Using data to understand the customer of the future
As we start to break through what can possibly be described as “the longest winter”, forever to be known as the COVID-19 year, we are left to realign our lives and find some sort of rhythm back with what was left in the wake of the storm.
2020 has forcefully disrupted many consumers, and as a result traditional consumer-facing businesses in South Africa are left having to re-assess and re-configure the road map of their business models and investment plans to the changed landscape that is facing them economically and structurally.
Now, more than ever before, any data available that could potentially shed some light on the scene are being explored and analysed to provide much needed insights into how the road ahead could potentially unfold.
Absa is a transaction enabler to retailers across the spectrum and our card-acquiring services give us a unique insight into the spending habits of consumers at these retailers. This data, coupled with our innovative _Pocket Flow _tool, mean that we can not only look at what has happened in the past, but can also start to guide clients around where certain industries are headed.
Before we take a deep-dive into some of the consumer card spending data, let’s look at a couple of practical examples of how consumer behaviour has been influenced by the pandemic, and how retailers potentially have to consider adapting their business models as a result.
In the clothing category for instance, with many South Africans now forced to adopt the “Work from Home” trend, we are spending less time worrying about our professional work-wear. Suits are out and functional clothing is in. Yet how many retailers have the agility in their supply chain to embrace this new trend, particularly if the lockdown and work-from-home trends continue to develop? A retailer like ZARA has long been recognised for its ability to use data analytics in fashion to adjust its supply chains – in contrast many of its peers have faced declining sales, simply because they are not able to adjust in real-time to what is happening in the market.
Another consideration is the rise of e-commerce. Retailers who had invested heavily in this element of their business pre-COVID, were natural winners. JSE-listed companies are releasing their financial results and organisations such as Mr Price have reported that they saw up to 75% increase in online sales post lockdown – consumers are no longer heading into big retail stores, but are increasingly happy to trust online systems.
Pre-COVID lockdowns, technology was already disrupting traditional retailers – the pandemic has simply accelerated many of these trends.
Moving on to what we see when we look at the data from our acquiring services, we notice some interesting insights starting to emerge. We recognise that this view is based on Absa’s share of this particular market, which is sizable to trust as a sample, but we have also tested with our retailers and find clear correlations to what the data is showing us.
In March, just as the lockdown was about to be implemented, there was a 7% increase in consumer spending over March 2019. Much of this can be attributed to panic buying as consumers stocked up on groceries and non-perishable food items in fear of the looming lock down.
Interestingly, consumers also stocked up on funeral insurance, medical aid and life insurance policies. The funeral services category was in fact the only tracked category to rise while under Level 5, whilst consumer spending dropped 38% overall.
With level 4 lockdown starting and continuing for the month of May, we witnessed a lesser overall decline in spending of 11% comparing the same month in the previous year, with decrease in food and clothing category 7% for this period.
In June we entered into Level 3 and spending overall increased by 14% when compared to June 2019. Many retailers reported higher than expected sales. We can assume that most households had excess cash due to the lack of spending on categories such as travel and entertainment, and pent up demand from previous months’ restricted trading conditions. Increased SASSA payments and a possibility of retrenchment packages probably also attributed to an increase in household cash.
With level 3 lockdown continuing during the month of July, we saw spending for the month increased with 6% comparing to 2019. Grocery and supermarkets showed a 6% increase, despite restricted trading of alcohol and cigarettes. Clothing stores were more severely impacted with declines in some categories of around 26%, whilst restaurants traded 59% below comparative period.
However, a 147% increase in fast food sales was recorded, reflecting the rise of the “Dark Kitchen” trend. This trend further establishes the consumer’s move to digital channels and the uptake of online food delivery services, estimated to be worth over $110bn globally in 2020.
Earlier we touched on the “Work from Home” trend which evidenced increased sales in the home and garden category of 28% for the year up to July 2020. Some of the other developments of interest include:
An increased focus on healthy lifestyle/living;
The world of education is changing with home-schooling and digital classrooms;
A focus on the simplifying and personalising of individual lifestyles; and
Re-envisaged travel, both local and international.
For retailers, this consumer behaviour has quite some significant implications to be considered in the relevant categories, but also across categories, recognising the interdependency of trends being established.
Although the year still looks fairly positive with a 1.5% increase in overall spending on a comparative year-on-year spending, consumer financial health is finely balanced and much will depend on how quickly the economy can get back on its feet. Discretionary spending, especially in mid to upper LSMs, is likely to continue to stay depressed with slightly more resilience in the lower LSM clothing category. Food retailers should hold their own, but it is expected that investment will rather go to e-commerce and omni-channel solutions than store expansions.
Real-time data analytics is going to be key for the retailer of the future. COVID-19 has forced retailers to adopt digital channels far more aggressively and organisations that fail to adapt will find themselves facing a challenging future. As a bank, Absa is committed to embracing technology and empowering our clients to make smarter business decisions and we look forward to sharing future consumer sector insights with you.
Written by Isana Cordier, Sector Head: Consumer Goods and Services. Isana joins Bruce Whitfield for an Absa Insights online event sharing insights on the future of the Consumer Goods and Services sector in Africa. Click here to register.
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