How Covid-19 transformed our financial habits.
Before Covid-19: Things were already changing.
Before the Covid-19 pandemic, customers globally relied progressively on e-commerce for their shopping. Consumers also started to use new and multiple channels (omni-channel management) as digitalization offered to the customer somehow of power on the market by comparing, analyzing, and rating different products and classifying them by their price and their personal preferences. Online shopping was including more product categories and broaden their portfolio of products and services. For instance, before the crisis, around 30 percent of skincare and makeup sales were made online, and online volumes grew by around 70 percent annually from 2016 to 2019. As a result, an important part of the global population was familiarized with online shopping and new buying experiences.
The shutdown: A boost toward transformation
Customer perspective:
The COVID-19 pandemic is first and foremost a human tragedy and a global humanitarian crisis that has affected millions of people, but it has also had a significant impact on the global economy. The extensive lockdowns, self-isolation, and economic uncertainty have led to changing consumer attitudes and priorities. Companies and manufacturers were obliged to not just tweak their business model, they needed to rethink it to shape it with the new challenges and changes during this unstable period. According to World Bank forecasts, the global economy will shrink by 5.2% this year. That would represent the deepest recession since the Second World War. Still, 2020 is going to be the greatest year of e-commerce sales with unprecedented expected profits. We can assess this customer changing behavior on three major aspects: The decrease of purchasing power leading to more mindful habits on spendings and greater spending on essentials, switching channels to e-commerce and deliveries, and product switching. A survey was done by McKinsey & Company investigating the decrease of income across 45 countries conducted to a decrease in income, with a deeper income loss on Asian, Latin American, and African countries. This situation has led customers to heavily cut their spending on essential products as health and safety become the main worries of families during the lockdown. Goods like cleaning supplies, vitamins, and supplements have increased in consumption while other product segments like clothes and skincare, and makeup witnessed a decrease in demand.
The lockdown has forced customers to heavily rely on e-commerce for their shopping. The high risk of contamination and fear of catching the virus and ultimately putting the family and surroundings at risk made deliveries the safest way to shop. For example, before the pandemic, the grocery industry has historically seen relatively low online penetration, even though retailers and manufacturers have invested heavily in e-commerce channels, It turned out to be during the lockdown highly implemented in online shopping. The survey mentioned earlier indicated the 3 main key drivers of consumers to buy a certain product: Value, convenience, and availability. Research done by the same firm on US customers found that 30 to 40 percent of consumers have been trying new brands and products. Almost half of these consumer switches are because the desired product is unavailable, while an additional 19 percent decided to purchase cheaper available options.
Value Chain:
The COVID-19 pandemic has brought rapid change to organizations as they strive to adapt to the lockdown and movement restrictions. Transformations that would typically take years to implement are being achieved in a few months. Saying so, brands must be prepared to tailor their strategies to new patterns of customer demand, working out how to develop their propositions to achieve maximum impact and build sales fast. Organizations are increasing their cost-reduction targets, modifying their operating models on the fly, and redefining their functional priorities. Companies need to highly emphasize their digital infrastructure and to evolve their marketing and communication tools to stay in the business. Another thing is a well-digitized company means greater transparency for both suppliers and buyers, this helps in managing the supply and demand uncertainty and to gain more agility and flexibility within the entire value chain.
Packaging and transportation:
The Supply chain disruptions due to the lockdown will have both short and long-term consequences for the global packaging industry, which had generated almost $900 billion in 2019. Thus, packaging companies will need to raise their performance in multiple ways: balance sustainability goals with stringent hygiene requirements, step up their e-commerce games, and compete in a novel customer landscape while facing strong cost pressures. With the onset of the COVID-19 crisis, sustainability has taken a back seat to concerns about hygiene and food safety issues, which have become higher priorities. In fact, to help manage hygiene concerns during the current state of emergency, single-use packaging has spiked while reusable packaging has faltered. Simultaneously, there is an increase in single-use packaging and wrapping for groceries as well as parcels shipped by e-commerce suppliers due to the concerns admitted by researchers on the stability of the coronavirus on surfaces. Another challenge facing the packaging companies in the development of new forms of primary and secondary packaging suited to the e-commerce operations since e-commerce packaging is currently required to be three to four times more robust than traditional on-the-shelf packaging. An increase in the use of artificial intelligence and automation were witnessed to fill orders and stock warehouse products and so taking full advantage of these technologies to enhance speed and productivity and to better handle the last-mile deliveries.
What’s next: the new-normal
We have to admit the fact that this virus is no longer leaving us for the short upcoming period of time. That being said, the only choice we have is to adapt ourselves to this new reality and better handle both our health and economy. How is it going to be like our financial state in the upcoming months? The 2008 recession is an imperfect analog to the COVID-19 crisis, which is more of a shock, but we believe it offers valuable lessons about how consumers behave under financial stress. That recession had a lasting effect on consumer behaviors and ultimately on companies’ decision making and operational activities.
Resources:
- McKinsey; A global view of how consumer behavior is changing amid COVID-19.
- McKinsey; US Consumer Sentiment Pulse Survey, conducted March 23–29, 2020.
- McKinsey; Reimagine: Preparing for SG&A in the next normal.
- McKinsey; Shaping the next normal of packaging beyond COVID-19.
- McKinsey; How consumer-goods companies can prepare for the next normal.
