COVID-19 'fundamentally changing the way we shop'

The impact of the COVID-19 crisis on retail will be the most significant event on the sector in living memory, according to EY.

A new report from the consultancy has tracked changing consumer behaviours, identifying four distinct segments have emerged since the beginning of the crisis: 'cut deep', 'stay calm, carry on, 'Save and stockpile' and 'hibernate and spend'.

Consumers that fall into the 'cut deep' segment (26 per cent) are spending less across all expense categories, as the pandemic impacts employment; while others representing the 'stay calm, carry on' category are continuing to spend as normal (26 per cent). Most consumers (38 per cent) represent the 'save and stockpile' segment, indicating that they feel pessimistic about the future, while consumers that fall into the 'hibernate and spend' segment (10 per cent) are spending more across the board.

EY surveyed of almost 1,400 respondents, finding that 42 per cent of UK consumers believe that the way they shop will fundamentally change as a result of the COVID-19 outbreak.

When it comes to brands and products, 26 per cent of respondents indicated that they would pay more for local products, 25 per cent for trusted brands and 24 per cent for ethical products. The study also showed that in future, 57 per cent in UK are more likely to purchase from companies that are actively supporting the community. Nearly two-thirds (63 per cent) were more likely to buy from companies that are taking measures to help fight the outbreak.

Julie Carlyle, EY's UK and Ireland head of retail, said: "Companies urgently need to anticipate what kind of consumer is emerging and what that means for their business, so they can make decisions that drive growth during and after the current crisis.”

Digging into the segments, EY explained that the cut deep consumers were mainly more than 45 years old and have seen the biggest impact on their employment status. Almost a quarter have seen their jobs suspended - either temporarily or permanently - with 68 per cent of them are shopping less frequently, while 57 per cent are only buying essentials.

The stay calm, carry on segment - of which 47 per cent are aged 25 to 54 - do not feel directly impacted by the pandemic and are not changing their spending habits. Only 10 per cent have had their employment suspended or terminated due to COVID-19, while 39 per cent have seen grocery spend unchanged and less than half (48 per cent) are focusing on essentials.

For save and stockpile respondents - aged 34 to 54 - 18 per cent have had work suspended or are unemployed due to COVID-19. More than half (55 per cent) have changed the way they shop significantly and more than a third (35 per cent) are pessimistic about how they will shop in the future.

Finally, the hibernate and spend - primarily aged 18-44 - are at 15 per cent having seen work suspended or terminated due to COVID-19, so are most concerned about the impact of the pandemic. This segment is ordering more online (39 per cent), with 55 per cent spending more on alcoholic beverages, 64 per cent spending more on frozen food and 53 per cent on big ticket items.

The survey shows that UK consumers currently have a pessimistic outlook, with almost two thirds (65 per cent) of the UK expecting a global recession post-crisis and over half (53 per cent) believing that financial stability is years away.

Silvia Rindone, partner in consumer product and retail at EY, commented: “When restrictions start to be eased, companies will need to adjust their business strategy and revisit their cost and operating model to deal with increasingly price sensitive and cautious consumers.

"Looking beyond the immediate effects of COVID-19, few consumers expect to revert back to pre-crisis behaviours any time soon," she added.

EY predicted that the four segments identified could morph into five very different ones as the crisis abates. For example, the index currently suggests that over time, most consumers in the save and stockpile segment will migrate to two new segments: 'remain frugal' and 'cautiously extravagant'.

The report listed the potential new consumer segments as:

• Keep cutting: Predominantly older population (60 per cent are 45 years old or older). Currently, spending less than before the crisis, (71 per cent purchase only essential items) and expect to cut more, particularly on discretionary items. They are spending slightly more on food, and health and personal care products.

• Stay frugal: Majority (69 per cent) are in the middle-income segment and are in the middle age category (67 per cent are between 25 and 65 years old). Price has become more important for 42 per cent and luxury has become less important for 58 per cent.

• Get to normal: 60 per cent are 45 years or older and 45 per cent are continuing with employment without interruption. 42 per cent are not willing to pay a premium for anything; the highest among all segments.

• Cautiously extravagant: 64 per cent are in middle income segment. 64 to 72 per cent would more likely purchase goods from a company who cares for their staff, takes measure to fight the outbreak, and supports the community - higher than other segments.

• Back with a bang: Predominantly younger (76 per cent are below the age of 45) and in work, with 63 per cent employed full time. Half are spending more on groceries, 56 per cent are ordering more using food delivery services and 44 per cent are purchasing more online – higher than all other segments.

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