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Sifting through management commentary and earnings call transcripts is a useful way to find out what other companies are seeing in the marketplace.

We went through Q1 earnings results and transcripts for 40 companies to surface core insights.  Amongst the findings, we see that while many CPGs are struggling with the changes, most CPG categories are doing well, some especially so, at least when it comes to sales*.

A number of core themes are emerging, and in many ways, they mirror changes that played out in the wake of the Great Recession. Companies today talk of:
  • A shift to trusted big brands
  • Premium holding up well but most expect hard times for consumers that will bring frugality and price consciousness
  • A marked shift to e-commerce (in the Great Recession this was because of price, now it’s more because of safety and convenience, as well as lack of access to physical channels)
  • Shift to larger pack sizes to minimize shopping trips and stock up
  • Demand for ingredients as people find time to cook rather than just re-heat?
Other trends may become evident over time. After lockdowns are reversed, consumers may reduce the frequency they eat and drink out, choosing to cook and entertain at home, and they may become even more focused on localization and transparency.

The task for managers and innovators is to understand these shifts and find ways to reposition existing lines, or create new ones, to tap opportunities. Fortunately, this being the internet age, there are many sources and sites that can help companies see innovations in close to real time.  These doesn’t capture deeper changes and often more significant efforts – looking at trademark and patent applications, etc. – but they can help. Here are a few we noticed:
  • COVID Innovations brings together 100s of ideas and innovations from around the world. You can filter by industry and search. Get imagining!
  • Ad Age provides a useful summary of how brands and companies are reacting. For example, on May 11, it reported that:

PepsiCo Inc. on Monday unveiled PantryShop.com and Snacks.com, two sites for shoppers to buy products such as Gatorade, Quaker oatmeal, Doritos and Tostitos directly from the manufacturer. The sites were developed in less than a month, PepsiCo says, and come as more shoppers have become comfortable with buying groceries online. Most orders will be received within two business days, PepsiCo says.

  •  There are also many articles and books to help, including this free download from New York Times best-selling author Martin Lindstrom that looks at how the pandemic is changing consumer behavior
Lots of material to go through and use. Call us if you need a hand!
 
* Sales might be holding up but beneath the surface there are cracks, especially with production and supply chains struggling. Costs are rising and today the path forward looks trickier and more complicated. We’ll cover this at a later date  [Image Credit: © Business360]
As the coronavirus pandemic rages on, and shopping habits evolve, the Coca-Cola company is likely to benefit from three trends: a return to trusted brands; a huge shift toward ecommerce, and a slimmer innovation pipeline, according to CEO James Quincey. Coke, for example, will torpedo smaller new product development efforts in favor of fewer but larger projects that are scalable. Because shoppers are spending less time in stores actually “shopping,” they’re relying on known brands, making fewer trips to stores. That means retailer promotions need to be very effective, focusing on multipack offers and promotional frequency. That means “ruthlessly prioritizing to deliver on core SKUs and key brands and helping customers simplify their supply chains,” Quincey said. Another key trend is rooted in consumers’ desire to stay safely at home. The answer is ecommerce and at-home delivery. Coca-Cola is shifting to package sizes appropriate for online sales while reallocating consumer and trade promotion spend to digital. The company does not believe these are short-term trends: they are an indication of how consumers will shop – and companies adapt – in a post-COVID world.[Image Credit: © THE COCA-COLA COMPANY]
Data points are emerging that show the severity of the coronavirus downturn in China and hint at what we can expect in the west. Mostly it underlines the need for companies to focus on survival.

South China Morning Post reports that over 460,000 Chinese firms closed permanently in the first quarter due to coronavirus. It added that the closures comprised of businesses whose operating licenses had been revoked, as well as those who had terminated operations themselves.

Moreover, the pace of new firms being established slowed significantly. From January to March, around 3.2 million businesses were set up, a 29% drop from a year earlier.

These closures are rarely large corporations. Instead, they’re more typically SMEs and local businesses that contribute about 60% of GDP.

A growing scene in China is rows of empty shops and closed factories as companies grapple with slumping international demand.

