Covid Impact – Tracking Consumer Behavior Changes!
The COVID-19 pandemic has been unprecedented and historic in many ways. From the vast expanse of the countries it has affected, its overtly contagious spread, its impartiality to any race to its oblivion to any climate: this epidemic has resulted in overburdened healthcare systems, unemployment, severe economic distress, mass lockdowns and governments scrambling to mitigate and dampen the impact on its citizens. The sheer magnitude of COVID-19 has skewed consumer priorities, perceptions and practices — with consumers experiencing the impact of this crisis very personally owing to lockdowns, changes in lifestyle and missing pieces of their daily routines. With the crisis stretched, vaccine still months away, re-opening of economy resulting in newer waves of infection; consumers no longer regard this as a temporary anomaly. Most importantly, the uncertainty now and of future would most likely have lasting behavioral impact.
We delved into different touchpoints of consumers to analyze how consumer patterns and preferences are changing both globally and in India during the lockdowns, and what the new normal could be like. Our research draws from primary data wherever possible. In scenarios of unavailability of relevant data, we depended on multiple surveys, thus corelating them to understand underlying patterns. We augmented hard data and surveys with evidence from primary research, financial reports, articles and interviews. In this article we attempt to summarize our research findings and insights. Please reach out to us for further details, relevant data points and more granular specifics and insights.
Consumer sentiment and perception
We studied fortnightly surveys done by McKinsey’s global consumer sentiment surveys and other similar surveys conducted at regional levels by reputed organizations. We found a high degree of co-relation between consumer confidence and how the crisis unfolded in each country — its severity, how effectively each country dealt with the pandemic and the phased re-opening. Consumer sentiments also co-related very well with the cultural optimism or conservatism of each country as well as the overall economy and citizen’s outlook, even before the spread of pandemic.
The consumer confidence in US has been declining from mid-March onward since the lockdown started and has continued on a downward trajectory even with the phased re-opening and recent increase in cases. European citizens are far less confident even though almost all countries are successfully coming out the pandemic, but this could probably have to do more with the overall economic prospects and muted optimism that existed even before the pandemic. The data on consumer sentiment co-related positively with the actual data from retail spent across EU countries except for Sweden and Germany -there we saw the negative sentiment more pronounced in comparison to the actual fall in retail spent; and we attribute this negativity to the daily bombardment of pandemic news. Japan with its stagnant economy over the last few decades responded most negatively even though the pandemic impact has been muted with no formal lockdowns. China and India were two of the most optimistic nations surveyed: nevertheless India saw a sharp sentiment drop-off from end-May onwards with the extended lockdowns and increase in cases, but the confidence in recovery was pretty positive. China is a quarter ahead of most countries coming out of pandemic and is settling in well to the new-normal — with consumers increasingly confident about the recovery of the economy, evident in their actual retail spending patterns. But an initial spike in pent-up demand coming out of the lockdown is common and the new normal might be lower.
The surveys and retail data also highlighted the lifestyles and purchase priorities of citizens all over the world. Regardless of lockdown status, social distancing and hygiene practices are likely to continue in the foreseeable future. Consumers are skewing their spends towards hygiene and health products and prioritizing well-known brands for purchases across categories. Safety and hygiene standards are becoming priorities over price, convenience, delivery times etc.
Shopping and Retail
E-Commerce has taken a significant step jump to be more mainstream, accelerating 3–5 years of pre-COVID growth in just 3 months; even as the offline retail stores re-opened. Weekly NPD data from US suggests that online-retail is settling in at a level 30% above what it was pre-COVID, from a peak of 40% during the lockdown. Every country’s online retail data shows significant jumps even post re-opening. Overall retail sales data across countries is a function of the lockdown status. June retail sales in China is still down 1.8% when compared to the earlier year, but there is a huge improvement from 20.5% decline in January and February. Sweden with no formal lockdown, stood at a year-over-year decline of just 1.4% in April and grew to 2.4% in May. Germany did well when compared to all other EU countries — with a growth of 3.8% in May compared to May 2019, coming up from a 6.4% decline in April. But then again, a pent-up demand for the first few months is common when coming out of the lockdown. Other EU nations suffered 20–30% declines in April and yet to show significant turnaround. US retail spent data co-related well with NPD showing a drop of 6.1% in May, a slight bump up and then a slump! India retail suffered during the lockdown and organized-retail is still down more than 50% compared to last year, according to the Retailer Association of India (RAI). While e-commerce was just 3.5% of the total sales in India, order volumes are back to 90% of the pre-COVID levels. General home improvement, media, health expenses and groceries have gone up significantly across the globe while apparel, make-up, footwear jewelry etc. took a dive.
Source NPD.com Weekly Retail Data — US
A note of caution– most countries have had a significant stimulus for citizens and businesses to soften the impact of the crisis. So even during the lockdown and job losses, citizens in most developed countries have had cash in their hands. Now a second stimulus package is being readied in US. The real impact of consumer spend will hence be a function of when people are off the life support system; and we get to see the true impact.
