Aurora Magazine

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Published in Sep-Oct 2020

Preparing for the Homebody Economy

Even as economies reopen, consumers are likely to remain wary of straying too far from home.

Although Covid-19 is classified as a public health emergency, the impact of the pandemic has affected all aspects of life. We are currently in the largest global recession since the Great Depression of almost a century ago. Most governments are trying to strike a balance between restarting their economies and keeping the virus under control, and according to Nielsen, most countries including Pakistan are in the process of transitioning from ‘restricted living’ to ‘living a new normal’.

Given the prevailing uncertainty, people have adjusted their budgets based on their circumstances and in these times of restricted spending, consumers are focusing more on ‘essential’ items. According to a McKinsey report, the bulk of consumer spending among the 12 countries they surveyed is on groceries, household supplies and home entertainment, with lower spending on restaurants, clothing and travel. All this has led to the emergence of what is termed as a ‘homebody economy’; people are figuring out how to work, eat and entertain themselves within the confines of their homes. Ipsos Pakistan reported that 60% of Pakistanis are wary about leaving their home as businesses re-open and Google reported a 144% search increase for ‘make at home ideas’ in Pakistan in March-April 2020. Synthesio, a social media intelligence company, analysed online posts about food to identify distinct patterns and after initially talking about panic buying and then quarantine snacking habits, posts are now focusing on home cooking.

In order to function seamlessly in a social distancing environment, economies will have to rely heavily on connectivity; in fact, according to Ookla’s Broadband Speedtest, at the start of the worldwide lockdowns at the end of March, fixed internet connections saw a spike of 58% in volume. Pakistan too has seen spikes of around 50% for both mobile data and fixed internet connectivity, although according to the PTA, there has been a decline in voice usage (between March and May 2020, there has been a three million reduction in cellular connections).

All this has left businesses scrambling to figure out how to integrate online and offline channels as consumers try to minimise interacting with physical touchpoints. A Nielsen Global study found that 51% of consumers in developed markets were willing to try VR/AR in order to replicate their shopping experience in-house. In this regard, dFresh, the fruit and vegetables wing of Daraz.pk., witnessed a nine-fold increase in orders in Pakistan. Furthermore, Google searches for ‘online grocery delivery’ and ‘grocery delivery near me’ went up by 300% and 200% respectively in Pakistan.

This has also led to some interesting trends in banking. Although 1Link do not have visibility on intra-bank transactions, their data shows that people are avoiding ATMs and are shifting to inter-bank fund transfers (IBFT) instead; in fact, the volume of ATM transactions declined by a fifth in the post lockdown period, whereas the volume of IBFT increased by over 90%. Similarly, Aamir Ibrahim, CEO, Jazz, told DAWN that the daily recharge from mobile payment platforms had increased from 18% to 35% with the onset of the pandemic.

Such changes in consumer behaviour and purchasing patterns have benefitted some industries. An analysis by McKinsey of the top 5,000 companies in the world found that entities involved in IT solutions, software and advanced electronics collectively increased their value by over two trillion dollars and the pharmaceutical, medical supplies, media, personal and office goods sectors (critical to the ‘homebody economy’) have witnessed market capitalisation spikes. Conversely, commercial aerospace, oil and gas, banking and clothing (all sectors that focus on physical touch points) have lost 10 to 30% of their value.

Although the pandemic has forced an acceleration in digital adoption, not all businesses have benefitted, if only because almost half the world is still offline. In Pakistan, internet penetration is even lower (estimated at 25 to 30%) and therefore, any changes in consumer behaviour are driven by a niche within the population. Nevertheless, the pandemic has certainly reinforced the importance of acquiring digital know-how by leveraging concepts such as the 20:80 principle – train for 20% of the skills used in 80% of the tasks.

This trend is even more evident in the job market. WFH discriminates by role and industry. An analysis by the University of Chicago found that only 37% of US jobs can be done from home, and they account for about 46% of the pay as they are mostly found in industries such as technology, finance, law and education. The same report estimated that only 13.5% of jobs in Pakistan can be performed from home.

According to the International Labour Organisation, the disappearance of the informal economy has led to 50% of the world’s labour force facing job losses. This is mirrored by the Ipsos Pakistan Covid-19 tracker, according to which 50% of Pakistanis believe they will lose their jobs in the next six months. The study also found that lack of job security is driven largely by uncertainty and that only 20 to 25% of Europeans, 43% of Americans and 55% of Pakistanis are confident the economy will recover once the lockdown is over.

Another study by Ipsos Global found that three in five people in 26 countries believe the cost of food and goods and services have increased somewhat or a lot since the Covid-19 outbreak. This belief was particularly prevalent in Africa, Latin America and the Middle East (regions with mostly developing economies). The rise in costs has been observed mostly for food, groceries and household supplies, mainly because of the addition of delivery charges.

The global socio-economic disruption caused by this pandemic is unparalleled and the World Bank has warned that poverty rates are set to rise for the first time in 20 years. The Covid-19 scenario is constantly changing, resulting in different governments carving their own paths in managing the crisis. As we move towards the proverbial ‘new normal’, behavioural patterns seem to indicate that it may look like the ‘homebody economy’. Unfortunately, there is no ‘guidebook’ for such a scenario, which means there will be constant changes in policies, leading to continued uncertainty for the foreseeable future.

Perhaps governments and businesses could use this pandemic as an inflection point to push technology adoption by recalibrating their operations (one-third of existing jobs in 1990 have been destroyed over the past three decades). Although humanity may soon be able to overcome the virus with a vaccine, the residual effects will be here to stay for some time. We need to realise that despite medical advances, societies will need to adjust – often quite painfully.

Ans Khurram is an insights professional working in the telecommunication industry in Pakistan. anskhurram@gmail.com