We present an edited version of our conversation with Andrew Appel, President and CEO at data analytics firm IRI in a webinar held on May 26, 2020. The webinar was hosted by Deborah Weinswig, CEO and Founder of Coresight Research. Andrew Appel is President and CEO of IRI. He joined IRI in June 2012, having previously held a number of senior leadership positions for Chicago-based professional service firms. As COO at Aon, Appel developed and implemented a successful revenue growth plan for the company. He also led the team responsible for the $5 billion acquisition of Hewitt, solidifying Aon's leading position in human resource consulting and outsourcing. Prior to this, Appel was CEO of two of the firm's three global divisions.

Changes in Consumer Shopping Behaviors

What are some of the changes that you are seeing in terms of the channels that people are shopping through? For the most part, we have seen a migration to large-format, big-basket trips. Up until the last couple weeks, consumers effectively wanted to do one trip a week, and so the basket sizes were up and the larger-format stores were doing better—when we look at our data by format, for example. It is interesting that the small grocers are doing just as well as the large ones. The mom-and-pop, small, local grocer has been doing okay, as best we can tell. I think where it is the primary shopping destination for the family, we are continuing to see that growth rate be very high. That could shift as the environment shifts, but for the last 12 weeks, we've continued to see a rotation toward traditional grocery and e-commerce. The $64,000 question is how much of stockpiling was consumption versus pantry stocking. I think our data would show that people mostly bought two purchase cycles of home stuff in that first two weeks—so if the average purchase cycle for laundry is six weeks, it is now 12, something like that. There was a doubling up in a lot of homecare categories like that. What do you think are the longer-term implications for food outside the home? Within the past two years, out-of-home has passed grocery store-related sales. The question is how much of that will cycle back. You would expect that if all consumption moved from out-of-home to in-home, there would be a 25–30% increase in grocery sales. We are seeing some return back to normal volumes—call it 10–15% above, all over the world where we are tracking each market. But it is going to take a while before it settles back to what it was like for the first two months of the year for the last 10 years. I think there are many more forces ultimately leaning toward increased consumption at home: recession, social distancing, restaurant bankruptcies. I would say, in a best-case scenario, there would be 50–60% of the restaurant activity that there was four months ago in a year from now. If we think about past recessions and how the consumer behaves, what have we seen so far, and what do you think we will see in the future? There are three trends, which we saw in the 2008 recession:

1. Private label does better.
2. Really strong, high-market-share brands do fine.
3. Treats and snacks and impulse do well—because the definition of treating yourself is no longer going out to restaurants.

So, those have historically been the three trends—and also migration to dollar channels. There is a channel shift to lower-cost channels, but that is not as significant. There is still a lot of uncertainty out in this world. I don't think we have actually seen that material migration that we've seen in other recessions. I think with the purchase of private labels, some of that was just availability. There is a kick-up in private label, but prices are going up. I think we are at the beginning of this phenomena. Just looking at our CPG Inflation Tracker, it is showing 6/7% price inflation for the last five weeks, which is high—and that has to do with the cost of running the stores and out-of-stocks and promotions being pulled back. So, I don't think we have seen the beginning of the true behavior changes, as people were just basically trying to get necessities. [caption id="attachment_115398" align="aligncenter" width="700"] Andrew Appel and Deborah Weinswig
Source: Coresight Research [/caption]  

Retaining Customers in a Challenging Environment

How do you think retailers’ assortments will play out?

• We are generally seeing assortment reductions from the big retailers, in order to basically fulfill demand.
• I think one of the big challenges for the manufacturers is retail relevancy.
• I think we are going to very quickly migrate to simplified assortments, the ability to deliver product in this environment and then a huge opportunity for retaining new buyers and not losing loyal buyers.

