Limits to the mobility of citizens during the confinement phase, in addition to the closure of many shops, restaurants and cafes, had a considerable influence on shopping habits. Thus, in a few months, the crisis will be, above all, a tremendous accelerator of trends.
All traditional distributors, even though they were open, suffered from the limitation of their offer and the caution of consumers who concentrated their purchases for health reasons. Only a few short circuits developed, such as direct sales from producers, often through home or farm delivery.
Overall, large retailers benefited from the decrease in activity in all out-of-home channels (restaurants, canteens, markets, etc.). But the reduction in the frequency of purchases by consumers, to limit outings and contacts, and the higher baskets did not benefit the large hypermarkets – which are very dispersed throughout the territory -, but supermarkets and convenience stores.
The most significant trend has been the strong growth in online sales which, in food, reached 10% market share in mass consumption (compared to around 6% market share in 2019).
Network business locations are essential
Although all the brands have reinforced and diversified the offer of these services, they have had difficulty in responding to the strong demand of customers. Faced with the saturation of drive staging platforms, they were forced to set up virtual queues on their websites, deliver late orders, quickly deploy click-through services, and home pickup and delivery.
The winners of the crisis were thus the groups with the best structures and skills in e-commerce, logistics, sourcing and marketing. The availability of different e-commerce solutions (drive, click and collect, pedestrian, etc.), better integrated logistics, more sustainable relationships and partnerships with suppliers – mainly for fresh products – have allowed these groups (such as Intermarché and Système U) to stay ahead of the competition.
Nielsen Scan Strip
After a temporary increase during the first few days of confinement, non-food e-commerce results were more mixed. Technical, sports, do-it-yourself and beauty and health products saw strong increases. On the other hand, clothing sales stagnated and those of some furniture and decoration brands even fell, confirming the structural difficulties of the sector.
In general, the retail websites of the store chains were the big winners of the crisis and, in addition to the drop in demand, the gain in market share of e-commerce has contributed to putting in crisis many companies that were lagging in the market development of online sales.
What will be the way of recovery?
Despite a recovery during the second half of the year, we will indeed see a collapse in global consumption towards the end of the year (an 8% drop in gross domestic product for the year 2020, according to the National Institute of Statistics and Economic Studies). And even if a strong recovery presents itself in 2021, the modest growth rates of successive years will not allow a quick return to pre-crisis levels.
It is certain that consumption habits will gradually return to previous trends, in food with a return to healthier, fresher products, without additives and more environmentally friendly. But as incomes fall, the search for low prices will also come back strongly, driven by consumers’ perception of price inflation.
Although generally erroneous, this is explained by the increase in the price of fruits and vegetables, the reduction of promotions – following the EGalim law of October 30, 2018 that limited them – and the forced purchase of more expensive to replace others, less expensive, but out of stock.
In non-food, the drop in clothing consumption is expected to continue, while purchases in other categories will resume growth, but more online than in stores.
“Omnichannel”, challenge of the world after
If the mass distribution was the big winner during the confinement, the signals have no choice but to adapt now to a new set of constraints and invent new economic models.
The decrease in consumer incomes, the recovery of out-of-home consumption and the reopening of traditional businesses will put their potential into perspective, particularly with regard to large hypermarkets, some shopping centers and department stores. Compliance with hygiene measures and barrier gestures will increase costs and reduce store productivity, which automation can hardly compensate.
To retain the long-term customers gained through online sales during the confinement, brands will now have to improve their logistics and the organization of teams in stores and warehouses. They will therefore have to adopt measures to reduce costs, restructure networks and invest more in new technologies and in the training of human resources. Ownership changes, consolidations, and reconciliations will likely be required to complete them.
Growing consumer demand will be such that multichannel (simultaneous or alternative use of different contact channels for marketing) will become a survival condition for all distributors. But “omnichannel” skills, that is, the integrated management of the different channels, will become an increasingly important critical success factor.
Indeed, it is through the integration and synergies between the various channels that it will be possible to provide consumers with an offer perceived as coherent and a fluid and “seamless” service experience. Relationships with suppliers and with sales and delivery teams proved to be crucial in responding to the crisis.
But to acquire, or even maintain, competitive advantages in omnichannel, technological skills, in big data, logistics and merchandising, will become increasingly essential.
PerProfessor Emeritus, ESCP Business School.
The original version of this article was published on The Conversation.