By Isabella Picillo
As of September 2018, nearly 100,000 establishments which temporarily shut down due to the coronavirus are now out of business. Many of these establishments were small businesses which did not have the resources to stay afloat. However, large corporations, which do have the resources to remain open, have also struggled to respond to changes in consumer behavior, attitudes, and purchasing habits while complying with national, state, and local laws. Many of these changes caused by the coronavirus will likely remain as the pandemic abates. Indeed, businesses must adapt, innovate, and even reinvent themselves in order to survive the effects of the pandemic.
One major change is that consumers are increasing their spending on groceries while cutting back on dining out and discretionary spending. Part of the reason for this divide between spending on groceries and eating out was the result of mandatory restaurant closure in an attempt to stop the spread of the coronavirus. Many Americans redirected their spending away from eating out and toward groceries and other home-related items. According to census data, the monthly grocery bill for the average American household in March 2020 was up by over 30% year-over-year. As restaurants reopen, this divide between grocery spending and dining out will shrink but will likely not return to pre-pandemic levels. American consumers have also turned to online grocery services amid the pandemic. According to Brick Meets Click, US online sales of groceries for delivery and pickup reached $7.2 billion in June 2020, a 9% increase over May 2020. Americans will likely continue using online grocery services even as the pandemic abates since it aligns with the increasing demand for convenience, a trend seen across multiple sectors such as the retail and healthcare industry.
Costco
Costco, which operates a chain of membership-only warehouse clubs, largely benefited from this shift toward spending on groceries and discretionary items. Because consumers are buying more, the company is seeing food sell faster, reducing food costs due to spoilage. Consumers are also spending more on home-related items and items viewed as pandemic necessities, like cleaning supplies and toilet paper. However, Costoco’s wage expenses and sanitation costs have also risen. The company spent $300 million in wages and extra sanitation amid the coronavirus pandemic. These costs are largely offset by double-digit revenue growth, which resulted in profit growth of $1.1 B to $1.39 B, a 20% increase.
To keep pace with the increased demand for e-commerce, Costco is placing considerable emphasis on developing its online shopping service. The wholesaler increased its grocery delivery options and partnered with Instacart, a grocery delivery service, to offer same-day delivery to shoppers near Costco locations. Costco saw e-commerce sales rise 93% year to date, a major change for a company built around drawing consumers into physical locations. Developing a strong e-commerce presence was crucial for Costco as many customers do not feel
comfortable shopping in public places. Costco can now better compete with Walmart, which offers online grocery shopping and, like Costco, generates more than half its revenues from groceries.
Unilever
The coronavirus pandemic also showed that consumer loyalty may not be as strong as anticipated. For example, when consumers could not find their preferred product at their preferred retailer due to supply chain disruptions, many consumers changed their shopping habits by trying a different brand or shopping at a different retailer. For example, A McKinsey report found that more than 75% of consumers have tried new brands or places to shop or methods of shopping during the pandemic, citing availability, followed by better prices and promotions. The pandemic also led to a rise in conscious consumption, meaning that consumers are now more mindful of what they are buying and are consequently cutting back on discretionary purchases such as luxury goods, travel, and entertainment.
Unilever, a multinational consumer goods company, in an effort to adapt to these changes in consumer behavior, is now prioritizing packaged food, surface cleaners, and personal hygiene product brands over products, like skincare, where demand has fallen. If this shift toward in-home consumption is permanent, it may prompt Unilever to also reposition food brands and personal care offerings.
Additionally, consumers are now holding brands and companies to a higher standard regarding how they treat both customers and employees. For instance, consumers expect companies to prioritize their health and safety amid the pandemic. Employee conditions are also now under a microscope. Both workers and consumers have placed pressure on firms to make fast adjustments in-store practices to ensure both safe employee working conditions and shopper safety, commonly taking the form of protective equipment and temperature checks. For example, Walmart now requires customers to wear a mask, even when local laws do not demand so. Other companies, such as McDonalds, have faced scrutiny for a lack of coronavirus precautions. McDonald’s employees across the country went on a strike to call for greater coronavirus safety and higher pay, and five employees of four McDonald’s locations filed a class-action suit, alleging that the fast-food restaurant did not adhere to safety protocols. As a result of these actions, several McDonald’s locations were ordered to enforce mask wearing and social distancing.
It is likely that many of these changes to consumer behavior and brand standards will remain post-pandemic. These changes align with larger, long-term trends that are being accelerated by the coronavirus pandemic. For example, the pandemic is accelerating the trend of increased focus on health, meaning that there is now a greater emphasis on companies to support a healthy lifestyle and prioritize the health of consumers, shoppers, and employees. It is also accelerating the trend of conscious consumption. Since consumers are now more aware of their purchases, they will likely not raise their level of discretionary spending to pre-coronavirus levels.
Uber
Uber adopted a series of safety guidelines to ensure that its ride-hailing business is safe for both drivers and passengers. However, fewer rides have nonetheless impacted the company’s personal transportation revenues. Uber’s ride hailing business lost $1.8 billion from May 2020 to July 2020 due to a decrease in demand for rides. Rides were down by as much as 70% in cities hit hardest by the pandemic.Uber also temporarily lost its London operating license in November of 2019, exacerbating the decline in revenues.
As a result, Uber shifted its focus to Uber Eats, which experienced much success in the past year. Gross booking in Uber Eats grew 113% year over year, and it is now more profitable than Uber’s ride-hailing business. In early July 2020, Uber announced that it had acquired Postmates, expanding its food delivery business. The company also launched an on-demand grocery delivery service in Latin America as part of its acquisition of Cornership.
It is crucial that companies adapt, innovate, and reinvent themselves, if they have not already, in order to survive the changes in consumer behaviors, attitudes, and purchasing habits caused by COVID-19. Yet innovation is about more than short-term survival - it is also about long-term resilience and growth. The many changes in consumer behavior and spending will persist even after the pandemic abates. To stay profitable, retailers should further develop their online shopping services to meet the increasing demand for e-commerce. Diversification into neighboring markets will also continue to be a key to long-term profits. In response to rising consumer consciousness, brands must reposition their products to present a health-oriented image. In short, although the coronavirus shifted global consumption habits, the world economy is as it always was: businesses must adapt to their market or face obsolescence.