For the last 50 years, share of stomach, or food spending, in the U.S. has been steadily shifting from eating at home to eating in restaurants. During the 1960s, less than 30% of domestic food dollars were spent away from home but, now, according to the U.S. Department of Agriculture, the proportion of the family food budget spent away from home has reached more than 50%.
Today, with the COVID-19 pandemic and the cessation of in-restaurant dining, we are quickly reversing this half-century trend, and the impact has been immediate. However, this is not the only element of the “new normal” that is making a material difference in the way food and drug marketers operate. Not unlike the way personal technology and smartphones have forever reshaped consumer behavior, we anticipate that the presence of COVID-19 will bring about significant changes that will not go away post-pandemic.
E-Commerce and Drug Delivery Are Growing
In September 2019, Brick Meets Click noted that online purchases accounted for 6.3% of grocery sales that year and predicted that share of sales from e-commerce would grow to 7% in 2020. Considering unforeseen developments, we predict that the increase will be much greater. We analyzed the data in our CoEx platform and have seen 159% increase in shopper interactions with online grocery. Many food and drug e-commerce operations are already announcing significant hiring initiatives to keep up with demand.
Thus far, early adopters of grocery e-commerce in the U.S. have skewed toward certain segments of the population. According to research from IRI, there is a marked generational component: 55% of 25- to 34-year-olds consider themselves “very” or “somewhat likely” to purchase groceries online, as compared with 45% of 35- to 44-year-olds and 35% of 45- to 54-year-olds. The challenges presented by COVID-19 will create new adopters who have positive experiences with the quality and convenience of online grocery shopping and will continue post-pandemic.
It will be more important than ever for food and drug retailers to fine-tune their e-commerce models, as they have struggled with achieving profitability in this segment of their business. Click and collect has been a popular solution for some grocery retailers, and one that has proven to protect margins. In March, CVS Pharmacy and Walgreens began waiving drug delivery fees for e-commerce shoppers, with the stated goal of better serving their customers who are in quarantine or practicing social distancing.
No-Touch Checkout Is Growing
Over the last 10 years, there has been increasing deployment of self-checkout systems by retailers and increasing adoption by shoppers. As a result, consumers have enjoyed greater convenience, while retailers have benefited from lower staffing costs. In the last few weeks, our clients have been reporting to us that consumer use of scan-and-go technologies that allow consumers to use their mobile devices to manage the checkout process has increased more than 50%.
Consumer awareness that COVID-19 remains on hard surfaces for up to three days will not soon be forgotten. Consumers are going to be much more conscious of coming into contact with hard surfaces that have been touched by others and, in looking to avoid that contact, raise the demand for scan-and-go technologies that will allow them to execute the checkout process through their personal devices.
Coupons and Other Savings Vehicles are Becoming More Popular in Hard Times
According to our promotion activity analysis, more than 95% of coupons distributed in the U.S. are still printed on paper. Our grocery retailer clients are rethinking everything. Traditional, printed grocery store circulars are quickly disappearing, as there is perceived risk in touching the paper. At the same time, the sudden shift to eating exclusively at home and the stocking up required to accommodate this shift are challenging their supply chains.
Given that there was no way for retailers and brands to anticipate what has happened, many have been caught flat footed by their paper promotions that were distributed after the COVID-19 outbreak. Planned months in advance due to the time required to print and distribute, these promotions failed to activate shoppers and drive sales as intended because many of the promoted products could not be found on shelves.
Greg Daco, chief U.S. economist at Oxford Economics, is projecting that the nation’s unemployment rate will reach 10% in April and there are those who are publicly anticipating that it could be even higher in May. Our clients that are food marketers are cognizant of the increase as well as the role they can play in helping their shoppers contend with the resulting economic challenges.
Coupon distribution and usage always increase during difficult economic times. During the 2008 recession, Inmar industry trends showed a coupon redemption volume increase of 15%. In the first two weeks of March of this year, the already significant redemption rate for digital coupons was up 22% over the same period in 2019.
