Demands for Change and How Brands are Stepping Up
In recent days, corporations and firms across sectors have faced enormous public pressure, criticism, and louder calls for accountability as the fallout from the George Floyd protests and America’s reckoning with racial inequality only grows stronger. From allegations of pay disparity to personal accounts of cultural and systemic discrimination, more reports are coming to light against businesses big and small, making the road to recovery (post-COVID, economic shutdown, and after weeks of historic civil unrest) that much more rocky.
I can’t recall a time when as many economic and cultural shifts have occurred in such rapid succession. And as such, it’s more important than ever to understand how the public is feeling and how those attitudes affect spending habits.
In today’s briefing, we discuss these topics and much more.
Dining & QSR
Hospitality and Travel
So, let’s jump in.
Perhaps one of the most unusual facts concerning our current climate is that we are still in the midst of a global pandemic. With coronavirus cases passing 2M in the US, over a dozen states are reporting a surge in cases.
Source: Axios COVID Tracking Project
Despite all 50 states (and most European countries) technically being open for business, many are wondering: When will it be safe again, and when will consumers feel safe again? To answer this, Morning Consult released its latest analysis of consumer comfort levels with the world’s favorite pastimes amid the ongoing threat of COVID-19.
According to the data, “as of early June, about a quarter of US adults on average say they feel safe engaging in a range of leisure activities, a share that increased from late May.” See for yourself.
Source: Morning Consult
Of these activities, going out to eat, going shopping, or going on a vacation are reported as those deemed safest by a majority of people. Traveling abroad and going to a concert are on the low end of the spectrum.
It’s interesting to see how comfortability differs across varying populations.
Source: Morning Consult
As the weather warms up and states continue their phased reopenings, comfort levels will continue to increase as people are no doubt eager to return to their version of normal.
That postCOVID normal will undoubtedly include new habits and positive lifestyle changes, too. Some of which were highlighted in a recent reader survey by Vox. The most popular responses include reducing consumerism, slowing down and putting less pressure on ourselves, prioritizing family and friends, and ethical action and activism in our highly interconnected world.
In Edelman’s Brands and Racial Justice in America survey, researchers found that the majority of consumers “want—and expect— brands to step up and play a central role in addressing systemic racism.” See the fact sheet, full survey results, and AdAge coverage.
Amid prepping for store reopenings, beauty retailers are under just as much scrutiny as brands in other sectors, being asked on social media to show their commitment to black-owned brands and increasing black-owned brand representation, particularly to 15%. The 15% Pledge began earlier this month on Instagram, coinciding with the #pullupforchange campaign to encourage beauty companies to share internal staff demographics. Sephora is the first big beauty retailer to join the initiative.
According to Glossy, “few retailers have risen to the 15% opportunity, while several have shared employee demographic figures,” but the sentiment is undeniable: corporate lip service “has become a cardinal sin in this iteration of the Black Lives Matter movement.” In other words, companies face a mounting yet delicate situation as they try to open stores, restore their business operations, and keep employees safe, while consumers seek insight into internal demographics along with quantifiable promises that can improve racial injustice.
CPG brands continue to be a bright spot in commerce as companies benefit from “pandemic pantry.” Nowhere are strong sales more evident than in the recent financial reports and quarterly earnings of Campbell Soup Company, J.M. Smucker Company, and B&G Foods.
One particular call out from Retail Leader being, “Campbell’s said sales increased 15% to $2.24B during the company’s [latest] quarter and were driven in large part by a 35% increase in soup sales, ready-to-eat, condensed and broth. Soup products are included in Campbell’s meals and beverage division, which saw a 20% sales increase and also includes brands such as Prego, V8, Pace, and Swanson.”
Related: The latest on Tyson Foods and the chicken price-fixing scandal
As families head into a summer without summer camps, expect major shopping hauls across food and beverage divisions. Amidst the increased consumer demand for grocery shopping, customers are also facing some of the fastest-rising food prices since 1974, according to the US Labor Department. These price hikes are reportedly the result of pandemic-induced supply constraints and increased costs in labor and transportation. From The Wall Street Journal, “Market-research firm Nielsen said food prices rose 5.8% in the 13 weeks from March 1st to May 30th compared with the year-ago period.” Retailers are looking to restore promotions and bundle products in family packs to help offset the price jumps.
And speaking of shopping hauls, Walmart reportedly lost its spot as leading online grocer to Instacart in the last few weeks, according to Second Measure. One advantage of Instacart’s business model is, of course, its many partners and expansive reach. Since it sells goods from Albertsons, Costco, Kroger, and countless other retailers, Instacart represents thousands of stores’ inventory rather than Walmart’s single selection (albeit massive). The average order size on Instacart rose by 35% in the past two months, with customers buying personal hygiene products, cleaning supplies, and other nontraditional grocery items in addition to their pantry staples.
