A trigger for change or business as usual?
Some thoughts on how to succeed in the ‘new normal’
We don’t pretend to have all the answers to the current crisis, for that would require a crystal ball or the car from Back-to-Future, and sadly they only occur in fictional stories. Instead like a good chef putting together a trusted dish, our view is based on a reliable recipe: learning from commercial assessments dating back to the financial crisis of 2008 (in fact, the year we were born); numerous conversations with business leaders; a handful of market data; and sizeable helping of commercial common sense.
The reality is…
COVID 19 is THE biggest shock our modern economy has ever experienced.
We put that in coloured bold words because it really is a big bold reality check, a seismic occurrence. With such a huge change hitting our lives and businesses, are you positioning yourself to win when the new normal arrives? Or are you just trying to survive…?
Exhibit 1: COVID-19 is pulling down global growth towards a steep recession
Source: Overview of World Economic Outlook projections, IMF
The Consumer goods industry is having to cope with a massive drop in footfall. Lockdowns have closed the leisure industry, pubs, clubs, bars and restaurants. Social distancing has had a big impact on shopping behaviours in traditional retail channels, and is driving on-line purchasing. The internal and external impacts, are in turn challenging how businesses plan for the future (see Exhibit 2).
Exhibit 2: External & Internal impact of COVID-19 for suppliers
To succeed in the ‘new normal’, all businesses will need to re-evaluate their position, and re-engineer their businesses.
When we look back in years to come, we’ll see successful leaders embraced this time to revitalise their businesses by instilling a boldness of action, responding to new market dynamics, and adopting innovative ways of working.
From crisis situations to unlocking potential in better economic times, at PACH, we have successfully used a simple Commercial Re-engineering framework (see Exhibit 3) to identify where the biggest opportunities for improvement exist on the way to recovery.
We ASSESS quickly what is working well, and what is not, as speed of the essence in planning next steps
We then focus the PLAN on those elements which will deliver the ‘biggest bang for your buck’. How you RESOURCE actions, SELL to customers, ENGAGE consumers and DELIVER product to market will be a departure from the norm, so concentrate the business on the ‘must haves’ and eliminate all the ‘nice to dos’
Finally, we REVIEW progress and track implementation week by week, so that we course correct to any immediate learning as they are encountered
Exhibit 3: Commercial Re-Engineering Framework
Key impacts of the current crisis, and the need for Commercial Re-Engineering
There has never been a greater need or opportunity for commercial re-engineering for long term benefit than right now.
From March to May 2020 we have talked to many business leaders and run deeper assessments on commercial operations. These have put a focus on new insights and new decisions which will be required for consumer goods companies to plan their recovery. The resulting actions will need flexible enablers that ensure speed to market and the ability to adjust quickly to new learning:
New Insights
Diagnose quickly where the commercial low hanging fruit exist to grow the business
Map the new outlet landscape to know where to sell and focus resources
Get a grip on the new consumer purchasing and consumption habits and respond to those needs
New Decisions
Re-examine commercial investment priorities to focus on pay-for-performance
Redirect your salesforce to maximise coverage
Prioritise your key accounts and improve relationship strategies to reflect the new realities
Fix RTM efficiency issues/gaps
Decide which priority wholesalers & distributors form part of your future supply chain strategy
Enablers
Adopt an agile planning approach with clear decision making accountabilities, and tied to execution
Track the implementation of your Recovery Plan frequently to allow you to course correct as new learnings arise
For more explanation behind each of these:
New Insights
Diagnose quickly where the Commercial low hanging fruit exist to grow the business
Very quickly you need to get a fix on those elements of the business that are going to hinder you from rebounding or kicking on as part of a recovery process. It’s no use spending many weeks and months analysing data and reviewing operations. Businesses need a quick and reliable read on the situation and the ability to take action to address immediate issues.
Early in our existence we recognised the gap in the consulting world for a speedy business health check. The Commercial Diagnostic is an now a tried and tested tool, having been used over 50 times in 12 years. It takes 1 week to complete. Moreover, in the world of social distancing it can also be completed remotely (for more info Click here)
Map the new outlet landscape to know where to sell and focus resources
The outlet landscape has been hugley impacted by the crisis. Lockdowns have closed large parts of retail real estate: the whole leisure industry, pubs, clubs, bars, restaurants, clothing stores, garden centres, shopping malls, departments stores and speciality non-food outlets. Furthermore social distancing has forced food retailers to implement restrictions on shoppers that, while safe, cannot be described as a good shopping experience. Some of these retailers will ride the storm, make appropriate operational changes and come out of the crisis able to continue with their business and even prosper. Others will struggle, and may even fail to survive. The net result will be a very different retail universe to the one that existed prior to the crisis.
Which channels and outlets will be the most likely to survive the downturn, and therefore need to be prioritised in terms of support? Are there specific geographies that are crucial to the success of the business? Each of these factors in mapping the trade landscape, will require a disproportionate level of investment, combined with a reliable source of supply and sales rep service.
Mapping this outlet landscape to refresh your masterdata, and keeping abreast of ongoing changes, is one of the most important exercises suppliers need to undertake in budgeting resources. The key to making this assessment will be a combination of desk research run through digital mapping tools and boots on the ground, to physically verify the existence of outlets as being open for business.
Get a grip on the new consumer purchasing and consumption habits and respond to those needs
The world of purchasing and consuming brands and products has been one of the most obvious disruptions during the crisis. How have shopper behaviours changed? What new barriers to purchase exist? What new drivers are critical for recovery success?
