A new identity: COVID-19 and the changing U.S. consumer
28 May 2020
Consumer behaviour in the U.S. is reflecting the widespread effects of the global COVID-19 health crisis and resulting economic recession.
These behavioural changes are playing out across all areas of U.S. consumers’ lives: from what they do at home to what they do away from home, to how they approach consumerism at all times. Though there is pent-up demand to return to pre-pandemic behaviour, history has shown that some changes spurred by a pandemic can linger.
Our Equity Research analysts across 13 consumer facing sectors have assessed how these behavioural changes could affect the companies they cover over the long-term. Below are some of their key findings.
From FOMO (Fear of Missing Out) to FOGO (Fear of Going Out)
Due to stay-at-home orders, U.S. consumers have been spending the majority of their time at home, and may do so for months to come. Many habits formed during this period could persist.
For example, food at home (FAH) spend is expected to surpass food away from home (FAFH) spend – a flip of the 55% FAFH / 45% FAH pre-COVID-19 trend.1
Source: United States Department of Agriculture, Barclays Research
For food and household products, big brands are back. Packaged food companies which have successfully improved the quality and/or branding of their products stand poised to benefit. And with consumers shopping online for most everything during the crisis, one of the biggest, long-lasting changes is likely grocery e-commerce adoption. In our analyst’s view, grocery retailers that have their own in-store solution are in a much better position.
E-commerce penetration to gain
Source: Barclays Research, United States Census Bureau
Overall, the uptick in e-commerce is forecast to exceed the penetration gains seen during the previous global financial crisis. During the 2009 recession, e-commerce penetration gains were 150 bps.2 In 2020, it could be more than double that figure. Down the line, consumers may even embrace online shopping as the primary option for buying in new categories, such as cars.
Digital solutions are solving problems and consumer pain points beyond shopping. The explosion in remote work, remote learning and streaming entertainment is driving both broadband use and consumer willingness to upgrade to faster Internet/5G – upgrades that consumers are likely to retain even if they return to offices and schools. Companies across sectors may leverage this enhanced connectivity to encourage consumers to shop, work or learn in new ways, possibly by using artificial reality (AR) or virtual reality (VR).
Venturing out again – in a new way
As restrictions ease and U.S. consumers head out of their homes, health concerns, aversion to crowds and the full impact of the recession will change behaviour.
Grocery stores may no longer offer free edible samples and consumers may shift away from deli/prepared foods. This is key because free sampling has historically been a traffic driver, and deli/prepared foods are higher margin. When dining out, consumers may prefer off-premise dining. Quick service restaurants already had more than 80% of sales from off-premise dining.3
However, casual dining options will need to adapt to delivery and takeout demand by altering kitchen operations, rethinking location strategy and leveraging third-party logistic providers. And with less beverage consumption at bars and restaurants, beverage manufacturers may need to rethink new product activity and marketing campaigns to drive at-home consumption.
When it comes to specialty retail shopping, brands and retailers will have to adapt as well. For example, beauty companies may turn to VR to translate the experience of in-store consumer trial. Clothing companies may develop alternatives to determine fit, such as VR, and possibly offer digitised models and predictive sizing algorithms. Retailers may also increasingly adopt self-checkout, store pickup and grab-and-go options.
Overall, the increase in online shopping and avoidance of crowds could prompt specialty and apparel retailers to close upwards of 30% to 40% of their stores over the next five years. In this environment, retailers with strong brands with direct and digital capabilities are better positioned.
Source: Barclays Research
With entertainment, consumers are likely to continue to avoid crowds, affecting cinemas, concerts, sporting events and more. To cope, content that companies typically release in other venues first may move to accelerated or even simultaneous in-home digital delivery.
Consumer behaviour all the time
Some trends will cut across all aspects of U.S. consumers’ lives, regardless of whether they are at home or not. For example, socially-responsible spending could become more widespread if consumers choose to support companies seen as responsible in the current crisis, such as those protecting furloughed employees or shifting to manufacturing personal protective equipment (PPE). And, given the recession, consumers are likely to remain cost-conscious in many ways.
This could include opting for do-it-yourself (DIY) projects instead of paying for services, turning to more economical products and services, and avoiding waste. This mindset could affect nearly all sectors we analysed, from consumer staples to travel to lodging to autos.
All said, the crisis is rapidly evolving, and the behavioural changes discussed here are high level and far from exhaustive. However, companies that can assess and adapt to shifting consumer behaviours will likely be better positioned to thrive.
Read the full report
Authorised clients of Barclays Investment Bank can log in to Barclays Live to read the full report from Barclays Research:
Galya Laskar, U.S. Thematic Karen Short, North America Food & Staples Retailing Lauren R. Lieberman, U.S. CHPC & Beverages Andrew Lazar, U.S. Food Jeffrey A. Bernstein, U.S. Restaurants Benjamin M. Theurer, Americas Agribusiness Adrienne Yih, U.S. Specialty Retail, Apparel & E-Commerce
Felicia R. Hendrix, U.S. Leisure & Gaming Anthony F. Powell, U.S. Lodging Brian A. Johnson, U.S. Autos & Auto Parts Matthew Bouley, U.S. Homebuilding & Building Products Manav Patnaik, U.S. Business & Professional Services Kannan Venkateshwar, U.S. Cable, Satellite & Telecom Services Ross Sandler, U.S. Internet