These days United States and the whole world are in recession. We’ve experienced a lot of recessions in the past, however the current one that was a result of the Covid-19 pandemic, is a lot different than others including “Great Recession” of 2008. Because of the pandemic government shut down much of the US economy in March. This recession is so much different that old rules of how we can get out of recessions don’t necessarily apply here. We are all in an economic uncertainty. In this article, we are going to look at 5 ways that CPG companies can use to tackle this recession.
Unemployment is a perfect example of how deep this economic crisis is. The current unemployment rate hit 14.7 per cent in April. Most analysts and market experts expected a 19 per cent to 20 per cent rise in May. Yet the unemployment rate for May, announced by the Bureau of Labor Statistics earlier in the month, was 13.3 per cent. The rapid increase in employment – 2.5 million new jobs created in May – has shocked policymakers, analysts and financial sector. Few, if any, analysts actually have any idea what the June unemployment rates will be when they are published next month.
Many government projects initiated since the crash of the economy in March and April to help the unemployed and companies are expected to expire on 31 July. In the last 3 months, they’ve established a bridge for individuals and companies. Some fear that the US will fall back into economic downturn once it exits.
Premium foods in some categories – for instance super premium ice cream – have traditionally been popular during recessions.
Surprisingly, CPG companies (not all of them) and retail grocery sales were two of the few shining lights in the US economy. With the food industry’s near-decimation, Americans have cooked and consumed more food at home now than any other time.
But this enormous increase in sales is starting to stabilize as states rebuild their markets and consumers have more choices to buy food, including restaurants. Consumers often spend less than in previous months, including in supermarkets, because they are concerned the crisis might be long and deep.
CPG companies, especially the big ones, tend to perform better in market downturns than many other sectors. But such periods need changes in the way companies are managed.
What could CPG companies do to boost brand growth amid the economic recession triggered by coronavirus? And what can they do to put brands once the economy rebounds, which might be as soon as this fall?
Execute a top to bottom analysis of the brand portfolio
CPG companies seek to expand their brand line-ups in times of economic prosperity without giving enough consideration to the production. As a result, the anchor brands and products of the company still contribute significantly to the most of the overall sales.
In economic booms, many CPG companies often move into new categories and, despite major trade and customer marketing budgets, stay the number 3 or 4 brand in the segment. Such endeavors are expensive. They could make sense in good economic times but this growth and expansion can be difficult to maintain in economic downturn. Is the continued investment worth it when the anchor brands are still the big contributors to the overall sales?
CPG companies must conduct a top-to-bottom analysis of their brand portfolios to address a crucial issue. Analyze each brand against its vulnerability in a recessionary setting, and perform a cost-benefit analysis of just how much dollars are being consumed on sales and customer promotions compared to the benefits gained from this spending. Brands which do not deserve their preservation should be reduced or reserved for future divestiture.
Curate, rationalize and cull item assortment
The findings of the top-to-bottom analysis are likely to show that some products in the stable of a CPG business (which is more relevant to large companies than smaller and niche firms) will not hold their weight in a recessionary climate – and may not even have done so in a great economy that the US had in general until a few months ago.
CPG companies have to recognize which products have the greatest growth opportunities to be laser-focused on their marketing or sales efforts. In fact, executives need to recognize the high-performing and high-potential SKUs inside these “keeper brands,” and place more focus and energy on them.
In addition to offering the all-important “best value for money spent,” doing so will as well provide the sales force direction in shrinking its emphasis. Traditionally, focusing sales and marketing money on products and SKUs with the best performance and high growth potential has proven to be a good idea during economic downturns.
Pivot brand positioning and messaging
When the two critical tasks above have been completed, an analysis of brand positioning and marketing is required. During an economic downturn, customers have different habits. And not every client behaves the same. Lesser-income (and some middle-income) customers, for instance, decide to turn to private label due to expenses throughout recessions. In brand positioning and marketing campaigns CPG companies must take this into account.
Upper-income customers (and many also listed as middle-income customers) tend to purchase their favorite brands throughout recessions, though. Indeed, in poor economic periods, some customers would also spend a greater percentage of their income on meals and drinks, since this is the only privilege they can afford. And this might be the case in this economic downturn as people are unwilling to dine in restaurants, although most of them are now opening in the country. For most, travelling isn’t an option as Covid-19’s fears continue to stay. Historically, luxury foods in some sectors (for example, super-premium ice cream) and comfort food products and brands tend to perform perfectly well in downturns due to their high prices.
CPG companies will analyze who are their main consumers (demographic groups and psychographics) and how the behavior of those customers shifted during previous downturns, most specifically the most recent major global recession in 2008-2009. While this crisis is different in nature, things still need to be relearned from the “Great Recession” of 2008.
The net outcome of this process has to be a measure of brand positioning in the economic environment before the recession caused by coronavirus with the current climate and an overview of how things are most probable to go for the rest of the year. Once an analysis is completed, CPG companies must then change how they view these products to align their advertising messages with it.
In economic recessions one of the biggest wrong decisions that CPG companies make is to massively reduce customer advertising and marketing budget. Almost always it is a huge error.
In market downturns, brands and products need as much or more innovation, as they do in economic booms. Rather than cutting back too much, CPG companies should rather target their marketing and advertising budgets on what they are investing.
Of example, a good tactic is to shift dollars from broadcast and print media to social media and digital marketing, which are both more straightforward and cost-effective. It can also drive companies to spend less money but get as much or more ROI.
Greater emphasis on public relations also often goes well throughout economic downturns, as long as you make a better and credible story and make sure it’s central to the recession period positioning and overall digital marketing plan.
The retail imperative
Coronavirus and the recession it has created have caused more market shifts in recent history than at any moment.
Category managers had to make structural reforms to store collections to get the stocks of high-demand items in many categories required. In fact, closing down food service and enforcing shelter-in-place orders have brought in a drastic change in how people live. Almost instantly Americans have moved from consuming 50 percent of their food at home (the other half outside the home) to cooking and enjoying the vast majority of food at home.
That, too, has triggered dramatic market change at supermarket stores – flour and yeast are two of the products that have engraved the biggest percentage selling increases since March because, for example, more Americans are already baking bread at home – since retailers have to change shop setups to meet the increase in demand for centre-store goods.
This has also significantly altered how CPG companies and supermarkets conduct it. The buyer-seller meeting in person was replaced by Zoom meetings and phone calls. Most specifically, owing to shelter-in-place orders, most vendors and distributors stopped sales-force-store calls.
As a result, what occurs at retail, which is crucial for brands, has not had any feedback and engagement from CPG companies. Now that many businesses have their selling forces coming back into the stores, it’s important to put a new emphasis on customer engagement and transparency to keep SKUs focused on the shelf. Upon working over the four phases above, CPG companies have to give their sales managers a new portfolio – on which products and SKUs to concentrate, a new branding and a new strategy – with clear instructions about where to direct their efforts. In downturns profits are more important than ever and the sales team wants to know what the goals are.
During economic downturns, the key considerations for CPG companies with brands are: (a) remain on the shelf with brands and SKUs to concentrate on; (b) grow sales amidst economic recession; (c) and position brands for more growth once the economy booms.
Accomplishing this includes evaluating the inventory of products and the SKU range; analyzing, curating and culling selection of items; continuing to invest in the in-focus products; ensuring messaging suits with the economic climate; and re-focusing retail.
Uncertainty is the sole economic certainty today. Nevertheless, by creating a strategy ready to do business during the economic downturn, this uncertainty can be reduced.