COVID-19 has changed consumer behavior in ways that have brought unique challenges to retailers and consumer products manufacturers. Mark Schmeling, National Sector Leader, Consumer & Retail, describes the overall implications for online commerce, growth and revenue, supply chain and demand planning, future business models, and how KPMG uses Artificial Intelligence to help our clients find solutions.
Hello, I’m Mark Schmeling. I’m KPMG’s National Sector Leader for Consumer Retail.
The impact of COVID in our Consumer Retail sector has varied significantly, depending on the industry segment your company is in. As the country begins the early stages of reopening for business, we anticipate that many of the changes and consumer behaviors that we saw during COVID will have long-term implications for the business and operating models of manufacturers and retailers alike. Clearly, the virus provided significant momentum for grocers in terms of online commerce, as many consumers went online, ordered their groceries for the very first time to avoid going into the stores and remaining safe. We see that trend continuing in the long term. We also see an acceleration in growth in e-commerce penetration across all retail categories long-term, with food and beverage, and personal care, benefiting significantly in the short term.
The bottom line is that we see COVID as a major step change in the evolution and transition from brick and mortar to digital commerce, and sadly we will continue to see more retail closures over the coming months and years.
As I mentioned a moment ago, the restarting of America will take a very different form, and very different path, depending on what industry segment you’re in. In grocery, it’s all about online commerce. And for the smaller grocers, it’s about keeping up with the leaders in terms of matching capabilities around online ordering, around curbside pickup and delivery, but it’s also about thinking about your cost structure and your labor models. As more and more orders go online, you’re going to need to think about your labor models in terms of order fulfillment while still managing the store experience. So those are some of the challenges we’re seeing in grocery.
For non-food retailers it’s a whole other story. The lockdown, the recession, and frankly the changes in consumer behavior have really created unprecedented growth challenges and revenue challenges for these retailers. We’ve already seen a number of bankruptcies announced. We will continue to see more and more restructuring of these organizations. For these companies it’s all around managing cost and performance - really looking at the portfolio stores, establishing some modeling and profitability thresholds of those stores and then determining what stores remain open and what stores need to be closed.
On the manufacturing side, especially on the food and essential products, it’s really about supply chain and demand planning. From a supply chain perspective, it’s all around making sure those plants that process food or manufacture goods remain safe and healthy from a supply chain perspective. We saw some of the challenges that the meat processing plants had. And so for these type of organizations, how do you avoid those kinds of situations?
And then on the demand planning side, it’s really about how do organizations like food companies begin to predict changes in consumer behaviors around mix, around product mix, different SKUs, different price points as well as what channels they’re going to go through, whether it’s online, or in store, or mass? And so, looking at new ways of forecasting products and forecasting demand, thinking about different external signals, different external data sets, along with your traditional financial and historical data, and then also leveraging new technology like AI. This is what we call intelligent forecasting. We’re seeing a lot of activity in this particular area.
On the non-essential manufacturing side, specifically in apparel, it’s really about cost control and profitability. You think about the massive contraction that we’re going to start to see in physical retail. These manufacturers are going to really struggle to find new sources of demand. And fundamentally, they’re going to start to think about what new business models they’re going to need, like direct-to-consumer, to sustain their business in the future.
So, regardless of the segment and the path to recovery, the most important priority for consumer retail companies is, frankly, to ensure the safety of your employees and your customers. As we work to support our clients through a variety of challenges, we’re seeing strength and resiliency every day, and a strong commitment to caring for their employees and the community. We at KPMG are dedicated to working shoulder-to-shoulder with our clients to support you through these unprecedented times. Thank you for joining me during this time. Stay healthy and stay safe.