DAL Delta Air Lines Inc

By Sharon Terlep 

Clorox Co., Amazon.com Inc. and Domino's Pizza Inc. can't ramp up fast enough to meet demand for cleaning products, home deliveries and snack food. More people are streaming videos from Netflix and music from Spotify. Shares of Peloton Interactive Inc. have soared as fitness buffs scrap their gym memberships.

Meanwhile companies that rely on people traveling, being together or venturing out in public are crashing. Restaurant chain Cheesecake Factory Inc. furloughed most of its workers. Air carrier Delta Air Lines Inc. and retailer J.Crew Group Inc. are slashing costs, scrambling for loans and restructuring as they sustain massive losses.

The big question is how many of these new consumer habits will endure more permanently as the country inches back to something resembling normal life. The answer will have far-reaching implications for industries from food and fashion to travel and technology, forcing companies to rework supply chains, product lineups and relationships with retailers.

"The three month period we are going through is going to equate to three years of consumer changes wrapped up in one quarter," David Gibbs, chief executive officer of Taco Bell parent Yum Brands Inc., said this week.

Not everyone agrees. Several retailers said spending slowed in April after consumers stockpiled in March. "We largely expect consumers to eventually return to previous habits, as they slowly exit confinement and cautiously settle into a new normal," PepsiCo Inc. CEO Ramon Laguarta said.

Take the Longos, a couple that lives in Valhalla, N.Y., a small town 30 miles north of Manhattan. Pamela Longo, an assistant principal and mother of two, wasn't a fan of home workouts. Her husband, Michael, who owns a financial planning firm, long wanted to work once a week from home but always ended up in the office.

Seven weeks after they were forced into their suburban New York home by coronavirus, Pamela has started riding a Peloton bike in the basement that allows users to join in virtual spin classes. She also added online workout classes, finding the fitness combination far more efficient and motivational than she anticipated, she said.

"I never would have predicted this," she said.

Michael has discovered he has more family time without a twice-daily, 30-minute commute, he is hashing out plans to spend as little as three days a week at the office. "This is a horrible thing that has happened, but there is some good coming out of this," Mr. Longo said.

Some of their changes may be more temporary. For instance, Pamela says she has enjoyed learning new, time-consuming recipes, including an Italian pasta dish on a recent night, but will revert to simpler dishes once she returns to work.

To get inside the minds of consumers like the Longos, corporations are marshaling their expertise and resources in hopes of getting ahead of changing needs and preferences.

Consumer-products giant Procter & Gamble Co., for example, knows that people aren't only buying more Tide laundry detergent but also doing more loads of laundry because it follows digital monitors installed inside some consumers' washing machines to show how often they run loads. Legions of analysts and consultants are taking surveys, combing sales data and building models to try to gauge where demand is going.

More subtle, micro trends are emerging as well. Retailers report selling a higher ratio of shirts to pants, as people dress for video calls. Jigsaw puzzles are selling out. Post-It notes are falling out of favor amid empty offices. Pricey coffee is getting a boost, as cafe-lovers are forced to brew at home.

"A lot of people are focused on what the 80% of consumers will feel like in the new normal. Are they going to go out and eat, or go to the movie?, " said David Garfield, managing director of consulting firm AlixPartners and the head of the consumer-products practice. "It's really about the remaining 20%. Because most businesses can't operate on 80% of demand. They will need a major overhaul."

More evidence of how consumers are behaving emerged last week in a series of earnings reports. The pandemic is driving up demand for packaged foods from companies like Kraft Heinz Co. and Kellogg Co., giving them a chance to win back customers who stopped eating their cheese and cereal products long ago. Kraft Heinz sales rose 6.2% from a year earlier on a comparable basis. Kellogg said its comparable sales for the first quarter climbed 8%, including improvements in its cereal business, which has struggled for years.

For years, consumers have gravitated toward fresh foods and niche brands they viewed as healthier, hurting sales at big food companies. Kraft Heinz Chief Executive Miguel Patrico says the pandemic has thrown that trend into reverse.

"Consumers are coming back to big brands. In times of uncertainty, they want to experiment less with new brands," he said. The leaders of Coca-Cola Co. and Molson Coors Beverage Co. said much the same.

Homebound shoppers were also a boon for big tech companies. Amazon said Thursday its revenue rose 26% from a year earlier to $75.5 billion in the three months through March -- by far the highest on record for what is usually Amazon's slowest period of the year. Profits, however, fell due to extraordinary expenses related to the pandemic. Shelter in place orders in many countries helped increase Facebook Inc.'s user growth in the first quarter and boosted eBay Inc. to better-than-expected sales.

The extent of how consumers change their behavior hinges a lot on how families lived before the crisis.

Erin Russell and Travis Haag, 38-year-old parents of four-year-old twins in Holt, Mich., have changed much about their daily routines but little about how they spend their money. The family rarely dined out, vacationed or went to the movies before the pandemic, they said, so aren't missing those outings.

Erin is an architectural designer for a national insurer, and Travis is a grounds mechanic for the state of Michigan in nearby Lansing. Their children attend preschool and Travis's mother cared for them the two days a week they weren't in school. The preschool is closed and Travis' mom is at high risk of contracting coronavirus. Erin now works full time from home, while Travis is furloughed, leaving him caring for the kids most of the time.

Travis is still adjusting to being the main caregiver, but the couple says the setup is working overall.

Erin's main gripe: she has to drink coffee at home. A daily drinker of either Starbucks or Dunkin' coffee, she has taken up making whipped coffee and getting nicer Keurig options to supplement what she calls "old man," or drip coffee, at home.

"It's a tolerable substitute, but it's not Starbucks," she said.

The pandemic has altered another consumer paradigm. One of the most difficult parts of selling a product is getting consumers to actually try it, said Kristina Rogers, who leads Ernst & Young's global consumer sector. Companies go to lengths to get their brands in the hands of shoppers, giving away free products and services in hopes exposure will convince them to make a switch.

"We've been forced to try a lot of new things," Ms. Rogers said. "The longer that we are forced to change our habits, the longer we might adopt them. It's not just, 'Yeah, it's a habit.' I might have to accept a change because I can't afford to go back. I might also just like something else more."

One change Pamela Longo made was to spring for a $100-a-year subscription to Beachbody online fitness classes, which she'd never before considered, and plans to stick with the program.

The Longos expect their priorities will remain changed, if not for good, for some time beyond the current crisis.

The family had planned a week-long trip to Disney World in Florida in April. Even if the theme park opens and stay-at-home orders lift, Michael Longo said, the family won't be in big public spaces or on an airplane until at least next year. Instead, they hope to get in a visit to Cape Cod or the Hamptons this summer, where they can drive and avoid big crowds.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

May 02, 2020 00:14 ET (04:14 GMT)

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