Economic data covering January and February shows severe declines on many fronts:
  • Industrial production – a measure of manufacturing, mining and utilities activity – fell 13.5%, the first decline on record
  • Retail sales fell 20.5%, first decline on record (-4% was the median forecast according to Bloomberg)
  • Fixed asset investment – a gauge of expenditure on items including infrastructure, property, machinery and equipment – fell 24.5%, the first decline on record (analysts predicted -2%)
On April 17, China's National Bureau of Statistics said its economy shrank by 6.8% in the first quarter, the first drop in 28 years. In a Tweet, American economist Nouriel Roubini said “This is a depression rate of economic collapse. Of course starting in April economic growth is positive but the collapse in Q1 was staggering!”

We don’t yet have comparable data for the US, but online sales data for March from Stackline shows the extent to which some categories are declining: 


Unsurprisingly, travel and other discretionary categories are most affected. But look at the declines, up to -77% and all -28% or worse! These are not sustainable reductions for most businesses. A month or two might be manageable, but China data suggests we can expect a grinding slowdown.[Image Credit: © Stackline]
Competitor analysis helps companies and brands learn, improve, perform better and win. If you’re not tracking your competition you won’t see when they misstep…

Competitive intelligence requires bringing together insights from numerous aspects of a company’s activities – operational changes, public announcements, financial disclosures, launches, innovation and R&D, patent and trademark filings, targeted interviews…

Put it all together and you can build a good sense of how a company is doing and what it’s likely to do next.

We often look at L’Oréal and here’s some summary points on what they’ve been doing through this crisis…



[Image Credit: © Business360]
An article in Havard Business Review gives some good examples of how Chinese companies responded to coronavirus.

Nimble employers pivot and redeploy personnel:


When Chinese cosmetics company Lin Qingxuanhad closed 40% of its stores during the crisis, it had over 100 store-based beauty advisors without work. Instead of laying them off, it redeployed them to become online influencers to engage customers virtually and drive online sales. In Wuhan sales grew 200% on the prior year


Instead of reducing headcount in the downturn, a Chinese travel agency refocused around longer-term preparations. It encouraged employees to use their time to upgrade internal systems, improve skills, and design new products and services to be better prepared for the recovery


Following the sharp fall in revenue, over 40 restaurants, hotels, and cinema chains had excess staff. They shared employees with Hema, a supermarket chain owned by Alibaba, which had urgent need of labor for delivery services due to the sudden increase in online purchases


Chinese companies also show the benefit of quickly replanning, rolling out alternative offerings and being agile:

As the outbreak started in China, Master Kong, an instant noodle and beverage producer, reviewed demand and reprioritized efforts frequently. It anticipated hoarding and stock-outs as well as store closures. By managing its supply change flexibly it was able to be responsive and when stores reopened it could supply up to three times as many as some competitors

Huazhu, a hotel-chain with 6,000 locations in 400 cities across China, set up a task force that met daily to review procedures and issued top-down guidance for the whole chain. It used an app called Huatong, to ensure employees and franchisees had timely information regarding operational changes

To boost online sales, Cosmo Lady, the largest underwear and lingerie company in China, started a program to increase sales through WeChat, enlisting employees to promote to their social circles. It created a sales ranking among all employees, which included the CEO, to help motivate staff to participate in the initiative[Image Credit: © Logo owner]
To excel post-coronavirus, companies need to understand what’s changed and play to the new rules. Only through analyzing how the marketplace and competitive landscape are different will they be able to compete effectively. 

Change is happening on many dimensions. Here are a couple of themes that hint at what’s to come…

1. Contactless preferred. Expect contactless stores, hands-free delivery, end of cash…

Existing contactless services will rise and new ones will emerge. Technology will play a critical role, but behavioral changes will be a key part too

Technology developed for Amazon Go stores is now being made available to other retailers as “Just Walk Out technology by Amazon”. This will play to consumers’ new desire to limit contact as they shop. Expect encroaching depersonalization and an ongoing advance by Amazon into physical retail

“Contactless” delivery is coming, with deliveries placed on mats, the back of mopeds or other designated spots. The driver steps back as the customer takes the delivery. 

We got a sense of this in China where it became the norm. CBS, for instance, reported how KFC introduced it, see image right (at CBS, credited to KFC China/Weibo).

Robots are next, and again we saw early signs in China. On February 7, Supply Chain Dive reported JD Logistics was using autonomous shuttles and drones for last-mile deliveries in coronavirus quarantine zones.

