Strategies for the Food & Beverage Industry During the COVID-19 Outbreak

Strategies for the Food & Beverage Industry During the COVID-19 Outbreak

As with other industries, the food & beverage sector is feeling the impact of the coronavirus outbreak in a number of ways. COVID-19 jolted the consumer packaged goods industry in ways that neither retailers nor manufacturers were prepared for.

Unparalleled demand has led to panicked shoppers, massive out-of-stocks, and starkly empty shelves in retailers throughout the country. On top of that, a disrupted and distracted workforce across the entire supply chain is making it very difficult to ensure product availability to worried consumers.

How much has the demand changed?

As many states temporarily closed schools, bars, restaurants, movie theaters and more, the retail industry faced substantial purchasing shifts. More specifically, consumer spending on certain items, such as groceries, household supplies and home entertainment has increased.

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In fact, the demand for consumer packaged goods grew by 9.5% in the United States – most likely due to consumers stockpiling food. However, any significant increase in demand should not be considered normal growth; it is a surge which will experience a dip before balancing out.

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How should my business react to the ongoing situation?

Between a spike in demand and disrupted and distracted workforces, there are some unique challenges confronting the consumer packaged goods industry, particularly food & beverage companies.

To help navigate this trying time, our Manufacturing & Distribution leaders have compiled the following advice:

1. Forecast the demand to your best ability

Do not rely on current year sales as indicators, especially starting March 2020 – they are an anomaly.  Perform some research in estimating the growth. For example, leveraging information from Statista, it becomes abundantly clear how much demand in the food & beverage sector has grown in the last month.

Consumers have bought considerably more amounts of edible groceries, especially packaged food, alcohol, and beverages. In terms of food and beverages, purchases of vegetarian and vegan items rose the most: sales of oat milk grew by 347% while meat alternative sales grew by just over 200%. Sales of non-perishable foods in particular have surged in March. Ultimately, food & beverage sales are up across the board.

Take prior year monthly sales and apply the researched growth rate to the next few months. Incorporate the expected surge in demand if your business in the relevant category. However, consider a possibility of demand slowing if COVID-19 prolongs and shelter in place will become the “new normal.” Plan by week, month and quarter. Incorporate consumption rates into your calculations, and forecast an anticipated dip in demand once the consumer stocks up on the product, assuming low consumption rate exists. Plan for the dip in demand and plan for leveling out of the demand over time.

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2. For young brands, consider alternative methods of introducing your brand

Looking to launch or promote a brand is already challenging enough, and now traditional methods of promotion are no longer available. For example, young brands no longer have the option to offer samples in stores.

So now is the time to be creative and consider alternative methods of getting your product in front of potential consumers. One idea is to sample and distribute your product to hospitals and other places on the front lines of the crisis. Not only will you get your brand and product in front of people, but your act of good faith will make you a company to remember. In addition, invest time in branding online as further discussed below.

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3. Lower your trade spend

Industry experts recommend that brands cease or postpone promotions for the next three months. There is not enough supply at any link of the supply chain, most importantly there are currently widespread out-of-stocks at-shelf.

By reducing promotions, you will eliminate promotionally driven spikes in volume which the supply chain cannot handle.

In addition, removing promotions will help steady the flow of inventory with an aim at improving in-stock rate throughout the supply chain. Therefore, a temporary hold on promotions can preserve the trade budget for redeployment once things settle down.

Some retailers are already reducing promotional activity as is. Failing to do so may increase the likelihood of out-of-stock conditions on the shelf and cause surges in purchasing during promotional activity thereby lowering ROIs.

However, one thing to note before you cease promotional activities is that there may be certain restrictions in place. For example, some distributors recently issued a statement requiring notice of at least 90 days prior to pulling promotions. It is important to use your data and track the information.

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4. Attempt to increase your market share now

Companies typically increase their market share through a number of different ways, like innovation, strengthening customer relationships, smart hiring practices and acquiring competitors. However, right now, your biggest tool to increase your market share is developing a unique brand position, which will involve spending marketing dollars.

This may sound counterintuitive, but capturing market share when the market is on the decline will produce significant ROI when the market recovers. Experts don’t recommend spending money on innovation in this stage; instead, focus on your best products and see how you can enhance their position in the marketplace.

Also, review your marketing strategies on social media. Remember at a time like this, people are spending even more time in front of screens – whether that be their social media applications, television, the Internet or streaming services.

If you are able to make your company more visible on a digital screen, now seems like the time to do so. It is also important to structure your offering and any related advertising with a sense of empathy for the ongoing crisis. Focus on how your products can help during the pandemic. This might mean pivoting your current strategy.

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How can Squar Milner help?

Our leaders in the Food & Beverage space are well-versed in the concerns and challenges specific to your industry. We are keeping a close eye on the situation as it continues to evolve and we are prepared to advise and guide you on the best business practices for the ongoing global crisis.

Our team is here to answer any questions you may have regarding business strategies during this time of uncertainty. Please connect with us to see how we can work with you to develop comprehensive plans tailored to your business.

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KEY CONTACT

Larisa Rapoport
Partner, Audit Services

lrapoport@squarmilner.com

Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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