Up Again: Consumer Goods, Food and Retail

1. What opportunities are there to create a seamless omni-channel strategy to support my business as we enter the new normal?

Of necessity, e-commerce has become almost universally deployed since the pandemic began. It remains to be seen whether consumers will continue to rely so heavily on online shopping.

To capitalise on the forced rise in popularity, businesses need to invest in new technologies to engage their existing consumer base and win new customers, capitalising on the significant increase in data that has been shared by consumers as a result of the apparent social prioritisation of convenience over privacy.

E-commerce investments

Consumers are no longer shopping in the same ways they have done historically, and the diversity of their shopping habits has increased even further as a result of COVID-19. And the trend towards demand for instant fulfilment and hyper-personalisation continues to gather pace.

For retailers to thrive in the new normal, they need to offer a well-executed omni-channel experience. This requires a complex deployment of processes and agreements across a large distribution network that combines:

  • a brand-owned and operated website;
  • brand-owned and operated stores;
  • commissionaire-based stores;
  • franchised stores;
  • department store distribution and multi-brand distributors; and
  • supply chain and logistics networks.

Retailers are also focusing on how to create the in-store experience at home, which also requires a seamlessly integrated omni-channel strategy. Options being explored include try-on tools using augmented reality (AR).

Again, COVID-19 is accelerating the appetite for these technologies, which throw up various considerations. One is data privacy: when using AR for changing rooms, companies will be collecting biometric data that in some countries constitutes sensitive personal data, requiring consent and certain steps when collecting and processing it. There are also intellectual property considerations that may vary between jurisdictions.

Similarly, with increases in data shared with retailers, the risk of data breaches increases, so it’s crucial that cybersecurity policies and data protection procedures are in place. Ransomware attacks cause stress and disruption, and the longer a response takes the further the virus can spread. A rushed response is very rarely a good response, so retailers should use scenario planning to prepare for these incidents.

Contactless shopping

In-store, there will be continued growth in contactless shopping as global social distancing measures remain. Retailers and restaurants need to invest in contactless capabilities if they are to re-engage with their customers, likely meaning a rise in self-checkouts.

For businesses implementing self-checkouts, consideration must be given to how these machines can be misused – for example, customers “forgetting” to swipe through their items, incorrectly weighing goods to appear cheaper, and intentionally freezing the system so employees input their security details in front of them. These scenarios reduce profit margins and require more security measures, that must be considered.

In the long term, some businesses may choose to invest in RFID checkouts. The benefits of this technology are impressive and an integrated deployment of RFID technologies across a retailer’s supply chain can improve tracking, fulfilment and in-store security.

RFID tags allow moderate amounts of data to be stored on them and can be used to identify and track products. Retailers thinking about using RFID technology to enhance their in store experience must consider how the tags affect consumer data privacy, as the data on the RFID tag can be linked to the card used at checkout and then begin to build a whole customer map.

The data can also be linked to purchases made in other stores that use RFID, though many consumers do not want companies to have that level of knowledge about their purchasing habits.

2. How do businesses go about adapting and strengthening supply chains as countries begin to ease lockdown measures?

Since the outbreak of COVID-19, supply chains have needed to adapt quickly to new circumstances and a changed consumer market. This has revealed a number of vulnerabilities in supply chains. As countries begin to ease their restrictions, many retailers are preparing to reopen their stores.

However, this will require the supply chain to re-adapt and strengthen, and contracts will need renegotiating to protect the interests of all parties, with businesses needing flexibility to meet uncertain demand levels.

Deliveries

With home deliveries increasing, contracts with operators will need reviewing – especially those with volume requirements, as there may be a need to change the structure of the warehouse operation and the associated transport solution to fulfil customer delivery promises. Contracts prescribing specific delivery windows may need amending to accommodate ongoing export/import delays, even as borders reopen.

Order cancellations and returns

Many suppliers will move away from customer standard terms to reduce their own risk. For example, due to the amount of unsold stock, some suppliers are requiring customers to agree to more onerous terms when ordering, including restricting their ability to cancel so suppliers are not left with stock they cannot sell.

Others are implementing a longer lead time for cancellations to mitigate risk and ensure work-in-progress is underwritten. Alternatively, suppliers may seek prepayment or other upfront financial security for orders.

We are seeing more customers seeking greater flexibility. As these discussions play out, customers and suppliers are likely to need to work together to balance the need for flexibility with its commercial consequences.

Physical stores

When reopening stores, retailers should check the terms of any concession letter that may have been entered into in respect of rents, ensuring that reopening will not invalidate the terms of any such letter.

After this is established, retailers need to work with their landlord, especially regarding to complexes. Retailers need be sure the landlord has also made the necessary arrangements for managing social distancing, PPE requirements and any other health and safety adjustments relating to common areas (e.g. car parks and customer facilities).

