Wholesale distributors, which recovery curve should you prepare for?
The Covid-19 crisis has shown that this kind of economic downturn makes some winners and many losers. Among the losers, the crisis has impacted businesses uniquely across various industries and to different extremes.
There are two major impacts COVID-19 has had on the world that directly impacts the potential for a societal and economic rebound. The first that we have witnessed is the resistance of the pandemic which will come back in several waves. To date, the only way to resist the virus is to quarantine. There has been seemingly false hope broadcast sharing that a vaccine will be ready soon, while most experts estimate 18 months minimum. Nevertheless, we are now much more prepared to assemble, which means we are better situated to isolate the cluster and continue some semblance of life, albeit virtual.
The second major impact of COVID-19 is that companies and consumers have been frightened to spend and invest money amidst economic uncertainty. Experts predict that the virus could trim global economic growth by as much as 2% per month if current conditions persist (Source).
The journey to normalcy will take a bit of time. Many analysts believe that the economic trajectory of COVID-19 will represent a U- or V-shape. Under the existing circumstances, the V-shape appears to be optimistic, as it depicts a “sharp downturn followed by a quick rebound in growth” (Source). On the other hand, a more likely U-shaped recession can take many months or years for an economy to recover. A good example of this is the Great Recession, in which the recession lasted 19 months (Source). This U-shaped recovery trajectory could be different according to your business, the same of which applies for the different wholesale distribution subsegments which are industrial, high tech, pharmaceuticals, and food service. Let’s discuss the impact and predicted recovery curve for each sub-segment.
For the industrial subsegment of wholesale distribution, plants and contractors have reestablished work under clear sanitary restrictions and obligations. These policies differ in most countries but always contribute toward making the employee safer at work. This subsegment is predicted to have a longer term recovery as capital projects are being stalled or cancelled, with additional investments taking months or even years to re-surface. So, the U-shape of the industrial subsegment is predicted to have a smaller base, as activity is back, but the second branch is curved considering the time for projects to come back.
In the high tech subsegment of wholesale distribution has seen challenges, but as workers shifted to working from home they need greater digital collaboration tools and infrastrucure to support this shift, including cloud computing and increased broadband consumption. Pent up demand from consumers will be released soon, as non-food shops have reopened with new social distancing measures. The increasing need of non-physical shopping experiences have boosted e-commerce sales, providing Smartphone, PC, and tablets to all confined people. Overall, the curve drop-down is not huge, but in the long run the newly unemployed (40 million just in the USA and another 2.7 million just this month) from declining industries will refrain from excess purchases and there will be a longer recovery period. The U-shape of the high tech subsegment is similar to that of industrial, but flatter.
For pharmaceutical wholesale distribution, the pharmacies have stayed opened during the quarantine COVID period, so people have continued to obtain medicinal treatments, but surgeries and medical visits have been delayed or taken virtually where able. Indeed, people feared being contaminated by visiting pharmacies (or other essential stores) and have benefited from isolation measures as they have been exposed to less non-COVID sicknesses too. The U-shape of the pharmaceutical wholesale distribution industry is very flat and is expected to come back soon as normal doctor visits resume.
Food service are the most endangered segment and as the situation has unfolded we have seen restaurant innovating in an “adapt or die ” paradigm. The most visible change was a quick shift to home delivery and pick-up services, while other proposals have included digital chef training, chefs cooking at home, or transforming a restaurant into food retail as seen at Panera Bread. For the whole ecosystem of restaurants, and the entire food service industry, the crisis has empowered businesses to show up among different channels to survive. This transformation of business models will have a lasting impact beyond the crisis and continue to gain momentum as the market opens up.
These are my own views on the subject.
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