COVID-19 Retailers and CPGs adaptations to shifting consumer behavior - February 2021 - ASP Events
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COVID-19 Retailers and CPGs adaptations to shifting consumer behavior February 2021
Your presenters today
Romain Deleforge Alden Skidd
Partner, Consumer Products Partner, Business Services
STK 210121 Clarion Workshop vfpptx 2
AGENDA
How have consumer behaviour evolved ?
How are successful retailers adapting ?
Key messages
Uncertainty has Consumer Some trends Other trends Winning CPGs
led to a sense reluctance to will have have yet to be will embrace
of disruption re-engage in sustained determined – innovation and
and anxiety pre-COVID impact on whether they learnings from
among activities consumer are permanently COVID to meet
consumers persists behavior going altered or will evolving
forward bounce back consumer
needs
STK 210121 Clarion Workshop vfpptx 4
Generational differences exist: young are people are more comfortable
THE RELUCTANT CONSUMER E U AV E R AG E
How comfortable were you doing each of the following activities? (for those who had done activities)
How comfortable would you be doing each of the following activities tomorrow? (for those who hadn’t done activities)
Generation Taking a trip outside country
Taking a trip within my country
Travel / Transit
Flying on an airplane
Boomers
Staying in a hotel
Using public transit
Taking a taxi/ride share
Gen X Attending class/university
Mass social
Working from office
Attending large social event
Millennials Going to a concert
Going to a movie theatre
Small social
Working out at gym/studio
Eating inside at restaurant
Gen Z
Outside at restaurant
-80% 80%
Non essential appointment
Net Comfort Score
Retail
Note: Net Comfort Score calculated as Other shopping in person
(% respondents that answered 4 – Very comfortable or 5 – Extremely comfortable) – (% respondents that answered 1 – Not at all comfortable or 2 – A little comfortable) to ‘How comfortable were you
doing each of the following activities?’ (for those that had done activities) or ‘How comfortable would you be doing each of the following activities tomorrow?’ (for those that hadn’t done activities)
Source: Bain EMEA COVID-19 Consumer/Shopper Survey, powered by Dynata, Wave 1, May 2020, N=7,564; Wave 2, Mid July 2020, N=7,826; Wave 3, Mid October, N=9,982 Grocery shopping in person
STK 210121 Clarion Workshop vfpptx 5
COVID has created new consumer ‘laws of gravity’
M O R E E S TA B L I S H E D ‘ L A W S O F G R AV I T Y ’
Focus On Health
Shift To At-home Step Change In Online Redefinition Of Value
& Wellness
Reallocation of consumer time and Increased adoption and use of Emphasis on physical/mental Increasingly varied and diverse
spending away from out-of-home digital/online platforms wellness and healthy eating consumers perceptions of value
Trend represents a continuation/acceleration of pre-COVID shifts Trend represents a reversal of pre-COVID shifts No consensus yet on the direction/impact of this trend
STK 210121 Clarion Workshop vfpptx 6
COVID has created new consumer ‘laws of gravity’
More established ‘laws of gravity’
Focus On Health
Shift To At-home Step Change In Online Redefinition Of Value
& Wellness
Reallocation of consumer time and Increased adoption and use of Emphasis on physical/mental Increasingly varied and diverse
spending away from out-of-home digital/online platforms wellness and healthy eating consumers perceptions of value
Trend represents a continuation/acceleration of pre-COVID shifts Trend represents a reversal of pre-COVID shifts No consensus yet on the direction/impact of this trend
STK 210121 Clarion Workshop vfpptx 7
As we enter a ‘new normal,’ 4 key factors will influence the speed and the degree to
which spend returns to OOH
SHIFT TO AT- H O M E
1 2 3 4
Level of out-of- Investment required Substitutability of Ease and frequency
home reluctance to do activity at home out-of-home experience of activity at-home
How easy is the activity to do Is it expensive to do the activity What restrictions are in place, Are consumers comfortable
at-home? at home? Is it worth it? and do they alter the OOH doing the activity OOH?
Has it been done frequently experience? Is the need worth the risk to the
enough at-home that it has How does the at-home consumer?
become a habit? experience compare?
