Publications
Partners
It's an understatement to say that the Covid-19 pandemic has changed everything. The way we work has changed, with work-from-home and virtual meetings becoming the norm. The way we socialise has changed, from a preference for outdoor venues to Zoom parties and weddings. Not least of all, the way we spend and transact has changed, from the things we buy to the manner in which we pay for them.
First, we can be grateful that consumers are spending at all. Without consumer spending, economies around the world would collapse – as they initially threatened to in early 2020, as the pandemic swept like wildfire across the globe, leaving governments, businesses and consumers scrambling to make sense of it all. Of course, people still need and want to buy things, so they continued to do so, but where possible, remotely. Grocery runs involved joining the queue for delivery, not checkout, as supermarkets frantically scaled up their delivery infrastructure. Eating out became eating in as every restaurant that could offer takeaway did so. Money once spent on movie, theatre and concert tickets went to Netflix and Showmax subscriptions.
Not all changes will necessarily stick
Some of these behaviours will remain; others may well not. Research by McKinsey found that the pandemic had interrupted some well-established consumer habits, accelerated others, and even reversed some. They examined six consumption shifts drawn from sectors covering three quarters of consumer spending: acceleration in e-grocery shopping; increase in virtual healthcare visits; increased spending on home improvements like gyms, gardens, and gaming equipment (known as "home nesting"); decrease in leisure air travel; severe decline in live entertainment and a switch to remote learning. Looking at the period 2020-24, analysts speculated that the first three behaviours would likely remain regardless of the status of the pandemic, while the latter three would likely revert to pre-pandemic levels.
This is a sentiment shared by Akash Dowra, head of client insights at Discovery Bank. "The shift to online spend has been stickier for some categories compared to others," says Dowra. "For instance, we see the shift to online spend for groceries has been sustained despite restrictions being lifted. Online spend on groceries is 10x higher now than pre-pandemic levels and is not showing signs of returning. In contrast, we see our clients returning to restaurants, where the percentage of takeaway/online purchases has reduced back to pre-Covid levels."
Dowra says that overall spending in South Africa has correlated closely with the various levels of lockdown, declining by more than 50% during level 4. "We have seen spend recover as lockdowns have eased. Our clients are spending at more or less their level pre-Covid, with the exception of international travel. What was interesting was the bounce back of restaurant spend to pre-Covid levels – clearly consumers are eager to return to an element of normalcy."
While food and grocery spend has remained relatively constant, spend on apparel and accessories has declined and remains sluggish, says Dowra. There have, however, been upticks in other areas, with South Africans following the home nesting trend, for example. "As people worked more from home, we saw increased spend on home improvements, with our clients spending on average 16% more on these than before Covid-19."
A new focus on financial services
It's not just goods that South African consumers have been spending on. At the beginning of this year, with consumers having adjusted perhaps to the prospect of living under the pandemic for the long term, Stats SA noted an increase in spending on insurance-related products.
"I think we have seen consumers appreciate the value of insurance," says Dowra. "While new business for health insurance, for example, has been strong, what has been really noticeable is the improvement in lapses. Clients value their insurance products and are less likely to reduce cover or stop protection when their budgets are affected."
Finally, of course, the way consumers bank has changed. Research by Ernst & Young turned up four key findings: that changes in banking behaviour might not be permanent; the pandemic has resulted in a 57% fall in the use of cash; ethical banking is more in the spotlight than ever; and customers desire more flexibility and security.
Permanent or not, while it's tempting to see the migration to digital services as primarily a Gen-Z or millennial trend, Dowra cites a study by McKinsey that notes this shift has occurred over all age groups, and not just younger consumers, with 72% of those over 65 preferring mobile/internet banking for their daily banking needs. "This is evident in our client onboarding – we see clients of all ages join the bank. Discovery Bank has benchmarked itself against global fintech players to ensure our onboarding journey is completely digital. You can join our bank within five minutes, add a virtual card and begin transacting without having to submit a single document, in addition with Discovery Bank’s innovative Live Assist feature, our clients can have our expert consultants guide them through their app virtually from the comfort of their homes."
This post was sponsored by Discovery Bank and produced by BrandStudio24.
