Navigating through COVID-19: R&CGs Analysis

Industry Overview

The retail and consumer goods sector covers both manufacturing and distribution as well as providing services to customers. Since it is a broad industry including multiple sub-sectors it is crucial to point out that there are multiple sub-sectors that might itself be substantial in size. Some examples of these sub-sectors include Automotive, Food & Beverage, Fashion, FMCG, Luxury or Travel & Entertainment. With respect to success factors, corporates are now more than ever required to stay on top of new technologies and have to stay innovative in order to remain competitive in the long term. Moreover, it should be highlighted that successful players are often characterized by a strong brand, customer-centricity and commercial understanding.

Porter 5 Forces Analysis  

Competitive Rivalry – Strong

CGs industry’s level of competition is very high as almost all the subsets of the industry (e.g. FMCG, Luxury, Apparel&Footwear) have major globally-established players operating through structured supply chains. The main factors that affect the competitive landscape in the CGs industry are the large number of existing firms of any size, the subsequent variety of the existing businesses’ services (few unexploited gaps) and the low switching costs allowing customers to easily purchase similar brands from different companies (e.g. Unilever vs P&G). The risk of such strong competitive forces is entirely borne by CGs firms since competitive advantages are now originated from the surrounding of the products themselves digital supply chains, innovative supply chains or BigData/AI-backed marketing campaigns. Another layer of competition lies also in the rise of smaller private labels and brands who push on innovation and/or sustainability of supply chains in order to steal market share from the biggest players.

Crucial factors affecting the degree of competition in CGs industry are thus pricing of the products, service quality and customer care, growth strategies (mainly M&A), exclusivity and efficiency of supply-chain networks and innovative purchasing channels (e.g. omnichannel retail).

Buyer Power – Strong

Due to the increasing accessibility to products’ information like sourcing, manufacturing, distribution, ingredients and labour practices the weight buyers have towards the success or failure of CGs companies is now bigger than ever. In the last years consumers’ preferences became more dynamic following the speed of technological development and disruption in the CGs sector. Historic brands cannot solely rely on their name to sustain sales because consumers’ awareness put an additional layer of base-requirements to be followed in order not to end up in the spotlight (e.g. Fashion industry scandals over procurement strategies or food multinationals losing market share in favour of healthy brands).

The tangible ability of the general public to shape the perception of the brands has to be paired with the intrinsic nature of the CGs industry. Apart from some sub-categories of CGs like Luxury or Food, customers loyalty is generally low making the majority of products easily substitutable and moving the competition on prices and benefits for customers with the final outcome of shrinking companies’ margins. However, the global high demand for CGs partially reduces the impact on customers’ preferences on the profitability of companies. Still, negative public exposure can quickly change the perception of brands on global scale thanks to social media and news. This obliged the entire industry to invest in social media strategies, PR and sustainable activities to reduce the potential impact of adverse customer perception.

Supplier Power – Medium/Low

Scalability of the business and global distribution channels require a constant flow of inputs from the procurement side of any CGs business. A certain degree of bargaining power from suppliers comes from the difficulties of CGs companies in re-shaping their supply chains in a fast and flexible way. Digital supply chain networks help in categorizing and classifying the supply market in order to obtain the best prices and deals thus reducing the dependence on a smaller number of suppliers. However, for high-end sub-sectors whose main sources of competitive advantage are specific-inputs (e.g. wood for the musical instruments industry), the power of suppliers still is and will remain relevant in terms of business risk.


On the other hand, many of the biggest CGs players exercise a high degree of power towards suppliers of non-essential inputs thanks to strategies like bidding systems or beneficial contractual agreements upon exclusive relationships to force them to reduce prices. The cumulative effect of both suppliers and companies’ bargaining power is therefore balanced between the two parties involved but generally for the majority of CGs companies the bargaining power of suppliers does not represent a real issue.

 Threat of New Entry – Medium/Low

In order to compete on global level in the CGs industry, the main entry barriers to be overcome are cost advantages of incumbents, the product differentiation of incumbents, capital and tangible assets requirements, customers switching costs, regulatory environment and policies, availability of distribution channels, brand awareness and existing networks and partnerships. The importance of each of the previous factors varies across the spectrum of CGs subsectors.

