Today’s issue of the TextileFuture Newsletter will present to you again three features of a different kind, but evidently catching your eyes.
The first item brings to you the most recent “Global Economics Intelligence”, based upon December 2020 figures by McKinsey.
The second feature elaborates the “Top 10 global Consumer Trends 2021” according to Passport, Euromonitor International’s market research database, at time of publication: January 2021 and has other explanations on the how and why than other studies. He reading offers reesults and opportunities for your own business.
The third feature’s headline “Did online delivery kill the vending machine?” seems like a banality, but in the form of a interview, conducted by McKinsey people with Costin Mandrea, the Head of commercial at Coca-Cola Bottlers Japan Inc., it becomes a proven, reliable, renewed marketing and delivery instrument. The comment of Costin Mandrea is really worthwhile and with plentyful hints on the items presented in the second feature, showing that also old products and instruments can be adapted to new realities.
Here starts the first feature:
Global Economics Intelligence executive summary, December 2020
The data and analysis in McKinsey’s Global Economics Intelligence are developed by Alan FitzGerald, a director of client capabilities in McKinsey’s New York office; Krzysztof Kwiatkowski, a capabilities and insights specialist, and Vivien Singer, a capabilities and insights expert, both at the Waltham Client Capability Hub; and Sven Smit, a senior partner in the Amsterdam office.
The authors wish to thank Richard Bucci, Samuel Cudre, Debadrita Dhara, Eduardo Doryan, Adrian Grad, Tomasz Mataczynski, Moira Pierce, Jose Maria Quiros, Erik Rong, Maricruz Vargas, and Yifei Liu for their contributions to this article.
A fast economic recovery, led by manufacturing and trade, is challenged by a resurgent pandemic; a Brexit deal is signed at the wire.
The world economy and the global COVID-19 pandemic seem to be following parallel paths of resurgence. The economic recovery has been remarkably rapid. To take one comparative measure, American industrial production has returned to within five points of precrisis highs in ten months, a mark not reached for five years during the financial crisis that began in 2007–08.
During that earlier crisis, furthermore, world trade recovered after two years; in the present crisis, trade recovery was reached in September, after only nine months. Since September, trade has further accelerated, led by exports from China. These grew by leaps and bounds over the past three months, with increases over 2019 levels of 9.9% in September, 11.4 % in October, and 21.1 % in November. The trade expansion has come so fast that for a time growth was delayed by a shortage of shipping containers in Chinese ports.
While in China COVID-19 has been contained since April, outside China, economic revival is shadowed by a resurging pandemic. Since early October, active cases globally have tripled and deaths have nearly doubled. In the United States, the country hit hardest by the virus, the case count has risen even more rapidly, and health systems are strained again. During the holiday season, many European countries reintroduced measures to control the accelerating spread. Hopes have turned to vaccines, which are now being administered to frontline heath workers and vulnerable populations. Healthcare leaders are warning that the next few months will be difficult and that affected populations should continue to wear masks and practice physical distancing.
The latest available economic data are consistent with the contours of a manufacturing- and trade-led recovery. Consumer sentiment has been slow to revive in most surveyed economies, further suppressed by new COVID-19 restrictions. Lately, however, retail sales have stirred. Year-on-year sales were strong globally in October and November. In China, where consumer confidence also strengthened, sales expanded in November by 5 % over last year’s mark.
We have previously highlighted the extraordinary difficulties faced in 2020 by small and medium-size enterprises (and the people who work for them). Restaurants have had one of the harshest experiences, given the COVID-19 restrictions (Exhibit 1).
Meanwhile, the overall near-term outlook for manufacturing, as reflected in the global purchasing managers’ index (PMI), was broadly positive in December. Manufacturing PMIs in most individual surveyed economies continue to signal expansion (Exhibit 2).
Consumer and producer prices remain deflationary in the eurozone, while in the United States, consumer-price inflation remains low. However, in some emerging economies, notably Brazil and India, inflationary pressures have mounted. In India, food-price inflation remains near 7%, a serious threat to economic recovery.
With steadily returning demand, energy and industrial-commodity prices are rising. Oil prices slowly climbed in December, passing $50 per barrel (Brent); OPEC and Russia have agreed to increase production modestly in 2021. Coal prices surged as a result of high demand from Asia and supply constraints. Industrial metals prices are also rising on higher demand, led by copper.
Stock indexes boomed in November, and the momentum mostly carried over into December. Investor confidence strengthened after the US presidential election and the advent of vaccines. The US dollar continues to depreciate against major currencies; the Brazilian real gained value in December but remains very weak. Volatility indexes have decreased.
Government-bond yields have been low and stable through the pandemic; Italy’s yields have been on a downward trajectory, as vaccine news and relative political stability strengthened investor confidence.
In the United States, political uncertainty eased after Joe Biden and Kamala Harris were formally certified by the Electoral College as victors of the US presidential election. A second stimulus package was passed, with one-time direct payments to households and augmented unemployment benefits. New claims for these benefits have remained elevated in the United States (more than 700000 weekly) throughout the final quarter of 2020.
