US Consumer Dynamics Report: Q2 2020

This research analyzes US consumers' spending and saving patterns, as well as their concerns in Q2 2020, and gives an outlook on the developments ahead. It leverages data from The Conference Board^® Global Consumer Confidence Survey, which was conducted in 68 markets, including the US, from May 7-26, 2020, as the COVID-19 pandemic grew in the US while Asian and European economies were reopening.

The changes in US consumers’ consumption and saving behavior recorded in Q2 2020, as well as their top concerns, reflect the new realities that the COVID-19 pandemic established: the health and economic scare, vastly more time spent at home, and the temporary closing of a large portion of consumer businesses, especially service-focused ones (e.g., restaurants, hotels, movie theaters, sports arenas, spas).

Consumers’ rising concerns in Q2 about the economy, health, and increasing food prices displaced worries about political stability, debt, and global warming. Limited spending opportunities due to temporary pandemic-related lockdowns reduced spending on discretionary categories such as travel, going out, and apparel, which left money for more people to save and invest more than prepandemic. 

The share of consumers without spare cash dropped slightly in Q2 compared to prior quarters. At the same time, the share of people who started to change their spending patterns to save grew substantially. 

In Q2, fewer Americans cut back on categories that are integral to a cocooned home life: gas and electricity, groceries, take-away meals, tech and home appliance upgrades, and phone service, as well as categories for indulgence and stress relief such as smoking. 

Food has become an ever more essential category during the pandemic, yet rising food prices are a growing concern. The food category experienced a major shift in Q2 from dining out to preparing meals at home.

These findings are based on The Conference Board^® Global Consumer Confidence Survey, conducted in 68 markets, including the US, May 7-26, 2020, as the COVID-19 pandemic grew in the US while Asian and European economies were reopening.

We asked consumers about their spending in three ways and synthesized the insights:

1. How do they allocate their overall spending?
2. For those with spare cash, how do they spend this discretionary money?
3. For those who are saving more, where did they cut back their spending?

Insights for What’s Ahead

Short-term developments

• Management of the virus and jobs will determine spending. How well the spread of the virus can be kept under control and how the job market develops will be key determinants of consumer spending.
• Budgets shift to categories supporting life at home. For the foreseeable future, continued physical distancing policies, health concerns, and more time spent at home will leave budgets usually spent on discretionary, in-person services outside the home available for other use.
• Rising grocery prices decrease purchasing power. Given elevated food prices and lower incomes for many, food may constitute a greater share of consumers’ budget. Some of the savings on discretionary out-of-home spending on services may be used for groceries.
• Take-out meals could turn into a convenient luxury. Greater price increases for groceries than for food services might shrink the price differences between restaurant and homemade meals. Take-out meals have grown exponentially during the shelter-at-home period, and quick service/fast casual establishments are in the best position to benefit from this trend given their ability to scale and their moderate price points. “Ghost kitchens,” dedicated meal-preparation facilities for delivered orders, could enhance efficiencies and lower costs.
• Restaurants are under pressure to innovate to generate revenue. Full-service restaurants can benefit from the take-out business, but they also need to innovate to make up the lost revenue on the dine-in business: find space for additional tables; launch subscription-type dining programs; offer preordered, customized menus; or launch food trucks as an additional channel.
• Vegetarian diets may expand. Greater price increases for animal-derived foods than vegetarian foods, along with increased interest in health and wellness and in climate change, could make vegetarian diets more attractive. Plant-based meat alternatives, which were growing before the pandemic, may continue to grow, and restaurants can innovate around vegetarian meals.
• Online grocery shopping may soften, while click-and-collect is here to stay. While online grocery shopping has grown exponentially, so have the delivery costs associated with online orders; eventually, these costs may become a barrier for shoppers. But click-and-collect models, including in categories beyond groceries, may remain popular for the convenience.
• Local and “alternative” types of travel are likely to rise. Consumers may prefer local over long trips to avoid plane rides and stay close to their local health care. They may therefore prefer to take multiple shorter trips than one longer trip, favoring accommodations that allow for social distancing such as rented homes and camping with RVs and tents.
• The earliest and most digital holiday season is coming. Digital shopping may reach unprecedented levels this holiday season, easily beating last year’s record. Retailers may ring in the holiday season as early as mid-October, promotions included, making Black Friday through Cyber Monday less of a peak shopping period. Fewer shoppers may want to visit stores, but curbside pickup may expand in a major way. Tech items, comfortable apparel, home decoration, fitness equipment, and other wellness-oriented items may be popular holiday gifts.
• Online-offline integration and reinventing store functions is key for retailers. In addition to rightsizing their store networks, retailers will need to integrate online and offline touchpoints by, for example: promoting store/curbside pickup and online returns, training store associates to connect with customers by video, and serving as showrooms for demonstrations of products via shoppable livestream.
• Urban centers may suffer in the near term. Temporary shutdowns or capacity limitations and public transportation’s perceived virus threat will lead to a loss in spending in city centers. Cities will depend more on their local residents than commuters or tourists. Densely populated areas will be less attractive overall, depressing real estate values and rental rates.
• Retirement savings will correlate with the job market. Job losses imply lost benefits such as employer retirement contribution, and struggling companies may have had to temporarily cut such benefits for remaining workers. In some cases, workers may have had to stop or reduce their retirement contributions or even withdraw money from their retirement accounts. In contrast, employees in white-collar, work-from-home jobs have been able to continue to grow their retirement accounts, further boosted by stock market gains. Consumers’ future retirement savings, as well as their debt, may be closely aligned with their employment and companies’ finances.

Long-term impact

• More digitalized lifestyles and convenience seeking The increase in digital interactions and transactions instigated by the lockdowns has accustomed consumers to ultimate convenience, which will be hard for them to “unlearn” and may only grow.
• Greater frugality and value seeking New corporate bankruptcies and layoffs can be expected, making consumers especially discerning in spending their discretionary income. Discount retailers, private labels, and promotions will grow in popularity.
• More appreciation of and interest in sustainability The pandemic has exposed the vulnerability of the world and demonstrated the importance of sustainable systems, both environmental and social. Sustainability continues to be a desirable product and service feature.
• Enhanced focus on self-care Coping with the challenges created by the pandemic has both furthered interest in healthy living and fostered vices and indulgences. Either type of coping behavior creates opportunities for products and services as renewed interest in and need for self-care will benefit goods and services focused on exercise, diet, beauty routines, and mental health care, including telehealth solutions.

For a closer reading of the tea leaves on consumer behavior in the Food & Beverages sector, see the companion report: Category Insights—Food & Beverages