retail in a post-pandemic world

Retail in a post-pandemic world PANDEMIC BRINGS OUT ADAPTABILITY AND ACUMEN OF CONSUMER BUSINESSES

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RETAIL IN A POST-PANDEMIC WORLD DLAPIPER.COM

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The COVID-19 pandemic has had a huge impact on people and businesses worldwide, triggering an explosion in online activity (and knock-on effects on stores and other channels) whilst shocking supply chains into rapid and significant adaptation. Thankfully, the arrival of vaccines heralds the possibility of a return to the more stable, freer life we enjoyed before the crisis, but there are many things that have now changed forever. DLA Piper has partnered with GlobalData to produce this paper and we will look at how dramatically the world has altered and how consumer businesses have stepped up to meet these challenges, flexing online and other channels and overcoming supply chain obstacles, while also considering what this could mean for the future of retail and consumer-focused businesses.

Introduction

As part of this paper, DLA Piper and GlobalData interviewed four companies (Levi Strauss & Co., Heineken, an online pureplay company and an alcohol brand) about their experiences during the pandemic. Selected quotes from these case studies are included throughout this article.

Contents

Introduction 3

COVID-19 triggers online surge 4 Impact of online growth felt most in the food and grocery sector 6

Internet giants capitalize on the channel shift, consolidating their position 8

Technology facilitates growth 9

Use of cash has fallen during the pandemic, supporting the shift to online 10

Channel security in an online world 13Retailers having to develop new online strategies 13

Cybersecurity should be a priority 14

Even internet giants recognize a need for physical locations 14

But the role of physical stores is changing 15

In-store shopping experiences are more tech-led 16

Meeting last-mile challenges 17

Consumer businesses adapt by exploring direct-to-consumer channels 18

Supply chains shocked into getting smarter 22A shock to the system 22

Shortcomings in Food and FMCG Supply chains revealed 23

Food supplies generally held up remarkably well 24

Fashion supply issues compound problems of weak demand 25

Supply chains post-COVID-19: Strengthen, simplify where possible and get smarter 26

Smarter systems 27

Disruptive technology 29

Acting responsibly 30

Balancing local versus global supply 32

Conclusion 35

Noel HaywoodGlobal Co-Chair, Consumer Goods, Food and Retail Sector (International), DLA PiperT: +44 (0)121 262 [email protected]

mailto:noel.haywood%40dlapiper.com?subject=

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DLAPIPER.COMRETAIL IN A POST-PANDEMIC WORLD

Online retail sees massive surge in growth worldwideFor many years, the shift towards online has been fairly predictable, with retailers attempting to reel in shoppers at a steady rate, to validate investment in a channel that has widely struggled with operating profitability. However, the COVID-19 pandemic has had a huge impact on online activity, bringing forward development by approximately 3-5 years as, with shops closed, many more consumers have had to shop in this way and have become comfortable doing so. For example, many consumers have now created accounts on online platforms, making it easier and more convenient to make repeat purchases.

According to week 11 of GlobalData’s Recovery Tracker survey (carried out between 2 and 6 December 2020), more than half of Gen Y and Gen Z consumers globally, and more than a quarter of the silent generation, will buy more products online after the pandemic period, even as more online-sceptical consumers opt to return to stores for the majority of their spending.

Among the top ten countries for online market sales, online revenues are estimated to have risen by 32% compared to 2019, indicative that even countries with mature online propositions witnessed a surge in demand for online.

The shift is most noticeable in countries such as South Korea, and the United Kingdom, where online penetration has risen between 8.4ppts and 9.8ppts in 2020 compared to 2019. These locations boast more robust online supply chains and consumers that are more inclined to use this channel amid the store closures, lockdowns and uncertainty surrounding safety in-store. This has resulted in heavy investment in online channels by retailers and service providers and has ensured uptake by consumers continues to grow, as shopping online becomes simpler and boasts a more frictionless shopper journey.

Source: GlobalData Coronavirus (COVID-19) Recovery Tracker Survey – Week 11: (December 2020)

“Using the UK as an anecdotal example, COVID-19 has entrenched and accelerated the shift to online, from bricks to clicks, with retailers desperately boosting their online offering, when in lockdown as opposed to tiered lockdown it is the only route to market. Even sectors that were allowed to keep their high-street store open, essential goods stores, in the first lockdown there was an 80% uptick in online sales and home deliveries which has largely remained unabated, with in certain cases retailers such as Tesco encouraging clients to come back into the store. Another emerging phenomenon has been the exploration by brand owners of a ramping up of their Direct To Consumer sales as the mezzanine supply chain between brands and consumers have faced the strain of the size and speed of the switch to online. Whether this is here to stay post-pandemic remains to be seen.”

– Mark Dewar, Global Co-Chair, Consumer Goods (International), DLA Piper

0% 20% 30% 40% 50% 60%10%

Gen Z 56%

53%

46%

37%

30%

Gen Y

Gen X

Boomers

Silent Generation

Source: GlobalData

2020 online sales forecasts (pre-COVID-19)2020 estimated online sales (post-COVID-19)

Online sales for 2020 in the top ten countries by size of online market (USD bn)

Consumers that plan to continue (or start) buying more products online in the new normal world after the COVID-19 pandemic period.

COVID-19 triggers online surge

United States of America

China Japan United Kingdom

Germany South Korea

France India Brazil Canada

628

742

664

511

76110 94

5678 70 83

43 3246 29 25 33

10678 82

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Impact of online growth felt most in the food and grocery sectorUnlike non-food retail sectors such as electricals, with its mature online market, the global food and grocery sector has a lower online penetration than the average across the retail industry. As such, the impact of this shift to online will be most noticeable in this sector. In the US, online grocery penetration was just 6.3% of all grocery sales in 2019, while in the UK, the figure was 7.4%, while in 2019, ecommerce accounted for 14.1% of all retail sales worldwide.

However, the need for people around the world to remain in isolation and avoid social interaction has prompted a huge surge in demand for home grocery delivery. GlobalData calculates the UK online food and grocery market grew nearly 75% in 2020 (the highest annual growth since 2010 when the channel was still in its infancy) to over GBP20 billion.

Major supermarkets have experienced unprecedented demand for home delivery services, with the only downside being that some were unable to cope with the rush in the height of lockdowns. Despite the quick action by grocers globally, retailers did feel the heat, with the pandemic testing the resilience of ecommerce infrastructure. In the UK, between 18 and 21 March 2020, Ocado temporarily closed its website and suspended its mobile app as it struggled to handle the massive increase in orders. Similarly, US grocery retailer Target suspended its next day delivery service, Restock, on 13 March 2020.

Measures were taken to combat these issues, with retailers boosting their online operations significantly. For example, Tesco rapidly expanded its home delivery and click and collect services by nearly 20%, increasing the number of delivery slots available from 660,000 to 780,000. Elsewhere, supermarkets have hired thousands of extra staff to help meet demand. Walmart said on 17 April 2020 that it had hired 150,000 new employees in less than a month and was planning to add a further 50,000, including delivery drivers and warehouse fillers and pickers. Hema, the supermarket chain owned by Alibaba, temporarily hired employees from over 40 restaurants, hotels, and cinema chains to fulfil its online orders.

Retailers must use COVID-19 as a catalyst to speed up digital transformation and turn to technologies such as the cloud, process automation, and the Internet of Things (IoT) to improve fulfilment efficiency and reduce customer waiting times, something leading multisector online platforms around the world are already doing.

