4 minute read 10 Jun 2020
How COVID-19 pandemic is changing consumer behaviour

How COVID-19 is driving emergence of a new consumer products landscape in India

By Pinakiranjan Mishra

EY India Consumer Leader; EY EMEIA Consumer Market Segment Leader

Photographer. Traveler.

4 minute read 10 Jun 2020

COVID-19 pandemic is radically changing consumer behavior in India: EY Future Consumer Index.

The COVID-19 crisis is being defined by four distinct consumer behavior segments, according to the EY Future Consumer Index, a survey of 1,046 Indian consumers, mostly in urban areas, covering their current behaviors, sentiment and intent. These are “Hibernate and spend”, “Cut deep,” “Save and stockpile” and “Stay calm, carry on”.

Consumers that fall into the “Cut deep” group (35%) are significantly impacted by the pandemic as it impacts their employment; others representing the “Save and stockpile” group (25%) are worried about their families, less optimistic about the future and have been stockpiling essentials. Most consumers (38%) represent the “Hibernate and spend” group, who are concerned about the pandemic but are also the best positioned to deal with it, on the other hand, “Stay calm, carry on” group (2%) are the least impacted and are expected to resume their old shopping behaviors. COVID-19 is also a reminder to the consumer products industry about the fragility in ways of doing business.  Given the anticipated changes in consumer behavior and category dynamics, the report highlights that consumer products companies would need to take quick actions to respond to the ‘Now’ phase, alter operating model to address the ‘Next’ phase and then consider strategic transformations to build a resilient organization for the ‘Beyond’ phase.

Indian consumer products companies face a multitude of challenges in the ‘now’, ‘next’, and ‘beyond’ phase coupled with the radically changing consumer behavior in India.

What consumer products companies are saying about the challenges they are facing?

EY enterprise resiliency framework areas:
  • Employee well-being and workforce management

    NOW (Immediate response)

    • Protecting health and well-being of employees
    • Diverting resources to critical issues
    • Facilitating remote working 
    • Labour shortages in factories and for transportation; workforce is down to 25%, in some case even 15%

    NEXT (Reboot and react)

    • Developing safer working environment in offices and factories
    • Managing workforce expectations around rewards and compensation

    BEYOND (Adapt to the new world)

    • Inculcating remote working culture for business continuity
    • Managing reputation risk in case of job losses
  • Consumer safety and brand protection

    NOW (Immediate response)

    • Making essential products available
    • Communicating safety and hygiene of products

    NEXT (Reboot and react)

    • Reviewing priority categories and pricing framework
    • Losing consumers temporarily or permanently to compete due to stock outs

    BEYOND (Adapt to the new world)

    • Rebuilding trust in the brand
    • Re-evaluate product portfolio
  • Supply chain and trade

    NOW (Immediate response)

    • Adjusting production lines and ramping up manufacturing of essentials. ~50% of Indian CP companies are concerned about production capacity 
    • shortage for in-demand and essential products
    • Building new channel partnerships to make essentials available
    • Non-essentials being majority of portfolio
    • Ensuring raw material sufficiency. ~30% of Indian CP companies are facing challenges in sourcing raw materials

    NEXT (Reboot and react)

    • Developing online capabilities
    • Managing inventory in volatile times

    BEYOND (Adapt to the new world)

    • Understanding long-term supply chain risks
    • Maintaining lean supply chains
  • Funding needs and financial impact

    NOW (Immediate response)

    • Curtailing non-essential costs. ~30% CP companies in India are facing cash flow issues
    • Ensure financial health of channel partners
    • Managing stakeholder expectations

    NEXT (Reboot and react)

    • Arranging for short-term financing 
    • Assessing long-term financial implications

    BEYOND (Adapt to the new world)

    • Building larger contingency fund
    • Refueling growth
  • Business continuity and risk management

    NOW (Immediate response)

    • Responding to fast changing environment
    • Resuming operations as soon as possible

    NEXT (Reboot and react)

    • Building business continuity plan
    • Understanding risks to business partners

    BEYOND (Adapt to the new world)

    • Safeguarding from potential future disruptions
  • Government and regulations

    NOW (Immediate response)

    • Complying with changing state and central government restrictions
    • Working with state governments to classify products as essentials

    NEXT (Reboot and react)

    • Assessing impact of force majeure triggers and tax implications
  • Technology and information security

    NOW (Immediate response)

    • Supporting work-from-home arrangement

    NEXT (Reboot and react)

    • Protecting data and digital network

    BEYOND (Adapt to the new world)

    • Using technology for digital transformation to avoid future disruptions

Companies must formulate strategies immediately to address the challenges in all the three phases, including permanent safety measures in offices and on shop floors, re-evaluating brand portfolio, expanding relationships with third-party e-commerce platforms, exploring shared warehousing and most importantly, anticipate and be ready to respond to newer habits that consumers will develop after living through the pandemic.

