By Tensing Rodrigues
The best bet in equity investment is obviously betting on what is selling; and that is exactly what we set out to discover today. What are the consumers buying as they get out after the COVID lockdown?
We shall not look for individual products that are selling, but for broad trends that are discernible in consumer spending. Then we can choose where we would like to invest based on which buying looks real and sustainable. We need to remember that this consumers’ return to the market is happening under two strong constraints: a dampened confidence about economic recovery and a significantly shrunk wallet.
The first trend which is visible cross the economies is a shift to value and essentials. This shift may not be very marked in India, on account of a relatively more optimistic outlook. According to a survey conducted by McKinsey in the beginning months of the pandemic, about 45 per cent of the Indians are fairly optimistic about an economic recovery. The figure was about 50 per cent for China, 25 per cent for US and minus 10 per cent for UK.
These numbers are likely to change as the public perception about the prospects of recovery change. Where the economy has been able to open and ramp up production, the optimism is bound to grow. The numbers of infected, morbid and dead may also have some dampening effect on the mood but recovery rates will pep it up. But shops opening, traffic back on the road and workplaces once again buzzing with employees have a greater impact on the optimism because that directly translates into purchasing power and primes the economic engine. A fresh lockdown, or a threat of one, can throw a spanner in the works.
A shift to value and essentials would mean being careful with spending in view of declining income and worsening prospects of future employment. So the tendency is to make the buck go long way and buying only what is essential. What this implies for equity investor is that the companies delivering value for money and those offering no frills, utilitarian products or services are likely to increase their market share.
The next trend that has been observed is a substantial increase in online shopping and home delivery. This had nothing to do with the economic downturn; it was the forced result of the lockdowns. Housebound, the consumers had no choice but to resort to online shopping; and now the habit seems to have caught up. Without the add-ons that came with walk-in shopping, the mall experience, shopping from the comfort of home sweet home seems a better alternative.
In India online shopping has registered a growth of more than 15 per cent for categories like snacks, alcohol, over-the-counter medicine, consumer electronics, books & magazines, household supplies, food takeout and groceries. Even after three months into the pandemic less than 60 per cent of the consumers in India felt comfortable to move outdoors for shopping for groceries or necessities. This however is bit of an underestimate as obviously the McKinsey sample was biased towards the higher income group consumers.
For consumers in the lower income group the trade-off between health and hunger is unavoidable. They are driven more by cost cutting than by convenience or health concerns. They are likely to move out earlier and in larger proportions.
Lockdowns have dented brand loyalty to some extent. When the usual brands were out of reach, the consumers tried new brands; value, availability and quality were the main factors that drove consumers to try a different brand. In India around 91 per cent have tried a new retailer or brand; the result was either a change or a weakening of loyalty.
The pandemic has resulted in heightened consumer awareness of and preference for more hygienic packaging of the products. As much as 51 per cent of the respondents in India ticked this as an important factor for buying decisions. This preference is likely to continue beyond the pandemic; hygienic packaging is likely to become one of the important selling propositions of a product.
This study offers a valuable insight into the consumer behavior post-COVID. This is, no doubt, an evolving scenario. As more economic activities open-up the trends will obviously change; but some changes are likely to linger on as habits. Keeping track of the changing scenario has to definitely be a part of our equity analysis.
The author is an investment consultant. Readers can send their comments and queries to [email protected]
