Natural Products Industry Prepares for a Post-COVID Future
By Steven Hoffman
This article originally appeared in New Hope Network’s IdeaXchange and Presence Marketing’s May 2020 newsletter edition.
As the nation continued to battle the COVID-19 pandemic in April, with confirmed cases in the U.S. reaching 1 million and deaths from the disease surpassing 55,000 (more than the total number of U.S. casualties in the Vietnam War), the natural products industry, along with the mainstream food industry, found itself firmly on the frontline of the coronavirus crisis. In helping to keep food on America’s table during an unprecedented time of turmoil, sadly, this came not without some illness and casualties of its own among workers in natural foods stores and in mainstream groceries.
The month also saw farmers dumping tons of eggs, milk and fresh produce bound for restaurants, hotels, schools and other food service operations that were shuttered – product that couldn’t be re-routed – while frustratingly, grocers across the country were still struggling to keep product on the shelf as supply chains were further strained. Food banks, too, experienced long lines and shortages of staple products due in part to the demands of a record 26.5 million Americans who have filed for unemployment since mid-March.
Yet, among a bunch of bad news, retailers, distributors, manufacturers and others in the natural foods industry continued to pivot and do everything they could to serve and protect customers, minimize risk to workers, ensure inventory and respond to ever-evolving local, state and federal guidelines and shelter-in-place rules.
First, in response to a worrying number of employee illnesses, many grocers are now requiring that all workers wear face masks, though they, too, are having to compete with the federal government, hospitals and others to procure scarce Personal Protective Equipment (PPE). In addition, the United Food and Commercial Workers International Union (UFCW) along with Kroger, Stop & Shop and others, issued a joint statement on April 27 calling on federal and state governments to designate grocery store employees as “extended first responders” or “emergency personnel.”
“We are urgently requesting our nation’s state and federal leaders temporarily designate these workers as first responders or emergency personnel,” the joint statement said. “This critical status would help ensure our essential grocery workers have priority access to testing, emergency childcare, and other protections to keep themselves and their families safe and healthy. For the sake of workers, their families, and our nation’s food supply, this action will provide grocery workers with the vital protections they deserve.”
Responding swiftly to the lack of PPE for natural foods employees, Presence Marketing worked with one of its brand partners to manufacture face masks and other protective gear to provide to industry partners in manufacturing, distribution and in stores, “plus we’re working on a retail pack for consumers,” said Christine Tzumas, COO of Presence Marketing. “Our field team has been on the front lines from the beginning of this crisis working fast and furious to serve our customers in any possible way, from helping unload trucks when they show up at the dock to lending a hand stocking store shelves,” she said.
“The biggest thing for us right now is communication – we’re communicating everything going on as quickly as possible,” Tzumas continued. “Our brand partners have been receiving weekly, fact-driven COVID-19 updates, and the response has been so positive that we want to continue it in some fashion. While we’ve been dealing with this crisis, we still can’t lose sight of what’s on the other side and what the world will look like six months out from now. Hopefully, we will be moving beyond this. Our team has blown me away every day making sure to get food on the shelves – we’re blessed to be with the people and companies we work with. You don’t hear those same stories in other industries,” Tzumas added.
Phases of a Crisis
According to natural products market research firm SPINS, we’ve seen three distinct phases in terms of consumer shopping behavior since the coronavirus crisis hit the U.S. in late February. Also, with restaurants and other out-of-home dining options accountable for roughly half of all food expenditures, with their abrupt closure, demand doubled overnight for the nation’s grocers.
By late February, consumers who had an early read on the coming pandemic were responsible for big upticks in sales of preventive care products in natural foods channels, including vitamins, dietary supplements, probiotics, and herbal and homeopathic products. This was what SPINS refers to as Phase One: Proactive Self Care and Wellbeing, according to Kathryn Peters, EVP of Business Development for SPINS, in an April 21 webinar presented by New Hope Network.
“During the weeks of February 16 and 23, when there was still just a small number of confirmed COVID cases in the U.S. and the problems in China still seemed a bit far away, there was an early band of proactive shoppers beginning to stock up in key immunity-related categories beyond the regular cold and flu season type of products. That was when self-care items also started to pop, such as hand wipes and sanitizer. By late February, people were beginning to have a hard time finding hand sanitizer in stores,” she observed.
To provide some perspective, when Phase One began, “from just the previous week, we saw some extraordinary increases in a number of areas for the week ending February 23,” Peters said, noting a 1,285% increase sales of vitamins and supplements and a 211% increase in herbal and homeopathic products sales.
“We all know what Phase Two looked like – during the weeks of March 15 and March 22 – this was the mass stock up,” Peters continued. “During this ‘Pantry Prep & Loading’ phase, virtually everything sold.” Peters noted that during this period, 15 million additional buyers bought natural products. “That is a substantial number of products being bought by shoppers that are now in pantries. Time will tell if they will become continued shoppers; hopefully, there’s been a lot of trial,” she said.
April began Phase Three: Quarantine, according to SPINS data, with upticks in sales of baking mixes, pastas and spa-related items as Americans hunkered down at home and did their best to cook for their families, and pamper themselves while not being allowed to visit salons, massage therapists or other service providers. “Households seem to be bonding over baking, whether it’s bread or desserts – Instagram is full of proud creations,” Peters said.
The New Normal
“And then there’s Phase Four – what life is going to look like on the other side,” Peters said, noting that there will be some lasting shifts in consumer behavior in the “new normal” once the health crisis subsides. With consumers homebound, re-connecting with cooking and seeking more prepared food options, grocers are being presented with an opportunity to capitalize on providing mealtime solutions – something they were having difficulty with before.
