Retailing in the Week Ahead, Week 27
Just over five years ago, Kantar’s IQ team made a major push for CPG companies to embrace the ‘Age of Shopper-First’. Our goal was to help CPG companies prepare for the year 2020, a year when the best of the best retailers would be using Big Data and other amazing tools to understand shoppers outside of stores and outside of everyday shopping.
The big idea in the shopper first series of work was that CPG companies should shift from talking about ‘category management’ and start talking about categories within the field of ‘shopper management’.
I am pleased to say that many companies embraced this thinking – a philosophy where ecommerce is not a channel, it’s a powerful asset in building end-to-end integration with retailers who are doing ‘shopper-first’ research and prediction. While acknowledging shopper-first’s successes, it is important to note that it also has its critics. We also need to recognise that CPG companies that have shifted to shopper-first strategies still make many mistakes. The journey is long but with COVID-19, many ask: is it still the right journey to be taking?
The critics have some valid points. Sadly, as the pandemic has strengthened, they have commandeered the discourse and confused cause and effect. Critics claim that shopper-first retailers like Amazon (France) and Ocado (UK) struggled in the early stages of the pandemic because their robotic warehouses and software programs were unable to keep up with dramatic shifts in shopping behaviour in the run-up to lockdown and then post-lockdown.
Governments demanded change and these retailers were unable or unwilling to comply. They also point to the fact that ‘mom and pop’ neighbourhood stores have outperformed chain store retailers during the pandemic by a factor of 2 to 1. Finally, critics often pull out the ‘P’ word: Profits. Their argument is that retailers which primarily embrace physical retail and make heavy investments in allocating buyers to categories, and then negotiate relentlessly, outperform all other retailers on a scale of 2 to 1.
Let me pause.
Don’t believe the critics.
Yes, it is true that robotic retailers and predictive retailers struggled when consumers were panic buying. This argument avoids the most obvious point: all retailers were struggling when consumers were panic buying. It’s just that you didn’t expect some retailers to struggle since you held them in higher regard than others.
So now, let’s have a look at who’s struggling and who isn’t. Pause. The shopper-first retailers are cleaning up. They have a captive audience trapped in their homes, using multiple devices which constantly share data with shopper-first retailers. These can then suggest, prepare and engage. This is like a boxing match where one fighter is blindfolded.
Let me put it to you straight. Shopper-first works and CPG companies need to accelerate their cultural shift towards shopper-first now, before it is too late. This will require addressing the three big mistakes shopper-first CPG companies continue to make, five years after the first forays into the concept. Start fixing them quickly.
The most fundamental mistake CPG companies make when understanding shopper-first is by using market shares to spot trends in channel choice. The reason this is erroneous is that market share is a result of two pieces of information: the number of shoppers purchasing at a channel and the total number of shoppers purchasing anywhere.
Keeping this fundamental formula in mind, a channel could lose market share while winning more shoppers if there is a dramatic change in the total number of shoppers. Stop using market share to analyse channel choice as it doesn’t work. You will always reach the wrong conclusions. The better approach is to use hard shopper metrics (% penetration, average frequency, average basket). Let me illustrate with two examples.
Example: Grocery discounters lose market share during holidays.
The easiest illustration of this is looking at grocery discounter share during holidays such as Easter or Christmas (discounters are banners such as Aldi and Lidl). Looking at market share, you would think Aldi and Lidl underperform during the holidays. This is wrong. Both see increases in shoppers, baskets and frequency. I only wish they would list publicly as I would invest in the stock at this time of year.
Still, their market shares fall. The reason is simple: consumers that dine out or eat on the go during the ‘busy’ time of the year have time off to spend at home with family and buy a disproportionate amount of their annual take home grocery spend during these periods. The numerator of the market share equation grew, but the denominator grew faster.
Example: Grocery discounters lose market share during COVID-19.
This same principle applied during the pandemic lockdown. Discounters were down in relative market share while ecommerce and local independents surged. Once again, this was less about discounters performing well/not well and more about dramatic changes in the number of shoppers purchasing take home groceries.
In a similar vein, many CPG companies benchmark their own success versus share of private label. This approach carries the same pitfalls as the channel choice topic. Measuring private label share assumes the shopper base remains homogenic at different times of the year.
