Heatwaves – Making the most of demand

We are only just past halfway through 2022. However, this year has already been extraordinary in many respects, one of which is the record breaking number of heatwaves we’ve seen so far across the world. For those interested, this Wikipedia page lists all the heatwaves in 2022 to date.

Impact on sales

A comparison of sales in the 12 weeks to 10 July 2022, to sales in the 12 weeks to 11 July 2021, shows mixed performance across grocery stores in the UK, with discounters gaining the most, due to consumers switching to them to minimise their grocery spend in light of soaring inflation.

However, despite current inflation rates, BRC-KPMG retail sales monitor for July 2022 showed that total sales increased by 2.3% during the month, bringing to an end three consecutive months of decline.

Ice cream, beer, water & barbecue ingredients sales benefitted the most from the heatwave, while sales of barbecue grills themselves rocketed during this time despite fire hazard warnings. Outdoor furniture sales also benefitted, as more people planned to spend time outdoors in August. Clothing retailers also benefitted during this time.

Gelato & ice cream brands and vendors benefitted all through Europe, as people consumed them in a bid to cool down.

US grocery sales, in the meantime, also benefitted from this, albeit in a different way. Online grocery sales saw the most increase at 17% vs prior year in July, as more consumers sought to avoid travelling outside during this time.

On the overall, US supermarkets benefitted from increased demand during this period, with Albertsons companies benefitting the least at 10% growth vs prior year.

However, some delayed impacts of these heatwaves are yet to come. Typically, for regions that have high humidity levels, heatwaves bring with them increased demand at a later date for anti mould and anti fungal products. Also, shampoo, conditioner, anti frizz hair products and shower gel sales increase following heatwaves as people use these more frequently during heatwaves than they usually do.

So how can you best prepare your store for these heatwaves?

Keep an eye on weather forecasts by reputable agencies. When a heatwave, storm, cold wave or any unusual weather event is expected, look at temperatures expected, humidity levels etc and consider how these, in combination, will impact human behaviour.

For instance, a heatwave is declared in the UK anytime the temperature rises above 25℃ or 26℃. When temperatures are between 26℃ & 32℃, people plan to and are likely to go out, and enjoy the warm weather outdoors. So sales of certain products like beer, wine, water, picnic essentials, barbecue ingredients etc are all likely to increase a few days ahead of these heatwaves. Sales of these products continue to stay elevated during the heatwave as some consumers maybe more impulse led than others. During this period, depending on humidity levels, sales of anti frizz hair products and brands may also increase.

However, when temperatures increase beyond 35℃, sales of these products may not increase as much, as some people may prefer staying indoors where it is cooler. Also, impulse sales will not be as high at stores, and may move to quick commerce channels, as more people want to avoid the heat outside.

When a heatwave is expected, looking at humidity and dust levels is important when considering what and how much to reorder as they impact demand for shampoos, conditioners, moisturisers, home cleaning products and laundry products.

Sound complex? That is because, it is

Impact of changes in weather can be difficult to predict when looking at things in isolation. So consider not just weather forecasts, but also the demographics of consumers around your store location. People from different countries behave differently when it comes to weather. So if your store is located in a cosmopolitan area, consider how people from different backgrounds may react differently to these changes.

If you’d like to learn more about how to prepare for unexpected weather events and maximise sales during these times, email me on veena@salesbeat.co

DtC scaling – strategies to mitigate risks

There is no doubt that the pandemic accelerated growth for several e-commerce FMCG/CPG (FMCG = Fast Moving Consumer Goods; CPG = Consumer Packaged Goods) brands. However, scaling DtC (Direct to consumer) brands online is far more expensive than scaling through supermarkets.

According to Statista, 80% of sales are still happening in store. Whether that is ‘buy online, pick up in store’ or ‘buy in store’. Also, conversion rates in supermarkets range from 20% – 40% vs online conversion rates of 3% on average.

Also, as more established companies and brands enter the DtC & e-commerce space, they push up the cost of customer acquisition due to their deep pockets. According to Statista, the cost per click on Facebook in Q4 2019 was $0.81. In November 2021, this was $1.22. Compare this to supermarkets or convenience stores where significantly more consumers walk by the shelf (an impression) at no incremental cost.

So what do DtC brands need to be aware of when entering the brick & mortar space?

  • Lack of proximity to shoppers & consumers: A key advantage that DtC brands have that has allowed for accelerated initial growth vs brands by large FMCG companies is that the teams behind the DtC brands are closer to their consumers. They leverage the data from their own DtC website to understand shopper behaviour, consumption patterns and preferences, which they use to fuel their supply chain. Also, they get valuable product feedback through reviews on their platform that they leverage to improve their brand.

    Large companies/brands, in contrast, are typically at least one step removed from their consumers as they sell through retailers. So the retailers are usually the ones who get the data on shopper preferences and consumer preferences. This may not always be passed on to the ‘brand owners’.