“The company is now looking at online as a channel in its own right, having previously not viewed it in this way. It is proactively capitalizing on the shift to online spend and is considering the possibility of partnerships and collaborations with its business-to-business (B2B) customers to satisfy elevated online demand. For example, the company helped some of its B2B customers in New Zealand to improve their click and collect models. ”

– Case study, alcohol brand

“Consistent with our white paper on the ‘Evolution of the global grocery market during and after COVID-19’ that we published in the summer of 2020, the impact of COVID-19 on food and grocery sales and the shift from in-store to online sales was unprecedented and transformational – delivering the highest growth in online penetration this sales channel has ever seen in the food and grocery category. Having scaled-up so considerably in terms of meeting this shift in demand, one of the key questions that grocery will need to address is what level of online penetration will continue in a post-vaccine and ultimately post-COVID-19 world.

Currently, buying at distance is still heavily influenced by health and virus-avoidance considerations and this is set to continue with new variants of the virus and heightened concerns around increased transmission. But consumers still enjoy a relationship with food and still want to interact with product at the ‘sight, smell and feel’ level. Consumers simply enjoy trying and buying. The players who land on the optimal blend of physical, in-store and digital online selling while maintaining consumer trust and loyalty and delivering the best experiential mix of both of those channels will likely be the winners.”

– Noel Haywood, Global Co-Chair, Consumer Goods, Food and Retail Sector (International), DLA Piper

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“The end game is to become a credible digital player: this takes not only a compliant and optimal digital presence, but even more critically overhauled channels to market. To achieve this, brands and distributors must put in place contracts tailored to the requirements of a demanding omni channel business, with best-in-class service providers. In particular, SLAs should become significantly more demanding and must be supported by rigorous performance management and extensive operational cooperation.”

– Gregory Tulquois, Intellectual Property and Technology Partner, DLA Piper

Technology facilitates growthThe rising retailer and shopper uptake of technology has also played a role in the transition from physical to digital. Technology such as augmented reality (AR), virtual reality (VR) and artificial intelligence (AI) has helped shoppers to replicate some of the main advantages of visiting stores and proved especially important for retailers that have traditionally looked to differentiate themselves through offering a premium in-store experience.

Dampened footfall to non-essential stores, and consumer desire to reduce dwell time, means that focus is shifting away from how technology such as AR and VR can help improve the in-store shopping experience to how consumers can use it in their homes. AR in particular can help consumers become more confident purchasing big-ticket items online. IKEA, for example, launched its Place app in 2017. This allows shoppers to visualize how homeware and furniture would look in their homes before purchasing. In April 2020, IKEA also acquired a US-based AI imaging startup, Geomagical Labs, to improve its room visualization capabilities for online shoppers. The technology allows users to quickly scan any room with their smartphone and convert it into a panoramic 3D picture. They can then remove all the existing furniture in the scanned room before placing the IKEA furniture.

VR solutions are also an attractive option in retail, consumer goods, and food service as they can recreate settings without requiring consumers to have to make physical trips to stores and other locations. Lexus and Volvo, for example, both use this technology to offer virtual test drives of cars. However, VR is unlikely to become a mainstream tool for retailers because, unlike AR, VR often requires additional devices for consumers to interact with it, making it less accessible.

Applications of AI in retail include digital assistants, chat bots, predictive analytics, customer profiling, customer service robots, and supply chain management. Leaders in this field include Alibaba, Lowe’s, Tesco and Walmart.

Chinese retailer Alibaba uses advanced AI technologies across its e-commerce sites to predict customers’ needs. It also introduced a fashion style advisor tool that matches outfits based on AI, for usage on the e-commerce platform, as well as via kiosks in physical stores. Moreover, AI-based games are offered on the Alibaba mobile app, which are similar to Pokémon Go and allow shoppers to collect coupons as rewards.

Emotion AI is a technology which can be useful for digital marketing. It uses Computer Vision (a form of AI) technology to analyze facial expressions and eye movements in photos and videos, with the aim of reading a person’s emotional responses. We expect the advertising and marketing industries to use Emotion AI to shape campaigns based on the feedback provided. However, this technology carries significant ethical implications, and must be used carefully to maintain consumer trust regarding privacy.

Internet giants capitalize on the channel shift, consolidating their positionWhile major online players had already been in ascendance, they have not only been best able to cope with the COVID-19 catalyzed surge in demand, but also have been the best equipped to capitalize on this trend. These companies have many advantages, including substantial network effects from the sheer scale of their user bases and distribution capability, and their size means that they are in a strong position to invest in new technologies; ones that allow them to better adapt and build on their great strength. Facebook, Tencent, Alphabet, Ozon and Alibaba are among those to have strengthened their footholds in global online markets. However, smaller and/or non-natively digital businesses also benefit from the strength and expertise of digital players, with retailers and brands using the platforms to broaden their customer reach and capitalize on fast fulfilment services.

With COVID-19 triggering an acceleration in the use of online, smaller business must use established digital retailers and platforms to gain greater brand awareness and boost sales capabilities as physical locations suffer lower footfall.

“The number one key trend is addressing ever-growing and accelerating consumers’ expectations for the most relevant products, availability, immediacy and flexibility. And this requires a highly efficient combination of physical and digital channels, and ideally an omni-channel approach with seamless showcasing, ordering, paying, picking, delivering and returning across channels.”


With the COVID-19 pandemic persisting throughout 2020 and into 2021, online giants continue to vie for the position of online market leader.

Alibaba has enjoyed success in Asia, recording 30% year-on-year revenue growth in the quarter to 30 September 2020. Cainiao – Alibaba’s logistics arm – provides the business with large-scale capabilities, acting as a platform to connect a huge network of warehouses, delivery firms, and the pick-up stations preferred by Chinese consumers due to the shorter waiting times they provide compared to home delivery.

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Use of cash has fallen during the pandemic, supporting the shift to onlineThe COVID-19 pandemic has accelerated the use of cashless payment methods, not only due to the rise in online shopping but, in some countries at least, in stores too, as consumers try to avoid the hygiene risks of handling physical money.

Consumers were asked how much they spent using each of the following payment methods in a shop or store in the last month (October 2020). All figures are percentages.

While Russia and other countries consumers have continued to use cash in stores, the UK and other Western countries have seen falls in usage of this type of currency in favor of alternatives.

“We have seen more and more of our clients investing in technologies that support cashless transactions, both in-store and online, making sure customer experience feels seamless, however the customer is spending their money. From an online perspective, investing in a smoother, streamlined checkout process can decrease cart abandonment and encourage those that are new to online to continue to transact online in future.”

– Chloe Forster, Intellectual Property and Technology Partner, DLA Piper

For online players, this impact is minimal, with the shopping model lending itself to these payment methods. For physical locations, offering cashless payment methods and increasingly more contactless payment options will be integral in the post-COVID-19 landscape. Increasingly, we are seeing retailers encourage this, but removing constraints such as minimum spends or card charges will be central to future adoption by consumers.

UK, 2020 UK, 2021Russia, 2020 Russia, 2021

UK & Russia

46%

37%34%

39%

14%

27%

16%

35%

24%

18%

29%

13%

8%4%

6%4%

11%

3%

8%

3%5%

2% 3%1%

Debit card Credit card Cash Mobile wallet Charge/deferred debit card

Prepaid card

Online: three-year outlookVirus Prevalence Scenario

Low: Virus rates rapidly pushed down significantly and permanently worldwide by vaccinations and other interventions, rolled out quickly and at scale; almost all countries quickly return to a lasting version of pre-COVID normality.

Online growth drops off considerably as many consumers return to physical stores for at least some of their shopping missions. However, online remains a considerably more significant channel than it was in 2019, particularly for food and grocery.

Intermediate: Vaccinations and other interventions reduce the prevalence of the virus, but progress is not necessarily smooth or uniform, possibly due to the spread of mutations and variants, and/or global vaccine rollout proving slow and problematic; this requires further periods of social distancing, travel restrictions and lockdowns in some countries.

