Points of View

COVID-19 will impact supermarket supply chains: producers of nonperishables must brace for roller-coaster consumption

The average consumer’s panic response without proper knowledge of situations wreaks havoc in grocery stores and big-box retailers like Walmart and Target. Most concerns stem from basic human needs: food, water, and a healthy and safe living environment. Yet, much of this panic stems from groupthink and misinformation. Therefore, manufacturers and vendors of emergency products must adapt to chaotic consumerism in times of crisis but expect demand drops in the future.

 

As COVID-19 spreads globally and cities go into lockdown, mass panic and groupthink have been at the forefront of the “necessities” marketplace. Mass shortages of supplies have caused supermarkets to restrict the number of certain goods that people can take; the biggest issue on the public platform in the United States being toilet paper. What should consumer goods manufacturers prepare for once the panic subdues?

 

Think Black Friday hysteria—but with more people and lasting much longer...

 

Some issues, especially in nonperishable item stock, have risen from this panic. People are apocalypse buying (purchasing on average 3X as much as normal) and seeking out long-lasting or preservable items. These products usually have predictable and consistent buying habits and consumption. Only in market crises and natural disasters, which create social disruptions, do these products receive the spotlight and force nonperishable providers adapt and significantly increase production.

 

As consumers hoard items like toilet paper, canned goods, rice and pasta, and hand sanitizer, companies are struggling to keep up with the demand. As the weeks go by, adaptation efforts have kicked in: globally, pasta manufacturers are considering reducing the number of shapes they produce to streamline operations, and supermarkets are restricting the number of purchases allowed per item per customer. Therefore, although there are supply chain shifts in other industries, manufacturers of products being mass purchased and hoarded must adapt.

 

Product manufacturers should also adapt to the prospect of new competition within industries, particularly regarding shortages of products like hand sanitizer. This new possible competition does not stem from organizations within the industry but through outside companies. For example, some liquor companies are utilizing already-present equipment to produce hand sanitizer. As distilleries may begin production as more of a community service or PR machine, enterprise leaders within the given field must be wary of the possibility that this outside company may find profit and continue producing beyond the crisis.

 

There is a huge variation in demand across consumer goods categories

 

As most countries are entering lockdown, there is a major shift in people’s usual social and professional lives: no more mass gathering events and celebrations, the new norm of “work from home,” closure of shopping centers, travel bans, etc., creating a diverse set of demand patterns among the consumers as described in Exhibit 1.

 

 

Exhibit 1: Demand for essential items has increased 

 

Source: HFS Research, 2020

 

 

Balance commercial interests and social messaging to sail through the crisis

 

Enterprises should touch every element of their operating model to handle this type of crisis, as described in Exhibit 2.

 

Exhibit 2: Coordination among different business functions is the key to success

 

 

Source: HFS Research, 2020

 

 

Let’s learn from the industry leaders

 

Some of the leading consumer goods companies have set examples for price slashing, employee-first approach, and commitment to community in this crisis:

 

  • Hindustan Unilever plans to drop prices of essential hygiene products by 15% and will also ramp up production and supplies of sanitizers, hand soap, and floor cleaners.
  • PepsiCo plans to hire 6,000 front-line employees and will provide additional benefits to its workers.
  • LVMH plans to make hand sanitizer for French hospitals and will dedicate three sites to producing hand gel to help fight the COVID-19 outbreak.

 

“Trendy” buying habits of nonperishables will take a toll on producers in the long run

 

As much as we dislike referring to this as a “trend,” the quarantine lifestyle and hoarding behaviors that we see happening are, by definition, a trend. Industries should adapt to higher demand depending on inventory and global material availability. This adaptation can occur through contract manufacturing globally or temporary hiring to combat surge demands. For example, Amazon is hiring an additional 100,000 employees to combat the dramatic increase in product demand during this pandemic.

 

That said, in the future, those who bought bulk items will at first no longer have a demand to continue purchasing them at their normal pace pre-virus panic. Items like toilet paper, rice, pasta, and hand sanitizer have extremely long shelf lives. Therefore, after this strain to compensate with the demand to produce products like these, it is reasonable to predict that there will most likely be a lull in business for currently high demand industries as panics settle before the return to routine manufacturing. The demand ebb and flow will most likely vary per industry and according to the shelf life of products.

 

The Bottom Line: Supermarket suppliers must adjust to dramatic buying trends to balance supply and demand shifts

 

This pandemic, too, shall pass. Demand for non-perishable products will experience a lull as consumers’ cupboards will well stocked with products. But while demand is high, producers must adapt and continue doing their best to meet panic demand.