The company started delivering food supplies and medical gear in the region on Jan. 25. Since then, it has delivered over "2.36 million medical and epidemic prevention supplies, including masks, medical gloves, goggles, disinfectants" and other items to major hospitals in Hubei Province (image from JD.com).

Robots delivering food and other items will come soon. Meituan Dianping, a delivery app in China, plans “contactless delivery” through autonomous vehicles and robots.
 
Coins and notes can be a vector for coronavirus and this is pushing retailers and customers to contactless payments. US analysts believe it will cause long-lasting behavior changes, and The Telegraph asks whether it will spell the end of cash in Britain

2. New forms of entertainment. Expect enhanced virtual living, together apart, virtual alternatives to real world FOMO

In January, China saw a proliferation of new behaviors – streaming yoga, gym, church services, dinner parties… Virtual parties - “cloud clubbing” arrived, where a DJ performs live on apps like TikTok and Douyin while audience members react in real time on their phones.

#TogetherAtHome by Global Citizen is supporting WHO with a range of rapidly organized streamed concerts.

Mass virtual entertainment is pushing into new fields. Look at drinking: we now have lots of virtual bars offering beer tastings, homebrew classes and pub quizzes.

In the UK, craft beer maker BrewDog opened over 100 bars online in March 
[Image Credit: © See references]
World Economic Forum gave an overview of how companies in China are ‘stepping up’ to help with the coronavirus response. Here’s a short summary.

Ensuring supply
It cited the article from The Straits Times we mentioned before, saying

“…corporations including Alibaba, Baidu, Bank of China, ByteDance, China Construction Bank, China COSCO Shipping Corporation, China Merchants Group, Envision Energy, Fosun Group, Guangzhou Pharmaceutical, JD.com, Mengniu, Ping An, SinoChem, Sinopec, Tai Kang Insurance, Tencent, Xiaomi, Yili and others have donated large volumes of healthcare, food and other supplies to the affected areas. Manufacturers including BYD, Foxconn, Guangzhou Automobile Group Co. and SAIC-GM-Wuling are setting up makeshift assembly lines to produce additional masks and disinfectants.”

Providing infrastructure
WEF cites the construction of the 1000-bed Huoshenshan Hospital and the 1600-bed Leishenshan Hospital in Wuhan, both built in under 10 days.

Fighting misinformation
WEF highlights ways Chinese tech companies helped out by delivering useful information. Baidu created an “epidemic map” that lays on top of its Map App to show real-time locations of confirmed and suspected cases of the virus. Qihoo 360 and NoSugar Tech launched a platform that lets travelers check if anyone on a plane or train they took had a coronavirus positive traveler. (Data for these apps must have come from state bodies and in the west no comparable datasets look to be available.)

Various companies worked to provide medical information. For example, “Medipedia” a healthcare site from Tencent added advice on coronavirus symptoms, treatment and preventive measures. Tencent also provided an out-patient clinic map to allow users to look for the nearest clinics as well as “JiaoZhen”, a site that helps users debunk fake news. JD Health’s Ping An “Good Doctor” and UnionPay’s “YunShanFu” launched free online health consultation services, while “AskBob” uses AI to give virus-related advice.

Facilitating remote work
Tech companies helped people work from home with online tools, such as Alibaba’s “DingTalk,” Tencent’s “WeChat Work” and “Meeting,” ByteDance’s “Feishu” and Huawei’s “WeLink”, adding tools and features to make them more useful. Some helped financially too. For instance, ByteDance offered its commercial version of “Feishu” free for three years for all SMEs, street communities, NGOs, hospitals, and medical institutions.

Sharing tech
Providing technological help beyond remote work has been important. WEF describes how Alibaba Cloud offered AI computing capabilities to public research institutions for free to support virus gene sequencing, new drug R&D and protein screenings. Baidu made available LinearFold, its RNA prediction algorithm, to genetic testing agencies, epidemic prevention centers and research institutes around the world. Infervision launched a “Coronavirus AI solution,” AI software for front-line clinicians to detect and monitor the disease on CT scans.
After surviving, companies need to help out, to Give & Boost. They can do this in many ways and we can already see examples in China, and Asia more generally.

With production of non-essential products stopped and workforces sent home, companies are turning to producing essential items. And they’re doing it at impressive volume.