What certainty the year 2020 gaveth, however, it also tooketh away—down to the last minute and into 2021. In advance of the December 31 expiration date for rules governing trade between Britain and the European Union, trucks massed for days at Calais and Dover on either side of the Channel. At the wire, a Brexit deal was concluded, allowing for tariff- and quota-free trade in goods and avoiding a hard border within Ireland.
UK–EU trade was formidable in 2019, totaling ₤667 billion (€739 billion). Some safety and customs checks will resume, however, and business organizations face new layers of red tape and potential trade disruptions. The deal did not include financial services, and questions about market access remain unanswered. An agreement on regulatory cooperation will be worked out in the coming months. The difficult concept of the “level playing field” was addressed in principle. Accordingly, perceived disproportionate advantages granted to home industries by one side (lower regulatory barriers, higher subsidies, and the like) are subject to proportionate retaliatory action by the other, to be adjudicated by an independent panel. Further talks will have to address the many issues left unresolved or partially resolved, in such areas as residency, travel, professional qualifications, data flows, energy, and agriculture and fisheries.
McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each full monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. Download the full report for December 2020 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.
Here is the start of the second item:
Top 10 global Consumer Trends 2021
By guest authors Gina Westbrook and Alison Angus from Euromonitor International
The data included in this document is accurate according to Passport, Euromonitor International’s market research database, at time of publication: January 2021
The big picture
Every year, Euromonitor International identifies emerging and fast-moving trends that are expected to gain traction in the year ahead. These trends provide insight into changing consumer values, exploring how consumer behaviour is shifting and causing disruption for businesses globally.
Each of the 10 trends in this report follows the same format:
• Overview and defining characteristics
• Consumer behaviour and motivation
• Business environment and impact
• Outlook and strategic recommendations
The world changed for good, and bad, in 2020. The Coronavirus (COVID-19) pandemic affected us all, and we acclimatised.
Emerging habits accelerated, and how we now behave, spend and consume will never be the same. In 2021, we are adjusting our actions, which can differ amongst consumers and sometimes conflict.
We want to make the world better — either for our own sake or for humanity. We want new ways to make life both convenient and safe, inside and outside. Where we have the ability, we are balancing our time creatively. Amidst the anxiety and turmoil, we seek holistic, resilient solutions, more thoughtful consumption, and, in some cases, ways to fight back.
Resilience and adaptability are the driving forces behind the top global consumer trends in 2021. The pandemic created, influenced or accelerated each of these 10 trends, forever altering consumer behaviour. Despite the hardships faced in 2020, consumers have not given up. They continue to find their voice and push forward to advocate for a better tomorrow.
The great behaviour reset
Using less plastic was the top priority for consumers pre-COVID-19, followed by concerns over climate change. During the pandemic, public attention shifted fromslower-moving environmental threats towards urgent social priorities. Consumers expected brands to protect the health and wellbeing of their workforce while also helping local communities.
The health crisis profoundly impacted people’s needs and shopping habits. Higher empathy for brands with a strong sense of social responsibility became a permanent consumer demand. As companies prioritised people over profits, planet concerns were pushed to the back seat.
However, the pandemic-driven spike in social initiatives will not eclipse environmental awareness. Consumers will Build Back Better, seeking brands that help make the world cleaner, healthier, more resilient and equitable.
Better businesses, better world
With consumers paying closer attention to companies’ actions
during lockdowns, brand activism gained a new sense of social
purpose. In 2020, 73 % of professionals believed sustainability
initiatives were considered critical to success. Businesses had
to prioritise social action and help consumers achieve more
Chief executives openly communicated with compassion during
the pandemic, taking the initiative to protect staff, customers
and communities. COVID-19 has given businesses the chance
to Build Back Better, develop emotional connections with
consumers and stand up for the most vulnerable.
Consumers expect brands to act with purpose beyond the
pandemic, with some protective measures like more flexibility
in the workplace perceived as the new normal. In August
2020, 14 senior executives from Danone, Philips, L’Oréal and
Mastercard, amongst others, formed a for-benefit organisation
called Leaders on Purpose. These companies signed an open
letter proposing an economic roadmap to Build Back Better.
Walk-Ins not welcome
COVID-19 reduced impulse occasions, and walk-ins are now pre-planned. Consumers must schedule most of their activities they once could do spontaneously, such as store visits, social events and dining out. Consumers are Craving Convenienceback and relying on the digital channel to obtain the same level of flexibility.
The pandemic accelerated digital adoption. Digital commerce provides a seamless experience without the in-person component that consumers are familiar with. However, usage varies amongst generations, and businesses need to account for the disparity between what customers of different ages perceive to be convenient. Younger consumers prefer digital interactions, whereas older consumers prefer talking to human customer service representatives.
Additional steps using connected devices are usually required to avoid queuing and maintain social distance. Consumers are longing for the convenience they once had when running errands and making in-store visits on their time.