Lessons from the 2007-08 financial crisis suggest that some of the behavioural changes we see during this pandemic will stick. Consumers became more promiscuous about what brands they purchased and which retailers they purchased from. The on-premise and leisure industries have been massively impacted by closures. At some stage these will open up so when is the right time to start shifting focus and investment from retail to these channels.
On-premise has historically played a critical role in driving brand adoption so when should you start investing in equity building in on-trade and events, and engage in direct-to-consumer activities?
Have direct and digital purchasing patterns changed for your category? What we do know is that the recent lockdown has encouraged ‘forced experimentation’, with consumers buying different products online, consuming online services for the first time, or exploring different ways to access or substitute products. Are you ready to capitalise on this change?
New Decisions
Re-examine commercial investment priorities to focus on pay-for-performance
Existing Commercial Investment policies and trade terms will need to be thrown in the bin, with a new set re-engineered to reflect altered product portfolios, and pay for performance, to give the business competitive commercial leverage with key outlets and retailers. The emphasis will be on rebalancing the cost to serve with the new / altered profit pools, across the prioritised routes to market.
Redirect your salesforce to maximise coverage
Where and how products can be sold during the Covid-19 crisis will have an acute impact on the sales force. What size salesforce is required, and will their job role need to change to accommodate the changed retailer environment? The priority will be to get sales people selling to top priority outlets as quickly as possible, securing availability and visibility of brands. But what should they sell and how should they sell?
Speed of contact will be crucial so how important will phone contact via the reps be, or will telesales need to be scaled up? But this needs to be balanced with the intrinsic benefits of a face to face interaction between the rep and the customer. Traditional Coverage models, sales efficiency metrics and fixed route planning will need to be replaced by more flexible ‘hunting’ and servicing approaches. Strike rate as always needs to be top of mind, but what about calls per day, time in call and time spent selling? Getting the balance, whilst eliminating all unnecessary administration will be crucial to delivering a kick start and creating momentum for the business.
Prioritise your key accounts and improve your (relationship) strategies to reflect the new realities
The Covid-19 reality for Home and AFH chains have been in stark contrast. The former having to manage wild fluctuations in demand, and the latter having to close their doors to any business at all. Both types of operators will be having to contend with the impact these massive changes are having, and will continue to have, on working practices for employees, protecting your customer relationships, and perhaps most importantly, shoring up cash reserves so you can continue to pay bills. Relationships will be judged on how well you respond with these factors in mind: specifically, what are their operational and investment priorities and how can you marry that with your own commercial needs?
Fix your current RTM efficiency issues/gaps
How have normal distribution channels been disrupted, and do you see this continuing? Issues like smaller drop sizes and lower customer base are now key problems that need to be addressed. Have you built contingencies in your route to market strategy, for different scenarios? It’s important to understand if e-commerce has grown (or has the potential to grow) as a share of business and your category, and if so how should you capitalize on this as part of the recovery? Additionally, have call centres become a commercially viable alternative now?
Decide which wholesalers & distributors form part of your future supply chain strategy
The pain and disruption in the supply chain will be most acutely felt with wholesalers and distributors who operate on the tightest of margins. Consolidation of operators is a normal evolution of the distribution industry. The Covid crisis will accelerate this by exposing those wholesalers and distributors who have the weakest financial foundation. Which of your existing distributors and wholesalers are on a strong financial footing, and look like the ones that will survive the crisis? Prioritising these relationships over others will ensure disrupted supply chains can be fixed soonest, and product made available as quickly as possible in key outlets.
On a more strategic level it's important to thoroughly evaluate the question: do you need to reassess the fundamental role of distributors and wholesalers? For example, are certain critical geographies under threat of not being serviced properly through 3rd party distribution, and therefore require direct store sales, or some sort of exclusive category supply arrangement with specific distributors?
Enablers
Adopt an agile planning approach with clear decision making accountabilities, and tied to execution
Crisis or no crisis, a well-functioning approach to planning involving a number of dependent elements, is crucial to organising the businesses activities. Covid-19 is forcing businesses to adjust the timing horizon, and creating a different set of decisions upon which plans should be built. It will also necessitate the ability for companies to:
Be agile and responsive to unfamiliar and short-term change
Ensure decisions being made have clear accountability, and
Build plans that are tied to excellent execution (to be responsive to the changed retail and shopper landscape)
Track the implementation of your Recovery Plan frequently to allow you to course correct as new learnings arise
Once the recovery plan is implemented, you need to figure out quickly what’s working with the new plan and what’s not contributing to an immediate change in performance. Underlying actions should be reviewed alongside KPI performance, to ensure issues in capabilities and understanding are not hindering the recovery, e.g.
Has what’s been agreed in the board room been executed in-store?
How aligned are all departments in ensuring that strategies and plans are actually being executed correctly?
Initially, periodic reviews should be planned at a much shorter interval than traditional monthly or quarterly business cycles, starting with weekly or bi-weekly short sharp decision-making sessions: what’s working, and needs to continue, and what’s not working, and needs to change quickly. PACH Solutions believe evaluating and learning from both success and failure is as important as initiating any business action in the first place. To facilitate this we have developed the tried and tested TRAK system, to help companies diagnose strategic issues and identify solutions to address performance.
By Chris Bennfors Founding Partner at PACH Solutions Ltd
