Digital sales growth is just one development during the COVID-19 pandemic that Deloitte expects will continue affecting retailers and CPG companies in the long term.
Deloitte's InSightsIQ, which actively monitors and aggregates a diverse set of real-time consumer, macro, marketplace, competitive and economic data sets, has identified seven trends that have emerged during COVID-19 which retailers and CPG companies should expect to be part of the “new normal.” These trends are taken from the new Deloitte study, “The future is coming ... but still one day at a time."
Convenience is the new battleground
According to the study, more than 50% of consumers report spending more on convenience to get what they need, with "convenience" increasingly being defined by contactless shopping, on-demand fulfillment and inventory availability. There has been a corresponding surge in mobile payment usage, delivery app downloads and buy-online-pick-up-in-store (BOPIS) adoption.
Commoditization and premiumization of products
Study results demonstrate that as of April 4, consumer spend across all retail categories has decreased by more than 40%, placing significant strain on short-term operating margins. This trend has increased private brand sales in recent months, with price and supply chain constraints playing a key role in this growth, as well as consumers seeking brand availability amid stockouts. Deloitte advises that it remains unclear if consumers will emerge with new preferences or lower brand loyalty than observed prior to COVID-19.
Digital sales grow, but achieving success remains complex
By mid-April, online orders had grown 130% year over year, with meaningful gains in categories where digital commerce penetration had been historically low, such as grocery. And as of April 2020, overall e-commerce year-over-year growth reached 68%, surpassing 40% of total retail sales. With consumer mobility significantly decreased, desktop share of digital traffic significantly increased. However, Deloitte cautions it is still difficult to determine exactly how these trends will manifest in the long term as stay-at-home orders are lifted and stores re-open.
Furthermore, while consumers have demonstrated a willingness to pay for on-demand fulfillment in the short term, Deloitte says it remains to be seen if they will continue to offset the cost of delivery in the future. Overall, while digital growth remains strong, Deloitte advises that the ability to profitably pursue that growth remains under tremendous, and growing, pressure.
Brick-and-mortar changing its role
The dramatic shift to e-commerce has hastened the redefined role of the physical store, and many retailers have reimagined their stores to serve as order fulfillment centers to meet digital demand and drive last-mile execution. But, Deloitte says it is not yet clear whether this acceleration will be sustained by consumers maintaining digital shopping behaviors or if the sector will see a normalization to pre-COVID trends as restrictions are lifted and stores reopen.
New business models have a growing impact
COVID-19 also has led to the adoption of non-traditional models in "essential" categories such as food, grocery and pharmacy, while at the same time decelerating short-term growth of new models in "non-essential" categories. Among these non-essential categories is apparel, where, according to the report, consumer spend has seen a decline of more than 70% from 2019.
Past trends recorded by Deloitte also reveal that economic uncertainty often results in changing consumption habits and the emergence of new models. Retailers and CPG companies continue to expand outside of their traditional revenue models to fast-track growth and meet changing consumer preferences. However, depending on the impact from the pandemic, Deloitte advises it is likely that proliferation of new models will continue, but it remains unclear which models will sustain long-term impact.
Health and sustainability growing priorities (for some)
COVID-19 also has substantially altered consumer spending habits for healthy and sustainable products. Consumers have dramatically increased spending on hygiene (e.g., hand sanitizer, medicines), sustainable products and organic sales, but it is unclear how much of this volume increase was driven by consumer choice versus availability of options amid out-of-stock conditions.
According to Deloitte, income disparity also is likely to continue playing a key role in the growth of health and sustainability markets, with low- and middle-income households reporting more job losses than upper income households (50% versus 32%). This outsized economic pressure on the discretionary budgets of low- and middle-income households may further stratify health and sustainability spending across income levels.
Consolidation in retail and fragmentation of market share
With the closure of "non-essential" physical retail locations due to COVID-19, consumers shifted spending to select physical and e-commerce retailers that could provide essential goods and meet their convenience needs. While it is unclear who will be the ultimate winner, Deloitte predicts the impact of COVID-19 could accelerate further retail consolidation, creating an environment where a select set of players emerges stronger at the expense of smaller or independent players.
At the same time, the pandemic has accelerated short-term fragmentation of CPG. Looking ahead, Deloitte expects economic uncertainty could have longer-term implications on fragmentation, as CPG brands become increasingly challenged to overcome decreased consumer spend and increased operational challenges.