This article was first published on March 18, 2020.
Editor's note: Oliver Wyman is monitoring the COVID events in real time and we have compiled resources to help our clients and the industries they serve. Please continue to monitor the Oliver Wyman Coronavirus hub for updates.
The onset of the COVID-19 virus puts food retailing in a rare position. They are an essential business, which may be a silver lining for an industry that has been struggling.
In recent years, there has been a steady decline in home cooking: More than half of meals are now eaten away from home, according to the United States Department of Agriculture (USDA). Consumers don’t have the time to cook, and their skills are the worse for it. Food retailers, as the main suppliers of ingredients for home cooking, have watched their share of consumer spending on meals erode.
This week, work-from-home directives, closed schools, and shuttered restaurants will profoundly reshape food consumption, at least in the short term, and possibly over the longer term too. Cooking at home will have to make a comeback. We believe that food retailers have a unique opportunity to provide solutions which help consumers to cope, reducing the anxiety many will be feeling about putting wholesome meals on the table.
The good news is that solutions already exist. Pre-cut vegetables and fruit save time and bring fresh raw ingredients more easily into the home. And the broad range of produce, meats, and other fresh departments offer endless possibilities for meals. Products can be bundled in ways that make them easy to prepare and create mental shortcuts for easier buying. Thoughtful promotions and programs can draw attention to easy-to-cook fresh ingredients and help create complete meals. Retailers can also make tweaks to production planning schedules and even sourcing.
The key is engaging proactively with customers, providing information, support and ideas to those for whom regular in-home preparation and dining have been the exception, not the rule. Successfully communicating in-store is not enough - especially now that in-store staff are very overstretched. Social media, email, and web sites will be the critical channels to reach consumers – so corporate staff should be given the chance to act as key influencers. In-store education could take the form of simple call-out labels and hung signs to highlight value-added products, minimizing the potential to overburden already overburdened staff.
Meanwhile, small merchandising and operational changes can also go a long way to support consumers stuck at home. Now that demand is a lot less elastic, grocers may be tempted to pull back on promotions. That could make sense in order to control demand for items in high demand and to make up for higher costs – there was already a shortage of drivers, and trucking could become more expensive. However, it’s important that high-low retailers continue to deliver value to the customers who need it most, and not be seen as exploiting a situation for short-term gain. Instead, repurposed promotions can be a powerful influencing tool to encourage customers to try new fresh products and put meals on the table that they can be proud of.
Why, at a time like this, should retailers take measures that seem like investments? Well, shocks like the one we are experiencing can leave an enduring impact on consumption habits and brands. Consider a retailer that caters regularly to 5 million households. If demand for food away from home drops by a half, that would drive over $100 million of demand into its stores each week, according to our analysis of USDA data. Funneling that volume into fresh categories would maximize the bottom-line impact. It would also engender loyalty and grow brand equity, which is built up in fresh-food categories. These effects could have a profound and long-lasting positive impact.
We believe that food retailers have a unique opportunity to provide solutions which help consumers to cope, reducing the anxiety many will be feeling about putting wholesome meals on the table.
These moves go together with the immediate actions needed to limit virus transmissions, which means following a long punch-list of to-dos. These include thorough cleaning in stores, limiting contact with associates, increasing express pickups and online orders, moving to contactless payments, using disposable bags and cups, and dedicating early morning hours for the elderly and other at-risk populations. Customers want to continue to shop their local grocery store, knowing that that health-and-safety compliance is the bedrock of solid store operations.
Similarly, measures against virus transmission are also needed in supply chains. Fortunately, these have long focused on minimizing “touches” – something that will, quite literally, help manage the spread of the virus. A high degree of mechanization will keep goods out of people’s hands, reducing risk. Retailers should also carry out a rapid end-to-end supply chain evaluation: How are pallets built? Do they have enough trucks on the road? In addition, they can rethink the splits of warehouse shifts and reduce hours worked in stores, so that restocking can take place with fewer people in stores and with associates bunched together less. (See this article.)
The recession that followed the 2008 financial crisis reduced spending in restaurants by $47 billion between 2006 and 2010, according to the USDA. This time, there will be a far larger immediate impact, though hopefully shorter. That makes at least one thing certain for 2020: It will be a year like none before for grocery stores. The opportunity lies in making meaningful connections with customers by reshaping their habits to put wholesome meals on the table. (See this article.)