Changing Routes to Market and the Implications for Brands
Britain’s brands have done well during the COVID pandemic, according to a recent Nielsen survey, with 76 of the top 100 brands increasing their sales in 2020. But brands are having to adapt to significant changes in consumer, retail, and online buying and selling behaviour. These changes were discussed at a recent British Brands Group web meeting “Changing Routes to Market and the Implications for Brands”, the first of two in the series Don’t Panic: How Brands Can Thrive in Chaos.
Reduced product ranges in-store
How the markets for brands have changed is complicated, said the meeting’s host Adam Leyland, Editor of The Grocer. “We know that the world has changed forever,” he said, “but we don’t know how much of the new normal is permanently normal, and how much is temporarily normal. And we don’t even know what normal is!”
One area where the pandemic saw substantial changes at retail outlets was in a reduction of the number of product SKUs (stock keeping units, aka product range) that retailers maintained at their supermarkets. Studies done by Nick Theodore, Founder and CEO of Virtual Store Trials, discovered what he called an ‘unpopular fact’: Shoppers actually like these range reductions.
“On average we were looking at about 20% reduction in SKUs across the lines of Tesco and ASDA last year,” said Theodore. “We saw some really interesting average findings across these, which was a 7% sales increase and a 5% faster shopping trip. There were real commercial benefits in reducing SKUs, given that shoppers were actually picking up more items and trading up when they saw fewer items available,” he said.
Working with retailers to get good shelf layout, and communicating a future vision for their SKUs backed up by data and insights, are key steps that brands need to take to maintain visibility in these new times of smaller in-store product ranges. “I think retailers react well when you openly target your own range first,” said Sarah Hepworth, Head of Sales – eCommerce for Dr Oetker. “It’s really holding yourself to account that your product has got a point of difference, or will attract a different shopper, or whatever it is.”
Online opportunities and challenges
Online shopping has boomed during the COVID pandemic, in what independent analyst Benedict Evans called ‘five years of growth in one year’. Online grocery retailing doubled from a fairly low base of 5% to 10% last year. Online non-grocery retailing, what Evans calls ‘truck retail’, went from 10% to 50% last year. The different customer experience and logistics involved in online retailing have produced a number of changes and new issues for brands and retailers to deal with:
- Increased logistics and marketing costs. “If you sell online and save all this money on rent, half of this money goes on the treadmill of faster and faster delivery and on returns—a third of your sales might be returns—and the other half goes on marketing, telling your customer that the product exists,” said Evans.
- New online sales options. Amazon remains very popular (at least for non-food retailing), but the relatively new online platform Shopify has appeared, providing tools for any brand or company to build its own online store fairly cheaply and easily. Shopify’s gross market value grew to about $120 billion last year, about 40% of the value of Amazon Marketplace.
- Growth in on-demand delivery (‘ODD’). The area of rapid pickup and delivery of grocery, restaurant, and other consumer retail orders has also been growing quickly. Trendsetters like Deliveroo and Uber Eats, as well as the large grocery delivery players including Ocado, Tesco, and Sainsbury’s, are being joined by some new small ODD players, including Getir, Gorillas, ASAP and others.
- Diversification of supermarkets. “The shift of business to online is eroding the base of sales that can go through the stores,” said Alan Giles of Saïd Business School. This has resulted in some major supermarkets including ASDA, Sainsbury’s, and Tesco “experimenting with trying to fill parts of their store space by bringing in arguably complimentary retailers like AO.com, Accessorize, and Decathlon”.
Will online retailing remain as strong once the pandemic is over? There are some indications in Virtual Store Trials’ research that it may not. According to Nick Theodore, his company surveyed nearly 30,000 people over the past six months to ask if they were shopping online, what their plan was at the moment, and how that might be changing. “At the moment, over 50% of people are saying that they are going to reduce or stop the purchasing of online grocery over the coming year,” reported Theodore.
Alan Giles agreed that there would be some movement of consumer behaviour away from online grocery shopping after the pandemic, down to perhaps 7-8% of grocery retail, but that this would grow back to about 11-12% by 2025.
Obviously some of this is COVID-dependent, said Theodore, but online retailing also has an ‘experience problem’—purchasing things by seeing little thumbnails on a screen can be quite a jarring experience for people; the grocers need to do a better job with their online experience.
Business and product sustainability is a very important objective for brands, but new research by Virtual Store Trials indicates that it is not a major factor in consumer’s on-the-spot purchasing decisions. Less than 4% of consumers in this study reported that they switched brands for sustainability reasons, reported Theodore. On the other hand, more than 60% of shoppers said that ‘good value’ was their primary driver of purchasing.
Sustainability is “very much a hygiene factor for people picking a brand, but it is less on the important side for shoppers,” said Theodore. “By that, I mean, people actually in a store, actually browsing a website, when you are stood in front of the pet food category, for example, you are not thinking ‘I need to find the most sustainable option here’.”
Most shoppers claim that the most important factors in their purchase decisions are price, value, promotions, their favourite brands, their favourite taste, and the like. “Sustainability is the right thing to be doing,” according to Theodore, “but focussing on the stuff that’s important to shoppers is what is important to put on the packaging.”
More on the Group and its online events supporting the Museum of Brands
The full recording of this first online event in support of the Museum can be viewed on the Group’s YouTube channel here. If you would like to join the second part, “Changing Lives, Changing Behaviour: Implications for Brands” on 23 June at 15:00 BST, you can register for the event here.
The Group focuses on ensuring the climate for brands in the UK fosters vigorous, fair competition, with companies encouraged to build their reputations and shoppers able to make reliable, accurate choices at speed. Policies around the regulation of e-commerce markets and the operation of algorithms are just some of the recent topics on which the Group has intervened.