For brand marketers and food-drug-mass retailers, assortment management is a perennial challenge in the best of times, one that requires discipline and sound practices. The COVID-19 pandemic has elevated this test to a new level. The demand signal has been shattered by unpredictable shopper demand and behavior change across categories. Massive disruptions mean that supply chains are struggling to catch up with shortages caused by both consumer stockpiling of items like paper goods and production challenges in categories from cleaning to health and produce to fresh meats.
This has impacted the entire industry globally in profound ways. Retailers and brands have responded heroically, but out-of-stocks and supply-chain complications have persisted in many categories. Consumers are now forced to accept substitutions for some SKUs, package sizes and flavors, or even to temporarily do without items they regularly buy.
Category managers intuitively understand that these circumstances could be “habit-breaking” for consumers. A COVID-19 tracking study reported by advertising agency SFW in April, 2020 supports this. It found 86% of shoppers who encountered recent OOS had tried a substitute brand. Ominously, 43% of those shoppers indicated they now prefer the newly-tried brand.
The impact of substitutions has come into even sharper focus with more households trying online grocery ordering for the first time. Acosta, the grocery sales and marketing agency, found in a study that 28% of online grocery shoppers made their first-ever online orders in March 2020. Eighty-eight percent of them experienced out-of-stocks, and of those shoppers, 47% accepted a substitute for half or more of their unavailable items.
Can grocery shelves ever be the same?
In this context, applying traditional management methods that base the next round of assortment and space decisions on what is selling right now makes little sense. Planogram compliance is virtually non-existent at this moment. In many categories, shelves are being filled with whatever products can be procured. Shelf voids are widespread. Consumer price sensitivity is taking a back seat to a “whatever is available now” mentality.
New product introductions – typically planned many months ahead – are much harder to implement against the present backdrop. On the other hand, retailers are sourcing alternative brands in categories where the normal channels have run dry. Many retailers have suspended routine TPRs and other promotions, as it makes no sense to try to drive demand for items already in short supply.
The demand signals that grocery retailers usually rely upon to guide decision-making are unreliable at present. The situation may endure a while longer but is not permanent. As the crisis abates, retailers need to find their way back to a “new normal” picture of space and assortment. What will that look like?
Current trends color future scenarios
Assortments will certainly look different in many categories. We can anticipate fewer varieties, package sizes or brands. It is also likely that a few new brands that gained a toehold during the crisis will remain in the mix. This presents an opportunity for retailers who have struggled with SKU proliferation to smartly rationalize the assortment to key items in key categories that appeal to key customers.
There are some clues about demand embedded in the list of items that have been in short supply. Baking yeast has been hard to find in many supermarkets, as isolated households turn to making bread. Pasta and canned beans have run low in many stores, leading shoppers to try brands or private labels they may not have purchased before.
Some manufacturers have temporarily cut back production on slower-moving SKUs in order to focus production on items in most demand. How many of those missing flavors and package sizes will be truly missed by shoppers? How enduring will new habits in household consumption and home cooking be? It will take many weeks and business cycles to gather reliable data and help answer these questions.
“What brands and retailers are trying to do, now that the dust has somewhat settled, is figure out what new behaviors stick,” wrote journalist Cale Guthrie Weissman in “‘Second mode’: Retail shopping patterns are shifting again,” a recent article in ModernRetail.
Outlook depends on the department
Nonfood categories are also experiencing disruption, although the consumer responses are wildly different. The intense hoarding of toilet tissue and hand sanitizer become an emblem for the present crisis, of course, but other personal care products, like cosmetics, went temporarily cold as everyone is home-bound for this prolonged period – a trend that will reverse as we start to re-open. With “non-essential” shops closed, apparel sales took an even more serious hit (with the possible exception of hand-stitched masks sold on Etsy.com).
As businesses re-open, some analysts have predicted a period of “revenge shopping” in malls and boutiques, as cooped-up consumers seek to soothe themselves after weeks of forbearance. There were some reports of this phenomenon in China and South Korea, after some social distancing rules were relaxed in April and early May. This won’t be a universal phenomenon, however, as millions of households that have suffered financially due to job losses may emerge more cautious than before.
At the same time, while the economy resets, well-stocked households may not be buying disinfectant wipes, hand sanitizer, and paper goods for weeks or months. Perhaps the same could be anticipated for dry pasta, canned soups, tuna and other pantry staples. Baskets are going to look different for several months or more.
That set of facts leaves retailers with a novel strategic choice around assortment planning: Should they focus on serving their customers by stocking goods purchased habitually in the past; in high (or low) demand today; or for an as-yet-undetermined lifestyle post-quarantine? Retailers and brands together need to anticipate those scenarios for the customer and work to understand what has changed.
Return to sound assortment practices
It would be shortsighted to assume that the carefully-laid category plans which were in place prior to January are still well-optimized for the post-Corona world. The pandemic has revealed that store assortments have to change dramatically in response to external events. To respond intelligently, retailers need to understand what items really matter most to shoppers now and follow those preferences as they change over time. Industry-standard assortment planning tools are essential to the empirical process that can guide such decisions.
Let us be clear: The present disruptions at the shelf are not evidence that our existing merchandising technology has failed us. It still does exactly what it was designed to do. But the available input data they require – which depends on measuring actual demand at the shelf – are not presently a true reflection of shopper preference or consumption behavior, now or in the future.
A return to a true read of shopper preference and assortment requirements depends on the same sound assortment practices we have been using for years, with the addition of some common-sense intervention. While item availability approaches “normal” levels, retailers need to:
- Understand the true consumer behavior change over the past 6 months. This will reveal implications and opportunities for assortment. Given the “black-swan” nature of COVID, it is critical NOT to rely solely on traditional Assortment Modeling. An adjusted approach is required to truly understand item preferences and substitution/demand-transfer. Take into consideration out-of-stocks/on-shelf availability and true brand-switch/preferences over time.
- Measure and track continuously in the new normal. Re-start the tracking, measurement and modeling as we enter the new normal and understand brand preferences and value as new shopper preference trends emerge. This process will persist for many months, as the market finds its new equilibrium. Use insights across markets in sequence by opening to gain early insights into the resulting mid- and longer-term trends.
Rather than zeroing in on data and analytics alone, the focus should also be on understanding how consumers are changing their habits in face of change. Preferences in the new normal are not yet known, but there will be continuous change ahead and companies need to pay closer attention to it than ever before.
The future of assortment is already here – it is just unevenly distributed.
Brian Ross is president of Precima, a Nielsen company. Precima is a global retail strategy and analytics company. For more information: www.precima.com