Which products and services will prosper in the New Normal?
In times of crisis some markets are doing well, others don’t.
The question is what will prosper in the New Normal?
Already in 1975 Igor Ansoff wrote (in California Management Review) the for Market Intel companies evergreen article ‘Manage Strategic Surprise by Response to Weak Signals’. In the article he discriminated between two strategic options companies have to respond to strategic surprises. (1) Develop capabilities for effective crises management meaning fast and efficient after-the-fact responsiveness to sudden discontinuities. (2) Treat the problem before-the-fact and thereby minimize the probability of strategic surprise.
Although both options deserve full management attention, the second one (at least for Market Intel companies) is the most fascinating one. The crucial question here is: can we prepare for a strategic surprise before the discontinuity actually happens by detecting early warnings or weak signals? The basic assumption here is that if we are able to detect weak signals and interpret them accordingly, we can defend ourselves or maybe even profit from the consequences of a disruption.
But let’s be honest. This is not easy.
Ansoff distinguishes five states of knowledge which differ to the amount of uncertainty which comes with weak signals. The earlier the signal, the more uncertain the situation a company has to deal with. If we look at the Wuhan situation in January this year, weak signals were certainly detected but due to may possible intervening variables they were not interpreted in the right way (we can conclude so afterwards) and left companies with a lot of uncertainty.
Now we are in Covid-19 crisis the consequences of ‘social distancing’ are almost too obvious to mention. I will do so anyway. In food, Out-of-Home sales almost dropped to zero, while Retail sales prospered in the first weeks of the crisis. Except for those categories which come with typical encounter moments (giving presents like chocolates, flowers etc.) almost all food categories profited from anxiety in society which stimulated people to hoarding. While crises last longer the hoarding effect disappeared and it became more obvious which categories profit and which loose. For example, potatoes industry is suffering a lot these days (-70% turnover). However, the high value-added segment of coated fresh potatoes wedges distributed by retail flourishes, because of the ambition to compensate in-home for the missing of Out-of-Home quality moments. For the same reason delivery services thrives as do the companies that supply them with websites, (e-)bikes and digital solutions to communicate on distances.
So, we can conclude there is a typical crisis market which is an awful threat to some companies but a beautiful opportunity for others.
Companies could have anticipated better on the weak signals the Wuhan situation evoked if they would have interpreted them with use of different scenarios. Most of the companies, though, were convicted to Ansoff’s first scenario: Crisismanagement. Some did a better job (were more creative and responsive) than others.
However, now the situation emerges in a less unsecure situation (another state of knowledge in Ansoff terms). We have detected, or even ‘know’ the weak signals but have to interpret what they will mean for the New Normal. What possible situations can emerge if we come out of this crisis? What are the scenario’s and what responsive options does companies have?
Dutch Bakery market
Let’s take the Dutch Bakery industry as an example for the current situation and the scenario’s that possibly emerge. If we would have detected the weak signals early enough and interpreted them the right way an industrial supplier of breads could have been prepared to prosperous retail and bad Out-of-Home (OOH) times and adjust its product portfolio accordingly. Since typical Eastern activities would suffer under the conditions of social distancing the selling of Eastern breads and products could expected to be much lower. Since people work at home and kids don’t go to school the necessity of take away bread packages diminished. The question, however, is what scenario will emerge when the crisis disappears.
The Dutch Bakery market in 2019 showed beautiful figures. And this trend seemed to continue in the first months of 2020. Both volume and value went up and artisanal bakeries were growing above par. The Covid-19 crisis, however, seems to have inverted the beautiful but vulnerable trend (see Figure 1). However, the question remains which scenarios can be depicted in The New Normal?
Scenario 1: Assumes that when the virus in the future completely disappears everything will be instantly back to normal. OOH activities will explode because everybody wants to celebrate the ending of a crises. Mass events will prosper. In this situation specialty high value breads, mainly sold in OOH environments, will grow to a maximum extend and the value of that part of the market increases accordingly. Retail will remain constant and OOH grows, making a growth scenario in Value Added categories plausible. The Dutch market after a hausse will come to stabilization in a normal of €2.3 bn/yr with more chances for sustainable categories addressing health benefits
Scenario 2: Assumes that when the virus slows down, many things will be back to normal. However, anxiety in society for the virus will remain. This will result in a ‘voluntary’ continuation of social distancing infecting mainly OOH but the Artisanal segment as well. Mass events will not take place for a longer period of time.OOH will grow again in this scenario but at a low pace and land at 50-70% of before crises value (to a max of €445mln. a year). In total bread market in this scenario will land at €1.85bn/yr to 2.1 bn/yr.
Scenario 3: Assumes that the virus slows down at a very slow pace. A lot of things remain for a long time as in crises lock down situations. OOH suffers for a longer time and turnover will be minimal compared to before crises times (30%). Retail might profit from this situation because of primary need of people. This might also lead to an increase of volume in pre backed category because of the need of people to simulate OOH celebration moments in home. Bread market will be around €1.7bn/yr.
Scenario 4: Virus does not disappear. Mutation is probable. It affects social distancing in a substantial manner. Events are not organized for about 1,5 yr. Social distancing rules stay manifest. High value breads in OOH suffer a lot (-90%), Artisanal shops suffer as well due to three consumers per shop policy and their popularity amongst elder people (-10%). Retail in volume stays stable but in value decreases due to high supply vs lower demand balance. Pre-backed categories profit from the situation because special moments are celebrated in home. Bread market could decrease in this situation to €1.5 bn/yr for a longer time.
Although the above scenario’s are simplified abstractions of reality, they illustrate that ‘The New Normal’ could have significant effects on the value of the bread market and it's different segments. Suppliers of bread and bread ingredients should think about the possible scenario’s. Despite the uncertainty of their emergence the scenarios can help companies to increase their ‘before the fact treatment capabilities’. This provides them with a competitive advantage. Market intelligence companies offer help by their ability to detect and capture driving signals as well as by their interpretation and giving of meaning.
Looking at the Covid-19 crisis an interesting discussion could be whether European governments, keeping the Wuhan situation midst January 2020 in mind, perform better in crisis management (option 1) or before the fact treatment (option 2). For businesses, from an information point of view, it’s more interesting whether we can learn from the current crisis, how it emerged and how we can prepare ourselves from the perspective of an unknown changing future.