Food Alcohol Beauty Entertainment Fitness
Potential to rebound but Likely to remain at-home Likely to rebound to out- Likely to remain mostly at- Likely to vary by
likely to remain at-home for older cohorts, but of-home for more home for the foreseeable consumer cohort and
in medium term rebound to OOH for “essential” services (e.g. future type of activity
younger Hair treatments)
Consumer perceptions on ease, investment, substitutability, reluctance also vary significantly by demographic
STK 210121 Clarion Workshop vfpptx 8
OOH spend on food has been significantly impacted
SHIFT TO AT- H O M E FOOD
Supply: High share of % change of restaurants reservations and walk-ins Oct 2020
restaurants and bars closed
37% 25% First
lockdown
Second
phase of
YoY sales down at 7,000 chain of UK restaurants never re- restrictions
outlets in the UK by 1st October opened after the first
after 10pm limit imposed lockdown
Demand: Consumer spend shifted away
from on-trade, beyond supply constraints
24% -11%
of consumers mention that they Net Comfort Score for eating
will be eating out less in the or drinking inside at a bar /
future to save money and restaurant still low, although
because they are worried up slightly from -24% in July
about hygiene respectively
Source: The Guardian; Yelp; BusinessInsider; OpenTable, State of Industry; Bain EMEA COVID-19 Consumer/Shopper Survey, powered by Dynata, Wave 2 = Mid July 2020, N=7,826; Wave 3 = Mid October 2020, N=9,982
STK 210121 Clarion Workshop vfpptx 9
CPGs reacted by bringing the out-of-home experience into the home
SHIFT TO AT- H O M E BEAUTY
Shifting marketing spending Innovating to improve at-home
toward at-home occasions consumption Restaurants expanding into CPG
BirdsEye shifting marketing spend to at- Nestle introduced new Life Cuisine meal Shake shack is partnering with online
home occasions with new “So, what’s for solution brand in US as a convenient way marketplace Goldbelly to launch
Tea?” campaign, offering ‘life hacks’ to to explore new cuisines, catering to four ShackBurger meal kits
entertain families and provide dinner ideas consumer preferences: low carb lifestyle,
and recipe tips high protein, meatless and gluten free. “The ready-to-cook boxes will be available
for nationwide shipping and contain all the
ingredients needed to recreate the chain’s
signature burger at home.”
Source: Lit. search
STK 210121 Clarion Workshop vfpptx 10COVID has created new consumer ‘laws of gravity’
M O R E E S TA B L I S H E D ‘ L A W S O F G R AV I T Y ’
Focus On Health
Shift To At-home Step Change In Online Redefinition Of Value
& Wellness
Reallocation of consumer time and Increased adoption and use of Emphasis on physical/mental Increasingly varied and diverse
spending away from out-of-home digital/online platforms wellness and healthy eating consumers perceptions of value
Trend represents a continuation/acceleration of pre-COVID shifts Trend represents a reversal of pre-COVID shifts No consensus yet on the direction/impact of this trend
STK 210121 Clarion Workshop vfpptx 11Consumers are online more than ever before and substituting physical experiences
with digital platforms
STEP CHANGE IN DIGITAL
E U AV E R AG E
Net % respondents doing this activity more than before covid-19
Streaming content (October 2020)
83% +23M
26-35 year olds in the UK subscribed New subscribers to Disney Plus over
to online streaming services in June the course of Q2 and Q3 2020
2020 vs 75% in January 2020
Health/medicine
1.2M
Teleconsultations in France in
+115%
YoY growth in remote medical
September 2020 vs. 40K in February consultations in Italy in October
2020 2020, with -34% Face to Face
consultations
Fitness
46% 16%
MindBody users planning to return to Of gym goers in the UK have
Note: Net respondents calculated as (% using for the first time/using more - % using less/stopped using)
prior workout habits will include a cancelled their membership; and Source: Bain EMEA COVID-19 Consumer/Shopper Survey, powered by Dynata Wave 3 = Mid October 2020, N=9,982;
virtual aspect1 40% of them do not intend to go back Grabyo At Home Video Trends Consumer Survey (N=2,000); MindBody Survey; TechCrunch; IQVIA, Covid-19 tracker;
RunRepeat
STK 210121 Clarion Workshop vfpptx 12STK 210121 Clarion Workshop vfpptx 13
14Accelerated eCommerce grocery penetration in Western Europe will likely have
lasting impacts long after the crisis
STEP CHANGE IN DIGITAL WESTERN EUROPE
COVID has accelerated eCommerce grocery penetration… …with significant long-term implications
Growth highly-dependent on whether grocers choose to
scale up* fulfillment capacity to meet demand ~3-4 year
acceleration of eCommerce in 2020 alone
compared to pre-COVID expectations
(at its peak, online penetration reached levels not expected
Mid-April surge A second wave spike until well after 2025)
to ~7.4% would be another ~1-2
years acceleration
up to ~1.4x
Initial spike
to ~6.7% increase in demand / capacity requirements
by 2023 compared to pre-COVID levels
up to ~1.5x
maximum expected increase in
eCommerce penetration in 2025
compared to pre-COVID forecasted
Note: *Some grocers have chosen to not scale up capacity to meet demand because it is unprofitable. Penetration and growth values calculated by taking a straight-line average of UK, France, Germany, and Italy values
Source: Nielsen, Kantar, Forrester, Bain analysis
STK 210121 Clarion Workshop vfpptx 14CPGs have prioritized online/D2C initiatives and digital marketing efforts
STEP CHANGE IN DIGITAL
Shifting product launches from physical retail to
Launching new D2C platforms
online/D2C
launched two new D2C launched frozen
platforms in response to increasing demand smoothie brand Ruckus & Co. via
during the pandemic online D2C
– Snacks.com features 100+ Frito-Lay products “We were hoping to be into a broader
– PantryShop.com sells PepsiCo brands from 7 regional launch by back-to-school
categories season, and we had to rethink that.”