Recapturing lost in-Store Conveniences
COVID-19 disrupted supply chains, overwhelmed customer service and caused delivery delays. Companies are challenged to cultivate a resilient customer experience while upholding what made their business convenient in the first place.
Guaranteed product availability or subscription services can minimise or eliminate the number of shopping trips needed. New methods, such as QR codes on social distancing ground markers, allow consumers to browse menus or search products while queuing to enter or pay. The goal is to offset COVID-related inconveniences and recapture an experience that feels normal. Currys PC World in the UK repurposed store staff to converse with customers virtually in an attempt to replicate the in-store experience. Ultimately, retailers are seeking to capture consumers who are Craving Convenience and desire the return of lost in-store services through the digital channel.
Bringing the indoors, outside and making the urban, rural
City dwellers are searching for an Outdoor Oasis to support their mental and physical wellbeing. Consumers still desire socialisation and human connection despite health hazards associated with large gatherings. An Outdoor Oasis provides a change of scenery and enables the feeling of connectedness while disconnecting from crowds. Dining, exercising, socialising and relaxing in open-air venues become essential for trapped consumers.
As remote work becomes the new normal, exchanging time in the city for rural life is appealing. Rural communities are less polluted, offering a healthier environment, and moving out of costly cities helps ease the financial burden endured during an economic slowdown. Consumers want to go back to basics, if the technology is available to stay in touch online and participate in virtual experiences.
Businesses move alfresco
Businesses are offering outdoor activities, such as open-airconcerts, fairs and operas, to compensate for the lack of indoor occasions. Restaurants, cinemas and fitness studios adapted quickly, introducing outdoor cafes, drive-in cinemas andopen-air exercise classes. Lodging options like secluded property rentals and glamping, or glamorous camping, are on the rise. In addition, DIY trends and the desire to connect with nature is driving the growth of gardening products and services around the world. Decreased usage of public transport and ride sharing has also been replaced with healthier habits like commuting via foot, bicycle or scooter.
Businesses need to create their own Outdoor Oasis. Adaptation might become more complicated and costly depending on the weather, but open-air structures and heating and illumination systems will pay off due to heightened demand for safe venues and the aesthetic that could continue attracting consumers.
At home or away, digial impacts the day
Consumers embraced internet-connected devices to maintain their daily routines amidst COVID-19 lockdowns.
Video conferencing, smart appliances and technologies like augmented reality (AR) and virtual reality (VR) helped consumers form new habits around working, learning, exercising, shopping and socialising. These digital tools enabled Phygital Reality, which keeps consumers virtually connected despite being physically separated from the outside world.
Smartphones are used to facilitate safer protocols in physical spaces. Meanwhile, consumers are spending more time at home and participating in similar interactions virtually that previously occurred in person. Consumers now rely on digital tools toconduct and engage in daily activities both at home and away. Consumers, especially younger cohorts, are indifferent towards whether these activities are physical or virtual; they no longer distinguish between the two.
At home or away, Digital Impacts the day
Consumers embraced internet-connected devices to
maintain their daily routines amidst COVID-19 lockdowns.
Video conferencing, smart appliances and technologies like
augmented reality (AR) and virtual reality (VR) helped consumers
form new habits around working, learning, exercising, shopping
and socialising. These digital tools enabled Phygital Reality,
which keeps consumers virtually connected despite being
physically separated from the outside world.
Smartphones are used to facilitate safer protocols in physical
spaces. Meanwhile, consumers are spending more time at home
and participating in similar interactions virtually that previously
occurred in person. Consumers now rely on digital tools to
conduct and engage in daily activities both at home and away.
Consumers, especially younger cohorts, are indifferent towards
whether these activities are physical or virtual; they no longer
distinguish between the two.
Blended Realities drive salses and enable data collection
Brick-and-mortar businesses are using technologies to achieve Phygital Reality, implementing processes that encourage customers to safely visit onsite with the help of smart devices. Adopting mobile reservation systems, QR codes for touchless menus and payments and in-store virtual fitting rooms are strategies companies are taking to minimise human interactions.
Businesses that were forced to close temporarily found it imperative to integrate the virtual world into their physical spaces to bring customers back.
Businesses are offering new goods for delivery and services for virtual consumption that can replicate out-of-home experiences. Brands can deliver new and existing solutions, both in person and virtually, in order to reach a wide audience, offering services like personal shopping appointments through video conferencing, VR travel experiences and crafting cosmetics, beverages and other personal goods through artificial intelligence (AI).
A 24-hour culture
Businesses are responding to Playing with Time as consumers have greater flexibility in their daily lives. The traditional 9-to-5 workday will be adapted to offer the level of flexibility that is now expected.
Developing a 24-hour service culture allows businesses to tailor and provide offerings around consumers’ schedules. Always-available virtual services like on-demand workouts and entertainment offer consumers similar experiences in their own homes on their own time.
Brick-and-mortar business locations will also evolve. Consumers are taking public transportation less and staying within a 15-minute radius of their homes, which decreased footfall in city centres. Businesses may need to consider relocating in order to remain visible. Foodservice operators and retailers are also reimagining their physical outlets, using the spaces for online order fulfilment or curbside pick-up services, in response.
