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Consumer ‘COVID-19 hangover’ means a slow return to normal for businesses

·Financial Journalist
·5 min read
BRANTFORD, June 12, 2020 -- People dine on the patio of a restaurant in Brantford, Ontario, Canada, on June 12, 2020. The province of Ontario allowed most regions outside the Toronto and Hamilton areas to reopen more businesses on Friday during the COVID-19 outbreak, including restaurant patios, hair salons and shopping malls.(Photo by Zou Zheng/Xinhua via Getty) (Xinhua/Zou Zheng via Getty Images) (Xinhua News Agency via Getty Images)

The country is slowly re-emerging from lockdown one region at a time, but Canadians are not in a rush to go out and spend like they would in pre-pandemic days. Businesses can expect a gradual return to normal as consumer anxiety slowly lifts.

In the Deloitte State of the Consumer Tracker report, surveys show that 52 per cent of Canadians feel safe going back to stores. Marty Weintraub, national retail leader at Deloitte Canada, said this figure was about 32 per cent a month earlier.

“As certain parts of the country in various cities are opening up and stores are allowed to resume operations, I think you'll start to see that 52 per cent climb steadily over the next few weeks, but it's going to be a bit of a slow climb.”

For industries relying on face-to-face engagement (like hair styling and physiotherapy), this climb could take even longer, with 45 per cent of those surveyed feeling comfortable interacting with others in person.

The rate that Canadians return to stores is one part of the equation, but Weintraub said that the economic battering many households took during the pandemic means consumers will shy away from larger, non-essential purchases.

“There's still 43 per cent of Canadians that are delaying large purchases right, so this is all sort of that economic hangover. It's not as bad as it was six weeks ago, but there's still that cloud and those numbers are going to be stubbornly high for some time.”

Deloitte Canada’s report calls the anticipated drawn-out consumer behaviour after the pandemic the “COVID-19 hangover”, where consumers will be slow to travel again and discretionary spending could see stark changes. Online shopping, self-checkouts and spending on essentials will be growing trends post-pandemic, the report states.

These trends aren’t new and were challenging the retail industry even before COVID-19 hit this year, Weintraub said. The global pandemic has become the mass accelerator that pushed retailers to take on a stronger online presence and adapt to these new behaviours.

“What COVID has really done, it was kind of like taking the consumer, putting him or her in a time machine and going into the future,” Weintraub said. “It's a little bit of a reboot for physical retail.”

As patio weather rolls in, many restaurants are either anxious to re-open or operators are staying on the sidelines because the potential profit would be too low to justify the fixed costs of opening up, explained Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University.

Restaurant owners are adjusting their establishments for safety and to meet customer expectations. About 52 per cent of these Canadians intend to avoid restaurants for the foreseeable future, as suggested by a survey from Agri-Food Analytics Lab with Dalhousie University’s faculty of agriculture.

“The experience is not the same,” Charlebois said. “You don't necessarily go out just to eat, you go out for an experience. And so obviously with masks and Plexiglass and a different menu, a lot of things are compromised.”

Charlebois went for a night out north of Montreal when restaurants outside of the city re-opened on Monday. He said that, after tweaking expectations of seeing serving staff with masks on and a changed menu, it didn’t feel that much different from pre-pandemic life.

“You heard laughter, you heard people chatting, music. The street felt alive again, and that’s worth a lot, especially after three months of confinement.”

Another finding from the survey suggested Canadians intend to support local independent restaurants, with about 64 per cent saying they would visit a family-owned establishment once the country re-opened.

“There is this acute awareness of supporting operators that may not have the same support network that larger chains would have,” Charlebois said, adding that it’s support that is well-needed as the economic downturn is expected to cause a contraction in the food sector.

Small businesses won’t bounce back quickly from the pandemic, even as the country moves into recovery. Dan Kelly, the president and CEO of the Canadian Federation of Independent Business, told Yahoo Finance Canada that only 17 per cent of surveyed companies were making normal levels of sales. Opening up and taking the full brunt of expenses while the revenue isn’t there is a challenge for businesses.

“Most businesses know that when they reopen, they're going to be undergoing weeks, if not months, where they're below water, where they're opening their door. And they're losing money every single day,” Kelly said. “I spoke to one restaurant (who) just reopened to take-out and delivery in Ontario - a Chinese restaurant and reasonably new firm - and she said her weekend sales were $10.”

Kelly said that federal supports for these small businesses haven’t been as effective as he’d hoped. They are either expected to end soon or they haven’t been designed to support businesses during the down phase. Kelly pointed primarily to the Canadian Emergency Commercial Rent Assistance (CECRA) program, for which only a handful of landlords applied.

“One reason for encouragement is that the federal government did decide to extend the wage subsidy,” Kelly said.

Even as skittish Canadians return to regular shopping patterns, the lagging effect will be enough to put many more businesses under, Kelly expects.

“I think we've just seen a tiny, tiny fraction of the real effect. There's a lot of essentially dead businesses... where the funeral hasn’t taken place yet.”

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