In the first half of 2020, the way people consume and shop was dramatically transformed by the global pandemic. What factors do retail businesses need to address in this new environment?
Since March, McKinsey & Company has been tracking consumer sentiment across the world. The studies identify ways consumer behaviour has changed during the crisis. Has consumer behaviour followed the same patterns in the United States and European markets? What has changed and will it be lasting? Here are eight ways consumer circumstances and habits have changed due to the COVID-19 crisis.
1. Reduction in household income
A sudden reduction in income has had a dramatic impact on consumer behaviour. More than a third of US consumers have experienced a reduction in income as a result of the pandemic, with only 28% expecting no impact on their personal or household finances in the coming months.
European households have also seen a reduction in incomes due to the crisis.* In the UK, Poland and Germany, for example, decreases in income range from 27% to 43%.
2. Reduced spending, delayed purchases
About 40% of American consumers have reduced overall spending. The same proportion have adopted a more frugal mindset in order to save money. When the survey data was recorded (Aug. 19-23) only 15% of Americans expected their household spending to increase in the following two weeks.
European consumers have also reduced spending and changed shopping habits in response to the crisis. In the UK and Germany confidence in an economic recovery even declined over the survey period (March-June). This lack of economic optimism has led to consumers delaying purchases they had planned to make.
3. Shift towards essential goods and online shopping
With social distancing and the lock down of brick-and-mortar outlets, it is hardly surprising to see an acceleration in the ongoing shift to online shopping. US consumers also expressed their intent to continue the increased online shopping beyond the immediate crisis. Categories seeing the greatest shift were essential purchases, such as over-the-counter medicine, household supplies and groceries.
A similar trend was seen in the UK and Poland, with a shift in purchasing intent away from discretionary spending towards household essentials and entertainment at home. However, spending in the German market, while also more focussed on essentials, shows a net intent to shop in-store for most categories. Perhaps this reflects Germany’s earlier easing of pandemic restrictions and indicates that the shift to online shopping may be reversed.
Overall spending intent (both in-store and online) in the US market was net positive for essentials and entertainment at home, while European markets showed more of a mixed picture.
4. Adoption of different shopping behaviours and brands
Only 25% of the US consumers polled have not experimented with a new shopping behaviour or brand during the pandemic. 40% have tried a new behaviour, such as curbside pickup and delivery apps, and 36% have tried a new brand, with around three-quarters of those intending to continue the new behaviour.
The UK presented a similar picture with 37% trying both a new shopping method and brand. However, German consumers were less inclined to experiment, with only 11% trying a new shopping method and 19% a different brand. Of the three countries, UK consumers were the least likely to try a new retailer/website.
5. Brand switching driven by availability
The most significant factors driving brand switching were convenience and availability, revealing how disruption to supply chains has adversely affected brand loyalty. US customers preferred the convenience of doing all their shopping in one place. Value factors also influenced consumers’ brand choices. German consumers exhibited similar behaviour.
6. Concerns about hygiene
Consumers have become increasingly concerned that retailers follow correct hygiene procedures. Disinfection of retail spaces and mask wearing for both employees and shoppers are priorities.
As a result of these concerns, contactless protocols, such as self-service checkouts and curbside pickup, are becoming more popular. US consumers also express an intent to continue many of these contactless activities post-crisis. (Data for Poland available for only first two categories.)
7. Reduction in non-essential spending to continue
The reduction in spend on non-essential items is set to continue, across all income groups. The hardest hit categories include accessories, jewellery, furnishings and hotel stays.
UK and German markets show a similar trend to the US. The Polish survey was carried out two months earlier, in April, most likely reflecting the greater uncertainty and more drastic restrictions in place at the beginning of the crisis.
8. New activities at home
Forced to spend their time at home, people have taken up new activities. Unsurprisingly, online activities have significantly increased, with 5% of Americans starting to use online streaming services, and 36% increasing their current usage. Telemedicine was used by 16% of Americans for the first time. However, playing online games saw a more modest increase, with 2% new users and 13% playing more than they did before.
The pattern was similar across Europe with the exception of a more modest take up of telemedicine services.
The survey results may not reveal any real surprises. Shifts in consumer behaviour have been dictated by necessity as well as concerns about health. Shops, logistics systems, distribution facilities, and supplier networks need to adapt to meet the rapid shifts in demand patterns, and they require flexible and effective retail management systems to implement these changes.
* Direct comparisons between countries must be caveated with the fact that surveys were taken at different times and at different stages of the crisis. Surveys were carried out in June for the US, UK, Germany. In April for Poland.
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