Understanding post-COVID consumer trends

understanding post covid consumer trends - Understanding post-COVID consumer trends

In the pre-COVID world, eating out, shopping, and weekend getaways generally characterized the way of life of middle to upper income Filipinos. For the affluent few, investments in cars, art, and properties were par for the course.

As much as 72% of the economy was driven by consumer spending. This was buoyed by OFW remittances, aggressive government spending and declining unemployment due to a robust business sector. Household incomes rose steadily and the average Filipino spent 84.8% of whatever he earned.

Voracious spending caused corporate earnings to soar, especially for businesses related to real estate, food and beverages, hospitality, tourism, retail, sports and entertainment, construction and healthcare. With economic think tanks foretelling sustained GDP growth of between 6% and 7% in the next five years, many were lulled into believing that the good times would never end.

But in one fell swoop, the pandemic changed everything. In a matter of months, Jollibee closed 255 stores and declared a P12-billion loss. For the first time ever, food and beverage giant San Miguel Corp. reported a P4-billion loss in the first semester. PAL, Cebu Pacific, and AirAsia claimed a collective loss of P22 billion for the same period. As of July, the Department of Trade and Industry reported that 26% of all micro, small and medium enterprises (MSMEs) have permanently closed. Meanwhile, some 46% of all businesses in the Philippines have considerably downsized their labor force.

The consumer bubble has imploded and businesses across the country must now adapt to an environment characterized by consumer frugality and shifting buying habits. It will take years before we return to the pre-COVID heyday, says McKinsey & Co. The American consulting firm sees economic contraction to be at 10.4% in 2020, to rebound softly in 2021 with growth below 5%. They see consumer demand bouncing back to 2019 levels in the second quarter of 2022, or two years from today.

A survey conducted by McKinsey last July revealed drastic changes in Filipino consumer  characteristics.

Among the Filipino population, 59% claim that their incomes have been negatively affected by the pandemic; 63% said that their ability to work has been reduced since the lockdown began. With incomes curtailed, 74% said that they have already cut back on spending and will continue to do so until conditions improve. As much as 54% of the population said they are already finding it difficult to make ends meet. For those with precautionary savings, 58% said that economic uncertainty precludes them from spending on high-ticket items such as appliances, furniture, automobiles and property.

More than half the population, 53% to be exact, are still afraid to go out for fear of being infected. No surprise, 60% of the respondents say that product safety is their primary consideration when purchasing wet and dry goods. Merchants who give assurance of product safety are most preferred.

A whopping 77% of the population say that they will shop in stores and malls less frequently and 75% said they plan to do their shopping online. Even grocery shopping will be done over the internet. In fact, 30% of the respondents said that they have already begun purchasing food, personal care and household cleaning products online instead of in traditional supermarkets. Interestingly, 80% of all Filipinos are willing to leave their trusted brands and try new alternatives provided they offer equal or superior levels of safety, value and quality.

The shift away from brick and mortar stores and towards digital stores applies not only to consumer goods but also to healthcare services (eg. tele-consult, tele-medicines and PPD for patients) and banking services. Some banks already carry out more than 80% of their transactions online.

While cash has always been the preferred mode of payment of the Filipino, it has become the least preferred today. Studies show that payment through mobile app is most preferred, followed by phone and card tap payments. Payment through credit cards where PIN punching or a signature is required is looked upon with apprehension.

The pandemic has accelerated the migration of businesses into the digital sphere. Consider this — Netflix and Disney Plus booked as many subscribers in two months as they did in the last seven years. Telemedicine sites multiplied their subscribers by a factor of 10 in just 15 days. Online delivery of food and dry goods booked more transactions in eight weeks than they did in the last 10 years. There are now 250 million students on remote learning compared to less than two million before the pandemic.

The trends are clear — due to the permanence of the work from home phenomenon and a preference for home nesting, the internet has become the new marketplace for goods and services. Every merchant must have a digital strategy to remain competitive.

As far as products are concerned, manufacturers must adjust their offerings to be better suited for home consumption. Shakey’s was right to offer its Mojo Potatoes in supermarkets in ready-to-fry packs. Jollibee did the same for its pre-marinated Chicken Joy.

Other trends that have emerged is a preference towards healthy foods and products that focus on wellbeing and hygiene. Vitamin supplements are selling briskly as are organic produce. Beauty products and cosmetics are selling well as they are considered affordable luxuries. Sustainable and/or environmentally friendly products are preferred over those made of inorganic materials.

Families will have more time for play so products that cater to this need like toys and videogames are in high demand. Home improvement products like DIY furniture have booked a spike in sales. And since the greater majority are tightening their belts, online thrift shops like Carousel.com and Ayosdito.com have reported record transactions.

Consumer trends have shifted significantly in a matter of months and the depth and speed of change is unprecedented. In the same manner, businesses must evolve with the same swiftness to survive. Some businesses will have to change their whole business model — others will have to change their product line, services, and manner of distribution. One thing is for sure, those that can reimagine their value proposition, their business processes, and are fleet footed will have the best chance of making it to the finish line. The rest will fall on the wayside.

 

Andrew J. Masigan is an economist

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