12 minute read 28 Apr 2020
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Future Consumer Index edition 1: How COVID-19 changes consumer behaviors

By Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

12 minute read 28 Apr 2020

The first EY Future Consumer Index suggests the pandemic is creating new consumer segments in the US.

The COVID-19 pandemic is having an enormous impact on daily life across America. People have been forced to change their behavior in ways that would have seemed unimaginable just a few months ago. And while companies have shown incredible agility in keeping consumers supplied with the goods and services they need, the emerging challenge for those organizations is to prepare for what comes next.

What kind of consumer will they be serving when it’s time to restart the US economy? Those that understand how the COVID-19-era consumer is evolving will navigate the current crisis better and get back up to speed faster when the time comes.

To help guide those efforts, we’ve created the EY Future Consumer Index. By tracking emerging consumer behaviors and sentiment, the index will allow us to identify and prepare for the new consumer. Most importantly, we can gauge which are temporary reactions to changing circumstances and which point to more fundamental shifts.

This article will share initial insights about how the US consumer is changing, and some of the actions you should consider as a result. (You can read our perspective about the global consumer here).

Four new consumer segments now emerging

The index is based on a broad survey that takes a 360-degree view of the consumer — it not only looks at how they are shopping and where they are spending their dollars, but also how they’re feeling about returning to normal, what they’re most concerned about and how they believe the world will change. We’ve used this data to identify four consumer segments that we see in the US today.

The segments above suggest there are marked differences in the way people are feeling personally, how worried they are about the future and how they are changing their spending. Differences also appear when comparing Americans with the rest of the world. Compared with consumers globally, more Americans fall in the optimistic hibernate and spend segment, 10% vs. 18%, respectively, and fewer are characterized as cut deep, 27% vs. 23%, respectively.

Americans across these segments are more concerned about access to basic necessities than their jobs or finances, and 75% have changed the products they buy.

Five new segments that we could see next

In addition to how they are responding now, the index also asked consumers to share their views about how they expect to change their behavior once they feel the crisis has passed. Based on this, the four segments we see now could shift to five very different segments as we emerge from the crisis in the longer term. 

Compared with global consumers, more Americans are in the back with a bang segment (14% vs. 9%, respectively), and fewer are in the stay frugal segment (20% vs. 22%). This suggests that American consumers may be more ready to spend money once they feel the pandemic has passed. 

We are in uncertain times, so let’s be cautious about making predictions, especially since people’s own assumptions about their future behaviors may not always be accurate. It remains to be seen when the four consumer segments we see today will transition into the five we’ve identified, or even if these five future segments will look the way they do now. But monitoring these changes as they occur gives all of us a valuable guide to shifting sentiment and will help you stay agile and relevant as you plan for the future.

This is particularly true as companies prepare themselves for the “green light” to return to work and business as (the new) usual in the nearer term.

When the consumer says go, will you just be warming up or on the starting line?

We’ve examined how consumer segments show up now, as well as how they might appear once the crisis has abated. But let’s take a deeper dive into which specific behaviors might occur as soon as consumers are no longer sheltering in place, and what that means for companies.

American consumers are eager to get back to stores and restaurants. Today, 65% of Americans are visiting physical stores less often, 61% say they’re shopping less frequently overall and 33% say they will shop at online retailers more over the next month. However, 93% of American consumers also say shopping in stores that reopen will be important to them once the pandemic is over. Another 87% say eating and drinking in restaurants and bars will be important after COVID-19.

Across categories, the post-COVID consumer will change as well. We likely can expect a spike in apparel and restaurant spending, whereas grocery spending will level out.

And in light of the pandemic, product availability and the availability of delivery and healthy options now are among the most important purchase criteria, with product brand, luxury and personalization of lesser importance.

The incredibly quick changes we’re seeing in consumer behavior and in the economy more widely are having a huge impact on every business. As companies look to return to work, or return to more normal operations in the grocery industry for example, we want to offer some focused actions to consider in two areas where the effects have been most dramatic: supply chain and workforce. The companies that wait for the go-ahead to restart will be far less equipped to pivot to the needs of the post-COVID consumer than those that start to address these areas now.

Supply chain: forecast, stress test and rebalance

From the start of the pandemic, companies’ supply chain strategies have been tested. In some categories that have been deemed nonessential, demand has fallen precipitously. In other areas, like frozen foods and staples, demand is booming. Many consumer products companies and retailers realized they could be lacking the supply chain agility required to adapt to these rapid shifts. How can you address supply chain resiliency now so that you are prepared to reopen or normalize inventory levels post-crisis?

  • 1. Re-forecast potential consumer spending during and after COVID-19.

    By understanding how consumer spending might change across categories, such as apparel, food, beverage and the like, you can model the new inventory levels needed and find a new balance between supply and demand. This can help prevent stockouts or overproduction. Modeling allows you to rebalance your production mix to meet demand, for example, shifting production capacity, rethinking your product portfolio, and improving capex and the overall cash availability to reinvest in other areas of the business.

  • 2. Model a range of ramp-up plans and scenarios.

    Revising demand and behavior forecasts will enable you to model and define operational ramp-up plans. Use “what if?” scenarios to help evaluate when and how to restart and how to ramp up operations in a cost-effective manner to make certain of employee and consumer health and safety. Useful questions to ask include: how many employees will we need and where? What production facilities and production lines should we open up first? How resilient and available are my suppliers and distributors? This data can also help you reassess your inventory positions and rationalize SKUs.

