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Thursday, December 3, 2020

Invezz looks at the Top 11 industries positively affected by COVID-19

  • Microsoft Teams reported a new daily record of 2.7 billion meeting minutes in April, an increase of 200%
  • With Prada and Gucci tapping into face masks, the market is projected to rise by 53% from 2020 to 2027
  • Meal kit market is now predicted to grow by 17.78% in 2020, with Hello Fresh and Gousto leading the way

In weeks our world was transformed. Toilet paper became highly coveted, sales of hand sanitizers skyrocketed, and fabric face masks became a must-have accessory. Several industries have sprung up overnight because of the COVID-19 pandemic. Meanwhile, existing industries that helped us acclimatise to our new “Stay at Home” reality boomed – like meal kits, video conferencing and gaming.

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With this in mind, what industries have thrived in the face of COVID-19 and what would be smart investments to make during the crisis?

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1. Books

With social lives on hold, many people looked at alternative ways to occupy their time. Due to this, sales of fiction rose by a third during lockdown. Homeschooling also caused an increase in sales, with children’s education books rising by 234% to the third-highest level on record.

As expected, Amazon did particularly well with this surge, with subscription-related revenue (such as Kindle) growing to $5.6 billion in Q1 (a year-over-year quarter of growth). Other retailers also benefited, with Rakuten Kobo reporting a boost in new sign-ups and purchases and Draft2Digital reporting a 25% increase in ebook sales. Although this is a positive sign for the sector, it is still largely dominated by Amazon (holding 83% of U.S. e-book sales) with independent booksellers and smaller companies jostling for the rest. The market opportunity here, therefore, is limited going forward.

2. In-home coffee market

Due to stay-at-home orders, 80% of coffee shops were closed throughout lockdown, causing a boom in coffee sales for home use. COVID-19 has accelerated the market growth for instant coffee to a CAGR of over 5%. In April 2020, Nestle reported its strongest quarterly sales growth in five years.

Coffee consumption has also risen because of lockdown, with people pre-COVID drinking an average of 2.45 cups a day. Now, it’s closer to 2.8 cups.

It will be interesting to see how this changes as workplaces begin to re-open. The majority of workers (57%), however, don’t wish to return full-time to workplaces and this may be reflected in continued working-from-home and at-home coffee consumption. The trend towards home use coffees, therefore, may continue for long after the pandemic ends. Reports also suggest consumers are moving towards more niche coffee producers and direct e-commerce sales with independent producers, mirroring the general shift towards local retailers and producers. With this in mind, there is a clear market opportunity for businesses and investors who can offer a defined, unique coffee product.

3. Esports and gaming

The pandemic caused widespread disruption to in-person sports, causing many traditional sports providers to re-think their models. For example, a virtual version of the Australian Grand Prix, ‘Not The Aus GP’ saw professional Formula One drivers race against professional gamers, with the virtual event streamed on YouTube and Twitch.

Gaming traffic, as a whole, rose by 75% during peak hours. Game streaming platforms like Twitch, YouTube Gaming, and Facebook Gaming all reported significant growth of 20% during usage hours. One entertainment company, Modern Times Group, expects a 25-35% increase in revenue in H1 in its esports vertical.

Forecasted and reported year-on-year revenue change of Modern Times Group’s (MTG) eSports verticle


esports 1
Forecasted and reported year-on-year revenue change of Modern Times Group’s (MTG) eSports vertical due the coronavirus pandemic in 1st quartal 2020 and 1st half 2020

With esports and gaming streaming attracting more fans (and revenue) before the pandemic, the growth of the industry will undoubtedly continue far into the future. Investors would do well to explore this sector now, while still in relative infancy, especially because involvement by large in-person sports organisers will have accelerated adoption with mainstream audiences.   

4. Home gym & exercise equipment

Gyms and fitness classes shutdown because of COVID-19, leading many people to invest in at-home exercise and sports equipment. Consequently, online exercise retailers Bestgymequipment.co.uk saw growth of 183%, alongside Mirafit.co.uk at 113%. Online fitness classes also boomed, with the Les Mills online platform seeing a rise of 900% in sign-ups.

