Grocery shopping patterns have changed considerably over the past year. Malachy O'Connor, director at Food First Consulting, examines how retailers have had to adapt. This article first appeared in ESM Issue 6 2020.
Prior to COVID-19, while it was often said that many consumers did their grocery shopping on autopilot, many others actually quite enjoyed the experience. They would meander around the store, taking in the sounds and smells, searching for deals, responding to promotional messages, and actively checking out new products.
Crucially, sometimes they would make purchasing decisions based on these stimuli. This was an ideal environment for launching new products and promoting existing ranges, prompting the impulse reactions on which FMCG brands are dependent, but the arrival of COVID-19 has resulted in a different type of shopping experience. These days, customers are much more deliberate in how they shop.
In this new era of social-distancing, grocery shopping can be an anxious experience that involves planning, queuing, sanitising your hands and wearing a mask. Shoppers might even need to use an app to book their slot. Once they get in store, the process is much more planned, with far less browsing, using a list, and getting in and out of the supermarket as quickly and as purposefully as possible.
Shoppers’ senses are bombarded by COVID messages, reminding them to keep their distance, stand here, walk there, and don’t stop to chat. There is so much noise for anxious shoppers, and this makes it hard for brands to stand out.
Many brands have pulled their planned spend on in-store POS activations and new-product launches, while retailers have universally banned tasting and sampling promotions. Most brands agree that innovation will be the key to recovering any ground lost during the pandemic.
Retailers know that new products are an essential part of their margin management plan, however, both retailers and suppliers have simplified their ranges, pulled back on NPD launches, and reduced promotional activity, instead focusing on maximising basic-range availability during these turbulent times.
The Challenge for NPD
I conducted some research with suppliers across both Ireland and Europe during summer 2020, and asked them about their intentions in relation to NPD and R&D. Some 69% of suppliers said that they were intending to spend and invest either the same or more money on NPD and R&D in the coming year. Innovation will be a key part of their strategies for coming out of the pandemic and boosting growth.
This new dynamic poses a real challenge for companies looking to launch new products or promote existing ranges. In the case of private-label NPD, once the product and the price are good enough, people should buy it, but branded NPD is a different scenario. Innovation is the lifeblood of brands, but this innovation needs engagement to hook the shopper’s attention and communicate the added values that justify its price proposition.
Creating that connection with the customer is very challenging in a pandemic shopping environment.
Standing Out From The Crowd
So, the challenge for brands, then, is how to make products stand out once they’re on the shelf – and how do you engage shoppers when you can’t do in-store sampling and you need your marketing collateral to cut through all the noise of COVID messages? A good place to start is by optimising the seven Ps.
If you’re launching NPD, it has to be unique, and it has to address a real consumer need. What this means is that you have to try to tick as many of the boxes around the big consumer trends at the moment. Does it deliver health for the consumer? Does it taste really interesting? Does it have a great provenance story? Is it convenient? Is it sustainable? If you are ticking all of those boxes and meeting a real need, then your NPD has a vastly improved chance from the start.
There are two basic things on which brands should focus: the availability and the quality of the product. Brand managers often ask themselves, “Why are my sales underperforming?” and the answer is poor on-shelf availability. Supply chain issues can lead to off-sales, and if the product is not on the shelf, then it definitely will not sell. One of the best ways to ensure success is to focus really closely on availability.
In terms of quality, once upon a time, brand managers used to talk about consumers ‘trading down’ to the private-label option, but private-label brand managers have made significant headway in convincing shoppers that the quality of private label is the same as that of brands, but with a significant price advantage.
Now the tables have turned, and the challenge for brand owners is to demonstrate a reason for shoppers to ‘trade up’ to a particular brand. The key differentiator is product quality, and successful brands know that they must maintain a quality advantage over the private-label option.
Thankfully, for brands, private-label buyers turn over at a much higher rate and are driven by constant demands for lower cost prices. This can lead to some short-term decisions around tweaking quality or ‘value engineering’. If successive private-label buyers gradually remove quality over time, then they create a gap between themselves and brands, especially if brands are actively improving their quality.
