Managing Director & Partner
Never has there been such a sudden shock to consumption and such forced changes in consumer behaviour as now. The COVID-19 pandemic has led to near to total shutdowns around the world bringing social and many economic activities to a standstill.
In this uncharted territory, as institutions formulate the roadmap to restart the economy, consumers are gradually reinserting themselves into the ecosystem, adapting purchasing patterns and behaviours as they navigate concerns about the long-term impacts of COVID-19 and adjust to a simpler way of life. Willingness to buy Aussie brands has grown dramatically; institutions at the forefront of the crisis (healthcare, supermarkets and governments) have seen significant and rapid gains in trust. Australians might feel nostalgic for a desire to return to normalcy (which is in line with other countries), and our sense of personal financial security is the best in world (around 60% of us are not worried about our current personal finances compared with 40% in Italy and the US), but consumers’ predicted behaviour says ‘normal’ might be a long time coming.
Our April 2020 Consumer Sentiment study reveals that 84% of Australian consumers believe that there will be an economic recession post-COVID-19, and 40% of Australians feel financially insecure.
All mature markets show a similar concern over the rate of recovery and whether their spending habits will return to normal post COVID-19, with Australia faring best on personal financial security (refer Exhibit 1). Contrasting with developed countries, Chinese consumers in this time of unprecedented change are more resilient and are already showing a return to normal spending habits.
While governments and companies are trying to steer consumers away from anxiety-led purchase behaviour, consumer sentiment during the pandemic is likely to have a significant impact on category revival post-COVID-19.
Overall, half of Australians say that they have decreased their spending over the past month due to COVID-19, and a similar number say they expect their spending to decrease significantly over the next 12 months (refer Exhibit 2).
COVID-19 is also steering consumers towards a simpler way of life. BCG’s Global Consumer Sentiment survey suggests that 64% of consumers believe that basic and simple products that do the job are all they need; premium or luxury products are unnecessary. This is illustrated by their planned spend over the next six months (refer Exhibit 3). Consumers told us that they expect to cut spending in both travel (~70% fall) and luxury brands and products (~45% fall) while daily essentials expect a 31% gain. This category take-off curve is similar for other developed nations including the US and UK, while China shows a very different pattern: consumers in China predict they will continue to spend as usual on most of the categories that we tested.
Ethnographic research conducted by BCG Platinion illustrates this retreat to the simpler life further with consumers using the time returned from commuting to pursue creative interests: baking bread, growing vegetables and nurturing gardens, and home maintenance. Our Consumer Sentiment study reveals that 74% of consumers who have cut down on eating-out are cooking meals at home, and one-third of Australians are taking up DIY home repairs.
Digital technology use has shown a step change in purchase behaviour with the percentage of consumers who have purchased through digital channels growing from 39% to 76% in the last four years. In the last three months, the number of new digital purchasers increased by a further 3 percentage points as more Baby Boomers (aged 52-66 years) and Silvers (aged 66+ years) came online for the first time. Baby Boomers and Silvers now make up 34% of digital purchasers compared to 25% in 2016.
Even more interesting is the increase in the number of categories purchased online. One in five Australians bought at least one new category online in the last four weeks alone, and the average number of new categories purchased by Millennials and Gen Z segments in the past four weeks was 3.9 compared with 3.2 for Gen-X and 1.9 for the Baby Boomer and Silver segment combined (refer Exhibit 4).
The top 12 categories purchased online for the first time across all age groups include education, preventative health care, takeaway food and medical procedures. Other categories purchased for the first time online varied by generation: Millennials and Gen-Z bought insurance, medical procedures, home renovation products, personal care and pet care products; Gen-X bought children’s clothing, skin care, fashion jewellery and athletic clothing; and Baby Boomers and Silvers bought shoes and footwear, women’s clothing, plants and gardening supplies and fresh fruit and vegetables for the very first time online (refer Exhibit 5).
