COVID-19 has had a tremendous business impact across the CPG landscape. Seemingly overnight the competitive landscape shifted. Faced with concerns about quality and safety, consumers returned to long-established brands. Some brands even exploded after restaurant demand evaporated overnight. This left major companies with an interesting operational decision. For years, CPG companies expanded and structured themselves to deliver unlimited choice for consumers—trying desperately to capture the ever-changing preferences. In the midst of unprecedented demand and uncertainty, retail partners are overwhelmed, preferring to stock safe SKUs—not experiment.
I’ve written before about how small CPG firms that focused on foodservice were forced to transition to retail and the uncertain results that follow.
Internet or direct-to-consumers is always trotted out as the silver bullet for struggling companies in the coronavirus era. It’s basically the business version of telling unemployed people to ‘learn to code.’ It’s an unserious idea for a structural issue.
Food service involves selling and delivering one fifty-pound bag of coffee to one customer, retail involves selling fifty one pound bags to fifty customers. They have entirely different cost structures and operations.
But what about the largest CPG companies? They have the resources to pivot on a dime. I combed the largest CPG firm’s public statements to understand the business impact of COVID-19.
|Nestlé||Larger Pack Sizes||“The other one, while still early days, that we saw, is an interest in larger pack sizes. That’s also not surprising when people spend more time at home, rather than consuming lots of small packs, they rather buy fewer large packs. As I said, our strategic business units are now working overtime to really understand, not only in light of the health care crisis, but also the economic pressure, what that means for each of our categories. To me,that is super interesting work because clearly this is not going to be a quick recovery. This is going to be several-quarter, if not several-year kind of process, where it is safe to expect some changed category dynamics. We want to recognize those early and adapt to those early and be a leader when it comes to those trends.”|
|Proctor and Gamble||SKU Rationalization||“Increased demand has focused retailers on the core SKUs that drives the business. There is potential for this to result in a cutting of the long tail of inefficient SKUs and brands in our categories. We’re discovering daily lower cost ways of working with fewer resources. Today’s necessity birthing the productivity intentions of tomorrow. New digital tools are being brought to the forefront, providing another productivity rocket booster on the factory floor and in the office environment.”|
|Pepsi||SKU Rationalization, Delivery Adjustments||“We’ve made some choices in our supply chain to — we’ve reduced some of the tail of our portfolio. We’ve discussed that with our partners, retail partners. And we both agreed that it’s probably the best thing to do, to eliminate the less — let’s say, the smaller SKUs in the portfolio to maximize the best-selling SKUs and be in stock. As I said earlier, our DSD system, I think, is a fundamental advantage in the way we’re able to service our customers. And I think they appreciate that, that we’ve made the effort, adjusting delivery schedules and increasing delivery schedules to make sure that we keep our brands in stock and we help, obviously, our partners.”|
|Unilever||SKU Rationalization||“The first test of this theory came early in the pandemic when demand for Unilever’s more essential products, such as cleaning supplies, shot up 600% in some cases. To deliver, the company converted production lines and reduced the number of total SKUs it produced by 65%.”|
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