Online growth slows as many consumers gradually return to physical stores and strike a new balance with the use of online. However, online remains a considerably more significant channel than it was in 2019, particularly for food and grocery, with considerable investment in new technology continuing. The tech giants are more influential than ever, forcing other businesses to consider how they can best work with, or compete against, them. The decline of cash continues.

High: Vaccine rollout is severely hamstrung by logistical challenges, and/or there are significant instances of viral resurgence, requiring social distancing, lockdowns and other control methods to remain or return in many countries.

The considerable growth rates in online sales continue, and in many sectors/countries the internet surpasses store sales. Tech giants become exclusive fulfilment platforms and enablers for a very large number of retailers. Cash rapidly becomes largely obsolete.

“Contactless is particularly a priority for the clothing specialist, as more consumers have digital wallets on their mobile phone or smartwatch.”

– Case study, Levi Strauss & Co.

Source: GlobalData

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Retailers having to develop new online strategiesThe growth in online has resulted in retailers having to develop new strategies, while those that had already been investing in developing the channel have generally proved to be the most successful at navigating the pandemic.

“With the online channel witnessing significant growth in 2020, driven by the COVID-19 pandemic and the closure of many physical locations around the world, Levi Strauss & Co. has been well placed to capitalize, having focused on improving and adapting this channel in the preceding years.”


Retailers must capitalize on trend-driven demand, and there is an opportunity for brands to partner with influencer’s and businesses during livestreams via paid partnerships and product features. This is particularly true in the health and fitness sector, where fitness studios and personal trainers are livestreaming classes on Instagram and seeing high participation.

Live-commerce (selling on livestreaming sessions on social media) is becoming a popular option for companies to reach out to consumers who are unable or unwilling to visit stores. Engaging with consumers in real-time and advertising products during livestreamed activities, such as fitness, cooking and crafts, could benefit businesses by generating sales, while keeping individuals connected within a digital community.

“For Levi Strauss, driving sales through mobile has been a clear focus. This year, it relaunched its mobile loyalty app to include transactional capabilities. With its core demographic typically younger more tech-savvy consumers, investing in online and mobile has been an important step for Levi Strauss to remain relevant and reach a wider audience.”


Before the outbreak, digitally smart solutions were primarily aimed at younger generations, who were more digitally savvy and had already integrated online platforms into their daily lives. Since the lockdowns, a wider consumer community has looked to digital environments during the shopping journey. Inclusive digital solutions are therefore essential.

“The pandemic has caused a surge in online sales driven largely by consumer need. The retailers that have performed best over the last year are those that already have in place a compelling digital proposition. In order to stay ahead of the game, other retailers need to invest now in building the infrastructure to support better customer experience of their online offerings to retain those sales into the longer term. They urgently need to review their e-commerce, supply chain and sustainability policies to ensure that they are fit for purpose.”

– Ruth Hoy, Global Co-Chair, Retail and Fashion (International), DLA Piper

Channel security in an online world

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Cybersecurity should be a priorityCybersecurity is becoming increasingly important amid the accelerated shift to online. Many shoppers are becoming more confident shopping through digital channels, prioritizing convenience over privacy concerns, and this is resulting in an abundance of data. Businesses must ensure they have effective cybersecurity measures in place to maintain consumer trust.

Most organizations are putting their faith in AI to improve threat intelligence, prediction, and protection. Despite AI’s potential for good, future AI-driven attacks are likely. The COVID-19 pandemic has highlighted why cyber-naïve remote-workers need security awareness training to thwart hacker attacks. Attackers will target immature technologies, meaning 5G communications, smart cities, and the Internet of Things (IoT) are all at risk. To counter these threats, organizations are moving towards a zero-trust stance, which assumes that no external entity is entitled to be automatically trusted.

“Increased online trading means that retailers are more exposed to cyber threats, which have the potential to result in the theft of significant amounts of customer data, including payment information. Retailers need to protect not only themselves but, perhaps more importantly, their customers from these threats.”


Even internet giants recognize a need for physical locationsIn 2016, Jack Ma, the co-founder of Alibaba, unveiled its “New Retail” objective, which encouraged a blending synergies of digital and physical shopping to deliver a seamless and consistent shopping experience to customers irrespective of whether they shop online or offline. Under “New Retail,” consumers can effortlessly switch between online and offline channels, such as buying products online while being in a physical store, or shopping in a virtual store and getting product delivery from a physical store or kiosk.

The foundation of “New Retail” is a complex digital ecosystem comprising telecom, logistics, cloud computing, big data, AI, IoT, machine learning, blockchain, and robotics technologies. The ecosystem empowers retailers with customer data for optimizing SKUs and realizing operational efficiencies and productivity and provides multiple touchpoints for engaging customers. It turns consumers into “prosumers” as their shopping data aids manufacturers in product development, personalization, and marketing. For instance, “New Retail” data inspired Mondelēz to roll out packs of single Oreo cookies for Chinese shoppers craving a cheap, sweet snack while queuing at POS counters, and moved Mars to develop a spicy chocolate bar exclusively for China.

Source: Alibabacloud.com

Furthermore, number two to Alibaba in China’s ecommerce market, JD.com, is also now being forced to go offline like Alibaba. The company is investing heavily in IoT technology, such as its Take platform, which leverages big data to bring the accuracy of online shopping into physical retail outlets. This technology uses sensors to track in-store customer behavior and plays a video at a nearby tablet with product information when a customer picks up a product. It has formed an array of technology alliances in the field of big data and AI, including two important ones with Baidu and Google, to counter Alibaba as it pushes offline.

Even as the pandemic persists, online pureplays recognize that physical store concepts can be beneficial even if it will not be a core aspect of their overall proposition. In the UK, AO World’s collaboration with Tesco for a shop-in-shop pilot offers the online pureplay an opportunity to broaden its reach with a physical presence, attracting consumers that would not usually shop online for electricals. While this is ultimately only a small trial, with five stores planned for the pilot scheme, it is perfect timing for AO World, with the UK online electricals market forecast to decline in 2021, offering the online pureplay access to a channel in growth.

What is clear from this is that the COVID-19 pandemic has clearly spearheaded an accelerated focus by retailers of the online retail market, but this will not be the end of physical retail or the often quoted “death of the high street.” But the role that both online and physical locations play in the retail market must adapt, with high streets using service and experience-led retail to remain relevant in an increasingly online landscape.

But the role of physical stores is changingDespite the shift to online resulting from the pandemic, in 2020, global retail revenues fell year-on-year, indicative of the severe declines in offline channels. While online channels fared better than high-street stores, many – especially in non-essential categories – saw a significant reduction in sales due to a global decline in discretionary spending. Between January and February 2020, for example, Chinese online clothing and footwear sales declined by 18.1%.

While the accelerated shift to online has provided a huge boost to e-retailers, physical stores – having already suffered two decades of declining spend, as expenditure has transferred online – are seeing another step decline in footfall, leaving many shops unviable and necessitating large numbers of closures. For example, in the UK, sectors such as electricals saw offline revenue declines of almost 30% for the full year.

City center locations across the globe were particularly hard hit in 2020 due to a lack of tourism and dampened footfall as many consumers worked from home. Some locations will be hugely affected by office workers not returning. High-street retailers – especially those focused around convenience – are unlikely to see footfall returning to pre-pandemic levels. Retailers must consider how to effectively use space in these locations as the role of physical stores changes.

In the UK, John Lewis & Partners is actively responding to the changing role of stores, and wisely plans to reduce its reliance on retail space as spend shifts online. For example, it will transform part of its Oxford Street store into office space and plans to invest in private rented housing as an alternative revenue stream.

“In Hong Kong, where change of land use is complicated and expensive, retailers do not have the same flexibility in transforming their leased premises into other land use. From our experience in advising tenants who are retailers and F&B providers in prime locations, their main strategy is to restructure the rent, payment terms and lease term.”