Fed up with the establishment
In recent years, anger towards the governing class has risen amidst a climate of growing resentment and extremism. Conspiracy theories are only adding fuel to the fire, a likely factor in the lower acceptance of public health measures.
According to a study by the Annenberg Public Policy Centrer of the University of Pennsylvania, 62 % of respondents wore a mask every day outside of the home, rising to 95 % when considering only those who do not believe in conspiracies. People are more cynical of governments and politics, giving rise to the Restless and Rebellious. Only 17 % of Americans say they can trust the government; in Chile, it is a meagre 5 %. Violence has erupted on the streets of Paris, Hong Kong, Santiago and Portland, as political parties are no longer able to channel the discontent. Youth feel especially disconnected from the political system, believing that those in power do not care to represent them. The social unrest across countries led to store lootings, boycotts and riots.
Catering to a me-first Mindset
Actions taken to control the pandemic increased debt to households, governments and businesses. However, after the lockdown was lifted in China, buyers flocked to luxury brand stores; French fashion luxury brand Hermès sold USD2.7 million in Guangzhou in a single day. The Restless and Rebellious are “revenge shopping” — shopping extravagantly after being restricted and homebound for several months.
Consumers are seeking out high-risk activities like illegal parties and online gambling. The illicit market for cigarettes and alcohol in South Africa during the lockdown illustrates how consumers expect to continue to live their lives as they see fit. Companies are identifying growth opportunities across affordable luxury in alcoholic drinks, indulgences in packaged food and video games, especially.
Meanwhile, social media continues to be a battleground for information and misinformation. Pernod Ricard halted paid Facebook ads in July 2020, as part of the multi-brand #StopHateForProfit campaign. Companies and social media players must work together to ensure accurate and relevant information is shared or run the risk of losing consumer confidence, trust and credibility.
Less contact, more hygiene
Any touchpoint in public can become a source of infection, putting safety and health front of mind around the world.
COVID-19 heightened consumer awareness since the virus can spread through indirect contact. Efficiency and cleanliness are no longer trade-offs, but expectations amongst Safety Obsessed consumers.
Washing hands more frequently and wearing masks are normalised habits today. Concerns surrounding the origin anddelivery of products and services are elevating safety standards. Contactless payments are growing in prominence, stemmingfrom fear of handling unclean cash. In addition to avoiding potential sources of infection, consumers seek anti-virus appliances and hygiene products, propelling the demand for liquid soap.
Restless and Rebellious
Touchless, cashless and clean
COVID-19 was the catalyst that drove sanitation concerns, requiring prompt responses from manufacturers to meet stricter health and safety procedures. Service and payment industries were amongst the first to respond. Grocers quickly adapted to consumers’ reluctance to visit crowded stores and interact with humans, offering online ordering and even robot deliveries.
Society was already moving towards cashless payments, and the pandemic accelerated this transition. Hygiene products are the main beneficiaries of the Safety Obsessed. Manufacturers are launching value-added products in line with growing health consciousness to meet new hygiene standards. COVID-19 sparked innovations that prioritised sanitation as a critical product feature like Haier developing aself-sterilising air conditioner. Global sales of vacuum cleaners, especially steam models, soared in response to consumers’ anti-virus cleaning needs.
When the going gets tough, the tough get going Mental wellbeing has been top of mind for consumers and is the primary indicator of good health. Consumers previously turned to quick-fix products and services like functional foods, self-indulgent luxuries and technologies that supported mindfulness. The pandemic brought new stress factors, including health risks, unemployment or economic hardships, isolation, upended routines and demands for new roles and skills.
Consumers now understand that treating symptoms of stress do not address the root cause and confronting these underlying issues head on would be a more successful strategy to achieve serenity. Many sought expert opinions or tuned into immediate support surroundings to find an outlet to identify and cope with underlying mental struggles.
Consumers are Shaken and Stirred, reassessing their priorities and identities, reconfiguring work-life balance and exploring new hobbies in a socially distant world. Their new spending habits diverge from novel experiences and timesaving to focus on investments in durable skills and products that supportresiliency into the future.
Outlook for shaken and stirred
Economic uncertainty drives frugality
A dampened macroeconomic scenario, job insecurity and reduced household incomes will cause consumers to reassess their values and priorities as well as embrace new consumption habits. Decreased consumer confidence coupled with inadequate fiscal and monetary stimulus will lead Thoughtful Thrifters to carefully budget spend, increasing savings as insurance for the unforeseen. Pessimism is higher amongst millennials and Generation Z due to the 2008 Global Financial Crisis that occurred early in their careers.
Financial insecurity will postpone big-ticket purchases,and products will be the biggest casualty of the pandemic. Essentials are impacted to a lesser extent. Price elasticities are changing across product categories as Thoughtful Thrifters downgrade to private labels to seek value for money. COVID-19 will drive planned and intentional buying, shifting to rational sustainable consumption across consumer segments.
