SARS-CoV-2 pandemic a game changer for consumer goods
Comment by Kamil Kucharczyk, M&A Assistant Director, FA Consumer Business Leader, Deloitte Central Europe
Warsaw, 26 March 2020
One of the side effects of the SARS-CoV-2 pandemic are the problems currently faced by the consumer goods industry. The sudden leap in demand on part of those forced to remain at home means that food producers (particularly of groats, rice, flour or healthy ready-to-eat foods) have to deal with heightened production expectations. Opportunities for growth are also there for e-groceries and food tech, i.e. apps that allow us to order food and have it delivered to the door. At the same time, there is much doubt as to the future of firms that offer durable goods – clothes, shoes, luxury goods or even commercial properties. Consumer services in the restaurant, hospitality, transport, tourism, and entertainment sectors must also face the uncertainties. Regardless of their current situation, all market players have to adapt their supply chain and operational management models as soon as possible.
We should consider the situation caused by the SARS-CoV-2 pandemic in three time frames, accounting for the short-term, medium-term, and long-term impact. The first involves the dynamic adverse reaction seen on global financial markets. The fall we observe today is not attributable only to panicking investors. Stock markets across the world are more and more influenced by algorithms – machines used for high-volume and high-frequency trading. Algorithmic trading involves executing orders with automated pre-programmed instructions that take account of such variables as time, price, volume, and underlying instrument volatility. Unlike people, algorithms cannot be thrown into panic. However, once the prices fall below a certain pre-determined level, they trigger procedures that can further exacerbate the falling asset value.
In the medium term, organisations will have to meet numerous challenges related to operational management, though not all find themselves in the exact same situation. For some, the current crisis is a great opportunity to end this year with financial performance much better than expected. These, indubitably, include producers of non-perishable foods – groats, rice, pasta, flour, and canned foods – who are now facing difficulties related to the gigantic demand caused by customers buying those products en masse. The foods will soon have to be restocked, so that they can be accessed once everything goes back to normal. Therefore, some food companies have nothing to worry about for the next few weeks or months, provided they have extra production capacities to deal with the orders.
E-groceries will also come out triumphant. With the growing number of orders, online groceries now see delivery times of as much as three to four weeks, whereas normally one or two days would be the standard.
The current macroeconomic situation may also benefit catering companies that offer diet plan subscription boxes. This solution allows many of those who cannot leave home and who struggle with cooking on their own to have food for the whole day delivered to the door. Here, the challenge lies in allaying the customers’ concerns about the health safety of the food prepared.
Food tech companies are also likely to consider Q1 2020 as successful. With restaurants, pubs, and bars shut down by the government, the streets are now full of delivery people with their characteristic green or yellow rucksacks. These companies rely on cashless and contactless payment, which protects both the workers and the customers.
Producers of durable goods, not to mention luxury goods, are in an entirely different situation. Crises make consumers wait it out when it comes to buying products that are not essential. In these times of growing restrictions and social distancing, what is necessary to “survive” is food, drinks, and hygiene products. Shoes and clothes are not daily necessities.
Consumers are also likely to postpone potential investments for renovations, refurbishments, and car purchases. They will think twice before buying property, especially given how commercial banks reacted to the crisis. More difficulties wait for consumer services. As such, whole restaurant, hospitality, transport, and tourism sectors, together with hairdressers, beauty salons, gyms, and cinemas have had to close down overnight. Furthermore, there is no way telling when they will be able to resume standard operations. Even worse, Poland and the EU at large are starting to see bankruptcies in FMCG services.
Whether consumer habits and preferences change after everything goes back to normal remains to be seen. Will we be eating out as eagerly as we have been so far? Will remote work prove to be satisfying enough for us to regularly work from home? Those are just some of the few questions the consumer goods industry will have to answer in the months to come.
Globalisation has led to countries and economies becoming interdependent. Large organisations are relying on manufacturing centres located far away, including in Asia. So far, this has allowed them to minimise costs and increase profit. However, the pandemic crisis made us see how dependent the supply chain of those global companies is on China. Practically all entrepreneurs (even tech giants), and customers, too, are experiencing the impact, irrespective of the industry.
What lessons should business learn from the SARS-CoV-2 pandemic? Firms should pay more attention to diversifying their supply chains. This will become ever more important for investors who will fear that production and sales might become paralysed. They will look closer at how those supply chains are structured, where companies manufacture their products, and what subcontractors are engaged. Essentially, we will be witnessing how the classic phrase “business as a going concern” loses its relevance.