A recent Morningstar article discusses how the coronavirus pandemic has reshaped consumer behavior, and what the impact will be for companies in the tech, hospitality and e-commerce industries.
“With drug makers around the globe racing to produce a vaccine, we think that the long-term impact on economic growth will be minimal,” the article says, but adds that the pandemic has “accelerated the adopting of consumer trends that were already beginning to emerge pre-pandemic—several of which have the potential to reshape entire industries if they become permanent.”
The article identifies shifting trends in the following three areas and their potential to reshape the post pandemic economy:
- Workplace patterns. Employees’ success with the shift to work-from-home has varied depending on technology access, type of work, and whether employees had children at home. “Once the pandemic subsides,” the article reports, “we expect the vast number of employees to revert to an office environment in the short term” but adds, “we think the pandemic will ultimately accelerate the growth of time spent working remotely.” This will be concentrated in the financial, business services and tech industries, while service, transportation, hospitality, manufacturing, and construction jobs will continue to be on-site.
- Consumer spending habits on travel and dining. In the short term, Morningstar expects that leisure travel will “rebound more quickly than business, car-driven trips will overshadow flights, and local travel will outperform international.” In the long-term, however, they expect travel and its related sectors will “rebound to pre-pandemic levels and return to normalized trends” by 2023.
Regarding the dining industry, the article predicts that digital take-out ordering platforms such as OpenTable and DoorDash will continue to see heightened demand after the pandemic. For now, it expects dine-in restaurants will continue to struggle and will need to bolster online platforms and “boost digital engagement to reflect the new ways that customers are interacting with restaurants.” On the whole, the article says, “we expect that casual-dining and fine-dining operators without to-go platforms, strong balance sheets, or access to temporary funding will struggle to survive, resulting in as many as 15% of overall U.S. restaurant locations at risk of permanent closure—most of which will be concentrated among smaller independents,” the article notes. As smaller players exit, it asserts, “we see meaningful market share gains for many of the large incumbent players,” a trend which the article notes “has not been lost on investors.”
- Retail and e-commerce trends. “Like remote working, increased digital consumer spending also contributed to the surging valuations in the technology sector as a whole,” the article reports, adding that the largest household names (Alphabet, Amazon, Apple, Facebook, Microsoft and Facebook) rose an average of 42% this year. Retailers with physical stores, it argues, will need to develop a competitive online presence as well as the ability to provide a combination of “service, convenience, and experience” for which customers will be willing to pay a premium. “Those retailers that sell nondifferentiated products, have poor online execution, and are unable to provide a valuable in-store experience will struggle to survive in this new environment.”
The article concludes that while the long-run impact of the pandemic on total U.S. gross domestic product is expected to be “minimal,” this crisis has led to consumer behavioral trends that will “have significant impact on particular sectors.” In many cases, it argues, the market has already priced in those changes, but in other cases it may have overestimated long-term implications: “While some stock prices have soared above our estimates of intrinsic value, we do continue to see value among others in which the markets remain overly pessimistic.”