Looking at the occurrence of infections worldwide and the measures taken by governments in different countries to prevent and protect the population, Nielsen identified three distinct timelines for global market regeneration. This framework describes what lifestyle and consumer behaviors will look like in each of the three scenarios. It is obvious that the length of the lockdown has an influence on the overall economic development, the financial situation of the individual, the labour market, social life and the consumer climate.
If the transition to the ‘new normal’ progresses rapidly – by the end of third-quarter 2020 – consumers and companies will return to old habits, patterns and behaviour to a large extent (rebound). However, if consumers spend a longer period of time in a lockdown situation, say until the end of fourth-quarter 020, the economic, financial and social consequences will be greater and new strategies will have to be developed to revive consumption and the economy (reboot). If the restrictions last 12-18 months, governments will be forced to compensate for the severe economic, financial and social consequences and companies will have to fundamentally rethink their product portfolios to meet changing consumer demands (re-invent).
We believe Switzerland will transition from the lockdown phase to a ‘new normal’ by the end of third-quarter 2020. According to our framework, which states to what extent consumers will resume old habits and at which points we presumably perceive a change in consumer dynamics, we see several areas in which an impact can be expected:
1. Changes in spending patterns due to lower disposable income
With the increased financial pressure and job insecurity, many consumers will redistribute their spending or saving in certain areas. On the basis of observations in previous crisis situations and consumer surveys, we believe that changes in spending patterns will particularly affect the areas of fashion, takeaway, travel/holidays and replacement purchases.
2. Changed shopping baskets in the FMCG sector
The past has shown that the food industry is quite crisis-proof. Even during the financial crisis in 2009, with a 2.2% decline in GDP, sales in the food retail sector still rose slightly. In the current situation, where almost 80% of consumers in surveys reflect that they want to work more from home in the future or will eat/cook more at home, we expect that daily food and fresh food will continue to show higher growth rates in the coming months, and buying fresh goods naturally requires more frequent, smaller purchases. In addition, the topic of hygiene will of course continue to play a role, so that corresponding product groups will continue to grow disproportionately in the future. We also assume that product groups that are perhaps more likely to be in the “luxury/pampering” segment will have a chance of additional sales, true to the motto “if I have to save money elsewhere, then at least I’m treating myself to something special at home”.
3. Changed price mechanisms
From a recent consumer study, we know that 57% are aware of the prices of the products they usually buy. Forty-nine percent of consumers surveyed mentioned comparing prices of leading brands with private label brands. This certainly highlights an increasing price sensitivity. This is supported by the fact that we have observed in recent weeks that the share of discounters in food retail sales has increased significantly and the share of private labels has reached a high share of 35.7%. It can be assumed that branded companies and retailers outside the discounters will react to this with increased price promotions, which have not necessarily been in focus in recent weeks.
4. Changed values
Some retailers and manufacturers at home and abroad have reacted quickly to the stricter hygiene regulations with new ideas. Electronic entrance controls, contactless deliveries by driverless vehicles, new apps for safer shopping and disinfection of shopping trolleys are just a few examples. In addition, due to increased health and hygiene awareness, consumers are increasingly focusing on “healthy” products with special ingredients that have a positive effect on the immune system. Natural and sustainable products such as “organic” or “free from” were highly popular with consumers before the novel coronavirus (COVID-19) pandemic but have become less desirable. Now health-related product claims such as “germicidal”, “immune-system strengthening” and “health-promoting” are gaining enormously in importance. Especially for personal care and home care categories, attributes such as hygiene and health will become the new standard. Manufacturers must prepare themselves for this in order to (continue to) retain customers. Consumers are often prepared to pay a higher price for home care products with claims such as “immune system strengthening” or “for the protection of the family”.
The importance of product claims will vary by category, and some will have a stronger resonance than others. Therefore, it is critical for brands to understand which claims are appropriate for which products to ensure that they 1) meet consumer needs and 2) potentially have the ability to charge a higher price if they can differentiate their offering in the marketplace – which will be more attractive to consumers on unchanged incomes who can afford this “luxury”.
In terms of the share of e-commerce in total FMCG sales, Switzerland is far behind in a European comparison with a share of less than 2%. According to our Shopper Trends 2019 report, online grocery shopping has increased penetration by five percentage points between 2015 and 2019. Since the outbreak of COVID-19, we can imagine an even faster adoption rate, attracting a larger number of food buyers to this sales channel which is a first prerequisite for achieving sustainable growth. However, whether this growth will continue in the long term after COVID-19 is difficult to answer at present, as this depends essentially on consumer satisfaction with regard to simplicity of product selection, delivery period, delivery flexibility, delivery quality, pricing, etc.
6. Catering to new or strengthened needs
Prior to the pandemic, the importance of convenience was already quite prominent within FMCG. In 2019, 58% of shoppers were doing their main shopping on a weekly basis — a 6% drop from 2015. The trend toward “top-up” shopping and visits to convenience stores is growing in Switzerland, with 50% of Swiss reporting that they had visited a convenience store in the last four weeks in 2019 — up from 30% in 2015.
During and after the pandemic, the need for convenience to balance the “new normal” and handle the stress from the crisis will only grow in importance for consumers. Those brands that can create a more convenient and comfortable life for consumers today, will have loyal customers tomorrow.