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Five Categories with Corona Tailwinds
Life has been turned upside down in the span of days. A week ago, I thought I’d be travelling for my first business school spring break — not cooped up in my Boston apartment. I thought I’d be heading to my sister-in-law’s wedding this weekend — now it has been postponed. Restaurants are closing, stocks are tanking, and travel has come to a halt. But amidst this chaos and uncertainty, I do believe there are silver linings. Businesses will be forced to adapt to changing circumstances and seek opportunities to innovate. New, emerging business models will gain tailwinds that propel them forward to new horizons.
Here are some of my predictions on how this pandemic might impact businesses and accelerate category growth in the short- and long-run:
Online learning programs will accelerate
I am currently finishing my first year at Harvard Business School, where academics rely on the case method, a model in which in-person presence and participation are paramount. We have now shifted to virtual classes through Zoom until the end of the semester. Harvard hasn’t taken measures like these since World War II.
Institutions of higher education across the country are similarly transitioning to a virtual learning experience. While the transition won’t be perfect and virtual learning won’t fully replace the in-class experience, I believe both students and academic institutions will find that the online learning environment turned out to be better than anticipated. This will be particularly true for lecture-based classes that don’t require significant participation or interaction from the class.
While some institutions such as Harvard Business School will undoubtedly return to their in-person roots, I believe many others will expedite a transition—at least a partial transition—to online learning. This has the potential to dramatically reduce cost and increase access to higher education. Companies like 2U, which helps universities transform in the digital era, will become increasingly important in the education ecosystem.
While online education brings considerable positives in the form of increased access and reduced costs, there are several downsides to consider. It will be nearly impossible to replicate organic in-person networking and relationship-building online. Students may also find it difficult to stay focused and avoid distractions when they can multitask behind a computer screen. In addition, jobs will shift from physical campus maintenance and servicing resources like cafeterias to more technical online support functions. Many will find themselves forced to learn new skill sets to keep up with these evolving human capital requirements.
The food delivery ecosystem will thrive
Having previously worked at Uber Eats, I am heartbroken to see the impact that the coronavirus is having on the restaurant industry. The National Restaurant Association forecasts sales declines of $225 billion over the next three months. In the face of plummeting revenues, restaurants are being forced to lay off workers to reduce costs, as they are still responsible for ongoing costs like rent and taxes.
Union Square Hospitality Group, one of the largest restaurant groups in New York City with brands like Gramercy Tavern and Union Square Cafe, is laying off more than 2,000 workers (about 80% of their total staff). Independently owned and operated restaurants, representing 78% of the country’s one million restaurants, will likely fare even worse, with significantly less cash on hand than larger restaurant groups and chains. Without major shifts to their business models or government support, many restaurants will struggle to survive, and millions of people could find themselves unemployed.
To adapt to changing circumstances, restaurants around the country are shifting from an in-person dining focus to full reliance on pick-up and delivery. During this period of time, restaurants will build and optimize their operations for a delivery-centric world, replacing dine-in tables with extra preparation and courier handoff space. Food delivery providers are leaning in to support local restaurants through this difficult time. For example, Uber Eats is waiving delivery fees for more than 100,000 local restaurants on the platform. This will hopefully help local restaurants weather the storm, while increasing delivery demand.
Food delivery has already been growing at a significant rate, and Morgan Stanley research estimates that the US market for online food delivery will triple to $60 billion between 2018 and 2025. The coronavirus pandemic will likely accelerate this growth rate. Consumers who haven’t yet adapted to restaurant delivery (e.g. older, non-urban demographics) may be forced to do so if they get tired of cooking every meal and are unable to dine out. I predict that many of these customers will stick as they learn of the benefits associated with delivery.
Ghost kitchens, which are designed specifically for delivery, will also gain tailwinds. Venture investment in this space has been increasing over the past five years, peaking at $1.9 billion invested across 16 deals in 2019, according to Pitchbook. The coronavirus may serve as a catalyst for more restaurant brands to consider expanding or pivoting to ghost kitchen models to meet increasing consumer demand for restaurant delivery.
