As wholesalers and retailers adapt to the COVID-19 pandemic, Kirsty Harris-Clarke, Managing Director of SalesOut IRI, opens the conversation on the future state of wholesale.
Kirsty Harris-Clarke, Managing Director of data visualisation specialists SalesOut IRI, heads up a team overseeing over 20 million wholesaler transactions every week. This unrivalled view of the wholesale market, made possible thanks to SalesOut IRI’s technology and underpinned by long-standing industry expertise, ensures customers can drill down on category and product performance, promotional successes and new opportunities.
This insight is never more important than when demand and consumer behaviour is volatile. Here, Kirsty shares some of her thoughts on the wholesale market as the long and short-term effect of the COVID-19 pandemic become clear.
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“When the Prime Minister announced radical changes to how we must live our lives on the 23rd of March, the impact quickly filtered into every area of society. Of course, that included the wholesale and food service sectors. For weeks, people had flocked to the supermarkets to stock up on pasta and toilet roll but just found empty aisles. Many diverted to their local convenience stores instead, in the hope of filling the gaps in their shopping lists. Convenience store owners themselves queued for hours at the wholesalers to make sure that they could keep shelves stocked and to continue to serve their local community. But for those who normally keep our food service outlets stocked, it was an altogether different story. Restaurateurs and hoteliers were forced to close and quickly cancelled orders, leaving wholesalers to work out how to manage an excess of stock.
With hindsight, those scenarios look so easy to predict but the next challenge comes from looking forward. How can we manage stock through the uncertainty of future government strategy? It is an overused comment, but things are unlikely to be the same when we come out of this.”
“Consumers are now shopping multiple different channels and in different ways, including supermarkets, convenience stores, wholesalers, online and subscription box services. The recession caused by the economic crash back in 2008 saw consumers flock to the discounters, and that behaviour stuck around. It turned out that the recession was the ‘in’ that the discounters really needed, and they’ve thrived ever since. The channels that suppliers and wholesalers feed into have an enormous impact on supply chain, NPD, range, price and promotions, and the profit margins are very different on each combination. I’ll be interested to see if the COVID-19 pandemic triggers a channel shift which sticks around and how the wholesalers respond to this.”
“Thanks to the resurgence in a big weekly shop (only being allowed to head out for essential journeys curtailed the ability to nip out to the shop every day), we are seeing people shifting into bigger packs in the major multiples. Basket sizes are up 70% and frequency of purchase is down, not unexpectedly. Brands have their biggest potential exposure to customer trials at the moment as people are being forced to purchase what is available. For SKUs in the premium, budget or niche areas this is a fantastic opportunity to get people to try their products, but there is a catch. What the suppliers and the wholesalers or retailers will be waiting to see is whether people repeat their purchases when the COVID-19 restrictions are lifted, and will they revert to buying their big packs in the major multiples at the expense of top-up shops in their local convenience store? As the wholesalers rally to manage their supply chain during the COVID-19 period with many reducing the number of lines they stock will core range strategies supporting key lines be better or worse and will the range reductions be continued in the long term – do wholesalers need to carry such large ranges and what are the best pack sizes now?”
“Talking to our customers at SalesOut IRI, they have flagged up another interesting variable - who is actually doing the shopping? They are seeing younger people shopping for elderly relatives - could that change behaviour and product performance? My husband and I are supporting two sets of parents and, whilst they might write us a list of what they need, the choice of brand or SKU is now our decision. In the interests of spending as little time in the shop, and therefore in contact with other consumers and the staff, we just load up with what we think they would need”.
New Product Development
“A lot of suppliers have recognised that in times of boom, it's a good idea to bring out premium new product development (NPD). It allows them to bring margin back into a range that suffers from promotional price deflation on core lines over time. In times of bust, it’s a very different story. If the UK slips into a depression thanks to COVID-19, people will be looking towards value NPD more than premiumisation, so suppliers may want to assess their current NPD plans. The amount of NPD may reduce too. It’s well known that the majority of NPD fails – if suppliers are cutting their budgets NPD might get the chop! We monitor the number of SKUs launched each month, so at SalesOut we’ll be keeping an eye on how this is impacted as the year continues. Wholesalers will be looking to their suppliers to ensure that they have the right products for their local convenience customers who won’t want to be taking big risks on radical new products – they’ll want strong value-based NPD from brands that they can trust and who their shoppers recognise.”
“We’ve seen the multiples drop their big promotions, partly to stop people bulk buying but also to fulfil demand and simplify supply chain. The gondola aisles are still having their promotions but the on-shelf promotions in the aisles are being dropped. Consumers and less experienced analysts might pin this on price rises or inflation, but actually it’s just the impact of promotions not being run. If we enter a recession, then price will become paramount. Cast your mind back to the crash of 2008, when multi-buys became much less popular because people just couldn’t afford to buy into them. ‘Round pound’ deals and price marked packs (PMPs) became the order of the day, as well as smaller packs for those that needed to shop more frequently due to cash flow issues. For the wholesaler servicing the convenience store which have often been judged as more expensive than the multiples, price marked packs will give reassurance to the shopper if a challenge on the margins”.
“Lockdown has had a huge impact on the food service channel, with the government directive forcing restaurants and bars to close. There’s been a rise in the number of people learning new culinary skills in order to recreate their favourite dishes at home, but will this last? As the rules are eased the practicalities of social distancing will continue to challenge the sector as proprietors assess the viability of servicing such few people against largely fixed overheads. We might not know until the current restrictions are eased if people will be quick to return to restaurants or choose to entertain friends and family at home, showing off their newfound skills in the kitchen.
Some consumers will be benefitting from mortgage rate reductions and reduced travel costs as they continue to partially work from home. If you’ve been lucky enough to keep your job then you may well have more cash, but how confident are you feeling when your peers are not? For many families who have lost their income it might just not be an option to dine out, at least not frequently. Changes to menus and promotions will have to evaluated. If schools begin to properly reopen then a growing number of children will be having their own hot meal of the day there. Provision of school meals will pick up, but this low margin area won’t make up for the potential declines in the private sector. Big food service players will weather the storm but many of the smaller providers may not. What impact will this have on the food service channel as we adapt to the new normal, whatever that might be?”
“Out of stocks let everyone down – the wholesaler, the seller, the customer and of course the suppliers trying to sell the products. So how do suppliers know where to send their products and varying pack formats? The data shows us that shopping patterns are changing for the short term at the very least. Collaboration is going to be key to understanding every wholesaler’s business and the businesses that they serve. The challenges in food service are massively different to those in retail, and within each of these sectors every customer within these is also unique. We should expect conversations over pack formats, packaging, sell by dates, the mix of fresh versus frozen, minimum orders and so much more as all those in the industry come together to work this through.”
The ‘New Normal’
“As everyone tries to predict what the ‘new normal’ will look like wholesalers will be looking to win and maintain loyalty from their customers who in turn are looking for what are basic principles – good service, fair price, right range – easy right?”