We know this to be false. The proportion of sales going to A/B households versus C/D/E households can fluctuate wildly across the year. This makes it appear that private label performs poorly at holidays. Many companies justify their ad spend on this principle.
The reality is the opposite. Retailers that introduce own-brand innovations during the holiday period often win market share faster than if they introduce the private label in a period when fewer shoppers are out and about to give a try. Which approach has the higher ROI? The one where you spend millions to campaign, win temporary market share during the campaign, and then lose it six months later? Or the one where you spend nothing, and six months later everyone’s buying it?
Example: A-Brand Share During COVID-19
Right about now, most A-Brands are popping champagne after four months of lockdown where they have outperformed private label in terms of market share. Pause. Here’s the problem: the denominator of our equation has changed so dramatically during the lockdown that using market share is like comparing apples to oranges.
The weight of trade in the A/B households has skyrocketed during lockdown because these homes couldn’t dine out; they couldn’t order lunch for everyone at the office, and so on. A better metric would be to compare like-for-like baskets before and after COVID-19. Take an E-consumer’s typical product mix of brands and private label. Which one moved up or down during the lockdown? Similarly, look at the A-household and product mix and how it shifted from Week 1 of the lockdown to Week 10 of the lockdown. How did the basket shift? Did A-Brands continue to win week after week with a like-for-like household?
The final mistake CPG companies make when doing shopper-first work is around shopper missions. Most have a binary view of shopping: shoppers are either on stock-up missions or are on impulse missions. This is then defined as more 10 ten items or less than 10 items. Pause.
Imagine this scenario: a grandmother asks her grandson to go and get two packs of bottled water from the grocery store and bring it back home. The grandson complies, buys two items, brings it home. He feels good because he got some muscle-building exercise and visited his grandmother who then cooked him a great meal. He feels so good he repeats it monthly. Is this a stock-up mission or an impulse mission?
The best shopper-first retailers are now looking at ‘pack size’ and repeated patterns to determine shopper motivations. This is easier to do when you have the data, of course, but should not be an excuse for CPG companies to produce lazy shopper-first research.
Example: Impulse shopping trips skyrocket at mom and pop stores during COVID-19
A remarkable story emerging from the pandemic lockdown has been the resurgence in corner-store shopping. In country after country, local stores have enjoyed a bonanza. Most trips are made by people walking from their homes to the neighbourhood outlet. Trips are made several times a week and see purchases of four, five, six items each time. In some extreme cases one million Parisians fled Paris for their country homes and shopped almost exclusively at local shops. CPG companies look at this data and automatically classify it as “impulse” shopping and a “fill-in” trip. Huh?
The correct way to consider this pattern is to examine the pack size and the repeated behaviour. This would show that individuals making these purchases were enjoying their one hour of daily exercise and purchasing large pack sizes for a planned family meal. So, the opposite is true: the majority of these trips were “planned” and “stock-up” trips. Because how can you make an impulse trip when you risk being fined for leaving the house too long or straying too far from your home without a valid reason? Sometimes, common sense goes a long way when doing shopper-first work.
The lockdown has lifted and will see an on again, off again pattern for months to come. CPG companies wanting to embrace shopper-first thinking should over-invest right now while teams are at home, scrutinizing tons of data, and trying to make sense of shoppers.
To truly win in the age of shopper-first, CPG companies must embrace a more sophisticated view of the shopper landscape.
- Step 1 is getting a better understanding of channel choice by using like-for-like households rather than market share averages.
- Step 2 carries this approach when it comes to brand versus private label selection.
- Step 3 is the hardest of all, which is creating pack sizes to suit the shopper mission and not the channel.
Finally, many of you will be working on ‘inclusion and diversity’ in the workplace. I wanted to take a moment to share a 30-minute video of my colleague, Brian Owens, having a thought-provoking conversation on this topic with my mentor of 20 years, Bryan Gildenberg, who has sadly left Kantar but has kept up his good relationships with many of us and many of you. You can follow the link to YouTube here to hear more.
We at Kantar wish you success in the Age of Shopper-First. The journey is long but it’s the right journey.
Thought of the week: Have you mapped how your hero shoppers’ family structures change at different times of the year? During COVID?
Retail IQ Publications from Week 26:
Carrefour activates Transformation Phase Two
Schwarz Group sets Kaufland on a new digital direction
Ramadan and Eid 2020 global retail highlights