Value-for-money proposition reinstate affordable positioning
Value-conscious consumers are boosting the sharing economy, reimagining rental, resale and remade business models with marketing around affordability and sustainability. Buy now, pay later is a beneficial option for financially cautious Thoughtful Thrifters to allow these consumers to shop full price and increase their basket size.
Limited disposable incomes are also benefitting from off-price retail formats as well as flexible subscription models that offer convenience, safe product accessibility and bulk discounts.
Premium players are launching products at more accessible price points to appeal to price-conscious consumers and improve market competitiveness. Brands are responding to the pandemic with discounts on discretionary products to attract frugal shoppers, impacting profit margins in the short term.
Redefinining work-life balance
Working from home is not a new concept and has been emerging in developed countries. In 2020, social distancing measures brought the office into homes for nearly all consumers almost overnight. As restrictions subsided, many consumersstarted going back to the workplace, but less frequently, and a blended approach to work is expected. On one hand, certain consumers appreciate the additional time gained without having to commute. On the other hand, consumers miss in-person interactions with colleagues. Difficult working conditions, managing routines and finding the motivation to work, relax and switch off have proved challenging.
Workplaces in New Spaces also impacts where and how consumers shop around their job schedules. Loss of commutes and out-of-home offices limit on-the-go occasions, such as grabbing coffee, running errands on lunch breaks or socialising with colleagues after work. With less mobility, consumers are spending more to emulate the dining, shopping or other leisure experiences in their homes.
New routines pave way for innovation
Global sportswear sales are expected to decline at nearly half the rate of the overall apparel and footwear industry in 2020. Simplified grooming, dressing and beauty routines are forcing businesses to rethink their product positioning as consumers resort to smart casualwear and natural makeup looks.
Businesses are also offering multifunctional and compact equipment to repurpose the home office space. Multifunctionality targeted at families or individuals sharing living accommodations will be the main area for innovation. Businesses should focus on products and services that improve efficiency and productivity without losing the human element. Tools leveraging AI can enhance group work, social interactions and individual time management.
Technology innovations focus on facilitating remote collaboration. Opportunities to connect and recreate a routine, such as after-work drinks, are spurring growth in technology for virtual socialising with colleagues. Moving to fully remote operations while maintaining the same level of productivity will result in blended workplaces becoming commonplace.
Here begins the interview with Costin Mandrea, the Head of Commercial at Coca-Cola Bottlers Japan Inc.:
Did online delivery kill the vending machine?
By Stephenson Cherng, Jan P. Hartmann, Naoyuki Iwatani, and Jason Li. Stephenson Cherng is a consultant in McKinsey’s Tokyo office, where Jan P. Hartmann is a partner and Naoyuki Iwatani is a senior partner. Jason Li, based in the Shanghai office, is a senior editor at McKinsey Global Publishing.
Not in Japan, says Costin Mandrea, the head of commercial at Coca-Cola Bottlers Japan Inc., who’s making its vast network of unmanned retailers smarter and more integrated into people’s daily lives.
Every so often, an innovation comes along and upends our way of life, rendering a whole category of existing technology obsolete: consider what personal computers did to typewriters, CDs did to cassette tapes, and MP3s did to CDs. Other times, though, existing technology proves surprisingly resilient—the failure of TV to kill radios is, of course, the classic case in point.
Costin Mandrea, the head of commercial at Coca-Cola Bottlers Japan Inc. (CCBJI), is betting that vending machines will be another example of enduring technology in the face of disruption—in this case, online delivery. Like people everywhere else in the world, the Japanese increasingly choose to order their meals through digital channels—revenues from online food deliveries in Japan are estimated to have soared by around 23 percent, to more than USD 3 billion, in 2020.
Guided by the conviction that vending machines can continue to play an integral role in the Japanese way of life, Mandrea set out to revamp CCBJI’s network of nearly one million vending machines in 2019. He has not only launched a customer-loyalty program but also overhauled the entire end-to-end process of getting beverages from production plants to vending machines to customers’ hands. His methods include using advanced analytics to optimize routes, streamline operations, and forecast inventory needs. As a result, CCBJI, already Japan’s largest bottler—and one of Coca-Cola’s top-three bottlers globally by revenue—has steadily expanded its market share in the country over the past 18 months.
Instead of slowing down when COVID-19 hit, Mandrea accelerated CCBJI’s digitization efforts, condensing a yearslong process into mere months. Last November, he spoke with McKinsey’s Stephenson Cherng, Jan P. Hartmann, Naoyuki Iwatani, and Jason Li, sharing his insights from CCBJI’s ongoing digital transformation and providing a glimpse into the future of unmanned retailing.
McKinsey: First, why was the vending machine the starting point of CCBJI’s digital transformation?
Costin Mandrea: Vending machines play a very important role for our business and for our consumers in Japan. They’ve been at the centre of daily life since they were introduced in Japan around 40 years ago. And while Coca-Cola in Japan is a balanced business with vending as one of the channels, it’s the channel from which everything started. Not only are there a lot of sentimental and emotional linkages with vending machines, but the channel has also been the most profitable system for us. Vending machines have traditionally generated constant, solid performance.