Official Consumer Retail Data — Jan — May Source: TradingEconomics.com
With supply chains in disarray, brands experimented with direct-to-consumer selling. The likes of Nivea India, Hindustan Unilever, ITC, Procter & Gamble and Dabur have partnered with hyperlocal delivery startups like Dunzo, Scootsy, Swiggy and others to get their products to their consumers directly — and the consumers have responded well to these new avenues!
Technology interventions in retail were fueled by the need for contactless transactions. Scan-and-go mobile checkout technologies picked up pace, with Asda Stores deploying their mobile checkout feature across all outlets in UK; Decathlon deploying Mishipay’s mobile self-checkout technology in Netherlands and; Walmart rolling out mobile checkouts in Canada. Livestream and social channel shopping attracted tremendous amount of adoption especially in China — Canadian fashion brand PORTS did a nine-hour livestream on JD Live, featuring young celebrities and fashion editors gartering over 1.3 million customers and $1.4 M sales in a single day! Drone delivery is also an idea being toyed with, as CVS Pharmacy and Amazon and even Indian unicorn Swiggy.com are conducting drone delivery trials, but their adoption will encounter several regulatory and safety hurdles. We have seen a step jump in the number of digital payments worldwide and all surveys suggest that consumers who migrated will continue. We have not seen mixed reality shopping experiences deployed in a big way yet, but several pilots are ongoing.
Health and Fitness
We expect a fewer number of patients visiting hospitals for typical common diseases and ailments primarily for three basic reasons — higher risk of being infected in hospitals, social distancing and better hygiene measures resulting in fewer common contagious ailments and the rise of telemedicine. Enabled by favorable amendments and regulations in Telemedicine globally and particularly in India, it is set to play a much bigger role alongside e-pharmacy as hospital and doctor visits get restricted to more serious ailments.
With gyms closing globally, and many like 24Hr Fitness going bankrupt, virtual and home workouts have rapidly filled the void. Some fitness service providers such as Cure.fit in India have responded fast, setting up virtual workout rooms and sessions, augmented-reality powered virtual trainers giving personalized feedback. While around 80,000–90,000 daily attendees participated in their workout sessions in Cure.fit physical centers pre-COVID, now over 200,000 attendees participate daily in virtual workout sessions. Purchases of fitness equipment like Peloton’s fitness bike saw a stupendous rise in demand with sales of home fitness equipment in USA rising by 175%. A number of factors play a part here, from exercising in the comfort and convenience of home to gyms being high infection-risk areas.
There has been a significant increase in demand worldwide across vitamin supplements, probiotic supplements and ayurvedic products. A recent survey from Facebook and BCG highlighted that 49% people intend to buy more vitamins, herbs and supplements in the coming days. In sync with this demand, companies like Dabur have added many immunity products to their ayurvedic immunity portfolio. The good news seems to be that consumers are starting to take better care of themselves, staying healthy, boosting immunity and focusing more towards illness prevention and early-diagnosis. Mental health came to prominence with several people facing distress during lockdowns. This has accelerated the alleviation of the stigma against mental health problems, and now empowered by telemedicine with its privacy and convenience, people are resorting to counselling/therapy.
Work and Learn from Home
While a majority forced to work remotely, employees are seeing both the benefits and shortcomings of working from home. To sum it up — employees want to have the flexibility to work from home for the rest of their careers, but they still want the option of a physical workplace as well. All surveys pointed to the physical comfort and convenience of working at home, with more flexible schedules spending more time with family got easier, and most importantly time and expenditure on commute got saved. But employees who had never worked from home experienced some drawbacks as well: loneliness, infrastructure and security issues, and the overlap of work and personal life. From the employer’s side, changing long standing work culture, setting up virtual desktops and dealing with technical and security glitches were the biggest hurdles.
Most schools and colleges started operating online. Kids adjusted well but all surveys and feedback suggest that they hated the experience once the initial novelty was over. We saw a surge in Toys/Games category, especially the educational ones across countries as kids stayed at home and parents wanted them engaged and learning. Our portfolio company PlayShifu saw a 5X jump in online sales compared to the pre-COVID days. Entertainment and gaming were big winners.
Finance, Insurance and Digital Payments
Increase savings, decrease spending and keeping more liquidity are natural reactions to any uncertainty and was observed in households of every country. History from a century back has demonstrated how these spending and savings patterns gets ingrained, the longer any crisis continues. Traditionally household savings rates in US has always been below 10%, but it jumped up to 33% in April and reduced to 23.2% in May, granted the options to spend got limited during the lockdown. Household deposits in the euro area’s four largest economies jumped to more than 100 billion euros in March and April, three times as much as the average pace of growth over the past decade. In India, as the consumer sentiment dipped, the savings rate went significantly up, along with decreased spending alongside income impact. The most severe impact was seen on the lower-middle income group with the savings to income ratio going up by 26% as reported by our portfolio company CreditVidya. Bounce rates have tripled for some digital lenders and 20–30% of retail borrowers in India had asked their banks for loan moratoriums.