Deep cleaning of stores should also be discussed, particularly when access is required before the reopening of the shopping centre.

Similarly, implementing social distancing measures to protect your workforce will be a key component of store reopenings – a topic explored further in the Premises and Workplace FAQ of our country-specific Up Again pages.

Warehousing and stock

Though many warehouse users will have run down their stock during lockdown, over the next 12 months warehouse operators can expect increased demand for space as users of third-party warehouses look to have a degree of safety or buffer stock. Finding new space may become more difficult, and businesses will need to plan ahead.

Many warehouse contracts will have an inbuilt degree of flexibility, allowing users of the facilities to increase or decrease their requirements. If a change in the amount of space is required, it will affect the commercial pricing for the warehouse operator and may result in renegotiation of the contract. With all this in mind, there are some practical steps that employers must consider as they reintroduce employees back into the workplace.

3. How should businesses address their product sourcing and supply chain models?

Due to the way COVID-19 is transmitted, consumers have become increasingly concerned with where their purchases have come from and the effect on the people involved in the supply chain. COVID-19 has, in this respect, offered the opportunity for companies to review their supply chain and address any areas of weakness in their environmental, social and governance strategy.

As the world begins to emerge from lockdown into a new socially distanced norm, businesses will be scrutinised by discerning customers who are no longer willing to accept the old normal. Businesses need to consider how they can build transparency into their product sourcing and supply chain models to prepare for this enhanced scrutiny.

Sustainability

Due to health and safety concerns, food manufacturers and retailers have had to forego their normal sustainability practices, increasing the use of single-use plastic wrappings on food and no longer charging for single-use carrier bags, or allowing drivers to take carrier bags for recycling.

However, when the pandemic is under control, sustainability will have renewed focus from governments and regulators, and food retailers will need to be prepared. Businesses will be required to be more transparent about whether their practices are both hygienic and sustainable. There will be increased pressure to use sustainable alternatives for day-to-day items using plastic, animal produce and cotton.

Multinationals with operations, supply chains and distributors in numerous jurisdictions must comply with the different legal requirements in each jurisdiction when making sustainability-related changes.

Supply chain

Many companies and governments now have increased concerns about the security of global supply chains and it is likely that these concerns will fuel the impetus for companies to simplify and shorten their supply chains.

The medical manufacturing and agriculture sectors are likely to be the worst affected. An increased awareness of the vulnerability of their food supply chains is expected to encourage governments to increase food stores and diversify their suppliers.

When the pandemic began, many retailers took the knee-jerk reaction of cancelling orders as a way to protect themselves financially. But the sudden cancellation of orders had a negative impact on manufacturing workers around the globe. Since then, retailers have been demanding reductions from their manufacturers. Some, however, have taken this opportunity to work with their suppliers and strategic partners to mitigate the impact on all sides, reshaping their supply chain for the long term.

There are many businesses who believe that, as a result of COVID-19, clusters of manufacturers will appear in Europe and Central America as businesses try to diversify their product sources. Such moves will, of course, need to be carefully planned and negotiated to mitigate any impact on the consumer.

For many in the retail industry, the way the supply chain operates is outdated and sluggish. By reviewing supply chain productivity and contracts, processes can be renegotiated to create a demand-driven model that allows for risk balancing, flexibility of supply and, ultimately, better costs. Many businesses in the sector are considering blockchain solutions to facilitate this.

4. What are the key considerations for clients in the consumer goods, food and retail sector as they get back into business?

Consumer focus

Consumer sentiment and behaviours will have changed as a result of the pandemic, so brands need to focus on building trust and consumer empathy in the new normal.

Health, wellness and hygiene are likely to be the new compass for building consumer trust and brand loyalty.

Consumers will be more inclined towards responsible businesses that can demonstrate sound corporate, social and moral responsibility.

Supply chain management

Increased focus must be given to minimising turbulence in upstream and downstream disruptions, and to nearshoring and onshoring strategies. Stakeholders throughout the supply and sales chain should proactively assess coverage for business losses and claims.

Sourcing, labelling and packaging will face increased scrutiny as the pandemic restrictions lift and businesses must prepare to be transparent.

Employment

Managing employee health and safety will be a focus for many businesses, so manufacturing mitigation strategies need to take account of potential workforce reductions while maintaining output, quality and efficiencies.

Businesses should also consider mitigating employer liability on claims relating to COVID-19 exposure through best practice for investigations and internal documentation.

Innovation

Digital engagement may reduce as hospitality and retailers reopen, but should a second wave of the pandemic hit, businesses must be prepared by accelerating their e-commerce and virtual shopping offerings. This also applies to omni-channel markets, ensuring that sales channels are expanded and diversified.

As with all innovation, businesses must be conscious of protecting their intellectual property and trademarks. With each new digital innovation, businesses must to be confident that their cybersecurity is still suitable, to ensure resilience to online threats and minimise risk of attack.