As foot traffic continues to plummet in the wake of COVID-19 social-distancing mandates — by almost 75% at some restaurants and nearly 35% at grocery stores, according to PwC analysis — consumer packaged goods (CPG) companies are wondering how to respond to the storm in the short term, and how to reshape themselves for the long-term changes in the landscape.
Manufacturers with robust direct store delivery (DSD) capabilities should manage a high fixed-cost structure and rapidly shift gears from growth and profitability to liquidity and focused resources redeployment.
Meanwhile, there are increased pressures on the health of small and midsize customers, their suppliers and the distribution channels serving them. Consumers, who are coping with an uncertain market environment and increasingly tighter budgets, are triggering dramatic changes across channel preferences, as well as category and product selection and mix, and they’re gravitating to e-commerce.
To understand where to effectively focus their strategies, some companies are relying on tech-enabled services like PwC’s COVID-19 Navigator which creates a digital assessment to help you understand the potential impact to your business and gauge your readiness to respond and make informed decisions. In a recent application of this model with a major CPG player in North America, PwC created a 24-month scenario that estimates a 20% volume drop and -30% customer outlet impact, with a recovery period over the next 24 months. This analysis can help generate the alignment and consensus needed for better planning and decision-making.
Companies with robust DSD capabilities are having to rethink and pivot their route-to-market capabilities.
The starting point should be a clear understanding of what customers and suppliers are facing, including possible cash-flow problems at small and midsize entities.
The two fundamental issues are:
The impact of the pandemic may require companies to be vigilant about assessing their situation granularly, by location and by customer. Once that assessment is complete, the path forward can become clearer. Adapt your operations with a three-pronged approach.
As retailers focus on ever-smaller consumer segments to better target their offerings, DSD players should do the same: It’s time to get to know your customers all over again. More profitable, less risky customers should take precedence. Start with an intimate understanding of your costs centers to build a precision cost-to-serve (CTS) model. That will allow scenario planning to help adjust service levels as needed. Ultimately, you can find the right service level for each outlet. When operations don’t meet profit goals, you’ll know where to make changes.
A key point to understand is that it’s not too early to plan for recovery and beyond. Assess your current risks now so you can reprioritize. How can you use equipment in the field differently? How can you advance a more touchless approach? Help your customers to navigate this crisis so you’re seen as a valued business partner.
During a recent natural disaster, one of our clients helped its customers, while its competitors decided that was too risky. Not only did our client continue to supply products, but this company also offered generators to help its customers power their stores. The ongoing connection, forged in a time of need, ultimately helped our client become the market leader.
Technology — particularly real-time data and analytics — can help DSD players emerge stronger during the recovery and beyond. To help deliver value to new and existing customers, these companies should act quickly and decisively to do the following:
To emerge stronger during the recovery and beyond, DSD players should act now to keep up with ongoing changes in consumer behavior. What started as a response to the crisis might permanently shape consumer’s buying patterns.