Fighting back: how small businesses can take charge of their own recovery
Written with Ben Hart, originally published on The Skylark in July 2020
A business in trouble is not doomed to failure. The pandemic has created some of the most testing economic conditions that many business owners will have encountered, but there is much that SMBs can do to determine their own fate. With a clear long-term vision and short-term priorities, a good knowledge of available external assistance, and a strong and committed team, small businesses can not only survive, but thrive in the post-Covid world.
In our previous article we suggested a simple framework to differentiate between some common types of consumer-facing small business, and understand how they have been affected by the pandemic. We believe this is a good starting point to explore the situation in more depth, and describe what might come next.
For each of these four groups we can sketch the likely trajectory of consumer demand and suggest strategies they can adopt to boost their recovery as lockdown eases. When a vaccine is available we can expect to see some return to normality, but sit-and-wait is hardly an effective strategy for SMBs already under significant financial pressure.
In the sketches to follow, we have assumed that government policy will continue to support sectors that have been hardest hit by the lockdown. Evidence for this can already be seen in the Chancellor’s decision to cut VAT for the hospitality sector and provide monetary incentives to patrons, and the furlough scheme remains generous in its protection of jobs across sectors until October.
What might demand look like for SMBs?
Group 1 - Public necessities
(Opticians & dentists, hairdressers, pharmacists & chemists)
Likely trajectory:
Rapid and deep decline during lockdown, followed by a sharp spike due to pent-up demand and then settling at, or close to, pre-Covid levels
Challenges to overcome:
Larger chains may be able to provide enticing deals to attract customers and capitalise on the disruption to usual appointment patterns
Businesses that operate at the higher end may see customers switching to cheaper alternatives if personal incomes are under pressure
Customers may reduce the frequency of appointments (e.g. haircuts every 10 weeks rather than every 6) or choose less add-ons, such as hair colouring
Possible strategies:
Reaffirm loyalty by offering long-standing customers priority booking if demand is overwhelming in the early weeks of re-opening
Short-term discounts will help to ensure customers are not tempted by cheaper alternatives. Dropping prices will impact margins, which may seem counterintuitive given the need for businesses to make up for lost time, but this should be offset by stable demand longer-term
Run promotions for ‘household bubbles’ to come in-store together. SMBs in this group tend to have loyal customers, so encouraging them to bring friends or relatives could extend the reach of each business
Emphasise personal service. For instance, ensuring that recognised customers are served by the same staff each time and referred to on a first name basis, or adding small complementary hospitality products to the experience (drinks & small bites). This will provide reassurance to customers, and a feeling of conviviality to help compete with larger chains (where the experience can feel over-standardised and impersonal)
Double down on visible safety standards. Good hygiene is already a prerequisite for this group; businesses can build on this reputation by emphasising their safety standards through communications and in-store practices
Group 2 - Community builders
(Coffee shops, café & delis, pubs, bars, restaurants, gyms)
Likely trajectory:
Rapid and deep decline during lockdown, followed by a gradual return
Challenges to overcome:
Only a third of people feel comfortable returning to pubs, bars and restaurants according to recent data from Ipsos MORI. We expect this figure to rise over time (as long as the number of cases remains low or declines further), but it is hard to predict how quickly this will happen
If incomes are under pressure and consumers are worried about the future they will cut discretionary spending and save more. The number of times they visit businesses in this sector, and how much they spend on each visit, will decrease
Even though social distancing has been relaxed from 2 metres to “1 metre plus” the environment will be very different. Some customers may find this dampens the social experience, and will replace visits to pubs or restaurants with meeting friends in a garden or park
For gyms specifically, many regular gym-goers may have discovered that they can exercise just as effectively at home or outside, and with minimal equipment. Others will have invested in a high-spec home gym during this period. When gyms do re-open it therefore may be difficult to convince enough members to keep paying the level of fees that made these businesses viable before Covid, especially in cities where operating costs are high
Possible strategies:
Innovative responses to social distancing (e.g. converting pub car parks into beer gardens, etc.) will help to reduce the impact of social distancing on the experience
Consumer expectations have shifted during lockdown and ordering online has become the norm for many. SMBs in this group can develop simple apps, or use existing platforms, to make the customer experience as smooth as possible
Many office-workers will be working from home for the foreseeable future. Pubs, bars and cafes cans take advantage of their status as a ‘third space’ and provide reservable tables for people to work at for an hour or two if they need a break from the home office (or dining room table…)
Businesses can also capitalise on their emotional value - many of these establishments are at the heart of their communities and represent ‘normality’. This appeal could form the basis of a highly effective comms strategy
It may seem simple, but getting the fundamentals right in the hospitality industry will likely go a long way. Focusing on the elements that are hard to recreate elsewhere will help to pull back customers. For instance, ensuring a warm and welcoming atmosphere, friendly service, and high-quality food and drink
Gyms can reassert their value by emphasising the expertise and knowledge of their coaches and trainers
Given the public’s nervousness about going back to these businesses, a commitment to hygiene needs to be clearly highlighted in all communications and very visible in the establishments themselves. SMBs in a given area could also group together to create this feeling of safety, e.g. by using stickers in windows to mark a collective commitment to cleanliness
Group 3 - Nice-to-haves
(Bookshops, florists, butchers & bakeries, greengrocers)
Likely trajectory:
Significant decline during lockdown, followed by a partial return but longer-term decline
Challenges to overcome:
When most of these businesses closed during lockdown customers shifted to online channels and home delivery. Having discovered the convenience and range offered by e-comm we can question whether many of the customers will return to bricks-and-mortar businesses.