With public transport services cut for the foreseeable future, alternatives like bicycles and e-scooters became popular. The bicycle market will grow by 3.74% in 2020 as a result, and 45% of London commuters are considering using e-scooters to travel around the city in the future.


escooters
Invezz looks at the Top 11 industries positively affected by COVID-19 9

(source: https://www.ft.com/content/5559f016-1f9f-4fab-9020-71e69c6debc3)

Given the dual-pressures of social distancing (and associated declines in public transport usage) and climate change (which is becoming a focus point again as we shift into recovery), expect to see more eco-friendly forms of transport become commonplace over the coming years. The market opportunity here will be large and, for now, still relatively untapped. Likewise, the UK Government’s drive to reduce obesity will renew focus on exercise providers and alternatives such as online classes and home gyms.

5. Luxury & customised face masks

Face masks have come to symbolise our new reality. The market value for disposable face masks currently stands at $74.90 billion and is projected to rise at a CAGR of 53% from 2020 to 2027. Tapping into this new lucrative market, Prada, Gucci and Balenciaga are now producing designer face masks and MaskClub.com has been launched, offering a $9.99-a-month mask subscription.

Time will tell whether the wearing of face masks will be an ongoing opportunity or a short-term trend. After the SARS epidemic, Asian consumers continued to wear masks. The SARS epidemic predominately affected Asia. With Covid-19 being a pandemic, it wouldn’t be unreasonable to see many international regions following the Asian market’s lead in this space.

Source: United Kingdom; YouGov online survey; Imperial College London; May 11 to May 17, 2020

6. Garden equipment

With (public) outdoor time limited to one hour a day in the UK, consumers flocked to online garden and hardware stores to improve their living spaces earlier in the year. DIY projects proved popular, including garden pubs and treehouses. Plant, seed, and bulb sales rose by 48.2% year-on-year during lockdown, paint by 47.1%, and building materials by 31.4%. Garden retailers reported a 25% week-on-week increase in Internet sales.

Generally speaking, sales of home improvement and gardening equipment can weather many uncertainties – people will always need to patch-up their homes and make living spaces more comfortable. Particularly if spending more time at home due to work, economic reasons, or self-isolation. For investors, growth may not be as meteoric as some sectors, but it is a relatively safe bet.

7. Hand sanitiser

As concerns grew about the pandemic, hand sanitizer sales rose by 255% in February 2020. The demand saw supplies plummet and prices skyrocket by 367%.

Many drinks manufacturers and breweries switched production to hand sanitisers. The likes of Pernod Ricard, Brewdog and Absolut Vodka began making sanitiser. With infection control front-of-mind for many consumers, the market will grow at a CAGR of 11.68% to hit a total market size of US$2,548.984 million by 2025. This growth is two-fold, consumers have become more aware of the need to carry convenient personal healthcare equipment with them. Simultaneously, businesses are investing in increased sanitisation methods including hand gels placed throughout workplaces, in order to keep their employees safe from infection.


U.S. hand sanitizer market size
Invezz looks at the Top 11 industries positively affected by COVID-19 10

(source: https://www.grandviewresearch.com/industry-analysis/hand-sanitizer-market)

The market is predicted to experience substantial growth over the coming years due to the pandemic and increased awareness of health hygiene. It also taps into the growing demand for convenience products that can decrease infection risk in large, urban areas.

8. Meal kits and online groceries

Meal kits like Hello Fresh and Gousto have become popular while restaurants were closed. The market is now predicted to grow by 17.78% in 2020. Over half of consumers state that they’ve begun cooking more and 46% have started baking. Grocery deliveries are also up, with consumers spending 558.4% more in April 2020 compared to April 2019.


Hunter_Coronavirus_Cooking
Invezz looks at the Top 11 industries positively affected by COVID-19 11

(source: https://www.foodnavigator-usa.com/Article/2020/04/15/Survey-Cooking-at-home-will-become-the-new-normal-post-pandemic)

The shift to home cooking is predicted to change our grocery buying habits over the long-term with more people cooking from scratch and eating healthily. 72% of consumers state they will make greater attempts to eat and drink healthily in the future, and make more time for healthy home-cooking.

Investors and entrepreneurs that are looking at this sector would do well to bear this in mind and seek out businesses that meet this demand for healthy, nutritious and convenient food – organic and plant-based foods are two niches that are rising in popularity due to their ‘healthy’ reputations.

9. Instant messaging and video conferencing

With offices relocating to at-home working, there was a meteoric rise in instant messaging and video conferencing.

Zoom went from relative obscurity to becoming the communication tool of choice for many businesses, governments, and even the UK’s royal family. Downloads of the software peaked at 2.13 million in March 2020 (compared to 56,000 in January 2020). Daily meeting participants rose from 10 million in December 2019 to over 300 million in April 2020. With that, Zoom’s revenue is predicted to grow by 200% and its profit by 300%.