Increasing digital marketing budget Replicating in-store experiences digitally
has increased share of marketing rolled out an AR
spend going towards digital channels from 50% to tool on its e-commerce sites so
70% since the start of the pandemic consumers can ‘try on’ beauty products
before purchasing
– Ecommerce now accounts for 20% of the company’s sales
– The company is hoping its AR efforts
can be used to boost omnichannel sales
moving forward
Source: Lit. search
STK 210121 Clarion Workshop vfpptx 15COVID has created new consumer ‘laws of gravity’
M O R E E S TA B L I S H E D ‘ L A W S O F G R AV I T Y ’
Focus On Health
Shift To At-home Step Change In Online Redefinition Of Value
& Wellness
Reallocation of consumer time and Increased adoption and use of Emphasis on physical/mental Increasingly varied and diverse
spending away from out-of-home digital/online platforms wellness and healthy eating consumers perceptions of value
Trend represents a continuation/acceleration of pre-COVID shifts Trend represents a reversal of pre-COVID shifts No consensus yet on the direction/impact of this trend
STK 210121 Clarion Workshop vfpptx 16CPGs are promoting health and wellness in their products
FOCUS ON HEALTH
Expanding/launching plant-based products Developing/launching ‘better for you’ products
is debuting is launching new ‘No
plant-based chicken Sugar Added’ and ‘Added Protein’
lines of its Skippy peanut butter
is entering the space via
private label plant-based burger patties launches
animal-free dairy protein line based
on animal-free whey protein
Has launched Gardein,
plant-based patties and ready meals
Adapting marketing to emphasize health and wellness Investing in/acquiring health-focused brands
is upping its ‘This acquired a majority stake
is Clean’ marketing message during in vegan ice-cream brand Coconut Bliss
the COVID pandemic to promote its
natural/sustainable household
products “The brands will also continue their mission
to use ‘ethical, sustainable and non-
exploitative processes’ to produce clean,
organic products for consumers.”
Source: Lit. search
STK 210121 Clarion Workshop vfpptx 17COVID has created new consumer ‘laws of gravity’
M O R E E S TA B L I S H E D ‘ L A W S O F G R AV I T Y ’
Focus On Health
Shift To At-home Step Change In Online Redefinition Of Value
& Wellness
Reallocation of consumer time and Increased adoption and use of Emphasis on physical/mental Increasingly varied and diverse
spending away from out-of-home digital/online platforms wellness and healthy eating consumers perceptions of value
Trend represents a continuation/acceleration of pre-COVID shifts Trend represents a reversal of pre-COVID shifts No consensus yet on the direction/impact of this trend
STK 210121 Clarion Workshop vfpptx 18COVID has had an impact on many consumers’ finances, but the effect has
not been universally negative or positive
REDEFINITION OF VALUE
Expect financial impact from Cite no impact to their
79% COVID-19 60% employment status
Have seen a reduction in Have had no impact to HH
30% household income due to the 65% income
pandemic
Very or extremely worried Have limited worry about the
45% about the economy due to 26% economy
COVID-19
Have cut back on spending Have not cut back on
39% for financial reasons 31% spending
Source: Bain EMEA COVID-19 Consumer/Shopper Survey, powered by Dynata, Wave 3, Mid October, N=9,982
STK 210121 Clarion Workshop vfpptx 19Consumers are seeking out value in four main ways: private label, new brands,
larger pack sizes, and different channels
REDEFINITION OF VALUE
Private label New brands Larger pack sizes Different channels
20% 16% 18% 69%
Of total shoppers are buying more Of total shoppers tried a new Of total shoppers purchased a Of total shoppers purchased
private label in the past 4 weeks, brand in the past 4 weeks larger pack size than they groceries at a discount store in
and 15% will buy more in the typically buy in the past 4 weeks the past 4 weeks, 12% will buy more
future in the future
Top 5 categories1 by PL market share Consumers’ top reasons for trying a Top 5 categories of products that Top 5 reasons given for planning to shop
change (Last 4 weeks ending September new brand in the last 4 weeks consumers bought in a larger pack size at discounters more in the future
6 vs. first 4 weeks of 2020)
Note: Consumer survey responses reflect overall averages across categories (questions asked at the category level); (1) Excludes outlier categories Pate / FoieGras, Smoked Fish and Shoe Care.