– Susheela Rivers, Real Estate Partner, DLA Piper

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Offering click and collect is one way to ensure physical retail locations are still in use. Hygiene concerns will continue to deter shoppers from browsing in-store, even post-lockdown, and this will lead many shoppers across the globe to favor click and collect. Not only may it enable faster fulfilment than home delivery, but it also satisfies demand for limited contact.

“Levi Strauss continues to see the value in physical locations – it is using its stores to fulfil local online orders and opened new stores in Prague, Madrid, and Helsinki this year. Using its stores to also fulfil local online orders has enabled the retailer to utilize these locations that have excess stock, ensuring its retail model is flexible to the changing shopper habits of 2020.”


Using stores for online fulfilment is a trend that has been accelerated by COVID-19, as this helps retailers cope with increasing online demand and ensures that stores still have an important role to play. Kingfisher, which owns B&Q and Screwfix in the UK and Castorama and Brico Dépôt in France, will increasingly use stores for online fulfilment as part of its “Powered by Kingfisher” strategy. Retailers with non-transactional websites, such as Primark, may lose out.

An increasing number of retailers will focus on smaller format stores in the future as spend shifts online and offline locations struggle. In the UK, this is particularly prominent in the Home sector, with Homebase, Dunelm and Dobbies launching new smaller format stores in 2020.

In-store shopping experiences are more tech-ledRecent years had seen consumers moving towards a “little and often” shopping model. But, the restrictions of COVID-19 related regulations have reversed this trend and we have seen a switch to less frequent but bigger shopping trip, especially in grocery.

Shoppers are now visiting shops with purpose, visiting fewer stores per trip, but with conversion rates increased. For many retailers the trend before COVID-19 was to move towards experiential retailing, but this has now been replaced with the need to deliver functionality and provide a safe environment for staff and customers. Social distancing measures and fears about catching the virus mean shopping trips are now less about browsing and experiences, and more about making essential purchases and reducing time spent in-store. Investment in providing a frictionless in-store shopping experience has therefore been a priority for retailers, while also facilitating safer and more hygienic shopping during the pandemic through tech such as footfall traffic light systems, in-store scanning apps and mobile transactions. Technology also has a role to play in optimizing the in-store experience; from helping retailers to more effectively drive shoppers to their websites, to allowing for more efficient use of physical space.

“The beer specialist introduced an order and pay platform, Swifty, which it sells to pubs and bars on subscription. This allows consumers to order through an app or by scanning a QR code, in response to table service becoming mandatory in some markets, including the UK. This gives pubs and bars the opportunity to send targeted promotions based on purchasing behavior. Heineken also developed a platform for small retailers and venues, which allows them to put their menu online and take orders via WhatsApp. This was developed in Brazil and Heineken plans to expand this into new markets including Spain and Panama.”

– Case study, Heineken

Computer Vision (CV) is one of the primary technologies used in ambient commerce. Using sensors in physical stores, CV technology detects when an item is removed from a shelf and who took it. This is another area in which the tech-centric online giants generally excel.

“Our retail clients have had to adapt, with limitations on numbers in-store, to make sure that the shopping process is frictionless and quick. Technology is being used to improve the efficiency of transactions, but also to make sure customers feel safe in-store, a key factor in encouraging them back to the high street in 2021. As more customers go online too, it’s more important than ever that the look and feel of in-store and online gives the same experience, from a customer perspective, and investing in multi-channel payment technologies is a key part of this.”


In-store technology can also be used to improve the shopping experience for those who do not have a lot of expertise in the products they want to purchase. For example, American DIY retailer Lowe’s offers its customers an AR-based in-store navigation app to guide them to the products that they are looking for. In addition, the retailer experiments with VR to illustrate how technology can make DIY easier to encourage them to try out new approaches and purchase the appropriate products. Lowe’s “Holoroom How-To” tool teaches customers how to carry out certain DIY projects, such as, tiling as a fully immersive and engaging VR experience, whereby customers not only watch instructions, but get involved by grabbing virtual tools and completing certain DIY tasks.

Meeting last-mile challenges

“While it is easy to assume that online retailers have only seen benefits from this shift, what has been evident throughout the pandemic is that managing websites, maintaining that high level of service expected by customers, and supporting sellers – whether that be small wholesale retailers or large brands – has been a challenge.”

– Case study, online pureplay

For retailers, the last-mile remains the costliest aspect of the delivery process and typically a significant proportion of the total fulfilment cost.

Shoppers increasingly expect a frictionless online experience, with same/next day delivery options as standard, and this level of expectation has been particularly challenging to meet during the height of the pandemic, with fulfilment centers forced to deliver the same level of service with less staff, when employee numbers were reduced to apply social distancing and other safety measures.

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“COVID-19 has fundamentally changed last-mile delivery. Consumer expectations have markedly shifted, technology has rapidly advanced and businesses have responded, scaling up capabilities faster than ever. Yet now is the time for businesses to look beyond the quick fix solutions that accompanied the initial COVID-19 response and focus on addressing lasting trends and enduring priorities. This is where the opportunity for differentiation exists. For example, looking beyond the obvious challenges of logistics pressures and cost pressure on margins to building resilience by adopting pragmatic, sustainable and environmentally friendly approaches to last-mile delivery.

We’re seeing this play out in the market in a number of ways; from the utilization of green vehicles and technology to identify optimized delivery routes, the sourcing of alternative fuels, to decreased use of packaging materials and more. Shifting consumer expectations are driving these practices and are essential pillars of an enduring and effective last-mile delivery strategy for any business.”

– Jessie Buchan, Intellectual Property and Technology Senior Associate, DLA Piper

Consumer businesses adapt by exploring direct-to-consumer channelsIn times of uncertainty, consumers tend to seek comfort by purchasing familiar and trustworthy brands. This, combined with the closure of non-essential retail stores and hospitality venues such as pubs and bars, has provided a suitable environment for direct-to-consumer (DTC) channels to thrive. DTC not only provides an alternative revenue stream, but it also improves profit margins, allows for greater control over brand image, and proves to maximize consumer exposure to a product range, as retailers become more selective about what to sell in-store.

Some brands have introduced new websites to reach consumers directly during the pandemic. In the US, PepsiCo launched two DTC websites to meet demand for snacking and home meals during COVID-19. One of them, PantryShop.com, focuses on categories such as “Rise & Shine,” “Hydration,” “Snacking,” and “Workout & Recovery,” in which consumers can order specific product bundles that fit their mood or requirements. Kraft Heinz also opened its first online shop, Heinz to Home, in April 2020, with a focus on affordable non-perishable goods such as beans and spaghetti – key priorities during the height of the lockdown period. Others have formed partnerships with food service operators to deliver goods to consumers directly; for example, Nestlé Spain has partnered with Deliveroo.

“Heineken experienced a spike in demand in its direct-to-consumer (DTC) channels across many regions in 2020. The closure of hospitality venues such as pubs and bars meant many consumers signed up to its DTC platform, Beerwulf, to buy beers, beer taps, kegs and cases, and Heineken will continue to benefit from this post-pandemic as consumers place repeat orders. Its well-established Drinkies platform, which delivers beers directly to consumers within an hour in Egypt and Malaysia, also experienced elevated demand. Heineken highlighted that there is an opportunity to form partnerships with other businesses; for example through Beerwulf, to help cope with elevated online demand.”


“In the US, some industries, such as alcohol, continue to be burdened by archaic laws and regulations that preceded ecommerce altogether and were actually created to limit the ease of distribution of products once deemed to be a risk to public health. COVID-19 cast a glaring light on the inconsistencies between modern consumer demand and tax -driven local laws. The sale of liquor was deemed an essential business in the context of the pandemic, but selling it via ecommerce channels was still largely prohibited; one-on-one in-person purchases with physical contact were still required. This dissonance has shone a spotlight on an array of legal inconsistencies. Ecommerce platforms, the drive to continue to create a frictionless purchasing environment and online retail experience, and the ability to use new tools to effectively regulate and mitigate risk, even in a virtual environment, will continue to push the boundaries of these laws. However, the traditional pre-pandemic approach, of one-on-one in-person purchasing, maintains its stubborn regulatory place.”