There has been an interesting shift in the role of the insurers globally. While we see some insurers launching COVID specific products, many insurers are also trying to engage with customers by setting up online health consultation services and empowering their agents with digital tools. Leading insurance portals in India have seen the volumes of the insurance policies significantly increase via the online channels.
Fear of COVID infection while handling physical bank notes brought over a surge of cashless digital payments in India as the economy re-opened, albeit partially in June. This fear accomplished what India’s de-monetization desired to do 4 years back, triggering higher volumes and value of UPI based payments in addition to the growth in debit, credit and direct bank transfers.
Last 15 months - Unified Payments Interface (UPI) Digital Payments - UIDAI
Food and Restaurants
Food deliveries and takeaways were the only revenue stream for restaurants during this lockdown. South Korea with a tepid number of COVID cases saw a 25.5% increase in food delivery and a subsequent 26% dip in their on-premise dining market post the lockdown. Food delivery companies also doubled up to deliver other essential items and we saw DIY food kits by leading restaurants to assure hygiene and safety. Consumer preference also drifted from price and delivery efficiency to healthy food options, safety and hygiene. Low touch dining technology, popularly dubbed as ‘Contactless Dining’ gathered traction with over 1000 restaurants in India signed up for Dineout’s low touch dining app.
Travel, Commute and Hospitality
The Chinese auto market had been on a slow decline since 2017. But, after 21 months of decline, there was an uptick of 4.4% in April, followed by low double-digit growth in May and June. While it is partly attributed to the pent-up demand coming out of the lockdown, a steady increase of 3 months signifies a trend in vehicle ownership, coupled with the inhibition and fear of taking public transport. In India, while in June the actual sales numbers of 4-wheelers is just 50% and 2-wheelers sales down 36% from pre-COVID levels, the inquiry and bookings show a rise of about 80–85% in pre-COVID levels, with significant queries coming in from customers who had been resorting to public transport. This co-relates well with our survey insights. At the same time long-term rentals and subscription services of vehicles have picked up globally including new plans introduced by Zoomcar and Bounce in India.
With international and nationwide tourism at a standstill along with the possibility of an unexpected quarantine and lockdowns anytime there is a surge in cases, rural and regional tourism is starting to satisfy the wanderlust of vacationers. AirBnb is seeing a rising proportion of bookings within a 50-mile radius of the customer’s home in USA and Workation (Work and Vacation) packages have emerged in many places including the coffee estates in Coorg, Karnataka appealing specifically to the Bengaluru techies. Virtual tourism is also picking up to occupy this current void in the consumer’s life, with museums such as Louvre, Vatican Museum and Tower of David Museum setting up virtual tours online.
10-Day Workation (Work + Vacation) package in Coorg, Karnataka, India
Events and Conferences
With no alternatives during the lockdown, the Meetings, Incentives, Conferences and Exhibitions (MICE) industry went completely virtual. Airmeet, a startup from India developing a virtual conference platform for hosting online events raised $3M from Accel Partners; and vFairs has been hosting many digital conferences since last few months, both with innovative features like virtual lobbies, booth interactions and session specific meeting rooms. But we are likely to see the events and conferences industry to take up a more hybrid online-offline format in the post-COVID world.
News, Knowledge and Social Media
During the lockdown, the average consumer turned towards voracious consumption of news from print, online and TV, and at the same time fake news and information also flooded everyone at unprecedented rates. We saw multiple surveys across regions and age groups on the need to establish trustworthy sources of news and all pointed to the need for social media platforms to regulate and filter out fake news as opposed to any 3rd party regulator. Use of social media obviously increased by almost 50% in hardest hit countries during the lockdown. Activities, weddings and parties went online. Growth of video-chat app Houseparty was huge, leading at the top of downloaded apps in 16 countries, and as second most downloaded app in US, with over 50 million signups in a single month. Interestingly, post the ban of TikTok in India, many homegrown apps like Sharechat, Mitron, Chingari have been able to garner significant user and investor interest. Instagram has also launched their short video platform called ‘Reels’ in India.
Rapid technology adoption, hyper-acceleration from offline to online, better health and hygiene standards and consumers accommodating and adjusting in myriad interesting ways were the underlying themes worldwide. Businesses servicing these customers also reacted quickly. We will continue to monitor these trends and patterns for stickiness and gain further insights as the COVID situation evolves both globally and in India. We are delving deeper on how the businesses across the value chain are starting to react more methodically to these changing consumer trends, how they are adopting suitable technologies and interesting startups that are emerging to address these changing paradigm shifts.
About the Authors:
Somshubhro (Som) Pal Choudhury Partner, Bharat Innovation Fund
Arjit Johri looks at Investments and Corporate Development at Bharat Innovation Fund. He tweets @JohriArjit.
Rakesh is currently studying at IIM Ahmedabad and has a deep research interest in Consumer Behavior and the way they have been changing during the pandemic.
September 9, 2020