Technology powers efficiency gains as consumer behaviours shift

Executive summary 

• Resilience to a volatile, uncertain, complex and ambiguous (VUCA) economic environment has become an indispensable business and leadership quality
• The use of digital tools to facilitate internal business processes and online advertising accelerated rapidly in 2020, rewarding early adopters
• Consumers are increasingly demanding companies they patronize uphold social and environmental responsibility and good governance
• The normalization of remote work has opened up new possibilities for telecommuting with a greater range of skillsets and disciplines
• Pent up demand for socializing and gathering outside the home bodes well for a recovery of in-person shopping, leisure activities and travel
• The demand for risk planning has grown alongside the complexity of scenarios

Unprecedented restrictions on movement imposed by governments across the world in 2020 had a profound impact on consumer behaviour, focusing spending closer to home and driving customer engagement and commerce online.

The trends that emerged from this turbulent year were, to a great extent, already underway. Consumers were already taking greater interest in knowing the source of the products they purchased and their environmental and social footprint; Consumption was already shifting from brick-and-mortar retail towards e-commerce; Social media was already sapping advertising dollars from outdoor advertising, print and broadcast channels; and companies were already putting a greater emphasis on business sustainability in an industry already contending with disruption on multiple fronts. The forced closure of "non-essential" businesses, however, accelerated these trends, and in many cases, made conventional business activities obsolete overnight. 

Proven products and new channels gain momentum 

With heightened concern about cleanliness and hygiene in the face of a global health threat, it's no wonder companies that manufacture personal hygiene and household cleaning products have fared well over the past year, and Germany-based Henkel is no exception. The company faced many challenges, especially in regions accustomed to more traditional ways of doing business, said Mary Valsama, General Manager, Laundry and Home Care, Greece and Cyprus. 

It was a great challenge to keep the team connected virtually and empowered under these difficult circumstances and to stay connected to customers, Valsama said. It's also been a great opportunity to nurture entrepreneurial spirit, build skills and find solutions to remain effective with digital technology and e-commerce, Valsama added.

Henkel demonstrated agility and speed in response to the increased demand for hygiene and laundry products, as well as personal care disinfectants, cosmetics and home care lines to meet the most stringent demands of the market, Valsama said. 

The company increased spend on social media from 20% to 30% of its overall advertising budget as consumers spent more time online, and worked with advertising and retail partners to craft promotions that resonated with consumers, Valsama said. "We saw a shift towards hygiene products and cleaning products that can offer security at home, because people spent a lot of time at home and they wanted to have a clean, safe and pleasant environment." Sales of automatic dishwasher detergent skyrocketed as consumers cooked and ate more meals at home rather than eating out, she added. 

War rooms for vanishing customers 

The travel and hospitality industry bore the brunt of government lockdowns between 2020 and 2021, and consumer products companies and retailers that rely on the industry were crippled. 

"We lost three quarters of our revenue in 2020 versus 2019, with a huge financial impact," said Thanos Trimis, General Manager Global Travel Retail at British American Tobacco (BAT). BAT established a war room to reallocate large inventories and renegotiate contracts with retailers as the travel industry ground to a halt. 

"Every single organisation in the world, no matter how big or where they are located, has been significantly impacted," said Eduardo Carriquiry, CEO and Board Member at Peru-based poultry and pork producer, Corporación Rico. 

Uncertainty, Carriquiry said, is not a good partner in the meats business. The company found itself up against plummeting prices with no market for millions of chickens and thousands of pigs. "We were barely able to cover costs," Carriquiry recalled. "We really needed to think differently to dispose of our inventories and not lose money in the process," he added. The chief executive quickly implemented several changes, cutting production, phasing out non-essential investments, downsizing headcount by almost 15%, accelerating the launch of online sales, and adapting its distribution system to the new reality in the market. 

Ultimately, Corporación Rico recovered and became more profitable as a result of the changes it was forced to implement, he said. "We were fortunate enough that by the end of 2020, we sold as many kilos as in 2019 and earnings increased by 10%," he said. 

"We confirmed that a huge crisis can effectively be an opportunity to do things faster and more efficiently, as long as you're willing to be bold in your moves and take calculated risks. I don't think that without the pandemic, we would have switched gears so swiftly," Carriquiry said. 

Brick and mortar retail hits a wall 

While food and hygiene products fared well under the atypical market conditions of 2020, brick and mortar retailers selling discretionary products were devastated when shopping malls were shuttered. 

Ingka Centres, which owns and operates 45 shopping centres across the globe anchored by its famous parent company, IKEA, faced an existential threat when its raison d’être of bringing people together was all-but-banned. 

"The core idea is about creating meeting places, places where people can socialise, have a fun day out, eat, and of course do some shopping," noted Ingka Centres Head of Global Sustainability Transformation Miia Kautovaara.

Notwithstanding the dire consequences of lockdown orders on its meeting places, Kautovaara said she is optimistic. "When it comes to visitation, which is the most important value that we create, it has of course been highly impacted; but at the same time, we can see that the average ticket has gone up, so for our partners, it means that even though customers come less frequently, they buy much more when they come," Kautovaara noted. 

