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INDUSTRY INSIGHT THE NEW FMCG ENVIRONMENT: SOME BIG QUESTIONS How will shoppers’ shop? How will channel growth shift? How long will the crisis last for my business? How are other businesses reacting? What can I learn from past economic crises? And where should I look for the best practice? BTy IGD Head of Retail Strategic Projects Miloš Ryba. hese are just some of the questions heard recently from IGD’s customers and contacts across the FMCG industry. Adjusting your business strategy to this new environment in the Covid-19 era and beyond will become more complex as you consider multiple hypotheses. IGD considers these questions and examines some possible scenarios. How will channel growth shift? At IGD we’ve modelled market size growth for several countries. For example, for the UK grocery market, we’ve forecast growth in the range of five to 6.2 per cent in 2020, following a 1.1 per cent increase in 2019. The duration of social isolation will directly impact the growth of the UK grocery market and its individual channels. Convenience and supermarkets will gain the highest increase in value. Online and convenience will be the fastest growing, showing the biggest percentage growth. In the most severe scenario (lockdown until the end of September), discounters’ revenue growth will be negative year on year. Social distancing has hit discounters’ growth We expect a bigger shift in shopper behaviour the longer social distancing remains in place, and the more frequently it is reintroduced. The channels shoppers use could change significantly in the next year, particularly during a deep economic recession. Discounters have not been winning during the pandemic. In the first quarter of 2020, across Europe, shoppers shopped less frequently and with bigger baskets. They visited local stores, stores with full assortments, and ordered more groceries online. This had a negative impact on the growth of the discount channel. How long will the crisis last? The growth of your business will depend not only on the length of the economic recession but also on the path of the virus, whether we have a single outbreak or multiple outbreaks of the pandemic. For example, if you combine a recession that is relatively quick to recover with multiple outbreaks then the online grocery channel will grow very quickly. Retailers will invest considerably in online capability and divert investment from stores. How will shoppers shop? IGD’s ShopperVista regularly tracks UK shopper attitudes. Our research has found that 47 per cent of those surveyed would be happy to share data about themselves during the pandemic if it enabled them to be prioritised for online grocery deliveries. This indicates that in the future, shoppers may be more open to sharing information to help them get the services they need. To understand future shopper behaviour, we use a behavioural science research technique and create hypotheses for a category or product in online focus groups, then test them in an online survey. Companies should be regularly tracking and testing hypotheses to keep up with rapid changes in shopper behaviour. What can I learn from past economic crises? We can see how retailers’ sales were affected by past financial crises and recessions, such as that in Europe (2008-2010) or in Greece (2008-2013). The grocery retail market contracted in most European countries in 2009. Retailers rationalised their ranges and announced permanent price cuts on essential products several times. They increased promotional activities, especially on branded products. The demand for private label soared, which led to vertical integration. Indeed, Lidl decided to build its own chocolate factory in Germany. The pace of store openings slowed significantly, and in Greece the total sales area in modern grocery stores shrank by five per cent in 2013. The global FMCG market has matured significantly in the past decade, especially in areas such as private label and e-commerce, but these lessons from the past must be put into context with a specific retail market. How are other businesses reacting? Our quarterly consumer packaged goods outlook survey helps us understand developments in other markets. In our most recent survey (May 2020), the very clear message is that companies are preparing for changes. Sixty-four per cent of those surveyed expect to see ranges rationalised, while 22 per cent plan to keep marketing budgets unchanged. This is a good indication of the priorities of many businesses and helps with benchmarking activity and future planning. It cannot be doubted that Covid-19 has accelerated the retail evolution. The gap between the maturity of the developing and developed retail market will further narrow. The competitive advantage will be not the amount of data, but the ability to distil relevant data and turn these insights quickly into action. The best- practice lesson, which used to come from developed markets, will now come from agile businesses. About Miloš Ryba Miloš Ryba has been analysing global retailers and emerging markets for more than a decade. His deep expertise lies in central and eastern Europe, home of discounters. He regularly presents at leading conferences in Europe and features in European and North American media. Before joining IGD he led the Emerging market team at Planet Retail. Miloš holds a master’s degree in finance and management from the Mendel University in Brno, Czech Republic, and has also studied at the University of Mannheim in Germany. About IGD IGD is a not-for-profit research and training organisation. It has a trading subsidiary that provides commercial insight services for the consumer goods industry. The profits from these commercial services fund our not-for-profit activities. Follow IGD’s communications team on Twitter for all the latest retail insights: @Comms_IGD 18 RETAIL WORLD SEP, 2020