Consumer behaviours have shifted at the hands of COVID-19, and Scott Dylan explains why we must take action to avoid an uneven economic rebound.
The COVID-19 pandemic has disrupted, re-routed, and accelerated several consumer shopping habits, and companies around the world have adapted their business models to meet changing demands. Now, many of these changes are here to stay, and these new consumer behaviours could lead to an uneven economic recovery.
Private equity and distressed M&A investor Scott Dylan explains that if we are to avoid an uneven recovery, policymakers and business leaders must address rising inequality amongst workers, age- and income-related consumer outcomes, and the ever-widening gap between large corporations and smaller companies that can’t compete.
As the founder and key partner of Manchester’s capital investment agency Fresh Thinking Group, Scott Dylan is supporting various companies that have struggled at the hands of COVID-19. Fresh Thinking Group offers the funding and direction that these companies need to strategise methods to recover and stand out in their post-pandemic markets.
Here, Scott Dylan draws insights from McKinsey’s post-pandemic research to delve into how we can manage a smooth rebound and shape the future of business growth in line with new consumer behaviours.
The pandemic fuelled a mass digital migration: every physical activity and function found its digital counterpart, and we shifted our worlds to operate on a virtual level. Office staff and students worked from home. Consumers shopped online. Patients tuned in to online doctors’ appointments. Gym-goers followed recorded exercise classes. Auto dealerships sold cars without any contact with customers, using only email, texts, and video-calling software. Fast-food establishments operated ‘ghost kitchens’, fulfilling only delivery orders. The list goes on.
Scott Dylan explains that although technologies were moving to the forefront of shopping trends before COVID-19 hit, the pandemic fast-tracked the unfolding of these technologies. Having faced restrictions on physical proximity and, in some sectors, huge increases in demand, many companies adopted a wealth of digital tools, automation, and AI to cope with pandemic-related challenges.
Companies of all sizes found such technological integrations invaluable, especially when it came to efficiency, improved productivity, and minimal errors. While large retailers like Amazon enlisted industrial robots to arrange, pick, and track stock, other companies employed AI chatbots to cope with customer enquiries. Meanwhile, many financial service companies made the most of robotic process automation to accommodate surges in small business loan applications. Some assisted airlines also found automation technologies useful to issue travel refunds.
The automation required to create this digital shift may have been an immense challenge. But many businesses have enjoyed streamlined productivity and impressive growth as a result. And these businesses will keep many of their new systems for the long term. It may surprise some to know that a recent McKinsey survey shows many more companies are using AI to create business opportunities rather than to save labour costs compared to three years ago.
What’s more, another McKinsey survey found that, during the pandemic, companies digitised many activities 20–25 times faster than they previously thought possible. For example, one large retailer developed its curbside-delivery process, originally planned for an 18-month rollout, over two days.
Recent McKinsey reports found that many of the consumer behaviours that shifted in response to COVID-19, like the outpourings of people accessing e-grocery and virtual healthcare services, are likely to remain popular. Meanwhile, entertainment, leisure air travel, and classroom-based education should mostly bounce back as governments continue to roll back restrictions. McKinsey also found that lots of the consumers who drove this e-commerce growth were new to online shopping. The pandemic forced many people who would otherwise never shop online to make a digital transition.
Having evaluated McKinsey’s reports, Scott Dylan has summarised seven key post-pandemic shopping and work trends that we can expect to stick.
Digitisation aside, sustainability is a key factor that’s influencing today’s shopping trends. Surveys have found that 30–50 percent of consumers intend to buy sustainable products. However, these products make up less than five percent market share of sales. This, in part, comes down to the fact that many companies charge a premium for sustainable products, and governments offer few incentives for consumers to buy these.
In a recent study, McKinsey analysed over 2,000 work activities from 800 occupations across 9 countries and found that up to 25 percent of workers in advanced economies can work from home 3–5 days a week. Now, many companies are drawing up hybrid remote work plans that reduce office space requirements and business travel. McKinsey estimates that 20 percent of business travel may never recover.
Despite the devastating effects of COVID-19, many of the steps businesses have taken to stay afloat during the pandemic have given them the potential to improve productivity long term. McKinsey has found potential for incremental productivity growth of one percentage point per year to 2024. This would be over double the rate of productivity growth experienced in seven economies, including the UK and U.S., after the 2008 global financial crisis.
