The big value shift

Under pressure

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1: The decade of the home is here

After months of adapting to the pandemic, some new consumer habits may become permanently entrenched. As individuals continue to avoid restaurants, gyms, and other public spaces, we estimate more than US$2 trillion of annual value may shift from sectors such as restaurants, retail, and commercial real estate.

For example, demand for office space has already declined sharply. This is driving second-order effects for shops and eateries that rely on office workers, as well as for companies that manage corporate real estate. Retail and leisure sectors are seeing value redistributed too, as consumers increasingly switch to eCommerce and digital entertainment options.

Consumers will still spend money on food, recreation, and entertainment. Where and how they spend it will highlight which companies are best prepared to capture consumers’ future share of wallet.

2: Travel gets (re)grounded

Since the start of the pandemic, suppressed demand for air travel has sent ripples of disruption across airline ecosystems. We could see travel volumes picking up once an approved vaccine is widely available and travel restrictions are eased. However, it is now also likely that we will see moderate drops in longer-term demand, such as for business travel due to a shift towards online meetings.

Even a moderate drop in airline demand could trigger second-order effects across the entire airline ecosystem―impacting company earnings outlooks, bankruptcies, and industry consolidation.

If the continued slump in air travel persists, then the industry will be redefined, with up to US$318 billion of annual value flowing to different industries and ecosystems.

3: Savvy, sustainable consumption is sustained

As the economic downturn persists, several international statistics agencies are warning of "consumer scarring," where there is greater permanency to consumer behavioral shifts. Consumers are saving more money than usual, and they are looking for bargains. Our COVID-19 Consumer Research found that 29% of respondents expect to spend more on budget brands, and 42% of respondents expect to spend less on premium brands.

Reduced consumer spending may extract up to US$687 billion in annual value from consumer-facing industries. For many consumer-facing companies, these trends create new risks as they shrink addressable market sizes. Companies with budget or value brands are likely to benefit.

Before the pandemic, we saw growing demand for sustainable and ethical choices. As the economy moves through this crisis, we expect responsible consumption to persist as a long-term trend. Companies that keep sustainability and purpose central as they make their shifts will position themselves well for market share gain and long-term growth.

Prepare to shift

The current pandemic could potentially redistribute trillions of dollars in value between industries and their ecosystems if even small changes in consumer behaviors become permanent.

To prepare for this value shift, companies should assess where there will be new pockets of value in the economy. The following questions can be used to help identify and capture the value, and anticipate the impact of second- and third-order effects:

The COVID-19 pandemic has been the most significant exogenous shock that we have seen in decades. To navigate their way out of this crisis, it is imperative that business leaders re-evaluate how they think about value chains. To do so, they will need a data-driven, analytical approach to improve visibility over their interconnected value chains. This will allow businesses to truly understand the Big Value Shift and act with urgency.