    When entering the brick & mortar space through supermarkets & convenience stores, DtC brands face the same risk. DtC brands can mitigate this by building a strong community for the brand as this encourages brand loyalty and feedback. Also, this can be mitigated, partially, by maintaining an online presence while also selling through brick & mortar stores to remain close to their consumers and shoppers.
  • Supply chain unpredictability: As mentioned in the previous point, DtC companies are able to leverage the data on their e-commerce portals to forecast sales. However, when selling through 3rd party aggregators (supermarkets, convenience stores and discounters), they are dependent on their customers sharing this data, which is not always common. This makes it difficult to predict sales as they then do this on the basis of historical orders placed by customers. So when they receive unexpectedly large orders, they are at times pressurised into fulfilling customer orders at the cost of going out of stock on their online stores. This may result in alienating loyal consumers who have been buying the brand since launch.

    This can be mitigated by taking a data driven approach to sales. DtC brands should consider making data sharing a key part of the negotiations during the listing process. This can help anticipate spikes in demand from customers that they can be better prepared for.
  • Inability to influence order volumes: As the size of revenues that DtC brands generate at aggregators is a fraction of the revenues that large and well established brands generate, sales teams at DtC brands are less able to influence order decisions made by ordering teams at these aggregators. So in situations when these aggregators should be holding more of the brands in stock at warehouses due to higher expected demand, DtC brands most often are not able to influence order volumes which results in stock outs at stores, losing them sales and market share.

    Conversely, aggregators may order significantly higher volumes than they should, which results in overstocking at their warehouses. While this sounds like a good outcome for DtC companies as they generate better revenues, it puts them at risk of an eventual delist if they do not sell the stock fast enough or, if some or all of the stock expires/is damaged while in the warehouse. This can be lethal for small companies.

    DtC companies should consider hiring seasoned sales people who have established relationships with customers. This may help with influencing order volumes placed by replenishment teams. Alternatively, DtC companies should consider ‘owning’ inventory management at retailers to the extent that a sale is recognised only when the brand is sold to the consumer.

    Given how this may ease working capital for the retailer, they maybe more willing to concede/collaborate on other areas like data.

If you have any questions or would like more information on the above, please leave a comment or contact me on veena@salesbeat.co

Convenience stores – a key battleground for brands

15 years ago, the key battleground for brands was discounters. Aldi, Lidl and Iceland were growing rapidly and FMCG companies were looking at how they can gain share in these channels. Convenience was an important channel, but the entire channel usually got the same level of attention as a large supermarket chain did.

According to IRI, the convenience channel in the US grew by 7.7% in Q3, 2021. According to NielsenIQ, in the UK, the channel grew by 3.3% in the 4 weeks to 11 September 2021 vs supermarkets, which grew by 0.6% during the same period.

In mid to late 2020 and all of 2021, convenience stores were the go to channel for shoppers for regular ‘top-up’ shopping. This was because of two key reasons:

  1. While large supermarkets were suffering from empty shelves and stock-outs, most convenience stores, especially the independents, were well stocked.
  2. The stores were small enough that the consumer could come in, shop and leave the store in a fraction of the time – an important consideration during the pandemic. Speed of service was the key differentiator for convenience stores vs traditional retail during this time.

Convenience stores have a history of providing local products to the communities they serve. These retailers typically have stores that are smaller in footprint, thereby providing grab-and-go solutions to their customer base.

Typically each store owner or manager places orders with suppliers or wholesalers, and as they work closely with/also help with the tilling, they know what consumers in their neighbourhood are looking for. This meant that, in 2021, convenience stores had the right levels of stock of the right brands and products, while supermarkets had run out of stock as they were expecting sales similar to previous year sales and convenience stores had adapted to the way people shopped and what they shopped for post 2020.

So what are some of the watch outs for sales people and how can they grow sales at convenience stores?

  1. Partner with wholesalers and distributors for sales – Instead of selling to wholesalers who then sell into convenience stores, consider partnerships with your wholesaler for direct sales into smaller stores. Then treat all the convenience stores in one postcode or region the same as one customer. Visit them often to take orders and liaise with your wholesaler/distributor to ensure the order is delivered.
  2. Be prepared to switch up SKUs sold at the convenience store you sell to – As the store owner is closer to your consumers, they are more likely to change the range they sell frequently to provide their shoppers with what they are looking for.
  3. Develop relationships with the stores that helps you sell directly, no matter what technology they adopt – As the format grows, the stores are likely to adopt technology and more centralised buying (wherever one company owns the stores) to keep costs low. This is likely to result in store owners/managers not understanding their consumers as well as they used to. And may order the wrong quantities or the wrong products. Sales people who manage convenience stores should consider working closely with the store managers and encourage orders on a store level rather than at a centralised warehouse level/buying group level.
  4. Help keep prices competitive – In 2022, with rising inflation and costs, convenience stores will find it challenging to maintain marketshare as they would need to pass on at least part of the cost increases. Work with store owners and managers to keep in-store prices competitive or comparable vs supermarkets.
  5. Invest your time to understand shoppers and consumers around these stores better – Spend time at these stores and in their neighbourhoods to understand the people who shop there, what they buy, when they shop and how they live. Work closely with the store owners on re-order volumes, optimal in-store stock levels and promotions ideal for each store.

By working closely with convenience stores, your brand and your sales grows at par with the growth of the channel. Then it is up to the marketing & shopper marketing team to ensure you gain share from competition and grow ahead of the growth of the channel.