Chris Evans

18th February 2021

Plimsoll Analysis

The positive consequences of COVID-19

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Necessity is the mother of invention. Never has that old proverb been more appropriate than in the times of historic crisis. From the economic carnage of the past 12 months, innovators have risen like a phoenix from the ashes of their closed primary markets. Companies that should have been the worst affected by the pandemic have shown that the entrepreneurial spirit always finds a way.

The public is tired of the endless tales of economic woe. From the constant stream of retail closures through to millions of lost jobs, we are becoming numb to bad news. With that in mind, Plimsoll wants to shine some welcome light on some good news stories from the UK economy. Some operating in industries that have stared into the abyss have said “let’s try doing business differently”.

Whether it’s a pivot to a new market or a slight variation on how you sell, there are examples of innovation steeped in the British tradition of facing down adversity and finding a way:

Food wholesalers pivoting to an online B2C audience

When restaurants, pubs and hotels shuttered their doors in the first lockdown, the supply chain and companies feeding into the hospitality sector suffered the most. Government support was initially focused just on those industries such as restaurants that were mandated to close by law. Suppliers into the sector were marooned without revenue and little by way of additional help. One of those sectors was the food wholesale market.

Amid the pandemic, if supplying to top end restaurants was your sole source of revenue, that became a huge problem rather than an impressive answer to the “and what do you do” question at dinner parties. Where could those wholesalers, supplying into the hospitality sector, turn with restaurants shuttered not once but three times over the past 12 months?

Plimsoll’s latest analysis of the food wholesale market shows an industry already struggling with tight margins and low growth. The latest data in our analysis shows a market that has only averaged profit margins above 2% once in the last 5 years. With annual growth figures that have declined in each of the previous three years to stand at just above 2% in the latest period, the market had little capacity to absorb the shuttering of its main markets.

However, innovative companies such as Brakes and Fairfax Meadows have pioneered the jump to a direct-to-consumer (DTC) model. If some of these innovators can remove many of the barriers to market, such as minimum order value and delivery networks, their new DTC model could see them develop a major foothold in large, fast growing markets that could last long after lockdown is lifted.

Restaurant trips are forecast to come roaring back in the second half of 2021 but, after surviving the worst of the pandemic, why shouldn’t the innovators develop a new, more resilient business model?

Big ticket purchases embrace the tech revolution

Traditionally, if you wanted to buy a new car or invest in a new sofa, you drove to that part of town where all the main dealerships seem to exist in their own little eco-system, or to the nearest out of town retail park. There was a physical transaction that involved sitting in or on what you were about to buy. When COVID-19 locked down most retail premises, some within these physical markets have adapted quickly.

Times are changing and recent research shows 54% of potential buyers would now buy a car or other high-priced item online. The urgency of that change was merely accelerated by the pandemic and its resulting lockdowns. Innovators such as Cinch are further removing consumer resistance to buying a car online with their 14-day money-back guarantee. Web-based, interactive “build your model” platforms and Covid-secure click and collect services are allowing consumers to pick their model, personalise it, complete the finance agreement and have it delivered from the comfort of home.

Likewise, in the furniture retail sector, consumers used to trail round some of the big-name sofa and furniture companies shooing away the sales assistant. Now they can use augmented reality to see how a piece would look in their living room, tweak the colour, change the design, order it without leaving home and have it delivered at a time that suits.

Wayfair, IKEA and Amazon are among those leading the change in the furniture market with smartphone AR. The results drive to e-commerce is already bearing fruit with Dunelm, the homeware retailer reinstating dividends despite after a 34% rise in profit despite stores being closed.

Plimsoll’s latest analysis of the car dealer’s industry shows a market struggling to support as the thousands of traditional, retail-based companies operating within it. Average margins are at a measly 0.6% and growth an anaemic 1.2%. As e-commerce breaks down regional barriers and fewer companies can sell nationwide rather than in small regional enclaves, watch out for consolidation in the market. 423 dealers are already rated as Highly Attractive by Plimsoll.

The Plimsoll Analysis on furniture retailers shows a market equally at a crossroads. As e-commerce allows manufacturing companies to adopt the DTC model, retailers need to adapt to survive. With almost no growth and margins of just 0.8%, the chance to adopt more profitable sales models could be welcome. Monitoring the Plimsoll Analysis on this market over the next few years could see major changes as disruptors continue to capture the new market and the old guard struggle to adapt.

Support industries that are riding the wave of change

As retail markets have been completely turned on their heads over the past year, the engine for that change has often been developed in the support industries.

For example, much of the success in the car dealer industry is built on companies such as GForces, whose online platform is now used by 1 in 3 dealers in the UK having grown 1228% in 2020. Plimsoll’s assessment of the e-commerce software industry shows a market with margins and growth both consistently above 6%. As the speed with which COVID-19 completely changed car buying in 2020 is increasingly reflected in company results, expect these findings to change over the next period.

Elsewhere, the courier market, though long established, is the foundation that the e-commerce boom is built on. While it is dubbed the second industrial revolution, without a reliable courier network, the next day, on-demand fulfilment of online orders would be impossible. Would the long-term consumer acceptance of online purchasing have been so absolute with long, unreliable lead times? Plimsoll’s latest analysis shows the UK courier market enjoying the wave of demand but with margins still relatively thin at less than 2%. Watch out for acquisitions in the courier market as it settles into the new, post-pandemic normal over the next few years.

The COVID-19 crisis brought about almost two decades of innovation in just a few short weeks at the start of the pandemic and many of those changes appear here to stay. Meetings once conducted face to face are done via video conference. Food is delivered in a box ready to be cooked. DTC has started to take hold as companies circumvent the retail route to market with higher margins and greater control on brand.

In the UK disruptor brands such as Harry’s Razors and Eve’s Mattresses have come into their respective markets and quickly developed a foothold as DTC brands in areas that historically relied on physical retail stores. If there is one legacy of the pandemic and the lockdowns that followed, it is the speed with which it has changed the way business is done. Can anyone imagine these changes will revert to the old normal once the worst of COVID-19 is behind us?

Plimsoll produces individual studies on more than 1600 individual markets. It will show you the companies that have found success with the new ways to do business, the sleeping businesses that could be caught out and those that are most exposed to a changing of the guard. No market is immune from the changing nature of business in 2021. Make sure you know about the current protagonists in your key industries, monitor the success of the newcomers and look at higher growth opportunities that you might disrupt with your next innovation with a subscription to a Plimsoll Analysis.

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