Don’t forget: eMarketer predicts that we’ll see 7.4M new digital buyers (online shoppers) this year, two-thirds of which will be 45 or older as older consumers become more comfortable with online shopping.
From The Information, “While Amazon dominates online retail as a whole, it remains a [smaller] player in grocery shopping over the internet. After initially seeing a spike in grocery orders during the pandemic, the company’s share of the market dipped to about 8%, according to Second Measure, as the company struggled to handle increasing orders. That put Amazon in fourth place for weekly sales at the end of April, while Target-owned Shipt was in third place, as the chart shows.”
Similarly, online pet retailer Chewy.com sees record online sales, reporting first-quarter sales of $1.62B, a 46% YOY increase. In addition, the online pet retailer added 1.6M net active customers, more than double the average quarterly pace for 2019.
Shoppers are looking for the best deal anywhere they can find it. According to an analysis by Profitero, “brand switching” on Amazon is at an all-time high as shoppers look to fill their needs rather than sticking with the brands they initially searched for. For example, according to the study shared in WSJ’s CMOToday, the act of “brand switching” for dry pasta searches went from 30% of the time in January to 53% of the time in April.
From Morning Consult, “Many restaurants pivoted to carry-out service after state regulations restricted dine-in options, but the latest polling shows that consumers might be starting to feel more comfortable returning to dining rooms as opposed to ordering takeout: thirty-five percent of the public is currently comfortable going out to eat, up from 31 percent who said the same May 26th through May 29th. (A previous analysis also showed that consumers are hungry to dine out again.)”
This development likely aided in the restaurant industry gaining 1.4M jobs in May as reopenings accelerate transformations across the dining experience. Starbucks revealed this month in a securities filing that it will close 400 company-operated stores over the next 18 months as a result of its portfolio repositioning. Expect more drive-thrus, pick-up stores, and curbside-enabled renovations in the coming months.
Demand for delivery apps won’t be going away anytime soon, as evidenced by Grubhub’s plan to merge with European food delivery company Just Eat Takeaway.com, a deal announced last night. Grubhub was originally thought to be in talks with Uber. However, its merger with Just Eat is reportedly “unlikely to garner as much regulatory attention as its possible combination with Uber, which would have combined two of the three largest food delivery companies in the US.”
Advertisers are patiently waiting for the NBA to release its TV schedule for games after the league resumes play on July 31st, exclusively in Orlando. As of now, officials predict five to six games will be played per day in order to finish the regular season on time before beginning the playoffs. Sports fans are eager for live sports to return, but advertisers are concerned that a “glut of games” could lead to low viewership amid an overwhelming live TV experience.
Additionally, there’s cause for concern as the NBA season restarts, and many other sporting events were rescheduled for the fall, all packed alongside the presumed NFL and college football season kickoffs, a crunch that’s never really happened before. The MLB has been delayed (again) due to salary negotiations as a result of a shorter season.
“Entertainment giants are reassessing the content they offer on-air or on their streaming services in the wake of nationwide protests for racial justice and against police brutality.” HBO pulled “Gone with the Wind” from its streaming service, and Paramount Network canceled long-running TV show “Cops.”
Coming up: Newfronts 2020, though big brands such as Procter & Gamble and Bank of America are calling for a seasonal time-shift from fall to spring due to the coronavirus pandemic and economic slowdown.
Also important, AMC Theaters says it’s reopening 97% of its theaters in the US and Britain by mid-July with new safety guidelines after reporting almost $2B in losses in the last quarter. By the looks of it, states have determined varying safety requirements with some limiting theater capacity to 25% while others suggest checkerboard style seating with groups positioned at least six feet apart. If Morning Consult is right in their analysis, even when theaters reopen, there could only be 25% of people who are even comfortable attending come showtime.
Source: Morning Consult
From The New York Times, “The Federal Reserve on Wednesday said it would leave interest rates near zero for the foreseeable future as the central bank projected high unemployment for several years and a long slog back from the pandemic-induced recession.” Most of the officials project unemployment in the US would average between 9% and 10% during the final three months of the year, down from 13.3% in May but well above the 3.5% level of pre-pandemic February. The Federal Reserve officials also projected the economy would contract anywhere between 4% and 10% this year.
The latest: 1.5M Americans filed new unemployment claims last week.
