Humans are creatures of habit; it’s simply the way our brains work. So we can all make plans to resume doing things the pandemic put on hold but, in reality, we have a lot of new habits that may be part of the new normal. That presents opportunity for consumer companies.
The retail business is of the most obvious places impacted by coronavirus, with shuttered malls and long lines at the supermarket. Yet As Barron’s has noted before, Covid-19 hasn’t changed retail so much as sped up trends that were already in place, from online shopping to declines in mall traffic. The reality is that in many ways the pandemic has made shopping and dining more convenient, as companies offer click-and-collect services. And now that consumers are more accustomed to that convenience, they’re going to want it to stick around.
“Trends that were happening before the coronavirus are just accelerating, like online ordering and curbside pickup, and people are just going to get accustomed to it,” says Randy Hare, director of research at Huntington National Bank. “You might not have tried these things before, when you weren’t afraid to go in the store, but now that you see how easy it is, you’ll want to keep doing it whenever you can.”
That narrative pushes back at the idea that Amazon.com (AMZN) is the only retail winner just because it dominates the e-commerce conversation. Delivery windows on some Prime products have been pushed out, while rivals like Walmart (WMT) and Target (TGT) can use their huge store base as distribution centers, shipping things quickly and offering click-and-collect services in just a few hours.
The proof is in the earnings numbers: Target’s revenues jumped 11.3% year-over-year last quarter, while Walmart’s sales rose 9.5%. And as Barron’s has argued before, these big players will likely continue to gobble up market share, helped by their omnichannel capabilities.
Target and Walmart have another advantage in that they’re muscled into the grocery space in recent years, and this is another area where convenience-based coronavirus consumer habits may change.
Consumers were long reluctant to food shop online, because who isn’t picky about their produce? Yet virus fears have led to huge gains for online grocery ordering, for delivery and pickup. This may be one area where digital penetration remains low: JPMorgan’s Christopher Horvers writes that people still show a clear preference to choose their own fresh foods, and that online sales will likely only be around 15% of the category longer term. Yet, that’s still a threefold increase from the roughly 5% seen last year.
Moreover, whether it’s in-store or online, people are buying more packaged food to cook with, and that’s good news for some old stalwarts. Jefferies’ Rob Dickerson recently polled consumers and found that nearly half “plan to eat at restaurants less post-Covid, while the majority stated that they are cooking at home more now and ordering delivery/takeout less versus two weeks ago.” That was part of his bullish thesis on Campbell Soup (CPB) and Conagra Brands (CAG), which Barron’s has also recommended for their sales growth.
Making your own food isn’t as convenient as eating out, but it is an easy way to fight the “Covid 15,” save money, and entertain yourself at home. Additionally, newly minted home chefs may be more reluctant to dine out for a number of reasons, from budget constraints to worries about Covid spread.
That doesn’t mean they’ll never want a break from their own cooking though—good news for delivery firms like Uber Technologies’ (UBER) Uber Eats, but also restaurants that continue curbside pickup. The vast majority of Darden Restaurants’ (DRI) locations are open, but the company said many are using a hybrid model that also offers takeout. That caters to people who are leery about public spaces, while offsetting some revenues lost to mandatory lower capacity.
Yet perhaps nowhere has the power of habit and convenience turned against a company more than Starbucks (SBUX). With people working remotely, they’re no longer conditioned to stop for a coffee on their way into the office.
“This is particularly difficult to say about Starbucks, but the “third place” habit [after home and office] has unfortunately been broken for many,” J.P. Morgan’s John Ivankoe recently opined. That was on full display recently, when Starbucks cut its full-year outlook: People won’t go out of their way, even for a legal addictive substance. (The company is pivoting to smaller pickup oriented locations and stores with drive-throughs. Breakfast delivery orders are up, which could help ease the pressure.)
Ultimately, consumer companies of all stripes survive by giving people what they need. In recent years convenience has been king, and the coronavirus has led to a proliferation of new options for people to get things when and how they want. Expect demand for these services to remain even as the danger fades.
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