COVID-19 has had retail on the back foot for over two months.
No-one saw it coming. But COVID-19's impact on the world economy has been devastating, with revenue streams disappearing in many countries over the course of a fortnight. Whilst this has been simply terminal for many companies, retail is suffering a particularly complex reaction to the virus.
Apparel and general merchandise retailers have had to suddenly pivot online, creating huge demand for online webshop and last mile capacity. As a result, Shopify, Amazon and the like have been completely overwhelmed and delivery timings have shifted back to the bad old days of more than a week.
On the other hand, demand for grocery retail surged like never before. In many countries, panic buying doubled grocery income inside a week - and as restaurant businesses collapsed overnight, all that demand got squeezed through the grocery network. This meant that grocers' just-in-time supply chains couldn't keep up with demand. It took huge investment combined with collaboration between fierce competitors to crank the networks' capacity to the point where the public were still getting fed.
During this time, grocery leaders in particular have been in daily crisis meetings to figure out how to adapt as each day brought new levels of catastrophe to the sector. And just when they thought it was settling down, buying patterns changed again with social lock-downs, social distancing and a massive pivot to grocery delivery. Ocado went down, the big multiples ran out of delivery slots, and the grocers needed to adapt quickly again. This time the problem was the last mile rather than the middle mile, and they ran up against an already busted set of delivery suppliers trying to cope with general merchandisers' shift online.
In the midst of all this craziness the leaders of retail businesses have themselves have, like the rest of us, had to cope with their own personal challenges - trying to manage either no staff at all due to furlough, or thousands more than normal due to the surge in demand for essential goods. And to top it all off, managing a full house and homeschooling.
It is without a doubt the single most intense and challenging period for retail that I have ever seen. Multiple times more difficult than the dotcom bust or the retail apocalypse following 2008's crash.
The leaders that are winning are those who have been decisive and bold.
Different retailers have adopted different strategies during COVID. And if we focus on two sectors we can see a number of clear strategies. In apparel, the smartest leaders quickly recognised what was happening and shuttered their businesses (with government support) as soon as possible. This often included working to reduce or remove liabilities, sometimes extending to a refusal pay suppliers, landlords and creditors. This seems dramatic, but for retailers without a strong online business this had become a desparate fight for survival.
In grocery, the strongest retailers adapted quickly to the changing conditions: hiring thousands of additional staff and doing deals with wholesalers to quickly obtain additional stock. However, the smartest grocers recognised that this was not sustainable and focused on improving their flexibility, with a focus on online. An example here is Morrisons. Whilst I would never normally reference Morrisons, a perennial digital tinkerer, as having a clearly recognisable strategy for online - they find themselves in a situation where they have 5 separate purchase routes for their grocery offering: their main site, deliveroo, their food box site, amazon and their new phone ordering service. This means that whilst even our digital darling Ocado has crashed and burned, Morrisons is keeping their demand flowing. No one else has come close to that level of flexibility.
Either through luck or quick-thinking, (lucky timing I think), Co-op also deserve a mention. Since the early warning signs of COVID-19 appeared they have launched their rather nice Digital Goodie webshop, and a partnership with Deliveroo (even if their online markup is eye-watering). Without these they'd be bricks-and-mortar only in a tough market. And while I'm at it, I may as well recognise Sainsbury's growth in click and collect facilities and the adaptation of central London stores to dark stores to expand their Chop Chop capacity. All good moves.
Investments in online infrastructure are paying dividends.
In addition to making smart moves now, many great retailers are also receiving dividends from older investments in building up a scalable online fulfilment capability. The best setups at the minute have a strong in-house core (automated fulfilment centres, operator-owned fleets and associated staff) AND are making use of flexible partnership to help scale beyond the in-house infrastructure's capacity.
In particular, those retailers that have invested in expensive in-house infrastructure over the last decade are seeing it run at 100%+ utilisation. If we look at Tesco for example, they are coming under flack for not having enough delivery slots available, but their substantial grocery fulfilment network is fractionalising all its chunky cost and achieving positively dreamy economies of scale. Their online business has never been as profitable. The drawback is that you can't just build another fulfilment centre all that quickly, and they haven't been quick to adapt or extend their capability to squeeze out additional cash, and of course, feed the nation.
Across the pond, Walmart are in a similarly dominant position to Tesco in the UK, but have taken a far stronger partnering approach. With somewhere between 6-10 delivery partners AND their own internal capability, Walmart look set to further increase market share during COVID. They may have "lost" $1bn on e-commerce last year, but who's laughing now?
And it is inevitable that we have just witnessed a step change in grocery buying habits, and that the online share of grocery will never return to its 2019 levels. So e-commerce investments would appear to be the gift that keeps on giving - even in the ultra-low margin grocery sector.
Grocery aggregators are entering a new phase.
Given the COVID-19 focus, this article obviously has a slant toward the grocery sector and I can't not mention the coming of age of the grocery aggregator. In the US, Instacart has found its time. Labor relations issues aside, it is trying to make the most of its COVID opportunity, which is regrettable in so many other ways. Their plan to hire 300,000 staff was partly showboating, but it highlights the opportunity they see in taking advantage of slow moving retailers previous inaction.
In other territories, aggregators with various subtly different business models are growing adventurous and starting to become a more substantial part of the sector. Picnic, Deliveroo, Supermercato24 and others are pushing hard to become either the entire online arm of offline grocers, or the flexible extension of an existing multichannel operation.
Exactly where this surge leads is hard to know exactly - except that I hope that Instacart isn't hiring those 300,000 new staff on long-term contracts. The likelihood is that retailers will consolidate their core, and even markets like the US will become as mature online as the UK, with Instacart relegated to the flexible extension model if they're not bought outright by a major grocer with too much cash and no strategic vision.
Multi-play delivery models like Deliveroo, Stuart, Just Eat and Uber EATS will have an interesting future - despite the numerous false dawns in the last few years. They need to get their pricing right (grocery margins are not like restaurants'), but it's a fact that grocers won't want to invest in a large surplus of delivery capability. Additionally, Amazon Flex and its various fulfilment offerings are just not palatable for major grocers, so with the exception of the US, the market does not yet have a dominant player.
Retailers who have built agility over time will come out best.
So, bringing this article back to where it started, let's talk about smart leaders.
Agility isn't built in a day, and the retail leaders that look smart today have always been smart. Ensuring that you have flexibility in managing demand is as important as having flexibility in your supply chain. Robust multi-channel capabilities, a strong ethos of partnering, and a customer-centric culture are the tools that these smart leaders have built in the last decade and are leveraging now.
We have thrown together a quick timeline visual of how key retailers have adapted throughout the COVID-19 crisis - the sheer volume of initiatives, experiments, hirings, firings, giving money away, refusing to give money away, collaborations, and service shut-downs is incredible.
We may never see a time like this again, and there will be a long list of casualties. There will also be a short list of winners from this horrible situation, and if you want to be one to those, then get in touch.