Source: Bain US COVID-19 Consumer/Shopper Survey, powered by Dynata; Mid October, N=9,982; IRI; Nielsen data for UK, France, Germany and Italy, September 2020
STK 210121 Clarion Workshop vfpptx 20CPGs have adapted by expanding into new price segments and adding value based
on consumer needs
REDEFINITION OF VALUE
Premium/mainstream brands Va l u e / m a i n s t r e a m b r a n d s g e t t i n g
Adding value via convenience
e x p a n d i n g i n t o Va l u e into Premium
Plant-based protein company has debuted premium salad kits has introduced Jack Daniel’s
is launching larger value starting at $3.99 (~1.5x its basic salad kits) Canned Cocktails to cater to consumers’
packs which feature aggressive price points of due to increased demand for premium healthy desire for convenience, while bringing the bar
$1.59 per ‘burger’ products during COVID-19 experience to consumers’ homes
Source: Lit. search
STK 210121 Clarion Workshop vfpptx 21Questions for brainstorm
• How will those 4 lasting trends impact the B2B
interactions?
• Have you witnesses any actions from your clients to
address them (in particular Digital shift, and merging of
social and commerce) ?
• Can you think of historical events that have changed
consumer behaviour in a similar way in the past ?
What can be learnt from it ?
STK 210121 Clarion Workshop vfpptx 22COVID has also brought forth several consumer trends which are yet to be proven
‘THE JURY IS STILL OUT’ – POTENTIAL TRENDS
Departure From vs. Sustainability Urbanization vs.
Local vs. Big Brands
Return To Science vs. Safety De-urbanization
Will consumers continue to buy Will COVID increase consumers’ Will consumers prioritize safety Will suburban/rural areas see a
big brands they trust or revert to trust in science, or their at the cost of the environment, surge in growth, or will mobility
local brands they want to support? skepticism? or not? remain ‘normal?’
Trend represents a continuation/acceleration of pre-COVID shifts Trend represents a reversal of pre-COVID shifts No consensus yet on the direction/impact of this trend
STK 210121 Clarion Workshop vfpptx 23Questions for brainstorm
• What do you think will be the factors that might
influence if those behavioural change will stick?
• How do you think those trends will affect the B2B
world ? (depending on which way they go)
• Regarding big brands vs. local: in your respective
businesses have you experienced a shift in
consumer trust ?
STK 210121 Clarion Workshop vfpptx 24AGENDA
How have consumer behaviour evolved ?
How are successful retailers adapting ?We have collected examples of Retailer COVID response actions: ‘Act Now’ focuses
on the very-short term, today’s focus is on the more strategic ‘Plan Now’
COVID I N I T I AT I V E S
Act Now to protect
Plan Now to retool the business for the future
and run the business today
Protect the business and Accelerate Retool
Ensure continuity through recovery for the new world
STK 210121 Clarion Workshop vfpptx 26A wide variety of COVID initiatives have been put in place by retailers to quickly
recover, primarily by emphasising digital & innovation, and prioritizing health & safety
COVID I N I T I AT I V E S
Most frequent* Accelerate through recovery Less frequent
Marketing and Financial
Accelerate Revise strategic support support to Reducing
digital & Health and blueprint and customers in employees & complexity and
innovate swiftly safety above all operating model crisis ecosystem local focus
WhatsApp Starbucks: Introduced Launched Bonuses to all More store
ordering requires all small ‘Health at employees space to local
functionality customers to Decathlon home’ ($130m) offerings
wear masks corners campaign
Roll-out of Divesting 121 Freezed
Kroger: Taking Largest pay Focused on
digital queuing stores, private label
lead on Covid increase in top SKU’s to
app refocusing on prices
testing in US company simplify
E-commerce operations
history
Free virtual
Launched Walmart: Expanding workshops
100% digital Extending Sr. further into EU addressing
supermarket shopping hour Sourced locally
as crisis lockdown- Expand sick
indefinitely provides related health pay to more
opportunity issues gig workers
Accelerated
Omni –store Automated
inventory by customer Leveraged at- Dedicated Purchased
RFID ensuring counting home fitness website with directly from
2nd Covid-
accuracy system trend to drive food boxers farmers &
related bonus
growth for elderly donated to
shoppers food banks
