Grocery retailers around the world learned from Asia’s early experience confronting COVID-19. Now, Asian executive teams are at the forefront of the retail sector’s next challenge—to accelerate into the recovery.
It’s a task fraught with uncertainty. Will there be multiple waves? Will a therapy or vaccine emerge this year? How will consumers respond to the combined pandemic and economic downturn? Yet many of the trends that will shape grocery’s “new normal” are already visible.
Globally, few grocers remain in the initial coronavirus response phase. They have kept their businesses running amid panic buying, supply disruptions and employee absences, scrambling to protect staff and customers using emergency response teams and lessons learned from China, South Korea, Italy and other countries hit early by the pandemic. They have hired extensively to meet demand and added online grocery capacity.
Having risen to these operational challenges, executive teams need to plan for the recovery without losing their focus on safety. Grocers in China and other Asian countries are further down this path thanks to the earlier reopening of their economies. Still, no one can be complacent given the risk of additional waves of infection and renewed lockdowns.
On one level, recovery requires a disciplined operational checklist. For instance, retailers need to work with suppliers to increase production of items that fell off shopping lists amid the stockpiling of necessities. Algorithmic buying systems should be restarted, temporary hires trained or released, capability gaps plugged and various other tasks completed.
Speed is vital given the cash impact of remaining in crisis mode. (Some context: Many grocers were blessed with a surge in food sales, but they may have suffered in nonfood categories and were also obliged to spend heavily to keep functioning and protect staff.) To improve their resilience in future crises, grocers should still take time to codify what they learned from COVID-19 before dismantling emergency response teams.
On a strategic level, grocers need to start retooling their organizations to take account of several powerful trends that have emerged or accelerated. The increased importance of e-commerce is the most significant. Many customers who turned to online grocery out of necessity will stick with it to save time. Private-label product supply was frequently disrupted in the initial stages of the crisis; grocers should lean in to private label, as demand will increase as consumers tighten their belts. A renewed sense of community could benefit local supply sources and regional grocers. Many countries may introduce measures to increase national food security.
The failure of some finely tuned algorithms to cope with the disruptions of the crisis has underlined the need to marry analytics with judgment. Executive teams can also improve their strategic planning by screening out some of the wildly fluctuating macro indicators that are dominating news coverage and focusing more on consumer-level “microdata” instead.
We see other priority areas for action that have particular relevance to regional leadership teams. Many Asian grocers rely on old-fashioned “push” marketing that should be digitalized. Kill the print catalog and replace it with something that works on a mobile phone. Create an integrated view of customers’ online and offline purchases. Make it easier to create and use digital shopping lists. Preferential access to prime delivery slots or urgent supplies may be more valuable to your best customers than promotional discounts, meanwhile.
Most retailers we work with in Asia know they offer too many different product variations, many of which are low sellers or barely profitable. They also don’t devote enough shelf space (and buffer stock) to the fastest-moving items, which then run out too often. Many grocers streamlined product ranges to keep trading amid the worst of COVID-19; further slimming down assortment will be wise in the recovery too.
The same goes for promotions. Grocers in Asia are addicted to one-week promotions that create havoc for suppliers and store managers. The strongest operators in the recovery will run fewer of them and increase the duration (and digital component) of those that survive the cull.
Executive teams should double down on their commitment to online grocery, while ensuring that the channel becomes structurally profitable. The cleanest way to achieve the latter is to charge appropriately, either per delivery or via a longer-term membership scheme. A case could also be made for government subsidy of deliveries as an essential service for more vulnerable households.
Grocers will need to adapt their physical store network to the altered retail landscape too. That could involve closures, space reallocations and closer integration with online channels. The efficiency drive should encompass supply chain and technology systems to ensure longterm cost competitiveness.
Few retailers are going to find the transition to the coronavirus recovery phase easy. Exhausted executives will need to find the bandwidth for strategic decisions while the operational workload remains extraordinarily punishing. Having 90 percent of your senior team time focused on the day-to-day challenges while 10 percent is set aside to prepare you for the future is a good rule of thumb.
COVID-19 is likely to alter the competitive balance of the sector, accelerating industry consolidation. While this ought to yield opportunities for grocers to use mergers and acquisition to reinforce their capabilities, executive teams could have to contend with an upsurge in investor activism too. Those that don’t contemplate bold moves now might well have radical decisions forced upon them.
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.