  • 3. Stress test supply chains and create contingency plans.

    Once you have modeling in place, you should stress test your supply chains for potential disruptions. Here are some useful questions to ask: for products we sell direct to the consumer, where will our distribution channel break down? Where are the potential production bottlenecks? Can we survive given our current infrastructure? If spending doesn’t come back, how long can we survive given our overhead? If there is no demand for a product line, how do we repurpose capacity?

  • 4. Adapt to the new cost to serve.

    E-commerce tends to be an expensive channel because the order or basket size for consumers typically is smaller than in-store purchases. As consumers continue to shop online or remotely — as in the fulfillment is not happening in stores — you should find a way to make this channel cost-advantageous. This will require building flexibility into your supply chain in ways that lower the cost to serve.

Workforce: provide continuity, prepare for a different future

When America starts to reopen, consumer-facing companies will see many workforce challenges. Grocery stores, for example, have been hiring extra help to get people the food they need. But with consumers planning to eat out and travel more when the crisis is over, how will workforce needs change? As consumers say they will return to shopping in stores, spending more in certain categories and eating out, companies that laid off or furloughed employees will need to figure out the most effective, efficient and scalable way to get their workforce back up and running at the drop of a hat.

Winning companies will take thoughtful steps to return to the workplace by thinking holistically about operational continuity that encompasses technology, security, productivity, wellness and engagement for a trusted day one transition. Here are three steps to take during this time: 

  • 1. Consider policy, health and risk scenarios to develop a broad, prioritized and sequenced plan to return to normal.

    Since the return to work is determined in the US at the state level, your scenario planning should encompass both a rolling and enterprise-wide return to work. Aligning both with country and local government guidance, as well as reconciliation of that guidance with enterprise-wide return-to-work planning, will be critical to provide a seamless transition for your workforce.

    Your scenarios should consider the human element across your entire ecosystem. For consumer goods manufacturers, for example, how do you maintain health and safety with the human contact throughout the delivery of raw materials, work-in-progress and finished goods in plants; transportation to warehouses and distribution centers through to the retailer; and, finally, the last-mile delivery to the consumer? Other questions to consider include: how many people can touch a product? How often do you sanitize — after every delivery truck, more or less often? How quickly can your workforce adapt to new policies?

  • 2. Take actionable steps to make certain of the safety of your employees and consumers as they return to the workplace.

    Upon reopening, health and safety concerns will still be top of mind. Maintaining social distancing measures in physical spaces for both your workforce and consumers will be important. You should assess the continued need for personal protective equipment for your employees. Evaluate consumer, visitor, and supplier or customer protocols, as well as cleaning and sanitation processes to continue to mitigate the spread of the virus, even after you’ve been given the green light to return to work.

    Beyond physical health, keep a pulse on the mental health of your workforce. You should plan your workforce engagement and communication measures for the new normal now, considering activities like remote work pulse surveys to gauge the sentiment and productivity.

  • 3. Make certain the operational capacity across process, space, technology and people is enabled for managing a hybrid working model focused on continuity.

    The most challenging of the actions to consider might be how quickly you can reactivate or normalize your workforce, and how large your day one workforce needs to be. How can you implement rapid hiring, onboarding and training at scale? First, consider the approaches of the essential business, like grocery stores, that had to ramp up hiring of tens of thousands of employees in short order amid the pandemic. Prioritize areas of the business where hiring might become critical. Review and accelerate virtual collaboration and new ways of working and redesign training for a remote work location model. Finally, assert greater accountability for all employees and use technology to upskill and re-skill colleagues where the capacity has changed.

    While some companies will simply transition, market leaders will lean into the opportunity to transform. Though it may not feel that way now, returning to work is much more than just day one. Your future-focused planning must rely on humans at the center, technology at speed and innovation at scale to position your organization to manage a safe transition and transformation for the future. Companies already operating with these value drivers will prove more resilient and will adapt even faster during the pandemic and beyond.

What else lies at the center of return to normal and consumer demand

The supply chain and the workforce certainly are not the only areas at the center of a return to normal and consumer demand.

For example, the COVID-19 pandemic has put an emphasis on the value of the physical, but also the importance of the balance between physical and digital. How do you apply consumer insight to your footprint planning as the immediate priority of reopening looms? Can you win the consumers looking for new places to shop, buy, eat and play as a result of retailers that don’t survive the crisis? How do you balance the shift to online with consumers’ stated intent to shop in physical stores once they reopen? What does 50% of consumers saying they will put a premium on goods produced domestically mean for your manufacturing footprint?

In the coming months, we’ll explore the digital and physical footprint, as well as other insights and actions, as we continue to track the impact of the pandemic on the US consumer.

  • Methodology

    This first edition of the EY Future Consumer Index is based on a survey of 4,859 consumers across the US, Canada, the UK, France and Germany during the week of April 6, 2020. Of those, the article above focuses on the 927 US respondents. The survey questionnaire covered current behaviors, sentiment and intent. The data reported here relates to US respondents only.

Summary

The COVID-19 pandemic is changing daily life for US consumers in ways that would have been unthinkable just a few months ago. By understanding where the most significant changes are and which ones will stick, companies can position themselves to adapt.

About this article

By Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.