Ongoing uncertainty and tough economic conditions are affecting all aspects of the natural foods industry. From brands, to retailers, consumers, investors, and manufacturers, everyone is feeling the effects of long-term disruptions and instability.
High inflation, rising interest rates, shaky economic activity and volatile markets have increased the probability that the U.S. economy will slip into a recession. In all likelihood, we’re already there.
Realities Facing Brands During a Recession
Recessions exacerbate existing problems and today’s retail climate is already saddled with significant challenges for all stakeholders:
Retailers are understaffed, resulting in empty shelves, spotty promotional execution, planogram errors, and brands losing space and distribution. Also, without the hands to execute programs, retailers are turning away brokers and brands during review cycles as they simply can’t staff resets and changeovers.
Distributors are experiencing their own challenges due to increased input costs and are adapting to the new landscape by increasing case velocity requirements. Brands that can’t meet these new requirements are losing warehouse space.
Manufacturers are facing steadily increasing production costs and are upping minimum quantities in order to preserve healthy margins. Brands need to be prepared for these changes or have a plan B for manufacturing product.
Investors are much more cautious during downturns and, as a result, funding has begun to decelerate. Brands unwilling to make tough decisions are being turned away or are seeing delays in capital inflows. The good news is there is considerable capital sitting on the sidelines, but brands will need to prove strong financial fundamentals alongside growth in order to access it.
Consumers are eating in more and are tightening their wallets at the grocery store. They are also much less loyal and tend to buy what’s on the shelf at the right price.
Though these points appear alarming, brands that act now to address these behavioral shifts can create a sizable advantage and growth over their competition. Recessions should be viewed through the lens of opportunity. In fact, recessions are one of the greatest opportunities to gain market share against your competitors.
They are an exceptional and invaluable time to act boldly while others retreat! Some of the most successful companies sprung from recessions, vaulting past their competition when the recession eased. The common denominator of these winners, which include Microsoft, Apple, Netflix, and Airbnb, is that they used tough economic times to reflect on their positions, industries, and financial situations, and then make tough but courageous decisions. Stanford economist Paul Romer said:
“A crisis is a terrible thing to waste.”
Difficult times actually provide opportunities to do things that were previously not possible, if you are willing to act boldly. Categories will get shaken up and new leaders will be created, will you ascend or fall out?
Support Your Top Retailers with Extra Hands & They'll Support You
Historically, inflation puts upward pressure on input costs for retailers and crunches margins. Generally, reducing labor hours is one of the first decisions retailers make to defend their bottom line.
As a result, stores begin to suffer from out of stocks, planogram errors, and promotional execution gaps. There simply aren’t enough hands to execute.
Brands without retail backup should expect to fall victim to these execution gaps. Those who support their retailers will have a prime opportunity to fill competitors’ empty space on shelf, expand their real estate, and gain much more visibility to consumers.
Because they need the help, retailers are providing brands that offer store support more opportunities than we’ve seen in recent times. Buyers are more apt to cut in new products if they know the brand has retail support to manage the changeovers/resets. Store managers are more willing to give incremental placements if they know they have help stocking and managing them. This is a golden opportunity to increase distribution and visibility by supporting your key retailers. So, get aggressive with your retail strategy and grab a bigger slice of market share.
Invest in Programs and Tools to Optimize Pricing & Promotion
Due to inflation reaching levels we haven’t seen since 1981, consumers are increasingly more cost conscious and sensitive. Surveys show that over 50% have already changed their eating habits as a result of inflation. Private label and commodities tend to do well during these times and are outperforming name brands.
Ironically, we’ve seen brands begin to reduce spend on promotions and pricing tools, which will result in loss of loyalty as shoppers shift focus to deals and value. Frankly, if there was a time to double down on investing in promotional and pricing tools, it is now. Brands that incent the shopper will find their products in baskets they haven’t been able to acquire. Just make sure that your company can ensure execution of promos at scale. Retail support is a great way to ensure the money you are putting towards promotions brings a proper return on investment.
For brands that want to invest in pricing tools but aren’t in promotional calendars, it is still possible to deploy tactics to get consumers price cuts. Our favorite is running an IRC (instant redeemable coupon) program. We’ve seen huge success in these programs inspiring impulse purchases and encouraging customers to try new products. Should you have retail support and find yourself outside of promotional calendars, we highly recommend deploying an IRC program to provide price relief for cost-conscious shoppers.
How Dirty Hands Positions Our Brands for Retail Success
Dirty Hands is dedicated to keeping our brands on shelf and in stock. This fundamental tactic is 90% of the battle during a recession. Lose space and lose loyalty, it’s that simple. With more holes on shelf due to out of stocks and lost distribution, our retail teams are pushing for expanded shelf space, secondary placements, and getting products eye to thigh. This is easier to execute as more space opens on shelf.
From a retail intelligence perspective, our partners are equipped with near real time visibility to shelf, at scale. Our brands can see into any store we are visiting, at a glance. We are finding that brands are using this capability to study their competitors and strategize on how to grow market share. During a tough economic time, staying in tune to what your competition is doing at the shelf is a huge competitive advantage.
Lastly, in the headquarters office, we are pairing our new product pitches with retail support to execute new product cut-ins and resets. Many retailers aren’t taking new meetings because they don’t have the retail manpower to accept new products. However, by leveraging cut-in/reset support from our field teams with our brand pitches, we’ve found retailers more willing to take on our products.
Conclusion
Leverage tough times to grab market share from your competition.
Brands are taking a sledgehammer to their budgets in a scramble to manage cashflow. They should really be using scalpels, shaving in some areas but investing deeper in others. Unintended consequences of blanket reductions will be massive.
This is an opportunity for brands willing to double down and get aggressive at retail. While your competitors are experiencing out of stocks, losing distribution, and frustrating customers with reduced promotions and inventory, will you swoop in and grab market share? If you can stay in stock, position yourself appropriately, and deploy the right tools to assist with price, you will find yourself acquiring more new baskets than ever.