‘How to win in a recession’: Four top tips for Australian F&B firms to spur growth post-COVID-19

By Pearly Neo contact

- Last updated on GMT

Brands are advised against lowering prices and offering excessive promotions to sell their products. ©Getty Images
Brands are advised against lowering prices and offering excessive promotions to sell their products. ©Getty Images

Related tags: Australia, Recession, COVID-19

Food and beverage firms in Australia would do well to maintain product pricing, focus on advertising and research, as well as wisely streamline their product ranges in order to come out on top post-COVID-19, according to recommendations from an industry expert.

According to IRI Australia Client Insights, Food & Beverage Lead Consultant Justin Nel,‘everything has changed’​ for the food and beverage industry in Australia after the COVID-19 pandemic outbreak, and firms need to proactively act to avoid being left behind.

“Australia is now in a ‘readjustment’ phase after moving out of ‘lockdown phase’ where everyone is basically exploring options while being wary of a recession – the next phase we’ll move to is the ‘revival’ phase,”​ he told the floor at the recent virtually-held Food South Australia Summit.

“This is not a back to normal – we can’t stress enough that there is no back to normal, there is only a new normal.

“You, your business, your consumers - everything has changed, and what we will see now is a blending of the old and the new as we are going to bring forward some of those behaviours learnt in lockdown and during the readjustment phase into the revival phase.”

According to IRI research, 45% of Australians felt that their household income was at risk in April due to terminations, reduced hours and other such factors brought on by COVID-19 – which also means that 45% of Australians may now feel more inclined to pinch pennies and save money, explained Nel.

“This is important for food manufacturers to note because you now have a completely segmented and different market – about half the population has been impacted, so essentially your shopper has changed,”​ he said.

“The most likely to benefit during such tough times is actually private label - research shows that in 2020, 61% of Australian consumers now believe retailer/private label products are a good alternative to branded products vs 58% in 2017. [Driven to save costs], drive consumers are more likely to try a private brand.

Even before COVID-19, Australians were already demonstrating an apathy for brands – back in 2018, just 32% of surveyed consumers indicated that they felt the brand name of the product they purchased was important, a 9% drop from 41% in 2015.

“[We also recently] asked consumers whether they would care if any consumer packaged goods brand disappeared the next day, and some 77% said they would not,”​ Nel revealed.

So against a backdrop of penny-pinching and consumer apathy, how are F&B brands expected to thrive through a possible recession post-COVID-19? Nel listed four key tips:

1) Maintain price and protect value proposition

Perhaps counter-intuitively, Nel advised brands against lowering prices and offering excessive promotions to sell their products.

“The natural reaction in a recession is to increase promotional activity and do things like Buy One Get One Free, or just decrease base price - This is the wrong behaviour,”​ he stressed.

“What brands should be doing is to communicate value beyond price, and showing consumers why they should be supporting the brand now more than ever.”

Lowering the prices of products in order to attract consumers may work in the short-term, but could cause long-term damage to a brand.

“It is important to avoid this mindset of everything should be cheaper and to get into a price war with competitors -  once the recession is over, it will take the brand much longer to rebuild not only the product’s base price but also consumers’ perception of the brand especially  if it has been damaged by being devalued so much.”

Instead, the advice here is to understand the elasticity of the brand (i.e. how much changes to the pricing will affect sales) and to develop a proper high-level strategy, as well as communicating the value of the product to consumers beyond price cuts.

“It’s important here to let consumers know what they can get beyond the core products – e.g. UK brand Batchelors launched a limited edition tie-in product with the online game Final Fantasy, which attracted a lot of consumers of that demographic,”​ he added.

2) Don’t go quiet on marketing

Although it might also be tempting to save on marketing and advertising spend during a recession, again Nel’s advice is to go the other way entirely.

“Avoid going dark and make sure to maintain the relationship with consumers. In fact, advertising should be cheaper during a recession, so try to capitalise on this,” ​he said.

“Australians will be scrutinising brands’ messages – our research has shown that 80% of Australians feel brands have important role to play during tough times, so I can’t stress enough that whatever you are doing to help, now is the time to share that.

“On the flip side, 66% of Australians will abandon a brand that is perceived to only act in own self-interest.”

Due to the situation, people have more time on their hands and are watching television or online videos more, and thus are more exposed to advertisements, so this is regarded as a time to reinforce positive messages with consumers.

“Be careful not to come across as disingenuous or fake though, as this will have opposite effect. [One way of marketing] is to spread a premium message, e.g. that consumers can have one more premium wine or chocolate because they are saving money in different aspects by staying at home.”

3) Range streamlining and NPD innovation

Although every brand wants to have multiple SKUs to their name, now may not be the right time t push portfolio-broadening ambitions forward, as Nel also called for manufacturers to streamline product ranges and focus on the better-performing items.

“Our recommendation is to pull back SKUs that are not as successful in order to put top-velocity products on-shelf. [This is to avoid] a situation where a brand’s top-performing star product is off-shelf/out-of-stock, but instead there’s a poor-performing product sitting there with no one buying it,”​ he said.

“It is also important during this time to not underestimate the importance of innovation and NPD – consumers are still willing to try new things, and so many changes have taken place that there may be new opportunities for a current product in a new iteration or pack size.”

In terms of innovation, manufacturers have also been advised to dial up on value attributes which may show ‘elevated recessionary appeal’ – such as larger pack sizes, high durability, proven efficacy, or even if used by a trusted celebrity.

4) Research through recessions

The reason for research is to understand consumers’ new priorities and behaviours and what ‘good value’ now means to them – as well as to understand a brand’s ‘dispensability’.

“Your brand could be essential, which is good; a permissible treat such as premium chocolates or wine for small luxuries, which is also not bad; or you could be postponable which is a nice to have, and not a need but a want e.g. fermented beverages, high-protein yoghurts which consumers can wait for but not purchase now; or worst yet, you could be expendable, meaning totally unnecessary and unjustifiable as a purchase,”​ Nel explained.

“Research is important to understand where you are in this new environment and [moving forward to prevent becoming expendable].”

A lot of the recommendations made were also made based on research from previous recessions, such as the last Great Financial Crisis, and importantly, Nel urged brands to be pro-active.

“Based on lessons and research from previous years, we encourage you to be pro-active and to move quickly – don’t just wait,” ​he said.

“In the United States, during the last financial crisis big brands such as Coca-Cola and Budweiser invested more in things like their flagship brands, innovation and advertising during the recession.

“These case studies have shown that these investments yielded more sales and high organic growth for them even through the recession. [So] cut your unnecessary spending and invest in ways that will genuinely spur growth for your company.”

Related topics: Markets and Trends, COVID-19

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