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.
Case study: Spain 2012
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.
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.
Retailers at war?
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.
Future category dynamics
There are four ways to think about future category dynamics:
Categories relating to health and hygiene will remain steady as products like hand sanitisers become part of our everyday routines
Essentials that were stockpiled at the beginning of the crisis will return to normal levels of consumption
Categories and products that are considered non-essential will take more time to recover