During the first months of the pandemic, overall spending declined by 11–26 percent in Western Europe, the U.S., and China. Much of this reduction came down to restrictions on travel, entertainment, restaurants, and other physical services. Plus, many faced income cuts due to being furloughed, losing their jobs, or losing clients. On the other hand, some higher-income households with members who could work remotely saw their savings rise as their usual expenditure declined. Savings rates climbed by 10–20 percent in Western Europe and the U.S.
Though spending should rebound as we gradually recover from the pandemic, the recovery is likely to be uneven. While higher-income households are likely to emerge more or less unscathed, many lower-income households have faced income cuts and/or job losses that will continue to affect their spending capacity.
McKinsey has found that post-pandemic job growth is more likely to occur in high-wage occupations. In particular, low-wage workers will likely have fewer opportunities than those in healthcare, environmental, and STEM professions. Demand for many occupations, such as customer service, sales, food service, and administrative roles may decline as we advance towards 2030. This disruption will likely have a massive impact on low-wage jobs. Over 100 million workers across the 8 countries analysed in recent McKinsey studies will likely need to switch occupations by 2030 – 12 percent more than McKinsey estimated before the pandemic. This figure could rise by as much as 25 percent in advanced economies.
Meanwhile, research and development investment by the biggest U.S. companies grew by $2.6 billion in the third quarter of 2020 compared to the previous year. The top ten percent of companies (by 2019 revenue and economic profit) in Europe and the U.S. are pulling away from their peers, leaving many smaller companies unable to compete.
Despite the growing gap between global firms and smaller companies, changing consumer behaviours have led to shifts in market share that have opened up opportunities for new entrants. Though many small businesses have struggled to stay afloat, the number of start-ups nearly doubled in the U.S. during the pandemic. Many of those who were furloughed, made redundant, or forced to quit their jobs to care for their children took the plunge and launched their own businesses, some funded by government stimulus packages. In terms of post-pandemic work, these businesses may create new payroll jobs in future.
COVID-19 may have accelerated our integration of technologies, spurred productivity growth, and given many the opportunity to launch their start-ups, but the pandemic has also triggered some deep concerns about our economic recovery. The scale of this recovery cannot be over-estimated: COVID-19 has launched the biggest economic shock since the second world war.
Scott Dylan emphasises the need for policymakers and business leaders to take the following ten actions to set companies up for productivity growth and lay the foundations for better jobs.
1. Continued government support for start-ups, perhaps by expanding digital architecture so all businesses can access affordable broadband connections.
2. The implementation of broad-based technologies and wages that rise in line with productivity increases.
3. Support from large companies for their smaller suppliers to avoid sacrificing productivity e.g. through accelerated payments, digitisation strategies, and investments in sustainable operations.
4. A focus on revenue growth and cost-efficiency. This way, businesses will be able to drive both productivity growth and employment, instead of increasing productivity at the cost of employment.
5. Private and public investments to enable sustained productivity growth.
6. Mandatory support from business leaders for vulnerable workers who transition to new jobs that require different skill sets.
7. Retraining opportunities for workers who could be displaced by automation.
8. Opportunities for young people who enter the labour force to gain marketable skills and qualifications that will help them on career paths with upward mobility.
9. Training opportunities for those who should keep their jobs but whose roles will evolve.
10. ‘Wrap-around’ programmes that provide income, food, transportation, and childcare for those who couldn’t otherwise participate in training opportunities.
COVID-19 has marked a turning point for economies: consumer and business trends emerged faster than we could ever have expected, as did the evolution and acceptance of technologies. Scott Dylan concludes that although the near-term recovery will bring relief, we must minimise the pandemic’s uneven impact on workers, companies, and consumers. Otherwise, we will undergo a two-speed recovery that will deepen inequality and deliver weak growth. However, if companies and policymakers address emerging gaps, they can take the path to higher productivity and broad-based growth.
Keep up with Scott Dylan’s insights on his blog.
Specialist investor Scott Dylan has a wealth of experience when it comes to managing buyouts, acquiring viable and distressed companies, and transforming these companies into thriving enterprises. As the founder and key partner of Fresh Thinking Group, Scott Dylan works with business teams of all sizes to help them conceptualise and implement innovative technical and creative solutions. With this guidance and Fresh Thinking Group’s capital injections, the group’s acquisitions position themselves as market leaders in their respective industries.