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How Covid Is Changing Consumer Behaviour

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How Covid Is Changing Consumer Behaviour 1. COVID-19 is transforming How COVID-19 consumer lives - we have covered a "decade in days" is changing in adoption of digital Three change forces—economic downturn, consumer behavior preference shifts, and digital acceleration –now and forever 2. Behavior changes are not linear By Sajal Kohli, Björn Timelin, Victor Fabius, Sofia Moulvad Veranen and their stickiness will depend on satisfaction of the new experiences As the world begins its slow pivot from managing Ups and downs ahead of us the COVID-19 crisis to recovery and the reopening of economies, it’s clear that the period of lockdown Stickiness = forced behavior x satisfaction has had a profound impact on how people live. The jury is still out on value-driven behaviors The period of contagion, self-isolation, and economic 3. Future is NOW uncertainty will change the way consumers behave, -Players should prepare in some cases for years to come. Prepare for consumption declines/ The new consumer behaviors span all areas of life, trading down from how we work to how we shop to how we Address footprint offer, and shopping entertain ourselves. These rapid shifts have experience for the new reality important implications for retailers and ‘ Follow consumers in their new consumer-packaged-goods companies. decision journeys when you market and communicate Many of the longer-term changes in consumer behavior are still being formed, giving companies an opportunity to help shape the Next Normal. COVID-19 is changing how consumers behave across all spheres of life We see new behaviors emerging across 8 areas of life (eg, surge in e-commerce, changing of brand preferences, higher unemployment) Shopping and Work consumption Rise of unemployment Surge in e-commerce On-the-go consumption decline Preference for trusted brands Remote working Decline in discretionery spending, trading down “20x increase in Zoom daily participants” Larger basket, reduced shopping frequency Source: Bond Capital Shift to stores closer to home Polarization of sustainability “Personal disposable income is not expected to recover to pre-crisis level until Q2 2024 in the US” Source: McKinsey analysis in partnership with Oxford Economics, Scenario A1 Learning Life at home Spending on learning Nesting at home adjacancies Surge in online Remote learning “Home is recast as the new “35% --> ~35% of Netflix coffee shop, restaurant, and subscribers use it for entertainment center” educational content” Source: YouGov Communications Play and and information entertainment In-person sampling decline Preference for digital entertainment Shift in media consumption Entertainment channel shift (eg, cinema to streaming) “Further migration to digital” Additional play time “Disney Plus achieved in 5 months what took 7 years for Netflix” Source: Phone Arena Health and Travel and mobility wellbeing Reduction in tourist spend and travel retail Focus on health and hygiene Increase in domestic tourism Acceleration of organic, natural, fresh “80% reduction in international Fitness on demand travel & related tourist spend” E-pharmacy & e-doctor at scale Source: McKinsey analysis in partnership “Monthly year-over-year growth of organic produce in the US with Oxford Economics increased by 10x in March compared with January and February" Source: Organic Produce Network Many of the trends are accelerations of past behaviors We have covered a “decade in days” when it comes to adoption of digital Online delivery Telemedicine 10-years-in-8-weeks 10x in 15 days For increase in e-commerce deliveries Online Delivery 10 years in 8 weeks For increase in e-commerce deliveries Remote working 20x participants on videoconferencing in 3 months Remote learning Online entertainment 250 million in 2 weeks 7 years in 5 months students who went online in China Disney Plus acheived in two months what took Netflix 7 years Most behaviors will see a linear development trend or stick in the next normal As countries gradually lift lockdown restrictions, 1 more phase remains before we reach the next normal 3 months 12—18 months Consumer behaviors will Virus not follow a linear curve Real GDP Lockdown Transition Vaccine? Next normal (GDP recovers to pre-COVID-19 level) Stickiness = forced behavior [including duration] x satisfaction Our hypotheses on which changes could stick or dissipate New trend Discontinuity Acceleration Unknown Probably temporary Enduring Trading down and Decline in Reduction in international travel retail price sensitivity consumption Increase in domestic tourism Reduction in discretionary spending Reduction in on-the -go Preference for trusted brands Shake-up of consumption Focus on health Polarization of sustainability and hygiene preferences Larger basket Nesting at home Remote working Surge in e-commerce Digital Rise of e-pharmacy Fitness on demand Preference for digital entertainment acceleration and e-doctor at scale Entertainment-channel shift from physical to digital Behavior changes will reshape consumer decision journeys and companies will need to adapt fast Retailers and consumer-packaged-goods companies that use the transition period to rethink consumer decision journeys can reshape consumer behavior How consumers get information Shake-up of media mix: further shift to digital What Basket re-composition Shake-up in Temporary comeback of TV • Grocery hierarchy of needs • Nesting Decline in out-of-home-advertising consumers Health and hygiene rises purchase • Health • Discretionery spend Polarization of Decline in in-person Overall consumption: sustainability engagement decline 15% US decline with • Trading down recovery in 2023 Format polorization Brand-preference evaluation Large and small packs Turning to A-brands for trust Reduced shopping Where frequency consumers purchase Channel mix reevaluation E-commerce: 17-percentage-point increase in grocery, surge in e-pharmacy On-the-go consumption decline Decrease in travel retail Replacement of offline channels by at-home alternatives (eg, gym, cinema) New channel-selection attributes Proximity to home Hygiene No queue/room in store New shopping reality Decrease in satisfaction due to inconvenience of safe shopping Increase in basket size How consumers Decrease in shopping frequency experience Decrease in density of shoppers Shake-up in what consumers value Decrease in tourist spending Loyalty shake-up, as consumers are forced to try new things Retailers will face challenges across multiple dimensions Sales Marketing Assortment Reinvent shopping Consumers have changed Reimagine value for money: experience: hassle-free where and how they engage, price, private label, quality, shopping in high hygiene and marketing spending should branding, merchandising environment; change store reflect this layouts and proposition, reconfigure check-out, offer longer operating hours, Capture new needs: provide omnichannel Stay relevant across health, safety, fresh, new multiple touchpoints ready to eat; reduce exposure (brand.com, platforms, to highly discretionary categories Right-size network to recognize e-retailers, own stores, 15% drop in consumption multibrand stores) Adapt formats to new needs: polarization in Leapfrog digital capabilities Allocate resources in pack size (large and single towards first-class e-commerce, line with journey shifts, packs) and hygiene certainty seamless omnichanel experience; eg, increase digital consider drive-through, engagement (social, click-and-collect influencers, D2C) away from out-of-home advertising, Rethink brand mix: increase print, trade marketing exposure to post-COVID-19 loyalty-shift winners (trusted Reevaluate physical-store A-brands and local brands), footprint, as traffic from Win in loyalty shifts: and simplify assortment professionals and tourists ensure first-class customer- declines and impacts travel retail relationship-management and on-the-go consumption system, foster trust through communication, and provide incentives for first-time shoppers The authors would like to thank Christoffer Breum, Marco Catena, Becca Coggins, Jörn Küpper, Simona Kulakauskaite, Luiz Lima, Jaana Remes, Kelsey Robinson, Hamid Samandari, Raghavendra Uthpala and Naomi Yamakawa Copyright © 2020 McKinsey & Company. 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