Consequently, even if some forces like the low customers’ switching costs would make the likelihood of new entrance higher, new firms will find really challenging to compete with the size of operations and market cap of the biggest firms in the industry. Cost advantages resulting from economies of scale of the main players are often considered as the biggest entry-barrier. Despite the likelihood of varying customers’ preferences towards more innovative and often smaller brands, the market share allocation among the existing firms will not be in serious danger towards new brands. Instead, the future landscape of the CGs competitive environment will mostly depend on the ability of existing firms to quickly adapt to global trends in order to erode competitors’ market share.

 Threat of Substitution – Strong

The threat of substitution in the CGs is heavily linked with the threat of new entry mechanism. The danger of substitute products depends on the ability of competitors in offering similar quality at similar or lower price ranges which are factors linked to the level of economies of scale and scope obtained. It is thus challenging for new firms to be perceived as real threats by the biggest players if the level of economy of scale and their spending power are not large enough. Substitution risk increases towards companies able to offer products that specifically target those trends which are missed by the biggest players. Still, the brand awareness, brand-trust and low prices offered by the biggest players act as a shield against the substitutability risk since casual-consumers still tend trust their favourite brands.

However, considering the competition between established players, substitution risk becomes a strong force. The reason is that, besides the quality of the final products, technological improvements made the customer-experience and shipping/distribution processes as essential as the features of the product. Factors like availability of purchasing channels (e.g. store, online, omnichannel), different modes of payment or availability of home delivery service intensify the threats from the substitutes.

General implications on the industry

Since the coronavirus is continuing to spread around the world, impacts on consumer behavior, product demand, and retail store, factory, and logistics services availability have been very strong. The sudden lockdowns all around the world represented a severe shock to the R&CG industry and growth estimates for the industry have been hit severely. As the situation evolves, significant variations in the magnitude and timing of supply chain disruptions are expected. Retailers need to assess the risks of their suppliers, identify any indirect exposures and create contingency plans. They should also be thinking about the impact these big changes will have on the customer and the customer relationship: how to maintain trust in your brand and in your products, how to reset expectations, and how to recover the customer experience in the future. The ability to adapt responsively to product, workforce, partner, and operations needs will separate the winners from the losers during the Covid-19 crisis.

According to a study on the Covid-19 impact, EU retailers faced a loss of £3.26 billion between March 9, 2020 and April 21, 2020, due to the recent crisis. Moreover, they were challenged on their financial stability, putting firms with low reserves in a peculiar position. This led many firms to request access to hardship funds provided by policymakers or made them refinance loans.

In contrast, it also opened up potentials for online players and grocery retailers, that had to meet an enormous demand. In fact, as of March 2020, supermarkets saw on average a 161.4% rise in global online traffic.

Due to high uncertainty on financial markets and higher volatility levels, some companies that planned to go public in 2020, decided to push their plans back to a later date. Airbnb, for instance, planned to go public in 2020, but is now considering postponing their plan to 2021, according to Bloomberg. Instead, they raised $1 billion from private equity firms Silver Lake and Sixth Street Partners, where some part was used to help hosts in dealing with the Covid-19 impact.

Industry Outlook

2020 is the year where R&CG executives need to strike a balance between conservative financial strategies related to the current uncertainty in global economic landscape, especially due to the Covid-19 outbreak, and the increasing need of investments in technology, innovation and green-sourcing in order to keep up with the changing needs of the consumers who gained an even more central role in the success of the R&CG companies. Overall, Deloitte foresees real consumer spending growing by 2.2 percent in 2020, down from 3 percent in 2018.

Industry 4.0, Digital Supply Networks and sustainable sourcing seem to be the next big topics within the R&CG industry. Although such trends are going to set the bar for the future, recent market pressure makes long-term strategies tough to define. Demand fluctuations, liquidity assessments, employees’ safety, future shape of the supply-side and communication to customers are some of the current issues to be managed before moving to long-term investments. The long-term impacts of the Covid-19 may be unknown and even though especially in Western Europe there are signs of improvement, consumer and retail players must ensure to stay flexible and need to take into account all possible scenarios and think about the long-term to stay competitive.

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Sources and References: McKinsey Report, Deloitte Report, KPMG Report, Pwc Report, Mergersandincquisitions,,

To contact the authors:

Luciano Ferraro

Valerio Hetlinger

Lorenzo Maggioni