CPG Brands Evaluating Challenges Posed by the Pandemic
By Dale Buss
The coronavirus itself surely will outlast price gouging because of the COVID-19 pandemic. But in the meantime, the quick outbreak of outrageous price increases in e-commerce on old essentials such as toilet paper, and new essentials such as hand sanitizer, has posed challenges for brands and retailers as they navigate the multiple threats to and opportunities for the CPG business posed by the disease and, likely, by the recession it is inducing.
Now, brands and retailers already are evaluating what they may have learned from a spike in price gouging that was expected to continue to abate as cases and deaths in the United States appeared headed for a leveling off as soon as mid-April. Brands also are trying to understand other lessons from consumers’ reactions and buying patterns as they adjusted to government stay-at-home orders and to the prospect of a severe economic slowdown in the months ahead.
These learnings include recognition of payback for brands from years or even decades of brand building, so that American consumers would rely on them in a pinch.
“In this kind of crisis, people take comfort in brands that they know and love and also look for brands that are the ones that define the category in the minds of consumers,” said Satoru Wakeshima, chief engagement officer for CBX, a strategic branding and design agency based in New York and Minneapolis.
“They’re the brands that consumers think of first. They’ve been doing a great job of building equity and awareness, and now they’re finally able to have their moment from all that investment in brands and building messages in the minds of consumes. These are the brands being sought after,” he said.
“Sought after” is putting it mildly. As soon as it became apparent in early March that the coronavirus scourge would be widespread in the United States and that it would affect all phases of work and personal life, consumers began stockpiling essentials such as toilet paper and bottled water somewhat indiscriminately. Soon, some online merchants were engaging in price gouging on supplies that clearly had become essential to fighting the spread of the virus, such as Lysol disinfectant, Clorox bleach, wipes and hand sanitizers.
“Greed is a powerful motivator for some people,” Josh Stein, the attorney general of North Carolina, told Time. “It is inexcusable to prey on people in a vulnerable time to make a quick buck.”
For example, Clorox had to contend with third-party sellers taking its products and selling them online, and in some stores, for exorbitant prices. At the same time, the brand had to cope with its products selling out and pulled back on advertising its cleaning products on Amazon and elsewhere. The brand said it was “working with Amazon to address some of the price-gouging that is going on. It’s very disappointing to see third-party sellers doing this at a time when people need access to disinfecting products.”
Eggs were another commodity whose prices skyrocketed during the early weeks of the coronavirus panic in the United States. Egg sales increased by 44 percent during the week ending on March 14 compared with a year earlier, according to Nielsen data, as Americans presumably stocked up on a perishable, protein-packed dietary staple that many members of chock-full households could enjoy.
“Buyers [from retailers] have paid huge premiums to secure loads,” an analyst for Urner Barry, a commodity market-research firm, told CNN. Wholesale egg prices had risen by 180 percent. Whether this constituted “gouging” depended on the interpreter. “It is unconscionable that the egg industry has doubled prices because of increased demand,” said a spokesperson for Morton Williams, a New York grocery chain that worried on the effect of “low-income New Yorkers” and workers who were losing their jobs.
Early on, the Consumer Brands Association urged U.S. Attorney General William Barr to protect consumers from price gouging of CPGs. “Absent federal engagement, Consumer Brands fears that price gouging for consumer products – which has been on the rise in recent weeks – could have the severe adverse impact of preventing consumers from obtaining the preventative consumer products they need to protect themselves from the spread of COVID-19,” read a letter by Bryan Zumwault, executive vice president of public affairs for the assocition.
CBA also predicted that continued price hikes could discourage Americans from paying excessive prices for some products and lead to their foregoing important preventative actions against the coronavirus.
Wakeshima maintained that most of the price gouging was occurring among independent grocers, convenience stores and third-party online resellers, not major ecommerce outfits or reputable supermarket chains. At the same time, the practice put CPG brands in a bind for a number of reasons. The first one is that brands only can recommend prices that retailers charge for their goods; it’s up to stores to determine the actual selling price, of course.
Second, Wakeshima said, consumers and government agencies might have expected brands to commit to ramping up production to secure an adequacy of supplies that would help blunt price gouging. “But they’ve had to be very careful about that,” he said. “They’re not sure they can actually handle the increased demand; the coronavirus is something they’ve never experienced before in terms of fulfilling this kind of demand so quickly, and their infrastructure isn’t built for it.
“Second, they don’t want to give the impression that they’re capitalizing on a crisis. Maybe they’re doing their best to fulfill demand and business has never been better. “But they don’t want to be perceived as taking advantage of the situation.”
At the same time, behaviors that consumers are demonstrating now, during the peak of the pandemic, and that they display in the coming weeks are creating both challenges and opportunities for CPG brands going forward.
For instance, American consumers have greatly boosted their searches for food categories and products that promise to boost “immunity,” according to analysis of social-media traffic and chatter by Fractal, a Westport, Connecticut-based outfit that uses data analytics to help brand strategists. Conversely, consumer interest indicated in that way has dropped in cleaning products that have a “natural” descriptor.
“People are taking a look at things that are anti-bacterial, especially surface-care products,” said Dipita Charaborty, retail and CPG-client partner for Fractal. “They want things that really clean. Over the last year there had been a big increase in sales of ‘natural’ hand-care products. But now there’s a shift away – people are less confident that those products will take care of the needs of the moment.”
Other incipient trends are consumers buying larger package sizes and quantities in stockpiling mode, Charaborty said. At the same time, with more CPG purchases shifting online, brands will have to make sure that they’re selling the right sizes and quantities for e-commerce fulfillment, where consumer expectations are often different than those they bring to the supermarket.
And as unemployment takes hold among millions more American workers, she predicted, “We’ll see a shift to fewer premium goods as well, similar to what we saw in the Great Recession” of 2008 and 2009. “People will go down to private label, too. Everything will shift down a tier.”
CPG companies also must be aware of and adjust to how consumer perceptions during this time of crisis influence their views of brands. Some that have great reputations and strong equity, such as Lysol and Clorox, are benefiting, as are junk-food brands that now may be considered “comfort foods” by Americans, Wakeshima said.
Finally, with countless hours on their hands to shop online from home, he said, Americans are discovering brands and products that may be new to them – creating new opportunities for brands.
“These are things that people might not normally have tried before,” Wakeshima said. “They may think, ‘This is as good or better than what I’ve been doing,’ and as a result they may shift from some brands they normally insisted on buying. So, their sphere of consideration may actually expand.”