On February 7, The Straits Times reported that Foxconn had begun trial production of surgical masks in Shenzhen, and expected to produce two million masks daily by the end of the month.

Also, SAIC-GM-Wuling Automobile, a joint venture carmaker formed by General Motors and two Chinese partners, said it will set up 14 production lines with the goal of making 1.7 million masks daily.

Clothing manufacturer Hongdou Group, has refitted a factory to make disposable medical suits and says it plans to produce about 60,000 protective suits a month. Other apparel companies have similar initiatives.

Some Chinese companies, from car manufacturers to energy providers, are starting to make face masks.

Electric car company BYD has reconfigured production lines to produce face masks. Sinopec (China Petroleum & Chemical Corp) said it obtained mask-making equipment and was setting up 11 production lines. Truckmaker Shaanxi Automobile started making goggles and aims to produce over 3,000 a day.

Of course, in China, the government can more easily compel companies to do their bidding. In the west, these initiatives will be more voluntary. But they will be much more visible. Consumers will notice if companies don’t pitch in.

Brands and corporations in the west need to plan how they can best help, liaising with competitors and government to efficiently meet need. Corporations must realize this is not a market, it is a mission.[Image Credit: © Business360]
News coming out of China shows coronavirus will have a brutal impact on business. Companies must urgently plan for the coming storm...

It’s now very clear that this crisis is an existential threat to many corporations. Supply is disrupted and demand is collapsing.

A corporation’s first obligation is to survive. How to do that?

Three core pillars:
  • Care for employees and contractors, reconfigure working environments. Without safe employees it all falls apart. Corporate leaders need to move quickly to ensure their well-being. Fly them back home, put them in safe places, ensure they can work from home 
  • Marshal cash, revise cash flow, re-budget, secure debt lines, delay large commitments. This is a cash-crunch. Payments will be due yet revenues will fall, bad debt will rise. Large corporations will mostly be able to tap debt markets but SMEs can’t, at least not easily. They need to hunker down, decide who they can avoid paying (the government and large corporations…) and look for new angles
  • Adapt and find new ways to keep going. This will turn out to be a Darwinian moment. It won’t feel like ‘creative destruction’ for some while, but that’s what it is. Businesses need to be nimble and play the angles. Of course, that sounds easier than it is, but once this has passed, the survivors will be those that were fleet of foot.
Already we can learn lessons from China where companies are shutting offices and factories and asking staff to work from home.

The BBC reports that Bytedance, owner of video-sharing platform TikTok, and Chinese gaming company Tencent have asked employees to work from home. Restaurant chains like Haidilao have shut branches across China.

Large foreign corporations are acting quickly and decisively, often driven by governmental mandates. Starbucks, for example, closed half (about 2,000) of its outlets in China to protect staff and support government efforts to contain the coronavirus.

Google temporarily closed all of its offices in China, Hong Kong, and Taiwan. It also stopped its staff travelling to China and Hong Kong, while employees currently in the country were advised to leave as soon as possible. Facebook, Apple and Amazon have taken similar measures.

Wuhan is a center of automobile manufacturing and many car companies – Toyota, GM, PSA – shut factories, at least until February 9.

These are draconian measures. At the moment it feels inconceivable that we will have similar actions in the West, but unless the virus is contained, we should expect them. Corporations distant from China have the advantage of time and should use it to get ready across all facets of their operations, especially urgently bolstering supply chains, finalizing work-from-home operations and securing debt lines.[Image Credit: © Business360]
Coronavirus is emerging as a significant threat. Corporations need to plan for a long game with multiple stages

Initially labeled a 'classic supply shock, coronavirus is actually much more. It's also a mass collapsing and reconfiguring of demand. People are unable to spend as they used to (stores, resturaurants, entertainment...) and are being forced to shop through different channels, mostly online. Moreoever, economies are up to 70% driven by consumer spend and consumers are easing back, worried about impending layoffs and furloughs. This is going to get ugly: most corporations will struggle, some will go under.

This is how we think businesses should respond:

We think this crisis will run for a while and in coming weeks and months we'll look more at each strategy, including finding brands and companies that look to have it right. Also, we will be tracking how coronavirus is impacting coporate sales. Contact us if you want something tailored to your needs.

Meanwhile, here's a little more detail on each.

[Image Credit: © Business360]
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