Some consumer shifts may endure, says Phil Young.
First a health warning: it’s hard to analyze the current financial crisis without risking obsolescence. By the time this article appears, who knows what the situation will be like? Better, I hope.
But if there is one thing that I can be sure the crisis has reinforced about business finance, it is that the ‘bottom line’ is the ‘top line.’ The contraction in sales by almost every business has made it painfully obvious that without customers buying one’s goods and services, financial metrics such as profit margin, free cash flow and working capital management must fall by the wayside. One could argue that the most important financial lesson is the old cliché that ‘cash is king.’ But then again, the ultimate source of cash is top-line sales. Myriad articles in the business press try to make sense of this unprecedented economic shock. They speak of winners and losers. Quite rightly, most of the attention is devoted to the losers. Which industry’s sales have been hardest hit? Hospitality or manufacturing? Within sectors, who is suffering the most: airlines or cruise ships? I have read little about the food industry. For obvious reasons, I simply assumed that it would be relatively unaffected. Moreover, based simply on personal experience, I also assumed that within this industry there would be some companies or products that have gained more – or at least lost less – than others.
As I started to do my grocery shopping online, I found myself paying more attention to the plethora of brands, sizes and variety of a particular item. I never dreamed there are so many choices available for crushed tomatoes or frozen fish fillet. Prior to this crisis, I had never shopped for groceries online. In my normal in-person shopping, out of habit and convenience, I just go directly to the brands or items that I always buy. Yet I also found myself buying a lot more packaged or frozen processed foods. So based on this experience, I also assumed that processed foods and generic brands were largely unaffected.
A recent article in the popular press supports my anecdotal observations. ‘I Just Need the Comfort: Processed Foods Make a Pandemic Comeback,’ screamed a New York Times headline in April. The article provided fascinating details. People are buying more processed foods, salty snacks, sweets and dairy products to help get them through their self-isolating days. The article goes as far as to predict good news for the big food companies such as Kraft, Heinz and J.M. Smucker, all of which had been experiencing slumping sales as consumers shunned processed foods in favor of fresh produce.
According to the newspaper’s analysis, shoppers (particularly in the US) were turning to “old standbys that they may not have had in years or even decades.” I bought a few cans of Campbell’s soup just to keep handy during the crisis. And there it was: Campbell’s sales of soup in March increased 59% on the same month last year, the article revealed. The company increased wages of hourly workers while also ramping up production. I also found myself sometimes buying less popular brands, as well as store-own brands, because the leading premium brands were out of stock. Once again I was a typical consumer: Conagra Brands – the food company with a portfolio of ‘second-tier’ labels – also experienced an increase in business.
Will such changes in consumer behaviour reverse themselves once the crisis is over, whenever that may be? Possibly not entirely. Brands which normally wouldn’t have turned consumers’ heads have suddenly been given huge exposure. In the meantime, I’ve got three cans of Spam in my pantry ready to be consumed in the coming weeks. It’s relatively unlikely that I’ll keep buying it once the crisis has abated. But some brands may well benefit from a permanent shift.
— Phil Young PhD is an MBA professor and corporate education consultant and instructor.