investment viewpoints
Consumer trends in a post-pandemic world
The pandemic has had a sizable impact on consumer habits. It has both initiated and accelerated a number of interesting trends, but it is also important from an investment perspective to establish which patterns of behaviour are set to become re-established.
A proper understanding of where the consumer sector stands in the wake of the COVID-19 pandemic requires an analysis of how consumers’ lives and finances have been impacted. Certainly the headline figures would suggest they are in bad shape, given soaring unemployment. However, taken in the broader context, consumers on the whole appear relatively robust. US household net worth has increased by USD 5.2 trillion since the end of 2019. It is also notable that personal savings as a percentage of disposable income is nearing an all-time high.
This provides a strong basis for the consumer sector throughout 2021 and beyond. In terms of what trends will become apparent this year, these can be divided between those which have been established as a consequence of the pandemic, and those which revive some pre-COVID-19 behaviours and activities. It is about distinguishing between what represents a new normal, and what signals the return of old habits.
... taken in the broader context, consumers on the whole appear relatively robust
What’s new?
Health and hygiene
The pandemic has done a lot to emphasise the importance of health and hygiene. Consumer research found that 34% of consumers are buying more personal hygiene products, while the FT reports that “sales of hand sanitiser rose at least fivefold in Germany, France, the UK, US, and China in the year to August compared with a year earlier.” The increased consumption of sanitation and hygiene products has been fairly well integrated into day-to-day life, which should sustain this trend.
Fitness goals
Health and wellbeing aspirations aspect have also been shaped by lockdowns. People are more focused on taking care of themselves at a time when they are perhaps unable to go to the gym or play team sports, and are leading more sedentary lifestyles. This has led to an uptick in the popularity of at-home gym equipment, sports supplies and supplements. Sales of Peloton1 exercise bikes, for example, reported a 172% surge in sales last year.
Online groceries
The internet has been a lifeline for people in lockdown. In addition to facilitating working from home, it has allowed consumers to change their food shopping habits to better comply with lockdown procedures. Grocery shopping online reduces the risk of contamination, since it minimises personal contact, and so online food delivery platforms have experienced a boost in demand, extending to both supermarkets and takeaways. 1 in 4 reported ordering online from supermarkets more often since lockdown. This uptick has been most pronounced in Asia where online now accounts for 4% of total retail food spending. The convenience of this option is undeniable, and there is still a lot of capacity in this area, so we expect this trend to prove sustainable to some degree.
Environmentalism
There is also mounting evidence that consumers are more concerned about sustainability and health with regards to their diet. The pandemic has boosted an existing trend whereby consumers are increasingly more concerned with local provenance, packaging, freshness, avoiding additives, and value. We see this as having positive long-term implications for environmentally-conscious agriculture. For example, ‘natural farming’ is growing in popularity and allows crops to thrive in a natural environment and involves no pesticides or fertilisers. This focus on sustainability has led to many opting to cut down on meat consumption, with vegan products and plant-based alternatives growing in popularity.
Old habits
The pandemic has undoubtedly given rise to a number of trends which correlate to changing consumer behaviour. These represent important areas of focus for investors in the consumer sector, but should not distract from the fact that a number of habits would appear to have been temporarily suppressed rather than abandoned altogether.
Dinner and a show
As the vaccine rollouts continue and allow economies to begin to reopen, several sectors are going to see a renewed demand that was largely absent throughout 2020. For example, the hospitality sector experienced a very difficult year. Economic output in the UK hospitality sector was down 92% in April 2020 compared with February 2020, to give a sense of how severe and abrupt this downturn has been. Once normal service has been resumed, we expect to see people once again flock to pubs and restaurants, particularly as spring and summer bring about better weather. There should also be a degree of government support to underpin this recovery, such as that laid out in the $1.9tn COVID relief bill in the US. It may take slightly longer for people to resume holiday activities but there is going to be pent up demand in this area too, which has repercussions for the hotel industry, flight operators and tourism services providers.
Deeper pockets
A lot of this renewed economic activity will be underpinned by the capital consumers accumulated over the course of 2020. As mentioned earlier, personal savings levels have risen on the whole, as has net worth. Pent up demand through a “spending revenge” could be released back into the economy once lockdowns have been lifted and people feel safe to return to brick and mortar stores. We expect strong brands with a high exposure to offline stores should perform well under these circumstances, along with more specialised retailers such as beauty and sports retailers. Frivolity could be back in vogue.
Investment implications
These observations represent compelling investment themes for 2021, in our opinion. We are therefore positive on the outlook for companies which are aligned with these trends and this is reflected in our investment process and stock selection. There are also themes we would be cautious on in 2021, such as food staples, that can fall out of favour. Gross margins may decline in 2021 due to rising commodity costs and a comeback of promotional activity in retail so we would respond with a limited exposure to companies in this sector. In the consumer sector as a whole, large and trusted brands tend to benefit in periods of uncertainty. For this reason, we are bearish on the outlook for smaller brands for the time being. Sectors and companies which are exposed to home furniture or decoration will lose relevance once lockdown has been lifted as we believe ‘nesting’ is just a temporary phenomenon. On a geographical basis, we are cautious when it comes to companies exposed to ex-Asia EM consumers. Emerging markets (ex-China) such as Latin America, India, Africa have been heavily hurt by the pandemic and consumer spending will need time to rebound.
Successfully navigating the consumer sector from an investor perspective will rely on an informed ability to distinguish between newly formed habits which have the potential to prove sustainable, and habits which people are likely to fall back on
The effects of the COVID-19 pandemic will be felt for quite some time. Such has been the scale of upheaval that it would be naïve to think that a return to the old way of doings things will automatically occur. Some aspects of day-to-day life will have been reshaped on a more permanent basis. Successfully navigating the consumer sector from an investor perspective will rely on an informed ability to distinguish between newly formed habits which have the potential to prove sustainable, and habits which people are likely to fall back on.
source.
1 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document
important information.
This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. ©2021 Lombard Odier IM. All rights reserved.