– Stefanie Fogel, Global Co-Chair, Consumer Goods, Food and Retail Sector (US), DLA Piper

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“It must be recalled that companies deciding to sell products and services online must be able to grant certain warranties and rights to consumers (i.e. the right of withdrawal and return for products purchased online), which – in some cases – can contrast with the perishable nature of food and beverage products.

“In such context, these kinds of products require paying special attention to the delivery chain, guaranteeing that meals are delivered securely in order not to alter the products’ properties. In this regard, several technologies can support companies to test and monitor food safety products at every stage of the supply chain. Among these we find software which aim to provide an up-to-date track record of the supply chain for complete transparency to the consumer. In particular, blockchain and Distributed Ledger Technologies (DLT) can lead to great results in building a trusted tracking system of the food products involved. AI tools can also be used, for instance, for equipment cleaning, for hygiene purposes, or even for the creation of accurate forecasts to properly manage products’ prices and inventory.”

– Elena Varese, Intellectual Property and Technology Lead Lawyer, DLA Piper

With the pandemic pushing countries into lockdown, consumers are turning to deliveries for everything from toys to alcohol, and subscriptions can be a convenient alternative to stockpiling or regular shopping. Consequently, DTC brands are expanding their offerings to include subscriptions, while existing subscription companies are marketing discounted offerings to capitalize.

Carrefour was investing in subscriptions before the COVID-19 outbreak. In January 2020, it acquired Potager City, an online provider of subscription-based boxes of fresh and seasonal fruits and vegetables sourced from local sellers, to strengthen its food e-commerce offering.

Channel development: three-year outlookVirus Prevalence Scenario


After the 2020 shake-out, in-store numbers stabilize, with some companies even capitalizing on opportunities to open new outlets. Surviving stores are often more profitable, encouraging retailers to invest in in-store experiences and technology.


Stores often remain under pressure, but the rate of closures falls and, with short-term pressures easing, retailers are able to think about how to adapt store portfolios to meet a multichannel future. Technology plays a broad role in everything from live and mobile commerce, influencer marketing, cybersecurity and last-mile delivery.


Stores close in huge numbers, vastly exacerbating challenges for high streets and city centers; businesses massively redirect investment to online and delivery capabilities and, where stores do remain, adapting them to be both COVID-19 secure and to try and tempt shoppers in. Consumer brands and manufacturers pivot to directly targeting consumers in a major way.

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A shock to the systemIn recent decades, globalization and the cost savings of shifting supply bases to emerging economies have created longer and more complicated retail supply chains. Often these pass through multiple regions, ports and countries, as retailers seek to find the optimal balance between shortest lead times and lowest costs.

The COVID-19 crisis has served to disrupt the status quo, presenting a massive challenge to global sourcing, trading and goods movement, and shaking-up a dynamic that was already under threat from an escalating US-China trade war, fraught negotiations on a UK-EU trade deal, and other national protectionist policies. In China, and then worldwide, lockdowns were imposed and farms, facilities, factories, borders and transport routes were closed, as countries tried to limit the spread of the virus. In addition, any capacity not subject to long closures was often given over to manufacturing and transporting PPE, sanitizer and medical supplies.

For many retailers the delays, longer lead times and cancellations in retail supplies were worsened by a lack of visibility of the situation. Outdated systems and the disparate, isolated nature of the various stages of supply chains made it difficult to accurately quantify the likely impact of the disruption. In many cases business relationships came under pressure, around flash points such as the need to alter or cancel previous orders and delays to payments, with the agreements intended to cover these areas having been drawn-up and signed in a very different world.

At the same time retailers were having to cope with this upheaval, they were also having to transform the way they moved products from their business to their customers. Huge increases in online shopping have led to a rise in demand for home delivery and click and collect services and a fall in traditional shopping in stores. Capacity has been pushed to the limit, resulting in lengthened delivery times and pushing businesses to reorganize, taking steps such as using closed physical shops as fulfilment centers for online orders.

“During the height of the COVID-19 pandemic, demand for many goods significantly outstripped supply and managing timelines was an important measure for not only this retailer, but for all retailers. While little could be done to make items available, this online retailer was able to manage consumer expectations, keeping them well informed about changing timelines for delivery, as well as keep them informed as to why they were seeing such delays.”

– Case study, online retailer

Supply chains shocked into getting smarter

Shortcomings in Food and FMCG Supply chains revealedOn a national level, the pandemic has provided a stark reminder of the risk and volatility of relying on foreign nations for food supplies, with different countries struggling with different issues.

For example, major food producers in Vietnam and Thailand temporarily stopped rice exports, due to pressure to retain enough supplies for their own citizens. Argentina, one of the world’s leading grain producers, struggled to transport crops from the country’s agricultural heartlands to ships, as local municipalities denied cargos ships access along rivers and to ports. In India, food manufacturers had to close unless and until they had been through the laborious process of receiving exemptions from regulators at state, municipal and national level. These issues caused considerable spikes in global grain and rice prices.

For perishable goods such as fruit, vegetables and eggs, maintaining a steady supply has proved even more challenging than for rice and grain and the decision of Malaysia, a huge exporter of fresh produce, to close its borders for two weeks in March led to panic buying in Singapore, which is heavily reliant on food imports.

With fresh produce, delays can cause produce to expire before it’s even reached stores; and these foods require more labor, at a time when the mobility of workers has been hugely restricted. For example, in India hundreds of thousands of workers left cities to wait out the lockdown in their ancestral villages while, according to the OECD, staff availability in French meat processing facilities in the regions of the country worst hit by COVID-19 was reduced by up to 30%.

“Managing its supply chain throughout the crisis while maintaining relationships with customers has been a challenge for the beverages specialist. The licensing required to move alcohol through the supply chain was a particular obstacle, as this is regulated on a state-by-state basis. Cross-border travel restrictions also posed challenges.”


Western supermarkets generally operate on a system of frequent orders and low lead times to keep costs low, meaning they often have little stock available beyond what is on the shelves. This led to shortages across North America, Australia and Europe, particularly on in demand items such as toilet paper and pasta, whereas major retailers worldwide, including Metro, Ocado and Sainsburys had to restrict online orders due to the spike in demand.

Another major problem for Western supermarkets and retailers was the inability of supply systems to pivot from supplying cafes and restaurants, which saw demand plummet, to supplying retailers, which had seen demand soar. Milk was a particular casualty of this, with gallons going to waste, while stores also suffered frustrating shortages of products such as flour and cheese, due to the inability of suppliers to repurpose unwanted huge commercial packs into retail friendly sizes.

WHEN IT COMES TO SPEED OF DELIVERY, WHAT HAS BEEN YOUR GENERAL EXPERIENCE WHEN BUYING NON-FOOD PRODUCTS ONLINE DURING LOCKDOWN?

I have experienced very little difference in the typical speeds

of delivery

Delivery has generally been quicker than

usual

Delivery has generally taken

longer than usual

46.4% 48.1% 5.5% UK consumers, June 2020

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“We’ve obviously seen a massive disruption to supply chains, not only global ones which were most exposed but, in some cases, intra-country ones where there were regional lockdowns. While this had some significant impacts, I’m interested to see the medium and long term response. What I don’t expect is massive onshoring as it removes competitive advantage and comes at a significant cost that is probably not warranted as a response to a once in a generation event. Instead, I expect businesses to invest in supply chain flexibility and redundancy and improved systems to monitor and co-ordinate supply chains.”