There has been at least an 8x increase in the velocity and variation of what consumers have bought in the last three months. There are a lot more factors affecting assortment than existed a year ago: production capacity issues, supply chain flexibility issues, major shifts in consumer demand and preferences, the recession and personal safety. What we're seeing and talking to a lot of clients about, and our retail partners, is that the whole consumer profile has shifted. So, there are going to be a lot of real winners and losers around our environment in a way that has never happened for the last hundred years. What are people purchasing more or less of that is surprising to you? Well, one of the trends that has been surprising is that people are baking bread—so yeast and flour became difficult to find. I'm not sure everybody was was prepared for the complexity of the supply chain around protein. Alcohol seems to be doing just fine. I guess not unexpected but it’s been up in the high 20s/low 30s for 10 and a half weeks in a row. Home care and health have spiked, and I think that will continue. Initially, we all thought it was a short-term phenomenon, but comfort foods—particularly traditional brands such as Kraft—continue to hold pretty strongly in this environment. How much are loyalty programs driving consumers’ choice of where they shop, whether online or offline? I think the initial rush was the out-of-stock frenzy, where consumers simply chose retailers that they though would have their desired items in stock. Then, for the last couple of months, the trend has been in consumers consolidating their grocery shopping to one store. So, you're seeing fewer trips and a lot larger baskets and therefore an explosion of new members and new consumers visiting the stores that they have relationships with. There is definitely an explosion of new loyalty card holders and new members at all the big groceries and clubs. And then you’ve got the phenomena with Amazon—that it is just growing significantly.

Leveraging Data Insights and Identifying Opportunity

What can we learn in this environment, in terms of the data that's being supplied (IRI CPG Index)? There is an immense amount of regional variation and in-stock availability that just boggles my mind. One of my big messages to our manufacturing clients is, you have a “where your product is” issue, as long as you have enough production capacity. I've been surprised by the wide variation of out-of-stocks even at the category level. We had a lot of questions around daily data so we took our out-of-stock models and applied it to our daily data and we launched that as a product. It became clear that the inventory variation was just a matter of where there happened to be inventory. We are seeing a lot of volatility in demand, a lot of volatility in supply and effectively a lot of missed sales opportunities. If you're not on the shelf, you don't get purchased—and then that leads to the next phenomena, which is this explosion of new buyers and loyalists that have tried competing products. One CEO said, “There is no amount of advertising I could have done to get as many new trials as I got in the last six weeks.” Now, the conversation between retailers and manufacturers should be, “How do we all work together to retain those consumers and help figure out what the right assortment needs to be going forward?” This is the most volatile time for this industry in a hundred years. What advice are you giving to CPGs? You have got to move faster. Demand forecasting is a great example: If you're out of capacity, you’ve got to demand forecast to decide whether you're going to spend a quarter of a billion dollars on a production line; if you're not out of capacity, you’re likely looking at a rolling 12-week forecast on a daily basis—because there is so much variation geographically. You should be using a whole bunch of new data and models. Regulations associated with stay-at-home are a factor for demand, and each category will behave differently based on the recession and the unemployment rates in different markets. So, the demand forecasting is extremely complicated. And then the consumer opportunity is now. My message has been that the window is closing. We have been talking to our clients for seven weeks about this: You have unprecedented new buyers; you have an unprecedented number of people who liked your brand; and ad prices are down. So what better time if you're in our industry to build your consumer franchise? This is a once-in-a-century opportunity for these organizations to become consumer-centric. What metrics should retailers and suppliers pay attention to now, that they maybe haven’t in the past? This is an industry that's used every measure ever invented; we have 2,000 measures of our platform. In the end, you’ve got to really stay close to the consumer demand buying market, because it's going to shift a lot—as is the rebuy rate of your new consumer. So, there is a conversion measure. If you’re a club, there is a member renewal rate that you've got a monitor. If you’re a grocer, it's effectively basket size and trips that you have to watch really closely, because that could go the other way—consumers could feel safer visiting smaller-format stores that are closer to home. My favorite measure is the lifetime value measure. There is an immense partnership opportunity because the industry doesn't really look at the value of the consumer the way the credit card industry does. There has to be portfolio of consumers that if you make them loyal, they will stay loyal for multiple years—at the same price as a consumer you just get a second purchase out of. As consumers have shopped more, I think traditional retailers—versus an Amazon where consumers can get an instant purchase—have an opportunity to meet the value proposition with click-and-collect service and a one-stop shopping model.