Social isolation, meanwhile, has created a pent-up demand for socialising, she said, and whenever the company is able to reopen its meeting places, customers are returning in droves. "People have this natural need to meet, to socialise, to have fun outside of their homes as well," she noted. 

Spirits for a VUCA world 

The biggest challenge is being able to identify the opportunities after coming to terms with the fact that we now live in a VUCA world, characterised by Volatility, Uncertainty, Complexity and Ambiguity, said Edward Bakhurinsky, Managing Director for Eastern Europe, Russia and the CIS at UK-based spirits company William Grant & Sons. 

The legendary whisky brands in the company's portfolio have been resilient in the off-trade channel in the year since the first lockdown was ordered, Bakhurinsky said, and alcohol consumption actually slightly increased in some markets. Travel retail has obviously suffered, meanwhile, he noted.

As the bar and restaurant trade was put on ice, the company faced internal challenges in hiring and onboarding new staff remotely, and enabling them to assimilate the company ethos. "Our company is very rich in culture, and usually all newcomers would go visit our production in Scotland to learn and understand the history, which is not the case now," Bakhurinsky noted. 

The normalisation of remote work has resulted in positive shifts as well, however, according to South Africa-based Independent Advisor Wayne Bebb. Companies are retaining specialised talent, including his advisory services, from anywhere in the world, rather than insisting those resources be localised, Bebb said. This has expanded opportunities and made work more efficient, enabling greater focus and less time and money wasted on travel, he noted. 

Selling the product journey 

Consumers have grown increasingly concerned about the origin, sustainability and recyclability of the products they buy over the past year, meanwhile, said Valsama. "The top priority became the quality and source of products, their hygiene and safety, as well as pricing," Valsama noted. 

Shoppers have become tremendously focused on source, agreed Bebb, in what he described as a positive change for the companies he advises. "Where brands have embraced those changes in behavioural values, it has actually resulted in tremendous forward momentum and success," he said. 

William Grant & Sons has embraced consumers' focus on source, with more than 3,000 students registered for its brand ambassador webinars and its B2C channel growing and represents a good portion of sales in its luxury portfolio across Russia, "which is extremely efficient and gives you a direct connection to your end consumers", Bakhurinsky said. 

Where bars and restaurants have reopened, William Grant & Sons is benefitting from what Bakhurinsky called "revenge spending". "We see lots of people going to bars and restaurants to enjoy life a little bit more," he said. 

It was Winston Churchill who said you should never let a good crisis go to waste, Bakhurinsky recalled. "So let's leverage it," he said. Recent trends, Bakhurinsky added, have benefitted strong international companies like William Grant & Sons' portfolio, as consumers naturally gravitate to the brands they know and believe in, especially in uncertain times. 

The online experience can also level the playing field and allow new brands to showcase themselves cost effectively by leveraging their unique qualities, Bebb said. "There's going to be big organisations, and big brands that are going to have to pivot completely to adjust to those consumer trends, and there's going to be smaller, unique, boutique, authentic brands that are going to pop into the minds of consumers and are going to be really successful in that world," Bebb added.

"Direct-to-consumer enables a democratisation of brands and companies," agreed Trimis. It’s easier for suppliers to reach target consumers with tailored one-to-one communication, without having to invest a lot of money in traditional advertising and distribution,” he said. "This pandemic was an accelerator for the things that we'll see coming faster than anticipated originally," he noted. 

Skills for a brave new, virtual world 

In the future, messaging will become much more tailored to consumers' attitudes and interests, so that there's a better match with products and less noise, Bebb noted. "It's going to boil down to consumer enticement, and that is very localised," he said. Artificial intelligence and data management using talented resources will drive this trend, he said, along with new means of enticing consumers, whether through social media influencers or user-generated, peer-to-peer consumerism. Somebody sharing an experience with you is one of the most powerful and trustworthy marketing tools, Bakhurinsky noted. 

As everything moves online, digital marketing and communications skills, beyond the classic media of TV and print, will be extremely valuable to an organisation, Trimis said, along with resilient leadership that can cope with greater demands and adapt easily to localised needs in an environment of ongoing volatility and uncertainty. 

There's a very strong expectation at the advisory level of being able to understand the localised impact of what various scenarios may be, how that's going to play out and how to plan for those impacts, Bebb said. 

"We have to be adaptable in the local circumstances, so even though we have global marketing campaigns, we are always adjusting those on the local level, and that is what the customers are, of course, expecting us to do as well," said Kautovaara. 

"Our consumer will emerge with different priorities in terms of values and needs, and we need to address our consumer in a completely different way, and really find the right way," Valsama said. 

"Consumers are asking more and more from the brands and the companies behind the brands, and this will continue as a trend going forward," agreed BAT Global Travel Retail General Manager Thanos Trimis. "Just having a good brand, without having a purpose, or without having a greater contribution to society, will be a challenge," he added.