COVID-19’s Grim Milestones

COVID-19’s Grim Milestones: Change in Demand pattern is Real & Opens Up New Growth Areas

We might be amid the largest drawdown in demand since the Second World War. Having experienced a new way of living, consumers are recalibrating their spending, increasing the likelihood that spending may permanently shift between categories and that online services could get adopted far faster.

Every country is experiencing greater shifts in people’s daily behaviours. The resulting demand shock cuts global GDP growth for 2020 in half, to between 1 percent and 2 percent, and pulls the global economy into a slowdown, though not recession. In this scenario, a global slowdown would affect small and mid-size companies more acutely. Less developed economies would suffer more than advanced economies. Unsurprisingly, sectors will be affected to different degrees. Some sectors, like aviation, tourism, and hospitality, will see lost demand (once customers choose not to eat at a restaurant, those meals stay uneaten). This demand is largely irrecoverable. Other sectors will see delayed demand. In consumer goods, for example, customers may put off discretionary spending because of worry about the pandemic but will eventually purchase such items later, once the fear subsides and confidence returns. These demand shocks extended for some time in regions that are unable to contain the virus can mean significantly lower annual growth. Some sectors, such as Service sectors, including aviation, travel, and tourism, are likely to be hardest hit. Airlines have already experienced a steep fall in traffic on their highest-profit international routes (especially in Asia–Pacific). In this scenario, airlines miss out on the summer peak travel season, leading to bankruptcies ( FlyBe, the UK regional carrier, is an early example) and consolidation across the sector.

Sectoral Impact:

In consumer goods, the steep drop in consumer demand will likely mean delayed demand. This has implications for the many consumer companies (and their suppliers) that operate on thin working-capital margins. But demand returns in May–June as concern about the virus diminishes. For most other sectors, the impact is a function primarily of the drop in national and global GDP, rather than a direct impact of changed behaviors.

Currently, most economists are expecting a contraction in economic growth of around 2% y/y in 2020, which represents a downside swing of some 4.5 percentage points over previous forecasts.

Source: Economist Intelligence Unit

Oil and gas, for instance, will be adversely affected as oil prices stay lower than expected until Q3.Consumer behaviour has been forced to immediately change, and change on a massive scale because of not able to perform their usual routines under lockdown especially since many local shops have been forced to close their doors for safety reasons. Concerns about the availability of goods have encouraged panic buying of items in bulk. Financial uncertainty and the prospect of a severe and long-term recession make for a stark backdrop which has led to an impact on consumer outlook, perceptions and behaviours. People are spending more time at home, brands have responded by shifting spend from offline media to online. Online, the world is changing just as fast as offline. In early March 2020 The Drum reported on research that shows that, while annual advertising growth rates in China are predicted to fall from 7% growth in 2020 to 3.9%, ecommerce advertising spend is predicted to grow by 17.7% and social media spending to rise by 22.2%.With same piece of research, they go on to state that “e-commerce as a platform has already seen exponential growth, especially in FMCG which saw spending through e-commerce channels in China grow almost seven times as fast as the sector overall in 2019; a trend that the coronavirus outbreak is likely to accelerate all over the globe. Same picture is painted in Research published by Business insider intelligence and eMarketer analyst in March 2020, which suggests that ecommerce is likely to grow as consumers avoid physical stores. Their data suggests that 74.6% of US internet users said they’d be likely to avoid shopping centres and malls if the coronavirus outbreak in the country worsens, and over half would avoid shops in general. Research published by Business insider intelligence and eMarketer analyst. 

In China, for example, while consumer demand is down, it has not disappeared, people have dramatically shifted toward online shopping for all types of goods, food & produce delivery Companies should invest in online as part of their push for omnichannel distribution; this includes ensuring the quality of goods sold online. Customers’ changing preferences are not likely to go back to pre-outbreak norms. On the other hand, COVID-19 is becoming the main propeller for new growth of some New Sectors and reviving dormant potential in others. Even the judiciary system in China is going online filings and hearings are increasingly digitized, which could enhance the speed of executing work and get rid of some of the backlog. In the realm of productivity, we have seen a strong rise in Cloud services for collaboration solutions to minimize paperwork and physical contact, reimbursement apps and digital solutions for accounting, and the growth of contact-less devices for an infinite number of environments.

Going sector-wise, we are also seeing opportunities in the below:

  • Food – fresh groceries and meat, cold storage, high quality foreign food and beverage, cooking appliances.
  • Entertainment – gaming industry, new ways of disseminating content and promoting small businesses, online cooking classes, and virtual visits to landmarks.
  • Education, sports, and well-being – Virtual Classrooms, online fitness classes.
  • Services industry – contact-less systems, enhanced delivery services, remote banking services.
  • Healthcare and health technology – pharmaceuticals, supplements, medical devices, personal protective equipment (PPE), telemedicine, smart hospitals and online consultations, digital medical assistants, apps and mini-apps, self-diagnosing medical devices.
  • Electrical appliances – dishwashers and washing machines, sterilization machines, sweeping robots.
  • Office cost reduction opportunities – office rent is expensive and flexible work arrangements are yet to be explored in their full functional scope. This will open up opportunities across multiple and linked sectors, such as office space redesign, building remote work systems, software platforms, and cloud-based services – all of which will likely see significantly gains once the world economy goes into post-COVID-19 recovery mode and employers keep their office space costs in check in case their staff will need to work from other locations.

Hence, we can see there is a challenging time for many industry & opportunities for few as COVID-19 accelerates the pace of change & leading to swing in the unpredictable change in demand pattern. While no one can predict how long the crisis will last, it is imperative that leaders act now while also preparing for the future.

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