STK 210121 Clarion Workshop vfpptx 276 imperatives are emerging for Retailers in retooling for a post-crisis new “Normal”
COVID I N I T I AT I V E S
Most frequent Retool for the new world Less frequent
Revisit your Shred Accelerate Crystalize the
Re-invent your asset base & complexity in participation in new pace of
consumer value make online anything and open innovation & Be your own
proposition profitable everything ecosystems decision-making activist
Sold raw Accelerated Doubling- LaunchedZooming in on “best” practices for retailers; e.g. Walmart, IKEA, and Amazon stand
out, as they have been able to also focus on the longer-term strategic horizon
CASES EXAMPLES
• Walmart swiftly developed • Ikea accelerated online • Tesco’s earlier investments in • Amazon’s internal response to
Omni-channel offering, e.g. channel, incl. click & collect and online and fulfilment capacity the crises prompted critique –
curbside pick up, click & collect, Omni-channel – while looking for paid off – but Covid accelerated but they swiftly implemented
and faster home deliveries strategic acquisitions this trend substantially several mitigating/growth
initiatives
STK 210121 Clarion Workshop vfpptx 29Walmart able to reinforce position as one of the pandemic’s corporate
winners by swiftly ramping up their Omni-channel offering
CASES WALMART
Walmart able to sustain positive financial … and has reinforced position as one of the corporate winners
trajectory, even throughout the pandemic… from the pandemic esp. by ramping up Omni-channel
• Performance partly driven by increasing E-commerce • Walmart significantly ramped up their Omni-channel offerings (e.g.
share (e.g. US online grew ~80% Oct. ’19-’20) and to curbside pick up, buy online pick up in store, faster home deliveries, and
some degree an effect of US gov. stimulus funds fulfilment at stores etc.)
• Other ‘plan now’ strategic initiatives includes e.g.:
– In April 2020, introduced Express delivery which gives customers guaranteed 2-hour
delivery for an additional $10
– Signed deals with 3 drone operators to test applicability for on-demand deliveries
– Announced partnership to turn 160 of its parking lots in to drive-in movie theaters
Note: Walmart’s fiscal year ends Jan 31st , hence, ’21 quarterly performance best proxy for COVID impact
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 30Walmart implemented a range of different initiatives, including e.g.
revisiting their asset base and re-inventing customer value prop
CASES WALMART NOT EXHAUSTIVE
Accelerate Accelerate digital & (May 19): Added Walmart grocery to Walmart app enabling customers to shop for grocery
innovate swiftly and non-grocery via a single app
through
recovery (May 25): Implemented web scheduling system to help customers reserve a timeslot for
Health and safety above all
shopping, they can skip the queue and enter the store during that time
Retool for (Apr 30): Started offering Express Delivery service that offers 2-hour delivery for a $10
the new Re-invent your consumer charge, plans to hire new employees specifically for this service
world value proposition
(Jul 1): Announced partnership with Tribeca Enterprises to turn 160 of its parking lots into
drive-in movie theaters
(Oct 29): Turning four of its stores into e-commerce laboratories
Revisit your asset base &
make online profitable
(Nov 24): Rolled out shoppable streaming content with media company Tastemade
Accelerate participation in (May 7): Partnered with Tidal to offer exclusive Tidal membership to Walmart.com
open ecosystems shoppers with select purchases
Be your own activist (Jul 14): Led $1.2B investment in Flipkart
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 31IKEA managed to almost keep their top-line flat even though ~75% of stores
closed during Covid peak in April; largely due to swift online/Omni refocus
CASES IKEA
Regardless of substantial store closure, Ikea This has been partly due to inherent furniture tailwinds, but also
managed to almost keep their top-line flat substantial ability to look and plan ahead i.e. Omni-channel
• At the peak of Covid-19 in April, almost ~75% of Ikea’s • Despite store closures, many stores fulfilled online orders and introduced
stores were closed, on avg. for 7 weeks each new services, E-com sales share hit ~16% in FY20 up from ~5% in FY18
– In combination with tailwinds from lock-downs; people want to improve homes as
they’re there more than ever
• ‘Plan now’ strategic initiatives includes e.g.:
– Acquired Geomagical Labs to accelerate augmented reality/ 3D furniture
visualization
– Launched and scaled new Omni-channel solutions, such as contactless Click &
Collect
– Scanning for US dept. stores to convert – stating that now is a buyers market to
enter inner-city real estate
Note: IKEA’s fiscal year ends Aug. 31st 2020
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 32IKEA focused on accelerating Omni-channel and analytics offering – while on
the look-out for strategically important acquisitions
CASES WALMART NOT EXHAUSTIVE
Accelerate Accelerate digital & (Throughout 2020): Transformed its data analytics capabilities by leveraging AI and ML
through innovate swiftly across business areas to better understand customer needs
recovery
(Apr 24): Announced China visitor numbers back to 70-80% of the levels from a year ago;
Health and safety above all
Ikea Macao is only open for those who register online for a time slot (no walk ins)
Retool for Re-invent your consumer (Throughout 2020): Launched and scaled new Omni-channel functions, such as
the new value proposition contactless Click & Collect services
world
Revisit your asset base & (May 11): Launched first small-store concept in Asia, store will be organised in a new way,
make online profitable combining everything into one dept., making it easy for customers to shop
(Apr 2): Acquired Geomagical Labs to accelerate augmented reality and 3D furniture
visualization
Be your own activist
(May 14): Looking to acquire inner-city real estate in major US cities as its shopping mall
business is looking to enter US – company thinks it’s a buyer’s market and are looking for old
department stores etc. to convert
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 33Tesco had been investing in its online capabilities and fulfilment capacity
for the past years, but Covid accelerated this trend
CASES TESCO
Tesco was somewhat prepared for E-com shift, … but Covid accelerated the development of Tesco’s e-
as they had invested in online for years… commerce capabilities substantially
Tesco delivered strong sales in
Number of online delivery slots the face of pandemic e.g. • Tesco responded quickly during the 1st lockdown and more than doubled
(Thousand slots, 2020) ~10.5% growth in L12 weeks to their online capacity – also went strong on hiring new staff in times where
Sep. 6th (deep dive next page) many were getting furloughed (to create ~16k new jobs for online business)
“In just five weeks, we doubled our online capacity to help support our
most vulnerable customers and transformed our stores with extensive
social distancing measures so that everyone who was able to shop in
store could do so safely… ”
% share of online sales (2019 vs 2020) David Lewis, CEO, Jun’20
+1 million 1st UK retailer to fulfil more than 1 million online
grocery orders in a week during lockdown
online customers per week vs, 600k at the start of
+1.5 million the crisis
Online sales (2019 vs 2020F)
~16% online sales vs. 9% before the pandemic
~£5.5B online sales expected to jump two-thirds in 2020 vs. £3.3B
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 34Tesco has been able to leverage its technology and online presence to
garner higher share of customer’s wallet during Covid
CASES TESCO
• During the initial weeks of the pandemic, significant panic buying (~30% uplift in the UK) Commentary:
cleared the supply chain of certain items.1Q FY21 results showed the impact of panic
buying in terms on increased sales: • In the long term, we expect
– Sales at convenience stores grew by 9.9% as customers looked closer to home for bigger baskets of
essential food
supermarket chains with well-
Increase in – Transactions in large stores declined by 33% while basket sizes grew by 57%, as customers reverted to a entrenched online platforms,
Basket size bigger weekly shop such as Tesco, to regain some
market share from hard
• Tesco’s online business grew from 9% in week 1 to 16% in week 13 (of 1Q FY21) of their total UK discounters (such as Lidl and
sales, driven by rising demand for home delivery during Covid-19 lockdown Aldi) given their lack of online
• The company has more than doubled its online capacity and increased delivery slots to more than presence, although their
1.3M compared to 0.6M in a span of 5 weeks continuing focus on low prices
• Given the demand, company anticipate online sales in UK to be at least £5.5B in FY21, up from and ruthless cost management
Increase in
