Digital Acceleration in Retail: "I Do Expect a Lasting Change in Consumer Behavior."
As COVID-19 continues to spread around the world, we can observe its significant impact on consumer behavior, product demand, as well as on the production and supply chains in the retail industry.
While more consumers start to avoid human contact and turn to online purchases, retailers are struggling to adapt to the new reality. Retailers have little time to respond because the pace of change is dramatically fast.
Now it is the time for retail incumbents to address the accelerating opportunities in the digital space and find answers for the challenges to their current business strategies and operating models. Especially grocery companies that are already making use of an omnichannel strategy can currently benefit from an increased sales volume coming from online shoppers, while others need to start experimenting with online purchasing and fulfillment options now. The current crisis entails challenges as well as great opportunities to win in the future market of retail.
Where do companies start with their digital transformation and how do they make use of the shift in consumer demand? We had a chance to discuss the impact of COVID-19 on the retail business with Ladislav Ambrovics (CEO of MINIT Slovakia), gather his insights on the long-term consequences of the crisis, as well as analyze the role technology may play in accelerating innovation in retail.
A family-owned frozen bakery manufacturer conquering European markets
MINIT Slovakia is a medium-sized frozen bakery industry player with a strong presence in the Slovak and Czech markets and a recent expansion into other Central European countries. It’s a wholly family-owned manufacturer operating six high-capacity production lines for puff pastry, croissants, bread, rolls and pizzas, which are distributed through around 550 franchise MINIT bakeries and another 1,000 retail stores. The company is following the vision of its founder to create a strong customer value proposition by offering high added value bakery products with a large variety of tastes, either at one of their franchise bakeries or at the shelves of grocery stores.
Moritz Spangenberg, Netguru: How is the COVID-19 virus affecting your business?
Ladislav Ambrovics, CEO of MINIT Slovakia: First of all, we took immediate action to protect our employees. We installed security measures at the shopfloor, in the back office area, and in the supply chain. We implemented these measures already on March 1st, and made it mandatory to wear face masks and use sanitizers frequently.
On the shopfloor and in the delivery teams we reorganized all manufacturing staff in separate isolated groups to reduce the risk of spreading infection. We also separated the management in separate shifts to reduce the risk and sent everyone we could to their home office. Home office was rather new for MINIT. Now we have the chance to embrace remote work with online tools and processes. By the way, thanks to Netguru for proactively sharing insights on remote work.
Luckily until now we do not have a single case of infection in our teams. I think that transparent and frequent communication is key during such a crisis. We communicated all changes and security measures with our suppliers and customers early on, which was positively recognized.
We also noticed a direct impact on our business, basically two major effects. One, the demand is fluctuating. Right after the outbreak and the introduction of the security measures, we saw a 50-60% increase in demand, however, it decreased after 2 weeks and now the sales are below average. The driving forces behind that was that customers were stocking food. But after customers got used to the security measures by the government, they normalized or even lowered their consumption a bit.
“We do see a current strong shift of the sales channel towards online, using home delivery or online orders and pickup at the store.” - says Ambrovics.
MINIT experienced a strong drop in consumption. We had to temporarily close our franchise bakeries since there were just no people on the street. Plus, we also see that consumers seem to prefer packaged goods over unpackaged products due to fear of infection. Overall, we do see a current strong shift of the sales channel towards online, using home delivery or online orders and pickup at the store. We are in the process of adapting to this change of consumer behavior right now.
Have you experienced any similar crisis situations as the current spread of COVID-19?
In 2018 we had a major fire that destroyed 90% of our manufacturing capacities. During this time, I was leading the crisis management team on the ground to secure the business from severe impacts. Since we could not produce, we needed to find ways to continue selling and keep the utilization of our franchise stores up and running.
In order to restore MINIT’s production capacities as fast as possible, we contracted the supply of new machinery in a record time of 6 months. To secure our short-term supply of products, we decided to source products from several suppliers outside of the country. MINIT therefore managed to take a minimum hit in sales volume of just -20%.
The CEO of MINIT managed to keep on the entire workforce and managed to utilize the workforce under the roof of our suppliers and competitors to produce products for MINIT. His learning during this crisis: Speed is key. Reacting fast over strategizing helped us to save market share and secure labor.
Do you see any effects of this crisis on retail business, especially with regards to ecommerce?
I believe nothing will be the same after the crisis. The current outbreak of COVID-19 is definitely accelerating the transformation in the retail business. MINIT is taking measures to embrace online sales through either home delivery or pick up at stores right now. Many consumers are adapting or learning new behaviours to deal with the situation.
“Retailers now have a great opportunity to engage with new customers online and retain them after this crisis is over.” - Ladislav Ambrovics emphasizes.
Although I do not expect online sales in the future to be as strong as they are right now, I do expect a lasting change in consumer behavior. We also see a possible long-lasting increased demand on packaged goods. Overall, I believe retailers now have a great opportunity to engage with new customers online and retain them after this crisis is over.
What other trends do you see affecting the retail industry and your business, mid-term and in the future?
I believe technology will play an increasingly important role in retail. If you think about the customer experience in online shopping, I think there is great potential for improvement for technologies like Augmented Reality. Also I think our industry will potentially invest in understanding our customers better. In cases where there are no service agents available, so in ecommerce, we can use virtual assistants and machine learning applications to improve customer understanding and service.
How is your business preparing for the shift in the economy we’re facing right now?
We are experimenting with different things. We are trying out different delivery types for online shopping and experimenting with products that can be finally prepared by customers at home to give a fuller experience to the end consumer. To prepare for the upcoming accelerated transition, I believe that it is key to start early, to improve the digital literacy in your organization and train your workforce accordingly. To win in the online retail environment, companies will need to find ways to provide a strong customer experience and high engagement with their brand.
Despite the coronavirus uncertainty, retailers and ecommerce stores should actively pursue digitization, investing in technologies that facilitate innovation and unlock their full business potential. There’s no other way to minimize the negative impact of the current situation but to act proactively and go the extra mile to meet consumers’ expectations.