While COVID-19 has helped drive record sales numbers for many of the world’s largest consumer packaged goods (CPG) companies. The hidden storyline has been an extraordinary shift in where that spending is taking place.
Some stores that were once the biggest sales contributors are now seeing sales declines while those that may have been previously viewed as “under achievers” are over-performing against all previous benchmarks. This rise and fall of stores around the world is expected to continue as more people work from home, or move away from urban centers, even after COVID-19 vaccines are deployed.
Prior to the onset of COVID-19, people commonly shopped on the way home from work, stopped in stores near train stations and bus stops and patronized stores in retail centers near office parks. But, as working from home has become the normal for many, those shopping trips have faded — a trend to be replaced by increased sales in more residential areas. There are widespread implications.
A Nielsen Intelligence Unit investigation of sales at store level across 15 countries reveals a retail environment in major flux due to these altered travel routines. The shift will force retailers to recalibrate their thinking on the location and format of stores. It will also force CPG brands to overhaul long-running product distribution strategies.
The concentration, or number of stores, that account for 80 percent of FMCG sales, often referred to as “golden stores” has changed, with movement of up to 2 percent in either direction across the 15 countries. For example, 22 percent of the stores in the U.S. delivered 80 percent of sales between March and August 2020, up from 21 percent during the same period last year. On the surface, such a change may not seem meaningful, but in the context of hundreds of billions of dollars spent in the U.S. alone, the shift points to a much bigger impact.
This shift could have a meaningful impact on the share of market that brands have if they fail to recognize and respond. This small percentage point change represents a large amount of consumer spend that is now being distributed to “other” stores that had been previously unnoticed or deprioritized by brands.
The composition of golden stores has also changed, which hints that there are bigger shifts below the surface that may not be seen when looking at performance through normal market breakdown measures. Across the 15 markets, the composition of stores that either fell out of the top 80 percent of stores or climbed into the top 80 percent ranged from 1-10 percent. But most importantly, a wholesale re-ranking of stores took place across the universe of golden stores, with some stores moving up or down in importance by hundreds of places. The relationship between retailers and manufacturers will be closely tested as the necessary adjustments are made to account for the swings in ranking.
This kind of large-scale movement in what constitutes a valuable store reflects a new kind of dynamic in the marketplace. If big manufacturer brands are wondering why their share of market isn’t growing along with the increased spending right across the CPG space, this may be at the heart of their problem.
Looking beyond the health emergency, store dynamics will remain altered due to permanent adjustments to lifestyle and work circumstances. Companies around the world are already signaling they will no longer operate the way they did in the past. People will commute less, work from home more and move further away from city centers. The consequences of this for the locations of stores, the formats of stores, the assortment in those stores, and of course, the pricing of products are far reaching. If you add in the dynamic of a massive rise in e-commerce for the CPG space, the need to respond to what we have discovered is one of urgency.
The impact will ripple beyond the CPG sector. Stores in many other sectors, such as consumer electronics, fast food and home improvement often rely on grocery stores, particularly those of the large retail chains, to be anchors that drive footfall to their typically adjacent outlets.
For decades, many of these golden stores have reliably been delivering a steady stream of revenue to retailers and brands. But that is now clearly being turned on its head. The analysis also reveals a more pronounced channel impact with bigger movements recorded among similar store formats. The particularly big reshuffle at a channel level is important when one considers that many categories, product types and SKUs realize the majority of their sales through a particular channel such as chewing gum through convenience stores or family ice cream packs at large format stores. Understanding where the majority of sales and growth is moving and has already moved is paramount at a manufacturer and brand level.
In the U.S., five cities were analyzed, and the work revealed a widening gap in sales when zip codes were viewed through the lens of population density.
The findings suggest that stores aligned to high-density workplaces are no longer within reach to many new remote workers. In fact, dollar share has declined swiftly among stores located in the highest-density postal codes and risen among stores in the lowest-density areas.
