How COVID-19 is impacting consumer goods industries, and how you can prepare for the long term
Beyond the industries that COVID-19 may create, there are many major impacts on consumer goods already occurring, associated with the current changes in lifestyles being experienced all over the world. In a fascinating twist from recent status quo, smaller companies are struggling to adapt to these rapid changes, and larger consumer packaged goods companies have a better chance than ever of responding successfully and finding a productive path through the uncertainty. Some of these changes are likely to be short-term and tied to the temporary stay-at-home lifestyle, while others may be harbingers of more long-term, transformative changes to consumption habits and norms. Regardless of your position within the consumer goods ecosystem, you should be taking these changes into account for today and considering how they may shape your organization's strategy for tomorrow.
While the longer-term impacts of the current global situation are difficult to predict with precision, there are clearly significant impacts occurring already. In the U.S., for example, unemployment is already soaring above historic records, and the definition of what it means to work and support one's lifestyle is changing across the world. All politics aside, the world is heading for significant change. People will continue to need to eat, but what they eat, and how frequently they indulge in nonfood and nonessential goods, is likely to shift fundamentally. Overbuilt retail square footage was already on the decline, and the long-term effects of this pandemic will almost certainly include a permanent reduction in retail space.
Let's dig into the changes in consumption, pivoting business models, and value chain concerns arising from COVID-19's impacts on consumer packaged goods:
Changing demand, consumption, and product use
- There has been a significant increase in the use of delivery services for takeout foods, groceries, and other household items. It is challenging to tie this change to any specific change in the consumption or use of consumer packaged goods, but more changes in consumption patterns may become apparent in coming weeks and months. Significant "winners" in this transition have been the delivery platform industry and those developing technologies to facilitate last-mile delivery.
- Single-use material consumption and residential trash generation are on a sharp rise in the developed world, reported on a U.S.-wide scale by CNN and more regionally as in this example from the Washington Times. This increase is likely due to a number of factors, including increased use of packaging associated with takeout food services (and an increase in those takeout orders rather than physically eating out in restaurants), increased use of tissues and personal protective equipment like masks and gloves, increased use of cleaning supplies in and around homes, and some seasonal "spring cleaning" efforts by people spending more time than usual at home. Buried within this garbage-related impact is a likely net increase in single-use containers – from aluminum cans to plastic bottles and other single-use plastic containers. Many grocery stores have eliminated reusable bags from their stores temporarily, leading to increased use of paper and plastic grocery bags. As urgent concerns about personal safety and hygiene subside, focuses on sustainability and reducing single-use plastics are likely to return to the forefront of consumers' concerns.
- Hand soaps, bleach, and alcohol-containing cleansers, wipes, and sprays are also seeing increased consumption, though this is likely to be a more sustained shift than a short-term peak, as people adjust to a new normal of being much more aware of hand and household hygiene.
- Food systems are experiencing slowed demand for fresh produce and dairy, despite the panic buying occurring for various shelf-stable products like flour and frozen or preserved fruits and vegetables. In the very short term, this manifests in milk going down drains, crops being plowed under, and eggs being smashed and trashed, meaning significant financial losses for individual growers and many players along the agrifood value chain. The trend toward "quarantine baking" continues to grow in many cases, and those same flour-buying bakers are buying and using fewer vegetables than they would have otherwise consumed by eating in restaurants and/or purchasing meals through food services. In the longer term, as these restrictions and advisories are lifted, it's difficult to predict how people will react – and whether there will be a permanent impact on vegetable consumption.
- Another impact is occurring in waves, as people staying at home are having to perform various services for themselves. Currently making the news is the need for hair care – both cutting and coloring – and other recurring grooming needs, as many residents of North American and European countries are now working through more than a month of being without access to those nonessential services and coming to grips with the prospect of remaining separate from those service professionals for a while longer. Car washing, home gardening and yard work, house cleaning, and other similar occasional services are likely to be the next "habits" that these consumers begin taking on themselves and will likely be purchasing the tools and supplies needed to perform those tasks themselves, at least for the coming months.
- The increased reliance on screens for work and education is putting an increased burden on televisions, computers, laptops, tablets, and phones, as well as home internet connections. Many school systems and businesses have purchased large quantities of devices to provide to students and employees being asked to transition to participating from home. Meanwhile, many parents are adjusting their expectations of what "acceptable" quantities of screen time are for their young children. This shift is also leading to increased interest in disinfecting those devices and in keeping eyes from being damaged by increased screen exposure. Blue light-blocking glasses are likely to see an uptick in interest within the coming months as a result. With the shift to working from home at various tables, couches, desks, and other surfaces, demand for back pain-assistive devices, cushions, and other ergonomic solutions may also emerge in short order to help cope with the physical impacts of these lifestyle shifts.
