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Retailers on the Front Lines: A Conversation with Pricing Executives at Carrefour Brazil and Tops Markets

The COVID-19 pandemic has impacted every corner of the globe and every sector of the economy. But perhaps no industry has been impacted more than retail. I recently sat down (virtually, of course) with some innovative grocers, Pricing and Commercial Intelligence Director Alessandra Shima and Pricing Coordinator Vitor Serra of Carrefour Brazil, and Tops Markets’ Director of Decision Support and Pricing Lenny Smith, along with DemandTec President Cheryl Sullivan, to get a view from the front lines of retail as the pandemic continues to unfold.

It was a fascinating and wide-ranging conversation, as you’ll see.

Alison Raffalovich: The pandemic has upended just about everything in retail, and changes are still unfolding at incredible rates of speed. What are some of the most significant challenges you think retailers are facing in the pandemic?

Lenny Smith: Right now, the supply chain is unpredictable and we’re seeing constant rotation in what products are available. Most recently, the meat processing plants were disrupted, earlier it was paper products, and for a while now, it’s been baking supplies. It’s hard to stay ahead of consumer demand. Fortunately, we have a great team of experts in merchandising that are working hard to stay in front of it.

Alessandra Shima: Yes, as Lenny says, unpredictability is a huge challenge. It’s impossible to guess what will happen in terms of consumer demand, government actions with respect to quarantines and price regulations, supplier performance and business operations. The unpredictability in turn creates challenges around managing cash flows and financial results. 

The market is changing too – each competitor adopts a different strategy and it is difficult to set up and execute your own strategy without knowing what the competitors’ actions will be.

Vitor and I have also been talking a lot about challenges with price image, as it’s become both more important and more sensitive than usual.

Vitor Serra: Right, and price movements that were normal few weeks ago became more risky and noisier now. Media and social networks are very attentive to these changes. The challenge is even greater because sometimes the consumer has a pricing image opinion about retailers in general, not just on us based on Carrefour’s actions. Shoppers are paying special attention to specific categories where the pandemic has created more focus, like toilet paper, cleaning products and hand sanitizers.

Cheryl Sullivan: These are all great points and really unprecedented challenges. I think one of the toughest things overall right now for retailers is that they can’t rely on any of their traditional touchstones – the historical data is meaningless now, what they think they understood about seasonality is out the window. It’s hugely critical to be looking at what is happening in real time and to constantly sift through to identify those changing demand signals effectively.

AR: On a more personal level, pricing teams typically work in close collaboration both with each other and with merchants and marketers. What are some of your personal tips and lessons learned in working productively in remote conditions?

AS: To be honest, it was a positive surprise how shifting overnight to everyone working from their home office had so little disruptive impact on productivity, motivation and synergy. In some situations, I can honestly say productivity even improved.

Our day-to-day tips are:

–       Implement a daily morning meeting with the pricing team, to define priorities and daily tasks, followed by written meeting notes capturing what was agreed

–       Daily one-to-one calls to track execution and provide help when needed

–       Maintain the regular weekly meetings and committee discussions with the merchants

–       Share decisions with the team to provide all of them with a sense of participation

LS: Yes, like Carrefour, we do a lot of conference and web calls. In this environment, we’re setting up and pricing new items at a rapid pace, so we have to be in constant contact to stay on top of things like adding paper products that we hadn’t carried before, or adding and removing items as supplies shift and demand changes.  

Good teamwork is more important now than ever, and we rely on real-time digital and phone-based communications to keep up with the pace. That said, of course you lose a little of the personal nuances of face-to-face communications, like whether their facial expression shows whether they are truly understanding what you’re saying. Even in the office buildings, face masks create some loss of detail that you get from being able to observe people’s facial expressions.

AR: Another area we’ve seen evolve dramatically is the shift to online shopping with delivery or pickup fulfillment, even among shopper segments like older shoppers who traditionally were slow to adopt those channels. Do you think shopper behaviors will remain permanently altered after the pandemic, or do you think they’ll return to something more like their pre-COVID behaviors?

LS: Oh, I definitely think online will remain strong even after COVID-19. Even beyond my world in New York, in the U.S., as some counties and states relax shelter-in-place restrictions, we’re seeing e-commerce adoption persist at a much higher level than prior to the pandemic. Grocery stores really need to be prepared for that pattern of more click-and-collect and home delivery to continue to increase over the long-term.

AS: I agree completely. I have no doubt that the shopper behavior has changed and will remain changed even after the pandemic. On the one hand, this event accelerated some shoppers’ online adoption because it broke some technology and cultural barriers. On the other hand, some shoppers have been very disappointed at the poor online services provided by some retailers that were not prepared for such high online demand. They may not have a second opportunity with those shoppers. In particular, it’s very clear that many grocery retailers have a lot of opportunity to improve the online shopper experience, including navigation, assortment, delivery, options and timelines, etc.

CS: That’s a great point. I think retailers who disappoint shoppers during the COVID-19 crisis, whether it’s in the online experience, the fulfillment speed and accuracy, or perceived unfair pricing, risk losing those shoppers for good. Shoppers are less loyal than ever, and they have long memories. If your failures now drive them to try a competitor, many of them will never return.

LS: Yes, one of the benefits of this dramatic shift is moving all of us in grocery retail into the future. Customers want to get it today, not wait. They want to get it now, even fresh and prepared. It’s up to us to rise to the challenge.

