The 'homebody economy' and changing consumer habits
The fast-moving consumer goods (FMCG) industry experienced significant and prolonged lifts in sales across most categories as COVID-19 spread and drove people into weeks of lockdown. Their lives quickly became centered on the home (whether they liked it or not), and the so-called “homebody economy” was born. In Canada, year-to-date we have seen an explosion in sales with FMCG dollars seeing growth of 12.6%. To put it in perspective, that is 2.7 times higher than total FMCG growth in 2019 in Canada. Sales across many categories that fed this trend remain stronger than in pre-COVID conditions; after all, we’re eating more meals at home, and spending more time in our homes, resulting in everything from paper towels to garbage bags and cleaning products being in high demand.
While value and volume growth was inevitable for many FMCG categories during lockdown conditions, that growth may not be sustainable as economic challenges overtake health concerns. The global economy and the behaviours of consumers within it face escalating levels of change.
Unemployment will be a significant driver of this change. For some consumers, furloughs will turn into unemployment; for others, reliable employment may remain out of reach for years. Canada started the year with record low unemployment at 5.2%; however, by May it had more than doubled, spiking at 13.7%. June saw minor recovery to 12.4% with phased re-opening approaches across Canada. Even more telling across Canada is that 24% of households have had at least one person who has been impacted by job loss and/or furlough, and another 11% of Canadians are expecting impacts in the future.
Projections like these clearly highlight that consumers will need to recalibrate their spending habits. In other words, we may still be eating more meals in our homes, but what we eat and how much we’re able to afford will change, and that change may possibly last years. And it won’t just be food that changes. Consumers will completely reassess what goes in their shopping baskets.
And that means brands and retailers will need to serve consumers differently, and these are consumers with low confidence levels for economic recovery. Consider the likely shift to demand for more value-for-money products. For Canadians, buying on sale and in bulk are key saving strategies, with 79% using this saving strategy and 54% of shoppers buying larger sizes. However, these strategies will not work for everyone. Large multi-packs may offer the best value, but they may be out of reach for people short on cash. Cash-strapped consumers may be forced to buy smaller pack sizes, and brand loyalty across categories may fade.
Consequently, FMCG manufacturers are reassessing their portfolios to adjust. Similarly, retailers are looking at how to stay relevant to consumers who will have rapidly changing consideration sets. In the past, retailers could have performed these kinds of assessments with relatively ample time for testing. That is no longer the case. Changing retail channels are a case in point. Online adoption has taken just weeks to get to a tipping point that would have otherwise taken years. In Canada, online shopping was the fastest-growing FMCG retail channel, increasing 44% in the first quarter. Put in perspective, this is growing 3.5 times the rate of the total market.
Whatever the channel, it’s clear that getting assortment and pricing right will be key. So, too, will be packaging and brand claims. Consumers are looking for clear claims that highlight the benefit of the product. Not surprisingly, there is strong demand at all price points for products offering various health benefits such as immunity-boosting capabilities or germ-killing powers.
Wherever brands sit along the price spectrum, it will be critical that they shift as consumers reconcile their wallets with their shopping baskets. Keeping pace with those reconciliations will, of course, also be essential.