Companies pivoting their business models or products
- Restaurants, grocers, and other merchants are turning to e-commerce platforms to support continued business. Retailers that previously eschewed e-commerce and digital presences in favor of brick-and-mortar resources are finding it impossible to continue attracting customers in these times, and many are hastily setting up contrived e-commerce solutions for displaying inventory and taking orders. This is a change that is likely to remain in place long after stay-at-home orders are lifted, as these merchants will likely continue to accrete new business from those channels.
- Some restaurants are looking to sell grocery items that would otherwise have gone into preparing food for patrons. Pizza restaurants are selling flour, sauce, and yeast. Many establishments are seeking local-level regulatory variances to sell the fresh produce and meats they are contractually obligated to continue purchasing from their suppliers, and revenues from selling these goods can offset the considerable losses these businesses are currently facing. Offering cook-at-home meal kits is an unexpected outcome that has a high likelihood of surviving the current crisis as an additional revenue stream for the restaurants that do survive.
- Brewers and distillers are shifting from recreational products to hygiene products. Beer brewers are facing seriously reduced demand for kegged beer, opting instead to fill cans and bottles for home consumption as bars remain closed. Meanwhile, brewers and distillers worldwide are converting production lines from making spirits for drinking to sanitizers for hands, hospitals, and essential workers. Most are likely to return to highly lucrative beer and spirit production as life returns to "normal" worldwide and bars reopen, though some may retain small scales of sanitizer production as novelties.
Value chain concerns
- Toilet paper and other essential paper products are experiencing intermittent and localized shortages, reflected in the myriad memes and other social media posts. These seeming shortages are temporary in most cases and are due to challenges for producers in shifting from producing industry and commercial use-relevant product sizes (like public bathroom-size rolls of toilet paper) to almost exclusively residential use-relevant product sizes. The added furor generated by social media posts tends to amplify supply concerns, driving irrational excessive buying behaviors and exacerbating those very short-term shortage situations.
Empty Toilet Paper Shelves in Finland (Source: Aleksandra Suzi)
- The U.S. meat industry is in upheaval. With meat processing facilities and capacity going offline due to employees being out sick with COVID-19, concerns about the U.S. meat supply are emerging and may drive hoarding-type behavior for meats, especially pork and chicken, in the short term. In the longer term, uncertainty about the availability of slaughter facilities and soft prices for finished livestock are causing growers raising livestock to reconsider the sizes of their herds and decisions about when to send animals to slaughter. These changes will likely have follow-on effects similar to those experienced in the U.S. following severe droughts in 2012, when beef prices plummeted for a time and then spiked as too-small herds struggled to keep up with demand once the severe drought had resolved. Meat prices may get lower for a short time, but expect prices to increase – potentially sharply – within one to two years. This is a potential opportunity for alternative proteins to continue to take market share from animal meat products.
- Meanwhile, global meat industries are experiencing various value chain challenges. In the Netherlands, for example, the typical consumption of veal by restaurants has taken a nosedive, which is causing those calves to forgo slaughter and instead continue being raised for more conventional beef production, clogging up the pipeline and taking up space. The result, for the moment, is a lack of room for new calves and knock-on effects for Irish calf producers. All of this means fewer dairy cows producing milk; if this situation persists, the Netherlands and other parts of Europe face a looming dairy shortage.
- Clothing companies are adapting to all-online retail, working through severely reduced sales volumes, and grappling with reduced and unreliable production coming from their Southeast Asian suppliers. The most likely outcome here: We'll all be wearing 2020 fashions in 2021, but thanks to social distancing, no one will be the wiser.
So, what should your organization do about all of this? For starters, consider how your own business model might benefit from a pivot toward a newly created – or newly urgent – market for a product or service; think hand sanitizers, remote learning, and at-home personal care. Second, shore up your supply chain now to make it robust against the types of pressures being felt in apparel and paper goods. Then, be courageous. The tendency of many is to operate in a way that tries to minimize the effects of these changes on their organizations' operations. However, taking that approach also minimizes the chances for your organization to find opportunities for positive long-term changes from the current discomfort.
Work hard to identify ways to adjust your products, services, or means of getting those to your consumers that allow you to respond to current norms without having to wholly commit to an altered way of operating. Think of it as a forced pilot-scale demonstration of new capabilities, and you just might be pleasantly surprised with the results.