Organic produce, too, experienced a resurgence, recording a 22% sales jump in March and an 8% increase overall for the first quarter, outperforming conventional produce sales, according to the 2020 Q1 Organic Produce Performance Report published by the Organic Produce Network and Category Partners. Growth may have been even higher, but was tempered by widespread out of stock conditions during the panic buying period in mid-March. “Organic fresh produce sales in the first quarter were strong, and the impact of COVID-19 in March pushed numbers even more,” Matt Seeley, CEO of the Organic Produce Network, said. “We continue to see organic fresh produce sales outpace the dollar and volume growth rate of conventional fresh produce.”
Another lasting trend will be a continued focus on proactive self-care and personal safety – immunity supplements cleaners, wipes, masks and other related household items will continue at a high level. Also, “while comfort foods are important, we are seeing growing recognition of healthy and nutrient dense food, too. This comes with consumers’ increasing recognition that our body’s immune system is the best line of defense. Even with economic pressures, we see this continuing. We believe that this unfortunate health crisis will be a bright spot in continuing to bring health and wellness even more mainstream,” Peters of SPINS said.
“We are very concerned about those negatively economically impacted by the coronavirus crisis. If there’s one major tectonic shift, it is the march toward more and better value product offerings to lower barriers of entry from a pricing standpoint,” said Ben Nauman, Director of Purchasing for National Co+op Grocers (NCG). Nauman noted that sales in March for its retail members were up nearly 30% compared to March 2019 sales.
NCG has been helping its members coordinate distribution and supply chain issues, take advantage of government stimulus programs, and currently, it is reinvigorating a recession playbook created in 2008 to help members manage cash flow and liquidity during economic downturns. “We’re also beginning to explore what it looks like to retail in a more contactless way going forward,” Nauman added.
For Sprouts Farmers Markets, a publicly traded natural foods retailer with nearly 350 stores and 30,000 employees, “due to our brands and distributor partners, we are in good stock level considering how high our sales are, and our customers are recognizing how good we are about being in stock,” noted John Soukup, Senior Category Manager for Sprouts. The company recently expanded curbside pickup and Instacart service to all its stores. “In addition, we have been very proactive in implementing measures to help our employees feel as safe as possible,” he added, noting that all employees are required to wear masks and gloves chainwide, the stores have installed sneeze shields in all checkout lanes, and store hours have been reduced to allow for deep cleaning. In addition, “we’ve offered bonuses to our employees instead of hourly increases. However, our leadership is doing a good job in compensating – we’ve already given out two to three rounds of bonuses to the front line employees in the warehouse and in the stores,” he said.
Soukup also expressed concern about the manufacturing sector as the health crisis wears on. “We are starting to see SKU rationalization – vendors are having to prioritize what items they’re going to make. That’s going to ramp up over the next four to six weeks that could cause other out of stock issues,” he said. To help counter that, “we communicate daily with our distributors and just about weekly with our vendors. In this unprecedented time, our primary distributors, KeHE and UNFI, have done a phenomenal job. The broker community, too, including Presence Marketing, has done a great job for us in terms of serving as a liaison between the brands and what’s going on in the stores.” In times of crisis, “you understand who your partners are pretty quickly,” Soukup added.
Distributors See Fundamental Shift in Demand
At UNFI, one of the nation’s leading distributors of natural products, EVP of Supplier Services John Raiche has noted some big changes as a result of the pandemic. “The big difference between April and March is we’ve seen a fundamental shift in demand as students come home from college, people are staying home, and the food service expenditure is gone. The infrastructure was not designed to handle a sudden shift of that magnitude,” he said. While retailers are no longer placing such massive orders, there was a period of time at the end of March where on some evenings orders coming in were 400% of capacity, Raiche noted. UNFI, which also has placed a large focus on worker safety and incentives, hired more than 1,500 people since the beginning of March.
For Raiche, flexibility and communication are key right now. “We are trying to be as flexible and creative as possible with our suppliers on purchase orders, and we are trying to communicate with the industry and reach out to suppliers to share with them what we see, to offer to work with them, and to provide updates in terms of demand and opportunity,” he said.
“For the team here internally, from receivers and collectors to drivers and the supply management team, there’s a real sense of purpose. People are open to working longer hours and doing whatever is needed. We’re spending a tremendous amount of time thinking about what the future holds, Raiche shared. “When it started, many people were thinking it would be like a light switch. Everything I read is that any transition back to normalcy will take place over a good amount of time. For our manufacturers, this demand is not going to go back to the old normal anytime soon.”
At KeHE Distributors, “our first priority is the safety of warehouse associates, professional drivers and in-store sales reps – the ones that are so important, the critical essential workers in this situation, said Scott Weber, EVP of Merchandising. “Our second priority is servicing retailers and suppliers to try to keep up with unprecedented demand. We’ve developed partnerships with food service distributors to align all our capacity to meet the massive demand in our industry. The third priority is giving back. Through our KeHE Cares philanthropic program, we are supporting those most affected by the COVID crisis.”
Weber added that while it may be a difficult time to introduce new products, “our overall category management and merchandising team remains heavily focused on innovation because we know that when those retailers get back to new items and category reviews, we’ve got to have a robust line to offer.” As such, KeHE revamped a “Trend Finder” event, originally scheduled for Natural Products Expo West, into a virtual event in order to meet with new suppliers. “The most important thing right now is working with our suppliers to ensure we have the flow of inbound product to KeHE that enables us to serve our customers,” he said.
Blair Kellison, CEO of Traditional Medicinals, a pioneering manufacturer of natural and organic teas, remarked that sales of tea in grocery was up 41% in the last month – “unheard of!” he exclaimed. Kellison often comes to work at 6:00 am to stand in the parking lot “just so I can say thank you to our workers,” he said. “If the workers are coming here every day, I should be here every day. These 120 workers are keeping our entire company going.”