Catalyst to change: 5 major changes expected in the Singapore consumer market post-COVID-19

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I think we are all in agreement that the COVID-19 pandemic is a crisis like no other. The lockdown, the confinement at home, and the continual tracing are things that most people today have never experienced.
The major issue now facing brands is how consumer behaviour has been changed for the long term.
In partnership with Dynata (a leading online consumer panel company), BDRC Asia undertook a survey of consumers in Singapore to assess the ways in which lockdown has changed consumer behaviour, but more importantly the economic impact on households and how this will result in enduring changes to consumer spend.
The lockdown was a ‘catalyst to change’ and we have summed up the five changes to consumer behaviour that are most likely to endure, and their implications for brands.

1. The ‘trade down’

Job losses and reduction in income have forced many consumers to reduce their household spending. Even those not yet impacted by the crisis will reduce their expenditure to plan for more difficult times ahead, which they claim will last at least to the end of 2020.

But consumers will keep spending, and today they have more choice than ever in terms of what they can buy and how products and services are delivered to them.

The reduction in household spending has three main implications. Firstly, there will be a ‘trade down’ on brands. For everyday purchases, consumers will buy cheaper items and brands within supermarkets and they might switch to lower-cost supermarkets or even wet markets.

Eating out is very common in Singapore, which is served by a wide choice of informal eating outlets (IEOs) that became food delivery businesses during the lockdown. But 42% of consumers state that they will trade down to cheaper IEOs to reduce their costs.

Secondly, consumers have benefited from having had more time to review their finances and household budgets. During the lockdown, households spent more on air-conditioning as they were at home and not in their offices. But a deregulated power market has brought competition to this sector, and 31% state that they will find ways to reduce their energy bills or overall energy consumption in the longer term.

Thirdly, there will be a redefining of ‘luxury’ and ‘luxury brands’. 39% state that they will avoid or spend less on luxury brands for the next six months at least. While some of the highest-end brands will be less affected, the ‘mass affluent’ market will be hit the hardest, and brands will need to cater to a ‘subluxury’ segment, sitting between economy and premium.

2. A new environment for retail

With most retail stores having closed during the lockdown, people have been buying more online and using more home delivery services. 54% stated that they used online shopping more than before the lockdown, including 4% for the first time. This change prompted 58% to shop at new retailers, and among these 44% used dedicated online retailers with no physical shops.

While many people are looking forward to going back to shopping in stores, 30% state that they will continue to shop more online than they did before the lockdown. This will shift market shares towards online retailers, and traditional retailers will have to work harder to get people back into the stores and spending there.

3. A challenge for F&B

The closure of IEOs during the lockdown shifted more of their business to takeaways and home delivery. There were boosts in home delivery business at new times of day, in particular at lunchtime, which grew from 30% to 56%. This is likely to be sustained for the longer term as people continue to work from home; it could become a new norm for the future workplace.

The closure of IEOs has also resulted in people cooking more at home. During the lockdown, 40% learnt to cook or found new recipes, reducing their ‘dependency’ on IEOs and creating an uptick in grocery sales in supermarkets.

Even when IEOs fully open, 56% claim that they will continue to cook more at home, partly to save money. Clearly the convenience and ease with which people can use IEOs will tempt many to go back to their old habits, and of course people enjoy eating out. But people will trade down to lower-cost IEOs and there will be higher expectations from diners regarding cleanliness, hygiene, food safety, and the general dining environment; at the same time, they will seek greater value for money. In particular, it could be fine dining or more premium IEOs that will have the toughest times ahead as households will have lower budgets.

4. Entertainment shift

The lockdown closed many common forms of out-of-home entertainment and activities, including bars, clubs, cinemas, and gyms. This resulted in higher consumption of media in the home (75%): 49% started using a new video streaming service and a net 7% of households increased the number of channels in their cable TV subscription.

The lockdown has encouraged more social interaction between friends and family (59%), and in the longer term 16% state they will socialise more at home rather than going out. 10% will use gyms less and exercise more at home or in parks.

5. A stunted travel sector

Before the lockdown, Singaporeans loved to travel, benefiting from extensive flight connections served by many low-cost carriers, and a strong Singapore dollar.

But even when the travel market opens up, 46% of Singaporeans will be cutting back on travel, and much of this is motivated by economic rather than health concerns. 33% state that they will take less frequent holidays, and 20% will take cheaper holidays by choosing lower-cost hotels and cheaper flights to more local destinations. 17% will think of staycations in Singapore rather than overseas travel, opening up a new local market to hoteliers in Singapore, who will not benefit from as many incoming travelers.

In conclusion, we can expect a period of substantially reduced household expenditure, likely to last well into 2021 (only 50% of consumers say they expect a return to ‘normality’ this year). But consumers and businesses in Singapore are great at adapting to new circumstances, and while ‘normality’ will mean lower budgets, competition and consumer choice will alleviate pressure on households. Businesses will respond by reinventing themselves into leaner and more efficient enterprises, leveraging technology more – this is covered in our next report.

 

By Piers Lee (LinkedIn), Managing Director, BDRC Asia