Likewise, Microsoft Teams reported a new daily record of 2.7 billion meeting minutes in April, an increase of 200% compared to the 900 million minutes it recorded on March 16th. Slack grew to 10 million ‘simultaneously connected’ users in March 2020 (up from 1 million in 2015) and then to 12.5 million two weeks later. Its financial year 2020 total revenue rose 57% year-on-year to reach $630.4 million.

Source: Statista, 2020

This growth will continue, given that many people are still working from home for the foreseeable future (and many wish to continue beyond that). Such communication tools can also be used to reduce reliance on business travel and continue to work globally. However, with the likes of Slack, Zoom and Microsoft Teams dominating the market, the investment opportunities for smaller companies will be limited.

10. Entertainment streaming services

Seeking entertainment at home, many consumers turned to video, music and gaming streaming. 39% are listening to more music streaming and 35% are playing more computer and video games. Sales of streaming boxes are up 39% and smart TVs by 60%.

Tapping into this, artists such as Luke Combs, John Legend and Yungblud are flocking to online streaming. Production companies are also streaming movies including Onward and Emma straight to home services (as cinemas remain largely shut). The virtual reality (VR) market has also experienced a boom as home-bound people sought new ways to entertain themselves. The COVID-19 pandemic may well prove to be the catalyst that VR needed to become mainstream.

For investors looking for opportunities in this sector, there are several to choose from. Video, music and gaming streaming are fast-growing areas, now accelerated by the pandemic, however they are dominated by Spotify, YouTube and other large players. Hardware that enables at-home entertainment is another avenue. Finally, VR offers a lucrative opportunity as an industry that, until now, has remain rather niche. As it grows its mainstream appeal, there’ll be ample opportunities for savvy businesses and investors to make their mark.

11. Staycations

Lingering concerns about the safety of overseas travel (plus the financial viability of travel companies) has led to a staycation craze. Many people have decided not to travel internationally until a COVID-19 vaccine is widely available.

Searches for ‘travel UK’ saw a 103% increase in July 2020 compared to July 2019. Parkdean Resorts predicts the post-COVID staycation market will be worth £8.246 billion.

Interestingly, this may become a persistent trend in the future as concerns about climate change dominate. 30% of 25-49-year-olds saying they’ll swap an international holiday for a staycation to reduce their environmental impact. This is a sector worth exploring, therefore, for longer-term gains. As the climate crisis becomes a focus point again, taking a staycation may be seen as the ethical and sustainable thing to do.

Looking forward

COVID-19 has fundamentally altered our lives and numerous businesses have surfaced to meet our new needs. But what will happen as we continue to emerge from lockdown and embrace our new normal?

Public health concerns will increase the appetite for infection control products like face masks and hand sanitiser, as well as other products like contact tracing apps and thermal imaging cameras. Public concern about COVID-19 remains high at 75% in August (compared to 72% in June). Concerns about a second wave continue to prevail and cause uncertainty – particularly in regards to local lockdowns and ever-changing air bridge agreements. Businesses and investors will have to continue to navigate this volatility, investing in processes that enable quick-pivoting and agility, until a vaccine or cure becomes widely available.

On that note, the world at large is in a type of stasis until a cure or vaccine for the coronavirus is developed. International travel will continue to be sporadic, work-from-home will be the default, and social distancing will limit public gatherings and businesses that rely on large numbers on-site.

Remote working will likely continue, as companies including PwC, BP and Uber commit to home working for at least the next year. 57% of workers don’t want to return to their offices. Therefore, products that help remote workers’ productivity and connectivity will continue to do well.

Then there’s the global recession to consider. The UK’s recession is deeper than the 2008-09 financial crisis, the deindustrialisation of the 80s, and the oil shocks of the 70s. However, there is a silver lining. Half of CEOs were already preparing for a downturn (since 2018) due to headwinds such as Brexit. Still, solutions that help people and businesses have greater control over finances will be in demand as businesses work through the complexities and challenges that a global recession will bring. For now, it remains uncertain whether the recession will be a ‘V’, an ‘L’ or a ‘swoosh’ – with hopes pinned on a V with a quick recovery time.

Ultimately, only time will tell us what trends will be a 2020-wonder and what consumer behaviour has significantly changed. Our world is going through extreme change and this won’t stop anytime soon. But with such evolution comes opportunity, for businesses and their investors.

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