– Shane Bilardi, Corporate Partner, DLA Piper

Food supplies generally held up remarkably wellNevertheless, despite the shortcomings exposed by the pandemic, food supplies have generally held up remarkably well, with food retailers from global giants, such as Walmart, Tesco and Carrefour, to smaller niche operators, reporting abnormally large revenue increases as they have successfully capitalized on the rise in demand.

Logistical networks adapted at speed, with the OECD reporting that expansion in use of specialized private aircraft had added more than 20,000 tonnes of daily capacity. Meanwhile, road transport pivoted towards moving the most in demand categories; in Europe the share of trucks delivering food and agriculture products increased from one-third of the total before lockdown, to more than half during lockdown, according to the OECD.

“However, the company highlighted that though it has faced challenges in its supply chain during the pandemic, the process has been surprisingly smooth given the circumstances, and it has been able to adequately supply customers.”


By June the OECD noted, “Grocery store shelves have been replenished over time, as stockpiling behavior disappeared and as supply chains responded to increased demand.” National policy-makers were praised for their role in this, particularly for largely avoiding export restrictions of the types briefly seen in Malaysia, Thailand and Vietnam, and for quickly introducing measures to shrink long border queues, such as the creation of “green lanes” at intra-EU border crossings.

The OECD also praised the response of food suppliers and retailers to the pandemic, stating that “Despite a general trend towards ‘just in time’ models with limited inventories, various actors along the food supply chain held safety stocks which were drawn down in response to the demand spike.” Those businesses with better visibility of their supply chains and/or previous experiences of some type of significant disruption were identified as being particularly well prepared for this crisis.

Another factor in businesses successfully preventing out of stocks was their willingness to increase opening hours and take on extra hires, as well as the rapid way they sourced alternative supplies, such as Carrefour responding to India’s temporary inability to supply rice by instead finding providers in Pakistan.

Simplifying ranges to focus on popular products and grouping items together also played a major role, as businesses didn’t fall into the trap of just thinking about the how of delivery in isolation, but also strategized about the what and the why. This led to developments such as UK supermarket Morrison’s offering pre-set food boxes for online delivery for GBP35, while Mondelēz International, owner of Cadbury and Oreo, cut a quarter of its products to focus on producing its most popular lines.

Moreover, at the point of delivery to consumer, businesses rapidly ramped up capacity to meet the jump in demand for home delivery and click and collect. Tesco increased its available delivery slots from 600,000 in March to 1.5 million in September, while Aldi US piloted “curbside grocery pickup,” before then rolling it out to nearly 600 stores by the end of July.

The trend of increasingly serving food shoppers in their homes was not limited to retailers either, with food service outlets, such as Wingstop (now available on Doordash in the US) brands, such as Baskin Robins (now available via third party delivery app, in the US), and even farms (such as those on Good Eggs, a San Francisco-based online marketplace for small farms) using online platforms to sell to consumers.

Fashion supply issues compound problems of weak demandWhile fashion obviously isn’t perishable in the same sense as food, it is still a time-sensitive export, in that the appeal of many items is seasonal and, once these opportunity windows are missed, items lose much of their value. Unlike food, though, the sector has also witnessed a catastrophic drop in demand.

By the time COVID-19 hit in early 2020, fashion retailers worldwide had already placed huge orders for spring/summer of that year. Some retailers reportedly backed out of these commitments, leaving their suppliers in dire straits, while others had to take the hit themselves. This has left many retailers trying to store or get rid of excess stock which, even as consumers slowly start spending again, is now inappropriate to the season. An example includes H&M sitting on GBP3.4 billion of unsold merchandise as of late April 2020.

Combined, the problems of falling demand and over-supply of unwanted product have devastated retailer cash flow and profitability, with major names such as Oasis and Warehouse in the UK, and J.C. Penney and J.Crew in the US, filing for bankruptcy.

“Throughout 2020, we witnessed lockdowns in different parts of the world causing volatility and disruption in supply. That was coupled with declining sales across the sector. The effects of these two issues compounded each other. It will place a sharper focus on the need for more demand led sourcing models going forwards.”


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Supply chains post-COVID-19: Strengthen, simplify where possible and get smarterThere are a number of common points in how retailers in a range of sectors have looked to improve their supply chains post-COVID-19.

The first step, and one in which the crisis has actually provided a helping hand, is identifying pain points, at any stage from sourcing, to distribution, to the ‘last-mile’, so they can be properly addressed.

For many businesses, addressing the issues the pandemic has exposed will mean diversifying their supply chain to avoid overly relying on any particular partners. Some businesses, such as US lingerie manufacturer Gelmart, had actually begun this process before the pandemic, in response to the escalating China-US trade war, opening factories in Bangladesh and the Philippines. Gelmart was able to switch production across these three countries, as they each locked down at different points of the COVID-19 crisis, minimizing how much its output ultimately fell.

For some businesses the pandemic has pushed them to strengthen supply chains through developing whole new partnerships. Retailers forging supply chain and fulfilment tie-ups, both with other retailers and other companies, is a trend that pre-dated the pandemic. But, here too, there has recently been a substantial increase in activity, as businesses scramble to meet the huge growth in demand for home deliveries. Examples include UK delivery platform Deliveroo not only tying up with food retailers, including Co-op, Morrisons, M&S and Aldi, but also starting a venture with pharmacy Lloyds, to offer home delivery within 30 minutes.

For other retailers, rather than a need for diversification and bringing in new partnerships, a post-COVID-19 risk assessment may well point to the logic of shortening the supply chain and consolidating around key suppliers, or even developing their own sourcing operations, in the manner of Spanish giant Inditex. Closer, vertical integration would have particular benefits for many fashion retailers, with shorter supply chains giving them more flexibility to react swiftly to seismic changes in demand and avoid the kind of excess stock scenarios suffered by so many in 2020. In terms of how these changes could look, it would mean retailers using supply bases closer to home, and/or investing in automation, to reduce lead times and the need to place such large orders so far in advance. It could also see them renegotiating or terminating a large proportion of existing relationships, to bring in these changes.

Where key suppliers are identified and consolidated around, it will be important to deepen relationships and improve engagement and collaboration. Unilever has provided an example of this, even offering EUR500 million of cash flow relief to its suppliers and small retail customers in March 2020, through early payment and credit schemes, effectively securing a huge amount of goodwill, loyalty and future support throughout its supply chain.

Each retailer will need to strike a balance of complexity in their relationships that is right for their needs in this new world, just as they will need to find the right balance between having agility and benefiting from economies of scale.

One area in which almost all retailers are united, though, is in the need for supply chains that are smarter, both in their setup and in how they use technology and data.

“Supply chain tensions, recently highlighted by the inability to repatriate empty shipping containers, during the pandemic has raised the spotlight on near shoring, but as some are finding, doing so not only disrupts existing relationships but can paradoxically extend lead times due to the efficiency of Asian producers. While complex, it would appear to be that the drivers for near shoring are as much if not more about mitigating supply chain risk and SESG than speed and efficiency. Being nimble and diverse and having contractual arrangements that allows both, as part of a dual sourcing strategy and that are underpinned by state of the art SLAs is key.”

– Mark Dewar, Global Co-Chair, Consumer Goods (International), DLA Piper

Smarter systemsMany retailers still operate with logistical operations that are a legacy of a time when success largely relied on establishing a huge network of physical stores and ensuring they each had plenty of stock. The pandemic has served as a stark reminder that these times have changed and, if they hadn’t already, retailers need to right-size their store portfolios and reorganize shops so they can help support the biggest growth opportunities, which are now mostly found online.