This is the channel through which we reach the actual consumer of the product directly. Usually, our retail customers serve the end consumer, but in the case of vending machines, Coca-Cola is the retailer. However, in recent years, we have seen significant headwinds because of shifts in consumer behaviour and the lack of innovation—the way we operate our vending machines was basically the same as it was 40 years ago. This was affecting our top line and profitability.
So last year, we decided to step up our efforts to revamp vending machines and look deeper at the entire end-to-end process to reengineer them. How can we lower operational costs and expenses and make the machines simpler and better as a retail instrument?
McKinsey: Why not innovate in channels like online delivery, which accounts for a significant portion of the shifts in consumer behaviour you alluded to?
Costin Mandrea: That’s a good question, and the paradox is this: everyone in the industry is aspiring to an unmanned retail model. Amazon Go, 7-Eleven, and others are trying to reduce the friction shoppers face with technology like facial recognition, cashless payments, et cetera. But we already have the perfect unmanned retail model in our vending machines. No one else has the infrastructure we do. We’re operating almost one million vending machines—that’s roughly one for every 150 consumers. Add to that our network of 300 warehouses and 7000 people making deliveries on 5000 trucks. No one else has one million convenience stores or bars or even delivery agents.
The questions have therefore become these: How can we leverage this vast network? How do we adapt vending machines and make them more attractive? Is it possible to implement elements like dynamic pricing and dynamic promotions? Can we reimagine the relationship between the consumer and the vending machine? Perhaps the role of the vending machine could change throughout the day—it could be a virtual coffee shop in the morning, where you get a Coke with your meal for lunch, and a provider of your mixer for an evening cocktail.
McKinsey: To do that, you’ll need to look beyond the physical box. Can you describe the scope of the digitization efforts?
Costin Mandrea: We’re reengineering the end-to-end process, from deciding what we’re putting in the vending machine to the design and frequency of delivery routes to all the other back-end processes, including loading, unloading, and so on. A vending machine is a retailer with limited space, and we needed to design the assortment of products for sale in a way that effectively addresses different occasions and different segments. We use a PEAK framework—premium, essentials, attractive, and key value items—and we developed an algorithm that tells us what to sell, how to sell, and at what price. We tested it successfully last year, and it’s now rolled out everywhere. Everything depends on where the vending machine is, where the nearest competitor is, and so on.
The second piece is making sense of the data generated by the vending machines. Our machines make millions of transactions every month. That’s a lot of valuable information. This led us to create a proprietary loyalty program called Coke ON, which is the start of an ecosystem we’re cultivating. We integrated a cashless-payment system so customers can buy directly with their phones. Users get points each time they buy something, and they can redeem a free drink if they accumulate enough points. Coke ON is also a very good communication channel because it’s a mobile app, and we can send customers a promotion or incentive based on their consumption habits.
We also built a prediction model that factors in the ambient temperature, the load of each machine, the time it takes to load a truck. We optimized the delivery routes, taking into account traffic and the distance from point A to point B. We created a new role called operations controllers; they use the prediction model to help the delivery team plot the most optimal routes. We realized that we didn’t need to divide the country into seven regions—we could operate with three regions. And we don’t need as many planners; technology can handle a lot of that work.
McKinsey: What about the organisational changes that you’ve had to implement?
Costin Mandrea: Previously, the process was a one-man show. The same person was the driver, loader, and route planner. We all believed that these frontline workers were in the best position to make decisions, that they knew exactly what to put into the vending machines. But the environment around vending machines has changed, and it put too much pressure on them. Now we’ve sliced up the process and specialized the components. We created positions in warehouses that did only loading and unloading. As mentioned, we have operations controllers now. So we have different roles that have very clear, disciplined scopes. We’ve created new jobs, and this gave us the opportunity to improve efficiency at every stage of the process.
Apart from very good analysis, my team engaged a lot with frontline management. We spent time with them, drove with them on their routes to understand exactly why things happened the way they did. We spent countless hours in weekly meetings and follow-ups, and explained every single step, to create commitment—from the top of the organization to everyone else below. We paid attention to every detail. This was our biggest success factor to manage the transformation and helped us break through the layers.
McKinsey: Has your engagement with third-party operators changed?
Costin Mandrea: Around 40 % of our operations are done in-house, and the rest is done by third-party logistics operators. CCBJI is the result of a 2017 merger of 12 legacy bottlers, each with a different route to market and a different working philosophy. Some of them do everything in-house, some of them outsource part of their business. But this is not a world-class bottler approach; we needed to standardize our operations.
And when it comes to third-party operators or external partners, how do I take stock of their capabilities and the way I’m paying and measuring them? We needed them to follow the same system as Coca-Cola’s. So, we spent time to reengage with them, to help them and explain that they have to change the way they operate, even though they’ve been used to doing things the same way for the past 40 years. We sent our transformation teams in to work with our external partners on how to improve their operating models. We told them, “From now on, there’s going to be more transparency, clear and simple targets, and we will move toward a pay-for-performance model.” Of course, there was a bit of a gap. And some of them chose not to continue our partnerships and left. We have fewer partners today than before, but we have stronger partnerships and much better collaboration.
