investment in e-commerce is obvious. A window is opening to develop comprehensive D2C options, while also proposing solutions for older and rural targets who are spending significantly more time online.
Conclusion:
six rules to win
There are six rules to follow in order to understand
and anticipate the retail dynamics of our new world.
Combine OOH and in-home performance for food and drinks, to define the right strategy.
Split your ecommerce strategy and track bricks and mortar, pure players and D2C performance.
Track omnichannel performance beyond hyper- and supermarkets. 82% of growth in 2019 was outside these channels, and its accelerating.
Measure category evolution in line with changing shopper behaviours, splitting inflation, downtrading, store and brand or private label choices.
Start looking into food home delivery as a new channel to capitalise on.
Do not forget the new targets on the rise. They are not millennials, metropolitan, nor the wealthiest. They are the rural, the old and the unemployed.
With Thanks
Omnichannel 2020 is a Kantar initiative. Thanks to our partnerships with Europanel, GfK, IRI and Intage we have been able to offer countries outside of the Kantar footprint.
Data for Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Germany, Hungary, Italy, Poland, Romania, Russia, Serbia, Slovakia, the Netherlands and Sweden was provided by GfK.
Data for the USA was provided by IRI.
Data for Japan was provided by Intage.
About Kantar
Kantar is the world’s leading evidence-based insights and consulting company. We have a complete, unique and rounded understanding of how people think, feel and act; globally and locally in over 90 markets.
By combining the deep expertise of our people, our data resources and benchmarks, our innovative analytics and technology, we help our clients understand people and inspire growth.
Find out more
If you’d like additional information on Winning Omnichannel, please visit our website or get in touch with your usual Kantar contacts or email:
Stéphane Roger
Global Shopper & Retail Director
Worldpanel Division
stephane.roger@kantar.com
Benjamin Cawthray
Global Thought Leadership Director
Worldpanel Division
benjamin.cawthray@kantar.com
Food for thought
Explore our publications and webinars to discover how we help brands and retailers grow.
Webinar: How the COVID-19 crisis is transforming FMCG and retail
Brand Footprint 2020
How COVID-19 is impacting our eating and drinking habits
Omnichannel: Create an effective retail strategy