The impact of COVID-19 means Australian shoppers will be looking more closely at price, promotions and value moving forward, meaning companies need to focus on recession-proofing brands.
While alcohol has historically been regarded as being recession-proof, drinks companies are being warned not to be complacent in the new normal of COVID-19 and the growing focus on wellness.
Like liquor, lipstick was regarded as being recession-proof until recently. It was the beauty product that consumers always wanted, even in the midst of economic uncertainty. The phenomenon, dubbed “the lipstick effect,” dates back to the Great Depression – during a time when many major purchases were put on hold, lipstick sales continued to rise.
However, the lipstick effect has been heavily impacted during COVID-19 by the prevalence of face masks.
A report by IRI – ‘FMCG In The ‘COVID-Quarter’ & Preparing For Recession’ – predicts that shoppers will be eliminating, postponing, decreasing, or substituting purchases moving forward.
“Some consumers will still seek premium products during a recession, but we have seen a reduced willingness to pay a price premium for better quality in 2020 compared to any of the last five years,” IRI said.
The report adds that additional frugality will propel the embracement of private label.
“Over half of shoppers have already chosen store brand/private label items more often in the last month to save money, or because of brand availability issues,” it said.
“The convergence of several factors—including increasingly value-conscious consumers, retailer differentiation and profit-optimization objectives, and enhanced producer operating capabilities—will all play a role in propelling the private brand market.”
A majority of shoppers are seeking deals, regardless of brand affinity.
Innovation & brand awareness crucial for recession-proofing
IRI notes that there are learnings from how brands responded during the last recession – in 2008-09. The brands that rebounded strongly had a number of things in common.
“Most importantly, they used the recession as an opportunity to double down on advertising and innovation,” it said.
It pointed to Budweiser as a ‘recessionary winner’, with sales up 23% organic growth of 3% between 2008-09. IRI credited continued investment during the economic crisis as key to this growth.
IRI recommended focusing on four pillars for recession-proofing brands and cultivating growth:
- Sustain R&D/NPD efforts, and streamline range.
- Use pricing to maintain and strengthen brands – leverage ways of boosting value beyond price cuts.
- Invest in marketing to bolster ‘mental availability’ – advertise authentic attempts to be ‘part of the solution’ and to enhance permissibility of (premium) indulgences.
- Use data and research to make high quality decisions
Everyday treats and indulgences, such as ice cream, biscuits, alcohol, coffee and savoury snacks can exist as ‘antidotes to reality’ at a time of a crisis or recession.
“Regardless of the overall economic climate, premium and super-premium iterations of these products remain more permissible versus other higher ticket prices associated with, by way of example, consumer durables,” IRI suggested.
“Marketing communications should dial up the permissible indulgence provided by these affordable and necessary luxuries.”
Click here to view IRI’s CPG and Retail Insights to Manage the Impact of COVID-19
Brands explore new advertising avenues
Brown-Forman’s CEO Lawson Whiting told an analysts call that the company had been looking closely at changes in media consumption.
“Consumers have been shifting away from more traditional forms of media for a number of years, and we’re not only seeing an increase in overall media consumption, which is intuitive as consumers around the world are spending more time at home, but also an acceleration of media consumption by digital platforms like social and streaming services,” he said.
“We continue to move more and more of our investments behind our brands into broad reach media, especially growth areas like online video.
“While our brand expense was down significantly in Q1 driven by the uncertain environment, starting in Q2, you will begin seeing more spending as we launch new creative across many of our brands.”
It’s the right tactic according to Analytic Partners’ ROI Genome intelligence, which spans hundreds of billions of dollars in marketing spend across more than 700 brands in over 45 countries.
Its insights on recession-proofing include:
- Recessions or downturns do not mean lower ROIs. In over 100 cases, more than half of brands saw improvements in ROI during the last recession.
- Media spending contributes to short-term growth and longer-term brand building, even during a recession. On average, brands that increased media investment realised roughly a 17% growth in incremental sales, and more than half saw subsequent improvements in year-over-year ROIs over a two-year period during the recession.
- Removing media guarantees losses during a recession. On average, brands that removed media investment suffered an 18% loss in incremental sales.
- Removing media investment exacerbates losses for struggling brands. Two-thirds of losses in incremental sales during the last recession were driven by lower investments while one-third was driven by lower consumer demand.