In 2019, digital coupons comprised just 3% of all coupons distributed but accounted for 23% of overall coupon redemption volume, demonstrating their popularity with consumers. As household incomes are further impacted by the impending economic crisis, consumers will become more reliant on coupons and other savings vehicles. This presents an opportunity for coupon-issuing brands to immediately help shoppers and keep them long after the pandemic has passed.
Digital Technologies Are Growing in Front Store and Pharmacy
It is important to food and drug marketers that hoarders and resellers are not the beneficiaries of coupons. Digital promotion technology and the ability to individually target digital offers provide a critical defense against that happening. Digital coupons go directly into a consumer’s digital wallet. Only after those consumers “identify” themselves during the checkout process, can the digital coupon be applied to their order. The technology behind digital offers enables marketers to limit the number of times a coupon can be used by an individual consumer.
This same technology allows consumers to see exactly what is being offered to them, including personalized pricing. This personalized approach has been in test-and-learn mode, but as we see shelf tags and print ads diminish, we predict that digital will take over as the new norm.
Consumer adoption and demand will increase, and brands will respond. In fact, Digital Pharmacist, a mobile app that allows consumers to refill prescriptions, reported a 150% increase in app-enabled refills during the first two weeks of March. On March 15 alone, there were 1,200 downloads of the app — compared to the 750 daily downloads that the app was averaging during the prior month.
Pharmacy Supply Chain Performance and Security Are a Focal Point
While “essentials” are on the top of consumer’s minds, so is health care. Quality care and patient safety have always been the focus of the American health care system. While there is no universal agreement on who should pay for what, there is unquestioned consensus that safety and quality are of the highest importance. Product serialization, or the placement of unique trackable codes on every medication, has become a standard in the pharmaceutical industry to ensure greater safety in the drug supply chain.
Addressing the current pandemic will certainly test the pharmaceutical industry’s ability to ensure that pharmacies have effective Drug Supply Chain Security Act (DSCSA) compliance for product tracing in place to validate that all prescription drugs supplied to them come from legitimate providers and that the serial codes are not suspect. As consumers are stocking up on medications and some insurers are allowing for early refills, pharmacy activity is growing amid fears regarding the supply of generic drugs, since most are manufactured in Asia.
Generic drugs represent 85% to 90% of all prescriptions filled in the U.S. There is new draft legislation that would track active pharmaceutical ingredients, prohibit purchases from China, create transparency in the supply chain and provide incentives for manufacturing in the U.S. Many pharmacies have begun encouraging 30-day fills (as opposed to 90-day fills) to help manage the current drug supply.
Media Is Evolving With the Use of Data and Influencers
Everyone is being impacted in one way or another by the presence of COVID-19, and daily life has changed indefinitely for tens of millions of Americans. Brands have the opportunity to help individuals contend with the challenges of social distancing. Using social influencers, brands can show shoppers how they can do things like use group chat to swap recipes, have virtual parties, keep children active and entertained, and even celebrate upcoming holidays like Cinco de Mayo, Mother’s Day, Memorial Day, etc.
During the current marketplace disruption, retailer data (second-party data for brands) has become an even more valuable asset for marketers. As food and drug retail businesses surge, brands could connect with occasional shoppers and convert them post-pandemic. Retailers are learning much more about consumers and their preferences in the “food/essentials dollars spent at home” category. This rich data asset can drive programmatic media as brands attempt to extend the uptick in their share of stomach. Now is the time for retailers to activate their media assets.
The spread of COVID-19 and the conditions created by the spread will have a lasting effect on consumers — and marketers. Marketers in the food and drug industry will likely draw a line on the calendar to distinguish “pre-pandemic” from “post-pandemic.” From this point forward, the ways in which products in the everyday-spend categories of food and medicine are distributed, sold and marketed are going to change. It is time to think ahead and prepare for the future. It is also the time for consumer trust to be solidly and forever cemented into brand equity.
Lari Harding is vice president of client development at Inmar Intelligence.