Before anyone had even heard the words Covid-19, economists were pondering the possibility of a recession in 2020. Fortune magazine reported last year: “Two-thirds of business economists in the U.S. expect a recession to begin by the end of 2020.” Their predictions were that the next recession would be severe. Of course, no-one could have known what lay in store. When it came, it was sudden, but its impact will be felt for a long time. The European Commission is projecting that Ireland's GDP will contract by 8.5% in 2020.
The main question economists are now speculating about is what shape the recession will take. The best-case scenario is a V-shaped recession where the economy contracts and then expands again quickly. All previous epidemics have resulted in V-shaped recessions which is a positive indicator, but given the current backdrop of other major international events such as Brexit and an American Presidential election, what type of recession we will have is unpredictable at this point in time.
Whatever awaits us, however, there are lessons we can take from our previous experience.
The beginning of the 2008 recession saw a wholehearted embrace of frugal living.
When the recession hit in 2008, it followed a period of exceptional wealth in Irish society. The recession was initially met with a grudging acceptance that we had “all partied”. As a country, we entered the recession in a significantly different frame of mind than today. The beginning of the 2008 recession saw a wholehearted embrace of frugal living. The car parks in Lidl and Aldi were full of top-marque cars and both brands experienced a surge as shoppers became increasingly savvy and relished the bragging-rights of a bargain find. Those changes have been permanent. Today, more than 50% of what we buy is own- brand. Aldi and Lidl, both previously considered outliers in the Irish retail space, now take almost €1 out of every €4 we spend on groceries.
The uncertainty of our surroundings also heralded a return to home comforts. Sales of baking supplies and comfort foods like custard skyrocketed. The trends in those items were shorter-lived as people soon realised that they couldn’t really cook and regained some confidence in spending on small luxuries.
Meanwhile, as spending in 2008 decreased due to necessity and caution, people’s savings grew as a reflexive reaction to recession. While this made sense, given that savings give people peace of mind that they can weather job losses, it also cools the economy and means that retail and other markets take longer to recover.
People aren’t just afraid of spending their money in shops, they’re afraid of being in shops.
This recession, however, may not follow the patterns we’re familiar with. According to U.S. economy expert Kimberly Amadeo, “Economic recessions are caused by a loss of business and consumer confidence… As confidence recedes, so does demand.” Consumer confidence is down, but confidence generally has also taken a major hit. People aren’t just afraid of spending their money in shops, they’re afraid of being in shops. As the new normal continues into autumn and we operate under the spectre of a second wave, confidence is likely to fall. The impact this will have can hopefully be offset by rallying calls to support local businesses and the release of pent-up demand, but as the months drag on, brands are going to have to take significant steps to tempt customers.
The types of businesses people support are also likely to change. Supporting local has been a growing movement, but nothing reinforced that message more to people than seeing shutters down while on their local walks. The importance of local towns will be underscored as people work from home and the locus of their world moves out from cities and towards their local communities. Where money is spent may be the biggest shift post-Covid as we see local businesses benefitting more than international chains. Christmas will be a difficult period for retailers as the throng of people in shops and pubs seems unthinkable now. This will provide the more creative people in the market with a chance to innovate and stand out.
Our Instagram feeds can only hope there won’t be a second wave of banana bread.
The recession is unlikely to spur the trend of a return to comfort foods again, given that our collective early forays into banana-bread and sourdough (adopted as a consequence of needing wholesome activities during lockdown) have made baking passé already. Our Instagram feeds can only hope there won’t be a second wave of banana bread.
The savings trend is already repeating itself. By the end of this year, households will have up to €15bn extra in their bank accounts through lack of opportunity to spend and concern for what lies ahead. Unlike in 2008, when the 15% fall in consumption matched the fall in household disposable income, this time the drop in spending will go well beyond any reduction in income. Even those left unemployed by the pandemic had incomes cushioned by State payments softening the impact to the economy. How this extra money will be spent remains to be seen. It is likely to cause some inflation in the property market as pent-up demand, exacerbated by being locked down with flatmates or parents, can finally be released. It may also benefit the hospitality sector as people choose to fly the flag and 3 staycation instead of flying abroad. However, it is likely to be summer 2021 at the earliest before we see how this will play out.
The outpouring of goodwill for Dr Tony Holohan is a stark example that there are people in Irish society who reflect the best in us.
Arguably the biggest change this time of pandemic and recession will hearld is a swell in support for Government and institutions. In 2008, many a planner, including this one, told you that faith in institutions had dropped to unprecedented lows. Abuse scandals, bailouts, and generalised anger at national decisions left people bereft of any authority figure they could cling to. Covid-19 has, in many ways, healed that wound. We may not trust the old institutions of the church and the banks but confidence in the Government, particularly in comparison to some international counterparts, renewed a sense of faith that we have a leadership which can be trusted. How this will continue is unknown but recent political opinion polls suggest a ground swell of support and confidence in the leadership that got Ireland through the worst of the pandemic. The faith in the people who staff our health system has also risen to give people new figures in society who can be respected and revered. The outpouring of goodwill for Dr Tony Holohan is a stark example that there are people in Irish society who reflect the best in us, and that we need to acknowledge them. Our pillars of community may have changed, but they are still there in Irish society, a fact that seemed unlikely in 2008.
What marketers learned from the 2008 recession still remains relevant and will hopefully guide us through the challenges of the next year, and while no two recession are exactly alike, there are some stalwarts that have reoccurred time and time again.
1Consumer tracking and insight is critical.
Things move fast in a recession. Consumer priorities change; the market is easily shaken. What seems upbeat today will be tone-deaf next week. Having a strategy that can track evolving consumption patterns and be fine-tuned is vital.
2Maintain marketing spend.
It doesn’t need to be at the same levels, but companies that continue to invest in brand and take a scalpel rather than a cleaver to their marketing budget emerge from recession stronger and with greater support than brands which abandon their base in difficult times.
3Assess opportunities for growth.
An honest evaluation of your portfolio to assess which products or services will be fit for the new consumer mindset and which won’t is essential. The possibility to innovate to meet changing consumer needs has never been more relevant than in this recession. It won’t just be a change in spending patterns; how people live their lives has fundamentally changed. Companies need to ready themselves now to kill what’s not relevant and ideate to fill gaps in customers’ needs.
Anxious consumers, even those economically unaffected by the recession, will want brands that are a safe, comforting choice in difficult times. Demonstrating through brand that you have empathy - and backing those messages up with actions - will retain customer loyalty.
5Plan for recovery.
Although it is unclear how long the recession will last, it will at some point end. Brands that have maintained presence and relevance throughout it will be well positioned, but even those brands need to plan for a changed consumer. People’s confidence generally returns 1-2 years after a recession ends. Brands need to start planning today for how they can serve their customers in a post-Covid, post- recession world, because the only certainty is that the consumer that emerges from this remarkable time will not be the same.
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