Retailers and suppliers are reeling once again. After seemingly weathering the uncertainty of global trade wars with some bumps and bruises, coronavirus has upended life as we know it. As the pandemic known as COVID-19 continues to spread across the globe, it is having an enormous effect on retail, particularly the grocery segment.
Work-from-home mandates and speculation about lock-downs have led to behavioral changes on both the consumer and merchant fronts. The challenges these behaviors manifest make forecasting incredibly difficult for brands—especially those that have been reliant on historical regression models to dictate pricing and demand. And so we, as an industry, enter uncharted territory yet again.
Let’s take a closer look at what’s going on.
New Consumer Behaviors
As the number of newly diagnosed COVID-19 cases in the United States continues to tick up, the consumer retail response has ranged from denial to panic, with panic wreaking the greatest havoc on supply. For example, the significant toilet paper shortage that is now occurring throughout the United States and many parts of the world. This type of activity is spreading as consumers are weighing the idea that they may be trapped at home for extended periods—and no one wants to be caught without enough toilet paper. People are irrationally stockpiling in preparation; a behavior that often manifests when we feel as though we’re losing a sense of control.
Even in areas of the country that aren’t experiencing active outbreak emergencies, noteworthy changes in consumer behavior are surfacing. In a preliminary sweep of consumer purchasing data from 2/26 – 3/1, one major retailer not located in a known coronavirus hotspot saw overall sales and quantity of sales across their stores increase by just shy of 10% week-over-week.
Categories such as household cleaning supplies, soap, first aid, and bleach experienced quantity rises anywhere from 37%-92%. Additionally, child care items like baby wipes experienced quantity increases of over 100% week-over-week.
Consumers have also begun stockpiling non-perishable food items to ensure that they have enough on hand if they are unable to get out or receive food deliveries due to a COVID-19 outbreak. Dry vegetables (like beans) and pasta exhibited quantity spikes near 90%, while canned beans were just shy of 50%. Shelf-stable meat, poultry, and milk alternatives saw quantity increases over 60%, while shelf-stable milk was closer to 40%. Packaged fish, such as tuna pouches, and frozen seafood saw quantity spikes just over 40% as well.
Impact on Brands
These kinds of numbers are disrupting traditional supply and demand cycles. In recent years, there has been a shift towards fresh, perishable food and a move away from packaged items that are perceived to be less healthy or filled with preservatives. Now, supply of non-perishables may not be able to reach the level of demand.
Ramping production and distribution require a certain amount of time, and with the unpredictability of the virus, no one really knows how long it will last or where it will hit. What happens if a brand increases production only for consumer behavior to dramatically shift again in the opposite direction in a matter of weeks? This could cost companies millions-to-billions of dollars.
Response From Retailers
Amidst the complexity of navigating consumer buying patterns and brand supply during a pandemic, retailers have to contend with new pricing challenges. According to the traditional law of supply and demand, prices go up when there is a shortage—but are we really prepared as a nation to start paying $100 per roll of toilet paper or for a package of Clorox wipes, even if such price gouging activity weren’t illegal? Regardless, price gouging is running rampant, particularly on eCommerce sites like Amazon that struggle to identify and shut down all of their third-party sellers who are hiking prices at an alarming rate.
In these changing circumstances, traditional physical retailers like the corner grocer are starting to shine. They are playing an important and unique role in their communities in times of uncertainty. This traditional industry is no stranger to crisis, and their collective response to coronavirus has been impressive, especially considering that they have operated under fairly predictable circumstances for such a sustained period of time leading up to this pandemic. Traditional grocers have been able to demonstrate their expertise and readiness, as well as the breadth of their supply chain, in ways inherent to physical retail that eCommerce grocery players cannot compete with.
Importantly, physical retailers (particularly those that leverage pricing technology like Eversight’s) have rules in place that enable them to price competitively while also helping to minimize unreasonable price increases. In addition to working hand-in-hand with suppliers with whom they maintain longstanding relationships to ensure volume remains as steady as possible, traditional retailers are increasing valuable, loyalty-building services such as curbside pickup and local delivery to make grocery and supply purchases as simple as possible for their customers.
Consequences
Even the best predictive models out there cannot accurately tell us what is going to happen with novel coronavirus. It’s simply too new and too unknown to pretend we understand its path or outcome.
What we’ve learned, however, is that historical forecasting does not help with readiness. It does not prepare brands for future crises. Additionally, human purchasing behavior is largely driven by emotion, which makes it difficult for retailers to issue the perfect response. Supplies run low and prices may fluctuate. And finally, perhaps most interestingly, physical retailers who have been long-criticized for their inability to adapt may ultimately be in the best position to help communities of consumers—and brands—make it through not just coronavirus, but other future crises as well.
