The shut-in economy and its impact on distribution

When reflecting on the impact of the Covid-19 pandemic on the world of distribution, many questions come to mind, and even more possible answers. These are churned out by the forecasting models that are flooding traditional media outlets and social networks. What all of them seem to agree on is that the ripple effects on consumer sentiment and buying habits will be felt for far longer than the epidemic itself. Of these effects, one that definitely warrants close attention is the growing dissemination of what’s known as the ‘shut-in economy’ or the ‘lockdown economy,’ a phenomenon linked to on-demand - what we can order on the internet and consume at home.

The shut-in economy was already gaining popularity before the Covid-19 emergency hit, and it seems destined to become an integral part of our daily lives. The most thought-provoking aspect of this is that while home delivery used to be the prerogative of big companies, now this new channel is providing growth opportunities for more fragmented supply chains too. These distributors use online platforms to organize home delivery of fresh products (and they also offer personalized at-home beauty care) so customers can avoid endless lines in physical stores (especially at big box retailers).

Arguably the best-known example in Italy is Cortilia, a food-tech company founded in 2012 which operates in the regions of Lombardy, Piedmont and Emilia-Romagna, with an online assortment topping 1800 products from nearly 200 producers. Equally noteworthy is the case of L’alveare che dice si! – an e-commerce platform that food-buying networks can join: producers of fruit, vegetables, cured meats, beer and organic meat. In Italy these networks number 182, with 31 based in Milan alone. There are countless similar cases, with more on the way in the near future.

On one hand this emergency situation has triggered an uncontrollable upsurge in demand (especially for primary products) which has swiftly saturated logistics, to the point where it’s becoming more and more difficult to satisfy demand. On the other, skyrocketing online traffic and changes in online search trends suggest that demand will accelerate even more in the coming months. This will cause further consolidation in local, community-based marketing initiatives.

More than simple reflection, these emerging trends call for an actual analysis of what’s happening in the more traditional mass market retailers. Together with unprecedented growth in grocery sales, albeit with a high concentration on primary products with lower margins (pasta, preserved foods, canned goods, personal hygiene products), we’ve seen an explosion of e-commerce in this context too, driven by an upswing in fresh food (traditionally marginal) and a new segment of customers who’ve been inevitably forced to resort to grocery shopping online.

Among the more interesting initiatives is Carrefour’s new online service, “The Essentials.” On April 6, the grocery giant started offering pre-packaged food boxes with basic staples, as well as theme-based kits dedicated to baby care, body care, and cleaning products. From order to delivery takes up to four days, with one euro donated to the Civil Defense Agency for every box sold.

Beyond individual cases, generally speaking we can affirm that during this pandemic, mass market retailers are stepping up to take on their social and collective responsibility. They’re operating in emergency mode to make sure that they’re meeting the growing needs of their customers, who are willing to spend a long time waiting in line, but only if they’re sure that on the store shelves they’ll find all the essentials they need (grocery and non).

But this can only happen if all employees do their part, especially the ones who are stocking the shelves and manning the tills every day, along with the personnel who handle logistics, making sure goods flow smoothly from the distribution centers to the stores. And all this while ensuring the highest possible level of protection by adopting stringent safety precautions for all staff. They may not be saving lives, but they’re playing a critical role in making the #iorestoacasa (I’m staying home) campaign a question of collective responsibility (a sentiment recently shared by Giorgio Santambrogio, CEO of the VéGé Group).

This commitment can only be carried out with the support of industry, which is called to action to guarantee essential services and to demonstrate its impressive capacity of acceleration in crisis management, also by shoring up supply chains, giving priority to reliable procurement service. (For more on this, see the recent interview with Enrico Galasso, CEO of Birra Peroni.) Also worth mentioning is a courageous choice made by Unieuro (explained here by COO Luigi Fusco). After initially closing all the physical stores in the chain (a clear message conveying the company’s sense of social responsibility toward its customers and employees), a few weeks later Unieuro reopened a certain number of locations to allow customers to make essential, urgent purchases which they couldn’t always do though the saturated online channel.

To sum up, the repercussions of this pandemic at a distribution level will be myriad, some passing and others permanent. But it’s certainly very clear to all the players involved that it’s vital to escalate investments to ensure adequate distribution services. Likewise, they’ll be rethinking the number of physical stores and sales areas in each one, in light of the new social distancing rules.

But even more relevant is the emergence of a ‘care dimension’ reflecting social and collective responsibility. This crisis will teach us to establish rules and control systems that strike a balance between protecting human life and respecting human dignity. A challenge that we – together with the world of distribution – are called on to face, respecting a universal and timeless principle that is founded, first and foremost, on people.