Customers who have signed up to annual subscription fees (e.g. Ocado or Amazon Prime) have another disincentive to return to traditional shops
If incomes are under pressure and consumers are worried about the future they will look to cheaper alternatives for staple items and will likely cut back on luxuries (e.g. swapping local bakeries for chain discount supermarkets)
Possible strategies:
As remote working is adopted on a wider scale, customers will likely be more interested in making their home (now also workplace) a pleasant place to be for extended periods of time. This creates opportunities for florists, booksellers, etc, to create monthly subscriptions for ‘collect-in-store’ services
SMBs can take advantage of shift to e-comm by investing in their own online offer and delivery solutions, or take advantage of existing platforms (such as Deliveroo, which has expanded into groceries)
Remote working will move spending away from cafes and take-away businesses near offices to those that are located near where people live. Greengrocers and butchers can create bundles of ingredients to make delicious home-prepared lunches
Whilst online shopping is very convenient, it is highly impersonal. Shops that sell fresh produce can highlight the ability to pick out your own items, and the opportunity to receive help and advice (particularly in butchers and fishmongers)
SMBs can specifically cater for those who are not able, or do want to, use e-commerce platforms. In 2018, only 44% of those aged over 75 were internet users, and they are also one of the groups most at-risk from Covid-19. SMBs can create offers specifically targeted at these customers (e.g. exclusive shopping hours for the elderly, order-by-phone, bundling essential items, or contactless home delivery)
Group 4 - On-the-edge
(Newsagents, stationers, convenience stores, DIY & hardware stores)
Likely trajectory:
Rapid and deep decline during lockdown, followed by a low return and gradual decline
Challenges to overcome:
Businesses founded on convenience have been under threat from online services for many years - their forced closure during lockdown has only accelerated that shift. This is not just about online shopping and home delivery (the Amazon model) - some of the actual products that these businesses sell have been replaced by digital versions. For example, sales of physical newspapers have declined by two-thirds since 2000 whilst online media has surged
Possible strategies:
Newsagents and convenience stores are often situated in locations that are central to the communities they serve (near transport hubs, high-density residential or business areas, or at busy intersections, for example). Whilst we expect demand for their traditional offer to decline, they could take advantage of the growth in e-commerce by providing ancillary services (e.g. Amazon lockers) to keep their place at the heart of communities
This group could focus on catering for those who are locked out of e-commerce or other online services. Targeting older age groups could allow these SMBs to become a haven (and a lifeline) for them
As our ideas about ‘convenience’ shift towards easy ordering and home delivery, these businesses could respond by offering alternative models. For example, they could ensure they have a good stock of essential items (tailored to the needs and tastes of the local community) and offer 15-min rush delivery. Existing platforms like Deliveroo could be explored to provide a useful starting point
Whilst the strategies we have suggested are far from detailed roadmaps, we hope they show the range of positive actions that SMBs can take to boost their own recovery. Creativity and resourcefulness are at the heart of many small businesses, and we fully expect the businesses we describe to harness that spirit. Government policy and the behaviour of the virus itself will have a major bearing on the economic recovery, whatever form that might take. But if the right support is available we’re optimistic that small businesses can take their future into their own hands, and look forward to seeing how their progress matches up with our predictions.