McKinsey: We’ve been hearing that COVID-19 has accelerated many digital initiatives. Is that true for CCBJI?
Costin Mandrea: Yes, but from a sales-force perspective, we had to address this as a healthcare crisis first of all. We immediately enhanced security protocols with masks, extra protection, and protective suits to make sure everyone stayed safe. We were also the first in the world to develop an antibacterial film to place on vending machines for added hygiene. Our customers also don’t have to come into physical contact with money, because they can use the Coke ON app on their phones.
Another impact of COVID-19 was that we saw usage of high-volume vending machines in places like train stations plummet to, basically, zero, while more people used outdoor vending machines. So, the COVID crisis created an incredible urgency to go even deeper in terms of cost savings, and we immediately had to redesign the way we were filling these machines.
When we started the transformation last year, we were expecting to roll out the new process over a period of 12 to 18 months, starting with a pilot in Osaka. Our plan was to go into a new region each quarter. With COVID-19 hitting, we were faced with two options: either put our plan on hold and wait until things recover or implement it fully. We decided it’s now or never. I wanted to implement the new model across the entire country within the next few months. We went live on July 17.
McKinsey: What benefits did an accelerated timeline bring?
Costin Mandrea: Despite the challenges we faced in implementation, and the fact that a lot of the support functions were stretched, all our performance indicators showed that this was the right decision. Within four months of implementation, we’ve reduced our routes by 20 percent and disposed of 1,000 trucks. In past projects where we said that we were going to reduce the number of trucks, the trucks were sitting in the corner. We brought them back at the first sign of a hiccup, and with that the costs crept back in. This time, we’ve sold the trucks, so the efficiency is here to stay.
More important, our experiment opened our appetite for more digital transformation. We’ve become wiser, and we’re looking at better ways to leverage technology to make our processes even smarter. We’re entering into phase two, which will have additional savings across functions.
McKinsey: What’s next in the pipeline of digital initiatives?
Costin Mandrea: If we look at our Coke ON app, we’re just about there. One option is that by outfitting it with a bit of extra internal capabilities, we’ll be able to run this app as a separate business unit that can be a new revenue channel by selling services to other departments and to external companies.
And we’re also looking at the obvious hardware. This box of a vending machine is still pretty much the same box as it was 40 years ago. Only 40 % of my machines are smart; they can track what they’re selling and can communicate remotely. But both the hardware and the software need to improve—I need to make them 100 percent smart, I need to be able to modify prices dynamically. If a product is running out of stock and the next restock is the next day, can I raise the price of the remaining bottles a bit? Or perhaps pause a promotion? Or if a product is not selling and is about to expire, can I run a price promotion? We need to explore partnerships to build on this capability and make our machines smarter.
Everybody is looking at unmanned retail. We have it; we know how to do it. And we’re just starting to make it even more efficient. We are in the beginning stages of creating an ecosystem around the vending machine and integrating it more into daily life. For example, it can be a solution for last-mile deliveries, to increase options and convenience for customers. We could partner with food-delivery services and use vending machines as a virtual warehouse. The courier could pick up food from the shop and a cold or hot beverage at a vending machine close to the delivery point.
I’m very proud that CCBJI is leading the way in vending-machine innovation in Japan. What we’ve accomplished so far is an amuse-bouche. I feel like it’s super promising, and it’s going to be a great meal.
Newsletter of last Week
CES 2021: The World’s Largest Tech Show Trades Las Vegas for Cyberspacehttps://textile-future.com/archives/63521
The highlights of TextileFuture’s News of last week. For your convenience just click on the feature.