AR: Speaking of challenges – Lenny, you mentioned the rapid shifts in demand and supply chain disruptions right now. They’ve caused more stock-outs than shoppers are accustomed to seeing. Do you think retailers who are unable to keep up with item-level demand are at risk of losing their shoppers long-term?

LS: There is definitely some risk. As we talked about, retailers who were less able to meet their shoppers’ specific needs may have seen their customers go to another grocer or a big box store. Or a shopper who used to go to a big box for groceries and find them out of stock on certain items, may come to a grocer instead. Obviously we are hopeful that shoppers who tried us out when their need was there will stick with us – it’s a great opportunity for us to gain new shoppers. There’s also the store experience element – right now shoppers really want to feel safe when they come into our stores. We moved very quickly to adopt face masks, extra sanitizing protocols, physical plexiglass barriers, social distancing and so on to provide that safe in-store environment.

VS: I will say, though, that when supply chain disruptions in certain items affect not just your store but the whole market, I think shoppers have been fairly understanding about the bigger picture. And I would echo what Larry said about customer loyalty being built on other things besides specific item availability, including location, price, trust, etc.

AS: Fortunately, for Carrefour specifically, stock-outs have not been a major problem during this pandemic. And as we’ve been discussing, what’s important when the occasional unavoidable stock-out occurs, focus on the basics of retaining your shopper loyalty so that they do not need to try out the competition.

AR. Now to bring it to a topic near and dear to my heart. Do you feel retailers with price optimization have an advantage over those who are navigating the COVID waters without it?

AS: Absolutely. Optimization and simulation tools can support what-if scenario analysis and help us speed up our decision-making processes. This can be a significant advantage in a dynamic environment like the one we’re currently in.

LS: I agree. Pricing is a very delicate topic with shoppers at this point – for example, one of our competitors just publicly announced that additional costs are forcing them to raise prices. For the most part, we rely on price optimization to tell us what items we need to update prices for and what the right price is for each item. Pricing is more challenging now than it ever has been. Before COVID, the biggest events causing demand surges were things like snowstorms where people stock up like crazy but a week later everything basically gets back to normal. Now it’s like a permanent snowstorm, and you need to look across the entire aisle and the whole category to know what shoppers are buying.

Also, from a price optimization standpoint, as manufacturers take measures to keep their workers safe and their costs to us rise, we use pricing science to know how to respond to those cost increases. We continuously review these cost changes to make sure we price correctly for our customers.

AR: We talked some earlier about how, with all these changes in demand, the long-stable assumptions about KVIs are being upended. What are your thoughts about how KVIs may be forever changed as result of COVID?

LS: Categories and KVIs are shifting. I recently read that 88% of consumers are cooking more meals at home in the midst of the pandemic with 49% making meals from scratch. Look at the explosion of baking currently. There are items like yeast that people maybe bought once a year seasonally or at most once a month, and now they’re buying them weekly. KVIs right now are totally different than in the 52 weeks prior. Post-COVID, we might see some of these formerly seasonal items enter the stable KVI category. I look at the baking categories every week, and even as the weather warms up, we’re seeing interest in baking persist. It will be fascinating to see what the future holds.

Other changes were more transient. When New York state first went into lockdown, demand for hair colors skyrocketed the very next day. But as restrictions relax, I would think people will return to salons.

VS: It is definitely possible that current KVI assumptions will change long run, but the challenge is to understand how shoppers’ behaviors will change. For example, if shoppers maintain strict hygiene habits after the pandemic, the cleaning categories will be more relevant to price perception.

AS: I also think there will be additional pandemic-driven impact from as a consequence of the economic degradation. Falling consumer incomes and employment rates may leverage private label and economical choice brands long term.

AR: To bring it back to a personal note, What are some of your tips to maintain focus and morale in the current challenging environment?

AS: I think it’s important to provide the team with a sense of purpose by reminding them of the importance of their individual contributions, and of the importance of food retailers to society and to the country during this difficult time. It’s also important to keep the team updated with what is happening in the rest of the company.

LS: I make an effort to get together more with the entire team, to check in with groups, and to make more frequent calls to individuals to see how everything is going. The work-home connection is stronger now, so take a moment to ask a team member about how their young child is doing, or enjoy the fact that their kid popped into their home office to wave. Before there was a divide between home and work, and now they are more blended, so it’s important to acknowledge it and embrace it.

We’re losing the in-person connection at the office but gaining the work-home connection, it’s important to focus on the personal touch to keep everyone’s morale up. This is also true with our vendors and other business partners as well. It brings a fun angle to everything and helps strengthen those relationships, both internally and externally.

And it’s also a chance to share things that people are struggling with like their kid who will miss graduation rituals or their sports season. Being able to listen and share your own experiences creates a human bond.

AS: Absolutely. You’ve got to proactively maintain a human relationship with team members. In the office environment, people can relax over a coffee-break or lunch. During the home office era, these more personal human moments should also exist, and it is a leader’s responsibility to provide them.

CS: We’re doing similar things within DemandTec – paying close attention to proactively communicating, checking in on each other as people, not just as colleagues. It’s interesting and gratifying that in this period where we are all socially distanced, it has in many ways brought us all closer together.

I also want to personally thank all of you for taking time from your demanding schedules to share your very valuable insights with us and with peers in the retail industry. I find your experiences and viewpoints very thoughtful and inspiring.