The impact of the COVID-19 crisis on businesses widely varies between industries. While Amazon hired 175,000 new employees and celebrated record earnings during the pandemic, many traditional brick and mortar stores will be closing this year. In the US alone, 12,000 stores will close, not including small businesses like restaurants which would multiply this number. In Germany, nearly 70,000 restaurants are on the brink of bankruptcy. Meanwhile, Uber Eats doubled its revenues during the pandemic.
Even though the effects are manifold, two macro trends can be identified which shall be discussed in this article: An acceleration of digital transformation and industry consolidation.
Globally, the coronavirus crisis has boosted the economy’s digital transformation. In order to protect employees and to maintain service for customers facing mobility restrictions, most c-suite executives have led their companies to digitize at least some parts of their businesses and continued digitizing operations at increased speed. In a matter of eight weeks, some industries vaulted five years forward in digital adoption and transformation concerning their interaction with customers, their operations, and their business model in general.
Eight months into the pandemic, businesses are slowly returning to full capacity while trying to be resilient in face of a fast-changing and unpredictable environment. Forced to rethink their operations in to reach their new “normal”, businesses are confronted with three major structural changes. Firstly, customer behavior and the customers’ preferred way of interacting with companies has changed. 75 percent of people using digital channels for the first time said that they would continue using them when things return to “normal”. Secondly, demand recovery will be uneven across geographies, sectors, product categories, and customer segments. Many companies are about to go through fundamental and potentially painful restructuring processes. Historical data and forecasting models will only be of little use for forecasting emerging demand and necessary supply. Thirdly, the abrupt shift to remote-working is now substantial enough to reconsider current business models and the way we work.
Therefore, many companies’ only option is to speed up their digital transformation. Supported by ongoing testing and continuous improvement, digital solutions must be scaled-up quickly in to stay in business.
As mentioned above, the impact of the COVID-19 crisis varies widely between industries. Some are severely affected while for others, the economic impact was neutral or even positive. This disparity may manifest itself in further industry consolidation.
The described shift in consumer behavior was reflected by the stock markets. Big tech companies registered strong gains in market capitalization outperforming the general market indices. Those players, which are appointed with cash, may want to seize the opportunity to increase their market share by acquiring weakened competitors or start-ups facing liquidity issues. In Q2 2020, tech companies like Facebook, Microsoft, and Intel all announced such deals indicating an upcoming wave of acquisitions and thereby a wave of consolidation in certain industries. In the Technology, Media and Telecom sector (TMT), deal numbers have significantly increased despite the COVID-19 outbreak reflecting the importance of telecommunication for a new way of working and doing business. In a survey interviewing 50 C-level executives and senior corporate development leaders about their acquisition plans, 23% of respondents reported that they do not intend to change their forecasted deal volume in 2020. On the contrary, they want to increase their deal volume during the remainder of 2020 to make use of lower market valuations. Some buyers may need to transform digitally, innovate new business models to reposition for post-COVID market realities, or accelerate commercialization of the most promising technologies, medical advancements, and delivery models. Financially strong companies will use the current opportunity to strengthen their long-term digital agenda. The response of policymakers to this increasing consolidation remains to be seen.
To conclude, it is already clear that COVID-19 is a catalyst for change – economic, societal, personal, and corporate. It is hard to tell what the future looks like after COVID-19. But it is clear that this crisis boosted industries’ digital transformation and will benefit those companies that can develop a digital competitive edge leading to further industry consolidation.
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