Modernizing also means updating stock replenishment and inventory systems to capitalize on current capabilities. For example, traditionally many systems operated solely on historical transaction data to forecast, and hence have been unable to efficiently adapt to the current turmoil, which is effectively unprecedented in the modern era. The key to this lies in updating to AI-led models which can factor in external considerations and better respond and adapt to extraordinary events. These systems are better able to make use of the variety of complex datasets now available, tracking global weather, health, political stability and other metrics, to provide better visibility of threats to supply and demand.

European e-retailer AO.com is one example of a business which has brought in external specialist technology during the pandemic to better manage its inventories and improve demand forecasting, replenishment, promotions and product lifecycle management decisions; while software tech company Antuit.ai has reported working with a well-known major omni channel fashion retailer to help it use AI to manage its product markdowns, with extremely positive results, in addition to a number of other consumer-focused businesses.

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Another advised action to maximize benefit from the era of big data is to engage in better data sharing, to resist siloing, and to make use of cloud technology to provide end-to-end real time visibility. During lockdown, PepsiCo announced a partnership with Microsoft as a preferred cloud services provider, partly with the aim of improving its operational agility, while Kraft Heinz stated it was using AI to analyze supplier data and improve its procurement methods.

These kinds of changes were always going to be needed to meet the demands of consumers who, in recent years, have massively increased their expectations around the speed, price and flexibility of fulfilment, as well as around stock availability and product return options. However, the pandemic has pushed retailers to make these changes sooner rather than later.

“The move towards modernization of stock replenishment and inventory systems in grocery is part of a wider trend toward the adoption of machine learning, analytics and other data-driven smart solutions. While such systems have proven benefits, their reliance on large volumes of accurate and up-to-date data brings its own challenges in terms of compliance with increasingly complex and heavily enforced privacy and cybersecurity laws. Businesses that will maximize return from the data-driven economy will be those that get the balance right between investing in systems and compliant data strategies.”

– John Magee, Intellectual Property and Technology Partner, DLA Piper

Disruptive technology Hand-in hand with the need to update systems will be greater integration of disruptive new technology into the supply chain. Logistical systems are often still surprisingly old-school, relying on manual labor, physical paperwork and phone calls. However, companies are now increasingly looking at how new equipment and software can help them improve performance.

Sometimes the changes might be as simple as using technology to digitize physical paperwork, to make it easier to share and access data, or to match producers with currently available cargo companies to eliminate delays. For example, in July 2020, luxury fashion packaging provider Delta Global launched a data-driven digital intelligence system to enable greater transparency and control in supply chains, specifically aimed at businesses with outdated tracking and communications systems, that could benefit from streamlining.

Some processes – such as raw material production and complex product assembly – may well remain too difficult or costly to automate, but robotics and automation will generally play a greater role throughout supply chains in the coming decade, reducing costs and reliance on human labor. This will be true at all stages of the supply chain; from the use of drone forklifts and assembly lines in warehouses and factories, to more efficiently delivering to shoppers through autonomous

delivery vehicles and micro-fulfilment centers, such as the automated sub-30,000 sq. ft. warehouses tech startup Fabric offers retailers around Tel Aviv and the United States, to enable same-day deliveries within these countries.

3D printing will offer more flexibility in manufacturing not only in electronics, where it can enable no-minimum-order thresholds and short turnaround times, but in other sectors too, with KFC looking to develop a bioprinter to produce KFC nuggets and Spanish shoe company Camper using 3D printers to create product prototypes, as a faster and more malleable alternative to outsourcing this stage of product development.

Following a clear trend toward an everything connected approach, having more sensors will allows the creation of more datapoints, which help identify improvements in efficiency and cost. It also begins to bring blockchain technology into play, to help manufacturers, retailers and consumers better track the provenance of stock, as well as allowing for a more accurate inventory and the ability to find stock quickly. Walmart has patented one such “smart package” system, while the Singapore Food Agency has partnered with cloud-based smart tagging firm veriTAG to develop a blockchain-based food tracking system to tackle problem areas in the Singapore food supply chain.

Case Study - consumer health company applies science to pricing

RESULTS

The problem - Long known for their science, this multinational consumer healthcare company was spending a significant amount of time and effort in spreadsheets to create prices without a view of market share impact. With growing competition and margin pressures, they desired to infuse analytics, automation , and predictability into their global pricing process.

The result - Leveraging Antuit’s Strategic Pricing, the company transformed its pricing capabilities. With machine learning, they gained more sophisticated analytics and greater visibility to the market impacts from their pricing decisions. Freed from their spreadsheets, they had more time to spend on the insights, scale the digital platform across the organization, and enhance their pricing strategies across the globe.

Source: Antuit.ai

Revenue improvement

Margin improvement

Market Share improvement2-5% 1-3% 1-1.5%

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“The pandemic has highlighted the need for supply chains to be streamlined and efficient, compounded by consumer’s demanding instant gratification. Businesses need reactive supply chains, which can adapt and move apace, in a way that not only responds to market stimuli, but which predicts it and allows the business to move ahead of the market. The use of Artificial Intelligence and data analytics will facilitate this and we are seeing more clients explore these disruptive technologies; by predicting and reacting to changing demand levels, the supply chain is able to operate more efficiently, lowering costs and reducing waste and carbon footprint.”


Acting responsiblyWhen it comes to retail supply chains, acting responsibly has been one of the most prominent topics for some time.

“Brands are becoming more mature on sustainability, environmental, social, societal and governance. They understand it is a core brand differentiator. Consumers, investors, regulators and employees demand a sound SESG approach to business and products.”


In 2020, this has understandably taken on a COVID-19 focus. Retailers and their suppliers have been under pressure to keep staff safe, not only through providing sanitizer, disposable gloves and masks, but through introducing changes such as enhanced cleaning of facilities, one-way traffic flows, dedicated workzones and fewer staff on sites. Walgreens and Perdue farms are just two of the businesses that felt the need to release lengthy statements detailing all the measures they were taking to keep employees safe while they continued operating. More generally, businesses have also had to make the less tangible change of having to alter company culture around operations, away from a relatively singular focus on efficiency and speed, and towards one that places this goal below that of ensuring worker hygiene and safety.

“Addressing environmental concerns is a key priority for Heineken. It continues to focus on the sustainable farming of hops, renewable energy, recycling and responsible water usage, particularly in water-scarce areas.”


However, consumer attention is not only already returning to how sustainably businesses are operating, scrutiny of this subject is set to increase considerably, as the upheaval of the pandemic encourages people to rethink how they shop and their impact on the world around them. In a global survey by GlobalData in September 2020, 85% of respondents indicated that a reduced environmental footprint is important to them owing to the impact of COVID-19, with 12% of these responses belonging to the “top priority” bracket.

“Finding the right SESG brand activation messages requires marketing, advertising and consumer law advice but starts with a full review of operations: sustainable sourcing; ethical manufacturing; use of recycled/recyclable materials; partnering with charities in times of crisis; creation of company foundations to apply a part of profit to a greater cause.”


Indeed, greater transparency in supply chains is set to be a crucial trend, not just in terms of tracking environmental impact and animal welfare, but in terms of ensuring fair conditions and pay for anyone involved in creating products and getting them to market. In July 2020, UK pureplay fashion retailer Boohoo found itself de-listed from ASOS and Next after allegations of low pay and unsafe conditions at a supplier’s UK factories.

“The entire supply chain must be made SESG compliant. This requires qualifying new suppliers all along the chain; terminating some contracts, renegotiating existing contracts.”


Also illustrating how, even in the midst of a pandemic, retailers and consumers take these issues incredibly seriously, many companies have continued to take positive steps. In June 2020 Danone announced that its Volvic water brand is now certified carbon neutral, following its Evian brand having achieved the same thing in April. Also in June, Unilever announced plans to track the carbon footprint of 70,000 products with new “carbon labels,” giving consumers unprecedented visibility into the manufacture and shipping of its products. Another development in the summer was Aldi UK joining fellow UK retailer Waitrose in stating that it would not sell lower welfare animal products, even if this becomes an option following Britain’s exit from the EU.