Price And Promotion
When you launch a product, you have to make choices regarding the retail price. Will a ‘high-low’ strategy benefit long-term sales development, especially when the ‘high’ is many multiples of the private-label equivalent? Is a ‘mid-low’ strategy more credible, and should discounts be activated in a more targeted fashion through a loyalty card system? Perhaps an EDLP approach will deliver your objectives.
Don’t forget that rounded price points will always speak value more than non-rounded. For example, a product flashed with €4 on the pack will always be more visually impactful than €4.29. You will always sell much higher volumes and make much better profits with a flashed, rounded price point than trying to squeeze the extra profit out of the slightly higher non-rounded option.
You’ve got to be really clear when you’re launching that you’ve got the right pack size, format and specification. This can be tested through home user trials and focus groups, but it really just requires brand managers to truly put themselves in the shoes of the end user, and not to compromise for the sake of production efficiency or margin on paper.
There is zero value in selecting a pack size that is too big, simply to achieve a lower price per kilo, especially if the excess product becomes in-home waste. Equally, the packaging has to function as intended. For example, there is no point highlighting that the pack is resealable if the film gauge is too low and tears when opened. Finally, pay close attention to sustainability considerations, i.e. reduce packaging without compromising the quality of the product. Create reusable packaging, and use recyclable, renewable and recycled materials, too.
Getting your product into a feature space is still a good thing to do to support your brand or your new launch. Customers may be very deliberate in how they shop these days, and they may work from a list, but they do still look at the featured spaces, like ends, coffin fridges, free-standing display units, and various other hot spots that different retailers have. Make sure that accessing these spaces is factored into your commercial proposition.
Of rapidly growing importance is the online ‘place’. How your brand is treated in the online store is hugely important. There is significant potential for retailers to enrich the online shopping experience. Even if the experience is not transactional, retailers like Lidl are showing how good social media can integrate with its Lidl Plus rewards app, to highlight new products and promotions.
Using basic point of sale at the shelf is also a good idea. Brands that are very cost-conscious at the moment are reducing their in-store activations. They’re not even trying to compete with all of the noise that’s been created by the COVID-19 messaging. This could be a great opportunity for a brand to cut through right now because so many brands have decided to de-invest in their in-store activations. As retailers pull back on COVID messaging, smart brands will be front and centre with POS activations.
The Future of New Product Launches
Retailers and brand owners must identify their target markets and communicate with them as effectively as possible. In the current environment, this will mean more digital communication, and there are some excellent examples of firms using tech solutions to create that essential shopper engagement.
LED screens are another effective way of catching the consumer’s eye and rising above the drab and depressing COVID messaging. Tesco Ireland recently implemented screens in its off-licence area, to highlight offers on its standard products and zero-alcohol ranges. Screens can also be created to bring the shelf edge to life.
Near-field communication (NFC) is a wireless technology that uses tiny radio transponders that can be attached to product packaging or point-of-sale material. When the NFC tag is detected by a reader – most likely a smartphone – this connection can be used to share personalised promotions that are time and location relevant.
Immersive media experiences are emerging as a new way to grab the attention of tech-savvy shoppers in a fast-emerging virtual world. For example, Treasury Wine Estates’ 19 Crimes brand was launched using augmented-reality videos, creating a ‘living wine label experience’ to tell the stories behind the products.
Product sampling in-store was previously one of the most effective ways of promoting the trial of new products, with a clear call to action delivering immediate sales results and some consumer feedback. In-store sampling is off the menu for now, but at-home sampling could be the next best thing.
There is no doubt that grocery shopping has changed. The pandemic has prompted, in the short term, a less engaging in-store experience and accelerated the move to online shopping, but bricks-and-mortar stores are still, by far, the largest channel in the grocery business.
With all of the additional costs of doing business in a pandemic, retailers will be keen to carefully manage their margins. That means balancing the mix of brands and private labels, commodities and innovation. So, it will be important to rediscover and double down on the good old basics of retailing, like price points, quality and availability, but there are also opportunities to harness new technologies, creating a truly omnichannel proposition. Any other course could lead to declining market share and declining profits.
Malachy O'Connor is a director at Food First Consulting, and partner, Ireland at IPLC Europe.
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Malachy O'Connor. Click subscribe to sign up to ESM: European Supermarket Magazine.