£3.3B in FY20 will still be a competitive
Online
sales • Company plans to establish at least 25 urban fulfilment centres in the UK, to drive its growth in advantage”
online grocery deliveries, which accounts for 16% of its total sales. The flexibility of the online model, dddddddd- Fitch Ratings, Sep’20
with very low capex, is a distinctive competitive advantage. The company’s first fulfilment centre in
West Bromwich is likely to open by end of 2020
• Tesco’s investments in loyalty and technology has also paid off. As Covid accelerated the adoption of
contactless payment, Tesco’s loyalty subscription service- ClubCard Plus, showed growth with 72%
of payments made by card in 1Q FY21 versus 61% in Q1 last year
– Tesco increased its contactless limit from £30 to £45 in Apr’20
Contactless – Furthermore, customers increased use of Tesco Pay Plus – mobile payment service, which allows contactless payments up
to £250
Payment
Source: Annual report; Investor presentations; Thomson one; Lit Search; Bain analysis
STK 210121 Clarion Workshop vfpptx 35Tesco introduced several mitigation initiatives, ensuring support to
employees – but more so accelerated retooling for the new world
CASES TESCO NOT EXHAUSTIVE
Accelerate Financial support to (Mar 26): Financial support for the most vulnerable employees (e.g. over 70 years old,
through employees & ecosystem pregnant women) by allowing them to take 10 weeks of paid leave
recovery
(Apr 22): Offer of a well-being support platform for all employees (Headspace and
Health and safety above all
Silvercloud)
Reducing complexity and (Apr 23): Reduction of assortments to Top SKU's to simplify operational management and
local focus guarantee the level of service (e.g. reduction from 33 to 10 SKU's for the toilet paper range)
Revise strategic blueprint (Apr 28): Reported to have started laying off first wave of temp workers hired to help with
and operating model the demand surge
Retool for (Apr 24): Customer journey redesign (e.g. adaptation of car parks for waiting in vehicles,
the new one-way aisles in stores)
Re-invent your consumer
world value proposition
(May 28): Introducing 3D Body Imaging to track the number of people in store for social
distancing purposes, and signal when it’s appropriate to enter
Revisit your asset base & (Apr 29): Delivered over 1 million online orders in the prior week, first UK retailer to
make online profitable achieve milestone, aiming to expand weekly capacity to 1.2 million, 2x pre-crisis capacity
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 36Amazon’s e-commerce sales growth has lagged mass merchandize peers
during the crisis, partially as a result of several challenges
CASES AMAZON US O N LY
Amazon’s growth
is off of a much
larger base of
2019 GMV
Note: E-commerce growth shown reflects a representative sample set of customers; Amazon online sales do not include Amazon Fresh, Prime Now, Prime video, or Prime membership revenue
Source: Pyxis; Morgan Stanley; Company annual reports
STK 210121 Clarion Workshop vfpptx 37Amazon’s proposed $4B COVID-19 response included some additional worker
protections; majority was allocated to new hires and short-term hazard pay
CASES AMAZON $4B also includes charitable
donations (e.g., $15M to
Seattle-based charities, pro-
bono grocery deliveries, and
Assumptions
laptop donations to in-need • Per public disclosures, Amazon estimates ~$300M to be invested in Q2 to scale
students
Amazon’s internal COVID-19 testing capacity
– Per Amazon’s CFO, effort is expected to cost Amazon $1 billion over the full-year 2020
• Analysts estimate additional PPE & cleaning at $1-1.3B in Q2
– PPE estimated at ~$500M - $800M, including the following (per public Amazon disclosures):
> 100M face masks, 34M gloves, 48M ounces of hand sanitizer and 93M sanitizing spray bottles
– Additional cleaning estimated at ~$400-500M
• Wage increases for existing employees estimated to cost ~$800M through end of
May
– Minimum wage was increased by $2 per hour in the U.S., $2 per hour in Canada, £2 per hour in the
UK, and €2 per hour in many European countries
– Overtime pay was increased to double time (from time and a half)
• New hires represent an additional >$1.5B in spend in Q2
– Assumes ~50% of newly-hired 175K workers were incremental and new hires received same hazard
pay allowances as existing hires
• Per an Amazon blog post, they will spend $85M “redeploying team members from
their typical roles to perform safety related tasks and audits.”