“Sustainability is a key pillar in this brand’s thinking and strategy, both on a local and global scale, and it has outlined clear KPIs surrounding environmental and social governance. Emerging legislation in this space, on areas such as modern slavery, the use of plastic, sugar consumption and sustainability, is also encouraging brands in general to act more responsibly.”


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Balancing local versus global supplyAnother area of supply chain strategy that businesses will have to rethink is balancing local versus global supply.

“In terms of manufacturing, most of the brand’s goods are produced locally, and this helped minimize delays. It highlighted that there is potential for brands in general to increase focus on locally produced goods in the future, as consumers are increasingly favoring these. Its biggest challenge in manufacturing was having to introduce strict controls such as social distancing protocols.”


This issue was immediately brought into focus by the COVID-19 pandemic beginning in China, the manufacturer of such a significant proportion of global retail goods. This brought a backlash, with the likes of French Minister of Economy and Finance Bruno Le Maire declaring the pandemic a “game-changer” for globalization, revealing what he deemed an “irresponsible and unreasonable” dependence on China. Other high-profile individuals, such as US trade representative Robert Lighthizer and EU internal market commissioner Thierry Breton, also spoke out as this being an opportunity for supply chains to be reshored domestically.

From a consumer point of view, a GlobalData survey conducted in May 2020 shows that 48% of US and 47% of UK consumers consider products made in/imported from China to be untrustworthy, whereas 82% of US consumers and 75% of UK consumers deem goods from their own country to be trustworthy, suggesting shoppers also have a preference for home-grown products.

“The pandemic has shown all the weaknesses of global supply chains, with the consequence that in the EU, member states have started to speak more and more often about the need to restructure them, both in terms of sustainability and resilience. Hence, there has been growing a certain consensus within the EU around the need to become less dependent from global supply chains, to find efficient solutions to produce and source more locally and to avoid shortages as during COVID-19. This political and strategic awareness finds an ally in the equally growing awareness among consumers of the real costs and impact of the globalized supply chain in terms of sustainability and environment and their growing appetite to consume products that are considered more authentic and home-grown and are manufactured in more local and small-scale production facilities. To that end, the EU Member States may be deploying incentives to stimulate a potential reshore of certain production facilities to Europe or its neighboring countries or, at least, a diversification of the manufacturing process. All such appetites and incentives would however come with a price tag – at a time when many stakeholders will actually be operating in survival mode – and be confronted with an economic, financial, budgetary and geopolitical reality check. Therefore, it remains to be seen whether, in the post-COVID-19 landscape, all interests will actually meet and converge to such extent that a real shift will be noticeable in the pre-existing balance between local and global supply chains.”

– Alexis Fierens, Intellectual Property and Technology Partner, DLA Piper

HOW DO YOU RATE THE IMPORTANCE OF LOCALLY SOURCED INGREDIENTS? GLOBAL CONSUMERS, DECEMBER 2020

There are other potential benefits from localized supply chains too, such as greater transparency and reduced environmental impact from CO2 and freight emissions.

Nevertheless, there are a number of prominent counter-trends to consider before predicting that large numbers of Western companies are about to start relocating their supply chains closer to home. Even using greater technology and automation, moving supply chains closer to their end markets would bring large increases

in labor costs and, while consumers might be quick to state a preference for locally made goods, there remain serious questions about how much, if any, premium they would actually be willing to pay for them.

“The process has been surpassingly smooth given the circumstances, and it has been able to adequately supply customers, so the company has not sought to make any changes to its existing logistics network as a result of the pandemic.”


Moreover, from a risk point of view, a wholesale movement of a supply chain from one country to another is arguably just concentrating the risk elsewhere, while diversifying across multiple countries might avoid this pitfall, it may also bring new costs and complexity.

When it comes to China in particular, the country still benefits from huge state support through the “belt and road initiative,” creating infrastructure and efficient trading links that it would be difficult to find elsewhere. It also offers the possibility of massive future growth in domestic demand, with one of the most known multinational beverage corporations recently increasing their commitment to the country, with new production lines, bottling plants and factories , in part because of the sales opportunities provided by the burgeoning Chinese middle classes.

Further complicating the China versus local dynamic is the fact that other south east Asian countries, as well as Turkey, India, Brazil, Mexico and numerous other countries in North Africa, Eastern Europe and elsewhere, are also making a play for a bigger presence in post-COVID-19 supply chains, promising lower costs, diversified risk and other advantages in return for investment and jobs.

It is now my top priority

Significantly more important than before

Slightly more important than before

As important as before

Slightly less important as before

Significantly less important as before

It is no longer important to me

7%

14%

20%

45%

7%

3%

4%

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The reality is that individual companies will likely now take stock and decide where the future of their supply chains lies, based on the sector they operate in and the respective risks and merits of being located in the relevant countries.

For some this will mean doubling down in China, while for others it will mean relocating to other emerging economies or bringing part or all of their operations closer to home.

Whatever they choose, this moment of reappraisal should also be used as a chance to review supply chain complexity, strengthen relationships, introduce technology and ensure they are acting responsibly, to create transparent and responsible systems that will stand up to scrutiny from increasingly zealous consumers and the possibility of further shocks in the future.

Conclusion

The 2020 pandemic has caused a huge and permanent increase in the significance of online, and particularly in food and grocery. This has been supported by the rise of new technology and has seen the online giants further consolidate their positions, with other retailers having to consider how they can work with, or compete against, these titans.

Indeed, the considerably different world brought about by COVID-19 has forced retailers to rapidly develop new strategies, particularly online, leading many brands and manufacturers to also look at how they can now use the Internet to go directly to consumers.

However, despite the prevalence of online, more traditional channels also continue to play a major role in businesses’ plans, and many of the changes 2020 has brought about at every level; from the experience within shops to the changes to the makeup of town and city centers are here to stay.

Technology has been key to businesses meeting the challenges brought by 2020, playing a role in everything from improving the store experience, to overcoming last-mile delivery challenges, and other obstacles further up supply chains.

In fact, the challenges and reactions relating to supply chains are in many ways a precis of the wider issues and responses among consumer businesses. The pandemic has provided a major shock to the system, revealing a number of shortcomings, but companies have generally held up remarkably well, even finding opportunities among the chaos, introducing technology and smart systems, and not losing focus on other key issues, such as meeting the growing consumer standards around corporate responsibility.

With 2021 and beyond set to bring more disruption, albeit perhaps not quite to the same levels as 2020, businesses will once more need to display this aptitude and adaptability, as the world continues to change around them.

Supply chains: three-year outlookVirus Prevalence Scenario


The changes made in 2020 remain the blueprint and many of the traditional supplier powerhouses, such as China, retain dominance, despite the slow rise to prominence of new locations. Many businesses will have felt they navigated the crisis successfully and hence are unlikely to feel the need to make dramatic changes to their logistical networks, instead focusing on and strengthening relationships with key partners.


Ongoing challenges from the presence of the virus and government-imposed responses to it will encourage businesses to make some changes to their logistical networks, focusing on and strengthening relationships with key partners, re-evaluating the complexity and locations of their chains and investing in smarter systems and new technology.


The drawbacks of having large, spread-out supply chains are outweighed by the need to be able to mitigate risk and navigate local flare-ups of the virus, and most businesses move towards this model, also including some degree of onshoring, so they can at least monitor elements of the chain more closely and have aspects of their supply which are less reliant on international transport networks.

DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at dlapiper.com.This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.Copyright © 2021 DLA Piper. All rights reserved. | MAR21 | DLA.PIP.1936

retail in a post-pandemic world

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