NextPharma set to acquire Two Lonza sites Specialised in Lipid Oral Dosage Forms https://textile-future.com/archives/63795
EU Commission clears the acquisition of Hexion’s Phenolic Speciality Resins business by Black Diamond and Investindustrial https://textile-future.com/archives/63862
AATCC Foundation Joins the Centennial Celebration https://textile-future.com/archives/63365
ITA-doctoral candidate Kira Heins awarded Hanns Voith Foundation Prize 2020 in the field of “New Materials” https://textile-future.com/archives/63856
Prestigious award for BASE and Empa in data.org challenge A mobile app against food waste https://textile-future.com/archives/63879
The McKinsey’s week in Charts https://textile-future.com/archives/64071
China Announces Tariff Adjustments for 2021 https://textile-future.com/archives/63469
WIPO and WTO launch enhanced access to the Colloquium Research Papers collectiohttps://textile-future.com/archives/63369
Canada Goose launches Exclusive Spring Capsule Collection with first Guest Designer: Angel Chen https://textile-future.com/archives/63658
Swiss Bossard Group – Sales financial year and fourth quarter 2020 https://textile-future.com/archives/63608
Swiss Forbo with significant improvement in earnings versus first half of 2020 https://textile-future.com/archives/63620
Slight sales growth for Swiss Zehnder Group in the second half of the year https://textile-future.com/archives/63630
Interview with Aman Agrawal – MUST GARMENT CORPORATION LTD https://textile-future.com/archives/63775
Autoneum 2020 revenue development in line with market / Personnel changes on the Board of Directors https://textile-future.com/archives/63923
USDA – Thailand Cotton and Products latest update https://textile-future.com/archives/63946
First EETS lorry enters Switzerland https://textile-future.com/archives/63490
OECD CLIs continue to indicate a mixed picture across the major economies https://textile-future.com/archives/63472
OECD area employment rate rose by 1.9 percentage points in the third quarter of 2020, but remained 2.5 percentage points below its pre-pandemic level https://textile-future.com/archives/63718
China Still Grew and Fuelled Its Rise as Covid-19 Shook the Global Economy https://textile-future.com/archives/63807
December 2020 annual inflation stable at -0.3 % in the Euro Area, up to 0.3 % in the EU https://textile-future.com/archives/63865
November 2020 compared with October 2020 Production in construction up by 1.4 % in Euro Area, and by 1.2 % in EU https://textile-future.com/archives/63871
The Indian Leather Products Association (ILPA) virtual Buyer Seller Summit 2021! https://textile-future.com/archives/63661
Prolight + Sound, Heimtextil, Techtextil and Texprocess postponed until 2022; International Consumer Goods Show cancelled https://textile-future.com/archives/63765
Intertextile Shanghai Home Textiles to return in August 2021 https://textile-future.com/archives/63920
NYT names Finland’s Turku as top post-pandemic travel destination https://textile-future.com/archives/63964
Festive sales boost mall revenues in India https://textile-future.com/archives/63395
JD Institute of Fashion Technology, South call for Admissions for 2021/22 https://textile-future.com/archives/63725
Senior Business Development Manager at Lenzing Group awarded by two Patents in the U.S. as Inventor https://textile-future.com/archives/63408
Mytheresa IPO Is Less Fashion-Forward Than It Looks https://textile-future.com/archives/63931
U.S. Navis TubeTex launches the new product TubeSethttps://textile-future.com/archives/63359
Stylish warmers – and other Novelties from Karl Mayer https://textile-future.com/archives/63737
THE BEST NIGHTS ARE YET TO COME! https://textile-future.com/archives/63901
Speed pays off https://textile-future.com/archives/63913
WIPO and WTO launch enhanced access to the Colloquium Research Papers collection https://textile-future.com/archives/63398
Interview with Gama Recycle – the pioneer in textile recycling https://textile-future.com/archives/63371
High-quality textile waste recycled for value – Sympatex cooperates with the eBay Upcycling Store powered by VAUDE https://textile-future.com/archives/63499
233 job cuts as M&S finalises Jaeger deal https://textile-future.com/archives/63752
Update: Edinburgh Woollen Mill & Bonmarche saved in deal protecting 1984 jobs https://textile-future.com/archives/63758
Summary of News in 2021 (Part 1) https://textile-future.com/?p=63159
Summary of News 2021 (Part 2 continued) https://textile-future.com/archives/63178
Summary of News 2021(Part 3 continued) https://textile-future.com/archives/63180
Summary of News 2021 (Part 4 continued) https://textile-future.com/archives/63182
Portrait: Pietro Lura – Player on a rough field https://textile-future.com/archives/63461
Battle of the Robots Still Favors Japan and Europe—For Now https://textile-future.com/archives/63894
Bottega Veneta shutting down Its Social Media Accounts might Signal a Trend https://textile-future.com/archives/63389
Innovation Forum’s new venture – the Sustainable Apparel Barometer https://textile-future.com/archives/63458
Redefining sustainability for 2021: The new priorities https://textile-future.com/archives/63669
Teijin establishes Europe Sustainable Technology Innovation Centre https://textile-future.com/archives/63926
Join the U.S. Commercial Service for the Technical Textiles Coffee Chat | Europe https://textile-future.com/archives/63377
Joint Statement from AAFA, NRF, RILA, USFIA in Response to Ban on All Cotton Imports From XUAR https://textile-future.com/archives/63615
Join the U.S. Commercial Service for the Webinar Technical Textiles Coffee Chat | Europe https://textile-future.com/archives/63377
VDMA Webtalk on material efficiency and fibre recycling in textile spinning https://textile-future.com/archives/63624
Academy Mobile – Online seminars by Groz-Beckert https://textile-future.com/archives/63898
Webinar – One Million Hectares for the Planet: The Launch of the Regenerative Fund for Nature https://textile-future.com/archives/63986
Pnina Tornai launches 2021 Couture Bridal Collection https://textile-future.com/archives/63484
Textile Intelligence launches Issue 47 of Global Apparel Markets https://textile-future.com/archives/63694
Worth Reading – WIPO PROOF now available in 10 Languages https://textile-future.com/archives/63886
WTO panel issues report regarding Pakistan duties on BOPP film from the UAE https://textile-future.com/archives/63763