Australian companies are realising the need to capitalise on this shift in digital purchase behaviour. Accent Group (owners of Hype DC and Platypus retail chains) have announced that they will shut stores after a big leap in online sales, jumping from $250k a day in early March to as much $1.1 million a day during last two weeks of April. In addition, Priceline Pharmacy has rapidly deployed its Click & Collect solution, allowing effective distribution of online orders to customers. Priceline is now exploring options for an automated distribution centre in Sydney to further expedite the online process for consumers.
The COVID-19 crisis has provided a catalyst for some more fundamental changes in what consumers value, and which brands they most trust.
Our research showed an increased appetite for Australian brands, with 37% of consumers saying they would purchase Australian brands, a 56% increase from 2016. This is despite the premium price perception of Australian brands relative to non-Australian brands. The trade-up for Australian brands will be largely seen in fresh food, packaged food and medicines (refer Exhibit 6).
One of the most interesting aspects of the past four weeks has been the bounce in trust for those institutions seen as essential and at the front line of this crisis. This is best demonstrated by the following chart (refer Exhibit 7).
So far, we have explored what consumer behaviours are changing as a result of COVID-19. The next question is, do we expect these behaviours to persist?With respect to what consumers will purchase, approximately 45% believe that they will reduce their spending on luxury brands and products, post-COVID-19 and ~70% of consumers are expected to cut down spending on travel. Most other categories are expected to return to normal levels of spend post COVID-19 (refer Exhibit 3).
It is also interesting to look at how consumers will purchase post COVID-19, and, in particular, whether their migration online will continue. A third of Australian consumers say that they will increase spend on digital purchases post COVID-19, including 34% of Millennials and Gen-Z, and 31% of Baby Boomers and Silvers. Exhibit 8 illustrates which categories will be most affected by continued change in this behaviour. Consumers will increase online spending on travel, savings, insurance, essentials, appliances and essentials.
While it is still early to judge how persistent these behaviour changes will be, it is useful to look to markets like China who are coming out the other side of this crisis, and to past experiences such as SARS as a reference point. Chinese electronics e-tailer JD.com, which rapidly pivoted from its bricks and mortar roots during SARS to become the country’s largest retailer, is a leading example for this pandemic.
Right now in Australia, there’s a long list of ‘new normal’ activities in life under lockdown with the young discovering old ways to connect and the old connecting with the new. COVID-19 has already changed the spectrum of digital users from niche segments to all Australians which will, in turn, create opportunities to offer customers new experiences in the comfort of the home during one of the most unsettling periods in our history.
For example, our Consumer Sentiment report showed that one-third of Australians have used the feature of advanced video calling/chatting in the past month. Consumers are embracing the whole spectrum of digital offerings to live a ‘virtual life’. A happy, first-time digital user we interviewed illustrates this, “I downloaded Pillow to track my sleep. I downloaded Noon to buy things online. I started using Instagram and the Snapchat and Fishbowl apps. Netflix consumption has gone up.”
Companies that can leverage technologies—by meeting changing consumer demands online, enabling seamless interactions through direct-to-consumer offerings and enhancing consumer experience with the human interaction where it is needed most—have the opportunity to earn loyalty well after consumers’ concerns subside.
The next edition of The Australian Consumer Sentiment Snapshot will look at the trend in how consumer attitudes, preferences and behaviour change relative to our COVID-19 baseline. We will assess whether consumers start to become more optimistic about their purchase behaviour as COVID-19 restrictions begin to ease, and see whether there is a continued uplift in digital purchase behaviours, or whether consumers return to old habits in some categories. We will also do a deep dive on specific brands when it comes to trust.
The 2020 Consumer Sentiment Study: COVID-19 edition interviewed a sample of over 1000 respondents, representative of the Australian population over 18 years in age. Australian results were compared with results from eight other countries in the same time period (this wave April 20-24, 2020). The study will be repeated every four weeks so that trends can be observed over time.
BCG teamed with Dynata, the world’s largest first-party data and insights platform with a reach that encompasses 62 million consumers and business professionals globally.
We would also like to acknowledge Elisse Zarimis, Robert Liu, Rehaab Raza (BCG Platinion) and the BCG Marketing and Editorial teams for their significant contribution.