As reported in the Morning Brew, “The OECD projected in its Economic Outlook report that inflation in advanced countries is likely to remain low in 2020 and 2021.” Unsurprisingly, US consumer prices declined in May for a third straight month as the pandemic and recession continue to depress demand. According to AdAge, the consumer price index fell 0.1% from the previous month after a 0.8% drop in April. April’s decline was the biggest since 2008, according to the US Labor Department’s latest figures.
In other news, fintech startup Klarna launched a rewards program for its customers, Amazon unveiled a small business credit line with Goldman Sachs, and Mastercard demonstrated its support for transgender and non-binary communities with its “True Name” initiative, enabling customers to put their chosen name on the front of their cards.
Las Vegas reopened last week as did several theme parks across the country as states continue their phased reopening schedules. Disneyland Resort has released proposals for a phased reopening starting next month, which couldn’t come soon enough as travel sites report a surge in demand. Earlier this week, Airbnb reported that it had more “US bookings between May 17th and June 3rd (which encompassed Memorial day on May 25th) than over that same time period a year earlier.”
According to CNN, “Airbnb CEO Brian Chesky said he’s noticed travelers are preferring to stick to drivable domestic destinations within 200 miles of their home,” as the patchwork of international travel restrictions make trips outside home countries a bit too difficult. Likewise, “American Airlines said it would increase its July schedule following a better-than-expected uptick in demand, particularly to Florida and mountain destinations in the West.” These signs signal many Americans are eager and ready to travel again, though those trips will likely be within the continental US. The global airline industry is forecast to lose $84B this year, with many hoping for a return to profitability coming in 2022 at the earliest.
In perhaps the biggest story of the week, Coresight Research reports that as many as 25k retail stores are expected to permanently close their doors this year with 55% to 60% of closures expected to occur in shopping malls. So far, in 2020, Coresight Research has tallied over four thousand planned closures for the year. Although all 50 US states have now reopened nonessential retail, total retail sales are still expected to fall more than 10% this year per eMarketer, with mall brands taking the biggest hit. One department store executive predicts a third of America’s malls will disappear by next year as in-store shopping demand continues to fall. Fortunately, Macy’s was able to secure $4.5B in financing in recent weeks, removing the iconic department store from bankruptcy watchlists.
In an updated report, eMarketer predicts US consumers will spend $709B on ecommerce in 2020, representing an increase of 18% while brick and mortar retail spending is expected to decrease 14% to $4.1T. This new reality explains why Simon Property Group scrapped its mega-merger with rival shopping mall operator Taubman Centers, a $3.6B deal. In total, worldwide retail sales are predicted to drop by 5.7% in 2020 as a result of the pandemic and economic slowdown.
As highlighted by Axios, Big Tech companies are facing a trifecta of issues — pandemic disruptions, government investigations, protests against racial inequality, and their responses to these issues largely align with the company’s life cycle. In new guidelines shared by the European Union, officials want Big Tech to submit monthly reports on how they’re handling misinformation around the coronavirus pandemic.
A bookmark-worthy refresher on Section 230: The legal foundation of social media
In other news, Amazon has banned police use of its face-recognition technology for a year, making it the latest tech giant (followed by IBM) to step back from law-enforcement use of systems that have faced criticism for racial bias. In the announcement, Amazon was hoping that “the one-year moratorium might give Congress enough time to implement appropriate rules” for the technology.
In its latest report, The Center for Exhibition Industry Research (CEIR) reported that “growth of the industry plunged during the first quarter of 2020 as 72.6% of events originally scheduled for the second half of March were canceled.”
In related news, Mobile Congress, the mobile technology industry’s trade body, is cutting about a fifth of its workforce after being forced to cancel the conferences that generated most of its revenue. Following the news, the group’s CMO affirmed many B2B and event marketers’ suspicions that “…it is at least a three-year recovery scenario,” which will affect marketing budgets in the following quarter and months to come for B2B and tech brands.
On the other side of the event spectrum, publishers are seeing phenomenal growth and success with virtual events. According to Digiday, “financial publishers especially have been early on the scene, building exclusive webinars and digital events to create investor communities.” It’s clear that the lockdown hasn’t delayed M&A activity or investments with Domino Data Lab being the latest to secure millions in new funding ($43M to be exact), just as the software maker signs deals with customers such as Cigna, Bayer, Standard & Poor’s, and Allstate.
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I’d go so far as to predict schisms across social issues, technology moderation, and economic volatility will dominate the summer season, requiring brands to remain agile and purpose-driven in their marketing messaging and reactivation strategies in the months to come.
Posted by Abby Long
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