Comparability with Indian consumer and COVID-19 

Consumers are concerned about multiple issues ranging from health and wellbeing of their family, availability of essentials like food and cleaning products, to how their lives would be altered over the long-term. COVID-19 will influence all aspects of a consumer’s life. Some areas would witness temporary effects where habits change for short duration and then go back to pre-COVID-19 ways, while other areas would face long-term consequences.

Impact of the pandemic and changing consumer behaviour on category dynamics:

  • Essentials

    NOW (Immediate response)

    • Surge in demand to stockpile sufficient supplies during lockdown
    • Swift shift to online; attract many first-time users
    • Choose functionality over brand name in short supply scenario
    • Attract many first-time users for preventive and OTC consumer health products
    • High concern around safety and hygiene of unbranded products due to multiple human touchpoints

    NEXT (Reboot and react)

    • After stockpiling of essentials, there could be temporary slump in their sales
    • Online buying continues, store visits resume
    • Demand for fresh produce grown in guaranteed clean and hygienic environment rises
    • Increased awareness of health and hygiene to 
    • sustain demand for vitamins, sanitizers, handwash etc.
    • Accelerated shift towards branded perishables from unbranded perishables

    BEYOND (Adapt to the new world)

    • Return of brand stickiness; proven results for functional benefit required
    • Demand for food traceability increases for fresh produce
    • Opportunities rise in cleaning, hygiene, OTC consumer health
    • Opportunities in branded perishables rise
  • Non-Essentials

    NOW (Immediate response)

    • Halt in sales of more discretionary products like beauty, make-up
    • Drop in sales for beverages due to closure of on-trade channels and lower discretionary spending

    NEXT (Reboot and react)

    • Revive discretionary buying of personal care and beauty products, in-stores sales continue to be hit
    • Increase in sales of beverages for at-home consumption, on-trade channel continues to suffer

    BEYOND (Adapt to the new world)

    • Need-based spending may impact beauty products, stores need safety measure to attract footfall
    • Online buying and engagement accelerates
    • Sustained impact on out-of-home consumption of beverages as social distancing becomes more prevalent
    • Demand pick up for healthy beverages

These changes in consumer behaviour, be it short-term or long-term, do impact characteristics of products consumers buy, dynamics of product categories and operations of product companies.

Five new segments may emerge as consumers move beyond the pandemic

The four segments identified could morph into five very different ones as the pandemic subsides. For example, the EY Future Consumer Index currently suggests that over time, most consumers in the “Hibernate and spend” group will migrate to “Back with a bang” group as they are waiting to get back out and spend money on shopping. About 69% of the consumers from the “Back with a bang” group expect to be better off with finances over the next one-year. Similarly, consumers in the “Cut deep” group will either “Stay frugal” or “Keep cutting” their expenditure on all categories except groceries. Going forward, about 53% of the consumers from the “Keep cutting” group will give more importance to pricing once the outbreak is over. These new consumer groups, detailed in the Future Consumer Index, could emerge post-COVID-19 and be summarized as: “Back with a bang” (38%), “Stay frugal” (29%), “Keep cutting” (19%), “Cautiously extravagant” (11%) and “Get to normal” (2%).

Four key segments emerging from the crisis – EY future consumer index

Summary

As consumer products companies move into the next and beyond phase, their ability to digitally transform faster, invest in relevant technologies such as artificial intelligence, optimize the use of big data and analytics and improving overall customer experience will be the key differentiators in the industry, which will enhance their resilience to withstand any future disruption.

About this article

By Pinakiranjan Mishra

EY India Consumer Leader; EY EMEIA Consumer Market Segment Leader

Photographer. Traveler.