In addition to restaurant delivery, more and more consumers will revert to meal kits and services like Instacart and FreshDirect to get their groceries delivered. New users will discover the convenience associated with grocery delivery, and this behavior will also endure in the long run. Meanwhile, grocery stores may struggle with supply chain issues associated with increased demand and potential restrictions on international trade.
Telemedicine is here to stay
The spread of coronavirus will lead to a necessary increase in the use of telemedicine to prevent contagion and overcrowding in doctors offices and hospitals, as well as to account for the fact that many will struggle to access safe, reliable transportation to medical facilities.
Historically, telemedicine has been relatively slow to gain momentum due to strict regulations and HIPAA privacy laws. Many of these restrictions are now being lifted after President Trump authorized $8 billion in new spending to combat the pandemic, including $500 million dedicated to the expansion of telehealth services. Trump has encouraged seniors, the most vulnerable population, to leverage telehealth in order to avoid in-person doctor’s visits where they could be exposed. This forced temporary reduction in regulations will serve as a catalyst for longer term regulatory progress.
The shift to telemedicine will not only elevate existing telehealth players, but it will also encourage healthcare incumbents to invest in this space. I believe that telehealth will survive and thrive well past this current pandemic for two reasons: cost and access. Healthcare costs more in the United States than in any other nation in the developed world. By increasing focus on telemedicine, both healthcare providers and patients can save time and money, decreasing the costs of healthcare. By shifting a subset of cases to online, medical providers can reduce administrative costs, doctors can be more efficient with their time, and patients can save time and money on transportation and waiting rooms.
Telemedicine can combat access issues by removing geographical constraints for patients in rural or medically underserved communities. It also removes transportation constraints for individuals who are unable to commute to a physical doctor’s office.
At-home fitness options will surge
Gyms and group fitnesses classes will suffer in the short term as we move to a world of social distancing. In the meantime, consumers will invest in at-home fitness equipment like Peloton, Mirror, and Tonal, as well as online DIY programs, like Sweat with Kayla Itsines and Nike Training Club.
Fitness is a space with several use cases — some just want to exercise as efficiently as possible for the sake of staying in shape, while others prefer the social element as a motivating factor. Most people probably fall somewhere in the middle of the spectrum. Those who lean to the former use case and shift to an at-home routine during the pandemic will likely get hooked by the convenience and choose not to return to their previous routines.
This will speed up the trial and adoption of the aforementioned products and shift some share of the fitness wallet from gyms and boutique classes to at-home equipment and services. Boutique fitness studios may try to compete by launching their own at-home equipment (as Flywheel has already done) and DIY programs.
Consumers will fill their newfound free time with entertainment
Social distancing will undoubtedly offer more time for consumers to enjoy at-home entertainment. More people will be watching Netflix and other streaming services. As we begin to exhaust our highest-priority content, Quibi will make a timely entrance to the market on April 6, when consumers will be craving new content and variety.
While content demand will surge in the short run, supply will take a hit in a few years’ time. Content production has been paused, which will create a relative shortage of content down the road, as movies have production cycles of up to three years.
In addition to movies and TV, gaming is already on the rise with billions of dollars of venture investment in the last several years. I believe this pandemic will create a tail-wind on its popularity in both the short- and long-run. Social distancing will lead consumers to discover or rediscover gaming, which will lead to a short-term surge in demand, much of which I believe will stick beyond the pandemic (though perhaps behavior will shift to more group-centric gaming).
As easy as it may be to write about which industries will come to thrive in this new context, there are few certainties in the current climate. Actually, the only thing that may be certain is the immense human toll that this will impart. The near-term priority is to do whatever we can to protect the vulnerable in our communities, both those who may be exposed to the virus itself, but also those whose lives and economic futures are at risk because of the pandemic’s second order effects. Though getting through this will take months and perhaps even years, I am hopeful that we will emerge stronger on the other side.