Source: Amazon 2019 Annual Report; Analyst Reports
STK 210121 Clarion Workshop vfpptx 38However, Amazon became one of the first US retailers to roll back hazard
pay for frontline employees during the crisis
CASES AMAZON NOT EXHAUSTIVE
Category Retailer Type of pay increase Size of pay increase Timing
Mass Hourly wage $2/hr. increase and 2x overtime pay rate for front line workers March 16 – May 9*
Walmart Cash bonus (x3) Full-time: $300, Part-time: $150 (paid twice); advance of Q1 bonus (paid April 2, April 30, June 25
once)
Target Hourly wage $2/hr. increase March – July 5
Hourly wage $15/hr. minimum wage ($2/hr increase from previous) Permanent, starting July 5
Cash bonus (x1) $200 July
Club Costco Hourly wage $2/hr. increase March 2 – May
Grocery Albertson Hourly wage $2/hr. increase March 15 – June 13
Kroger Cash bonus Full-time: $400, Part-time: $200 (paid over two installments) May 30 & June 18
Hourly wage $2/hr. increase March 29 – May 17
Wegmans Hourly wage $2/hr. increase March – May 31
Drugstore Walgreens Cash bonus (x1) Full-time: $300, Part-time: $150 Late April
CVS Cash bonus (x1) $150-$500 depending on position March - May
Other retail Home Depot Cash bonus (repeating) Full-time (>35 hr/week): $100 / week, Part-time (16-35 hr./week): $50/week March 23 – April 19
Restaurant McDonald’s Cash bonus (x1) 10% bonus on all wages earned in May May 1 – May 31
Starbucks Hourly wage $3/hr. wage increase for store employees March 21 – May 30
Note: *Amazon overtime pay increase rolled back in May, hazard pay increases were phased out by June
Source: Business Insider; Reuters; Company websites & press releases; CBS; LA Times; Grocery Dive
STK 210121 Clarion Workshop vfpptx 39Amazon’s internal response to the crisis prompted vocal critique from
employees and the public
CASES AMAZON EXAMPLES
US examples Global examples
STK 210121 Clarion Workshop vfpptx 40Amazon has taken a highly-visible approach to PR during the crisis to combat
public tensions…
CASES AMAZON EXAMPLES
Highlighting employment Publicizing charitable actions Returning to scale and delivering
opportunities and worker safety during the crisis on customer promises
“Meeting the Moment” ad campaign highlights “Rising to the Challenge” television ad
employee stories and addresses measures like highlights efforts in Amazon Logistics
on-the-job temperature checks and cleaning Charitable actions also highlighted in “Keeping
Amazon Logistics vehicles Amazon Employees Safe” ad
Local charitable
actions often
highlighted on
Amazon’s Day
One blog and
social media
“Delivering Rainbows” television ad depicts a
“Keeping Amazon Employees Safe” ad
child’s gratitude for receiving Amazon packages
campaign describes Amazon’s $4B investment
during stay-at-home period
in protecting employees
STK 210121 Clarion Workshop vfpptx 41… and has implemented a wide range of other substantial initiatives to help
drive growth in the new normal
CASES AMAZON NOT EXHAUSTIVE
Accelerate Accelerate digital & (May 28): Opened 2 new stores to increase online grocery delivery capacity – currently
innovate swiftly the stores are dark stores
through
recovery (Jun 17): Rolling out new solution that provides employees live feedback on their distance
Health and safety above all
from other workers via AI
Financial support to (Jun 29): Offers $500M worth of employee bonuses
employees & ecosystem
Retool for Re-invent your consumer (Oct 5): Amazon Live attracts more beauty brands with its shoppable livestream format
the new value proposition
world Shred complexity in
(Aug 12): Hosting a free digital conference aimed at US SMBs
anything and everything
(May 5): Prior to pandemic, ~45% of brands didn’t sell on Amazon but many have turned to
Accelerate participation in Amazon as traditional retailers (e.g., Dick’s Sporting Goods, Bass Pro Shops) have closed
open ecosystems
(May 14): Reported to be opening a new storefront (“Common Threads: Vogue x Amazon
Fashion”) to support and showcase independent high-end designers
Be your own activist (May 18): Amazon reported to be a contender for purchasing parts (or even all) of JCPenney;
converting dept. stores into distribution hubs to deliver packages
Source: Company websites, company press releases, industry news and journals
STK 210121 Clarion Workshop vfpptx 42Amazon is projected to remain the top marketplace, but some competitive
threats could shift the seller value proposition
CASES AMAZON
Amazon is projected to continue to grow its share of e- Strength of the seller value proposition vs. competitors
commerce, sustaining its key advantage with suppliers could shift moving forward
Seller
considerations Key questions to consider
• Will Amazon continue to prioritize growth in the 3P
business, given favorable economics?
• Will recent seller challenges lead to a change in
Walmart projected to course?
Amazon 1P/3P
displace eBay as #2 US
strategy
ecommerce player
• Could competitive pressure lead Amazon to reduce
referral fees in some categories?
Referral fees
• Will Amazon Logistics prioritize 3P sales volume as
it continues to scale?
• Will other 3P fulfillment options remain an affordable
Fulfillment and and viable option for sellers?
logistics
Note: Walmart GMV and share of eCommerce includes 1P and 3P business; Amazon share of eCommerce excludes sales from physical stores
Source: Morgan Stanley, eMarketer
STK 210121 Clarion Workshop vfpptx 43Questions for brainstorm
• What can we learn from how successful retailers have
adapted ?
– IKEA with experiential element of shopping
– Tesco re-imagining business world post COVID
• Any evidence in your sectors of steps being taken to
Retool for the new world ?
STK 210121 Clarion Workshop vfpptx 44You can also read
