The global pandemic has had a significant impact on every industry, particularly those that are FMCG (Fast-moving consumer goods) companies. The pandemic has caused many consumers to change their spending habits, opting for cheaper alternatives instead of more expensive brands. As a result, some FMCG companies have seen considerable decreases in sales due to this behavior shift.
The consumer goods industry is struggling with a number of challenges nowadays:
- Competitive pressure is high because its markets are fairly saturated.
- Customers are reacting to this abundance in a price-sensitive way.
- Because private labels are pushing into the markets, the pressure on manufacturer brands to innovate is increasing.
Another problem is that consumers perceive the range of consumer goods as homogeneous and therefore interchangeable. Thus, the consumer goods market has the highest perceived brand uniformity compared to other sectors.
Stagnation due to disrupted supply chains
For some items, such as toilet paper and flour, supply chains have been completely sucked dry. Stocks, which are usually enough to cushion fluctuations in sales, were also gone. What is now being newly produced is being sold off again directly – even if this has hardly anything to do with actual demand. People stock up on everything, also oral hygiene products.
In ordinary situations, consumers purchased fast-moving consumer goods when needed. The pandemic caused people to start buying these goods in bulk and store them for future use. This sudden shortage of goods put pressure on the entire FMCG industry, many found it hard to cope with the sudden increase in sales.
Most FMCG companies relied on getting raw material from the international market, which caused stagnation and halts in production. Many companies have already started restructuring their supply chain. If the state is in lockdown again, the industry maintains its supply chain and prevents manufacturing stagnation.
Mental health issues due to isolation
The effects of the pandemic are not only felt in the sales figures, delivery difficulties or lack of digitalization – many employees suffer greatly from mental health issues due to the current isolation. Also, the increased demand of such products can lead to problems such as burnout, here it is important as an FMCG company to invest in good HR power to guarantee suitable solutions for the mental and physical health of employees in the long term.
Food retailers had a special boom for weeks as many people built up extra stock at home. Parallel to this, demand is shifting away from bulk supply in canteens or restaurants to retailers, as many companies and restaurants are still closed. Even though this does not change the total amount consumed: Food out of Home is declining massively which led to financial loss for many companies, which then relied on government aid and funding options. Food-related FMCG products such as cosmetics, toiletries, etc. are experiencing high demand. However, some sales channels have been closed due to the crisis, which in turn may lead to relocation effects.
Digitalization is more important than ever
A consumer survey on the topic of FMCG focused on a company’s touchpoints with its customers on various channels. What becomes clear is: In the Awareness and Information phases, customers primarily use the brand website to obtain information. In the consideration phase, however, independent test reports are preferred, and the purchase itself is then made on retailers’ websites.
In the after-sales phase, however, the brand’s website regains importance again: this is where inquiries are made to customer service when customers need support. The results show that cooperation between dealers and manufacturers is and remains essential. Both sides would benefit from sharing information and data about target groups. Not to be forgotten: The aforementioned, digital channels tend to reach a younger generation under 40, while older customers still use traditional contact and information options.
Top trend: sustainability and health
It’s a trend that’s been a long time in the making but has picked up speed once again due to the pandemic: Consumers are placing more and more value on sustainable products, regional sourcing of goods, and healthier lifestyles. Retailers are responding to this trend by increasingly listing products that meet these demands – other products inevitably have to make way for them and make room on the shelves. For the marketing of these consumer goods, this means: These topics need to be highlighted.
Tip: Show consumers where the products come from and what impact they have on the environment. And here too, listen to your customers, actively include their wishes and needs in product developments, and also work closely with retailers, as they are naturally often closer to the customer.
How FMCG companies responded in the short-term to the consequences of the pandemic
- Flexible staff scheduling due to employees’ absence caused by illness, and higher protection standards and safety margins. Many producers have to cancel shifts, while others operate on a rotating basis.
- Ensuring the availability of sufficient logistics capacity. Many producers have problems transporting their goods to the retail distribution centers on time and in sometimes increased quantities under appropriate conditions.
- Supply chain management: goods are rescheduled at short notice. Time and again, dependencies on individual ingredients or parts arise that block entire production processes and have to be resolved ad hoc to avoid a production standstill. In the non-food area, goods are canceled, returned, and talks are held with suppliers in order to negotiate other conditions and acceptance periods.
Summary
After the crisis, there will be a substantial reorganization of supply chains. This cannot be done in the short term. Here are the essential elements, as far as they are already visible today:
- Dual or multiple sourcing instead of single sourcing – procurement will be broadened. There will also be a shortening of supply chains.
- FMCG companies need to focus on their employees’ mental health in order to keep up with the changing demand for their products
- The increased build-up of safety stocks of critical precursors, especially for raw materials and goods that are only found in a few regions of the world.
- Making it as easy as possible for consumers to gather all the information they need is essential to company’s success in the future.
- The issue of sustainability should be considered in its entirety. For a world population that will exceed the 10 billion mark in a few decades, companies will need new utilization concepts for existing resources. Ideally, these will be implemented in combination via a merging of sustainability approaches and restructuring of supply chains.
Sources:
https://cnr.ncsu.edu/news/2020/05/coronavirus-toilet-paper-shortage/
https://www.kantar.com/inspiration/consumer/covid-19-led-to-$22-billion-fall-in-out-of-home-sales
https://www.euromonitor.com/the-impact-of-coronavirus-on-beauty-and-personal-care/report
