How British business is weathering the coronavirus storm
The coronavirus has upended life and commerce as we know them. How are the different sectors of the economy adapting to this challenge?
This article originally appeared in The Business Briefing Issue 1. Sign up now to receive your weekly digest of all the insights and information that matter direct to your inbox.
The word “disruptive” has been flung around in business circles so much in recent years it had almost become meaningless. That was until Covid-19 entered our lives, showing everyone just what disruption really is.
Even those businesses that have been preparing for uncertain times – perhaps in the wake of the 2008 global financial crisis or, more recently, the Brexit referendum – have been taken by surprise by the speed with which coronavirus turned supply chains, businesses and lives on their heads.
But while Covid-19 has been universally disruptive, that disruption has been far from uniform. For some organisations and sectors, the future looks very bleak indeed, while for others this changed world has led to a huge increase in demand and unprecedented visibility. Others still have had to rework their go-to-market strategies and partnerships in ways that just a couple of months ago would have seemed wildly outlandish.
Stand back and deliver
Home delivery has become a key feature of the lockdown economy, with one of the earliest pieces of advice from the UK government being for consumers to arrange to have goods – particularly food – delivered to them at home.
This has been an unmitigated boon for companies that already specialised in this area, with Amazon being a standout success. According to The Guardian, the company is making “almost $11,000 a second on its products and services” and has been described as a “clear winner” by analysts. This has naturally increased the value of the company significantly and its share price is up by over $600 compared to last month.
In food delivery, take away services are also doing roaring trade. Domino’s Pizza, for example, has had to implement a queuing system on its website in order to cope with increased demand and is actively recruiting additional delivery drivers.
Things aren’t all rosey for home delivery, though. Supermarkets have been overwhelmed by demand and most are restricting online purchasing and delivery to people designated most vulnerable by the government.
Tesco has issued one of the frankest statements on the situation, saying that while it has increased home delivery slots by 20% already and will continue to add more “there is simply not enough capacity to supply the whole market”.
“Between 85% and 90% of all food bought will require a visit to a store and here significant changes to the store environment have been implemented to maximise safety for colleagues and customers,” the retailer said.
Sainsbury’s, meanwhile, is encouraging members of the community who aren’t in a high risk group to help fill the gaps in delivery capacity. In an email to customers, chief executive Mike Coupe said: "We know many elderly and vulnerable people who need to self-isolate are relying on the kindness of family, friends and local communities to shop on their behalf and we encourage this.”
To help facilitate these public spirited transactions, the company will be introducing a new volunteer gift card and online voucher in the coming weeks.
Supply chain tensions
Elsewhere in retail and food production, things have become more fraught. In the convenience sector, the spike in demand that saw supermarkets struggling in March is now arriving at smaller stores. Speaking to The Grocer, James Lowman, CEO of the Association of Convenience Stores, said “retailers are running on fumes at this point” as supply chains begin to falter.
According to Ken Towle, CEO of the convenience store chain Nisa, these smaller shops typically hold two-to-three weeks’ worth of stock. The recent jump in demand, however, saw them burn through this very rapidly and in order to keep pace, they are now putting in large orders with wholesalers and suppliers, which in turn are starting to struggle.
These organisations further up the supply chain have adopted various strategies to cope with increased demand from retailers of all sizes. Emily Munsey, who with her father runs the Wessex Mill in Oxfordshire, told BBC News the flour mill was running round the clock for the first time in its 125-year-old history.
“We've increased production about four-fold but we're nowhere close to meeting the demand we've seen," she said. To help mitigate this, the company has hired additional workers, such as chefs and builders, who had been forced out of work by the lockdown.
On the other end of the scale, suppliers to the restaurant business have seen demand disappear almost completely.
Prior to the crisis, the British Premium Sausage Company, based in Yorkshire, primarily sold products to restaurants, hotels and airports. Managing Director, Ian Cundell, said: “When the Prime Minister made the announcement that all the hotels and restaurants should close, that got rid of 50% of our sales. When the airports shut down as well, that accounted for a further 25%.”
However, the company has managed to pivot rapidly towards supplying two supermarkets, Tesco and Asda, which Cundell credits with saving the business.
“In some ways, the British Premium Sausage Company may be in a stronger position than before all of this happened. We’ve opened a door into the supermarkets that we wouldn’t have got into before,” he said.
Tourism in crisis
While retail and food production have been dramatically affected by the Covid pandemic, the travel and hospitality industries have arguably been the hardest hit. With hotels closed and aeroplanes largely grounded, there are serious concerns as to how one of the most important sectors in the UK economy will recover.
In an email to members of its Executive Club, British Airways CEO Alex Cruz said: “For only the second time in our 100-year history, (the first being during the Second World War), the majority of our British Airways aircraft have now touched down in London, leaving just a small fleet flying to bring people home to their loved ones and to deliver critical supplies to countries and people in need.”
He added, however, that while it’s uncertain when planes will be able to fly again, the business “stands on strong foundations” and “when our aircraft are cleared for take-off once again, it will be epic. Families will be reunited, the wheels of industry will start turning again and when they do, we’ll be ready”.
Not everyone in the sector has been so upbeat, however. The International Air Transport Association (IATA) predicted in April that “the COVID-19 crisis will see airline passenger revenues drop by $314 billion in 2020, a 55% decline compared to 2019”.
Alexandre de Juniac, IATA’s Director General and CEO, added: “The industry’s outlook grows darker by the day. The scale of the crisis makes a sharp V-shaped recovery unlikely. Realistically, it will be a U-shaped recovery with domestic travel coming back faster than the international market.
“Several governments have stepped up with new or expanded financial relief measures but the situation remains critical. Airlines could burn through $61 billion of cash reserves in the second quarter alone. That puts at risk 25 million jobs dependent on aviation. And without urgent relief, many airlines will not survive to lead the economic recovery.”
In hospitality, the outlook is equally grim. Kate Nicholls, Chief Executive of trade body UKHospitality (UKH), said: “Hospitality is at an existential crossroads, and much more is needed if we are to safeguard jobs and the incredible social and economic value that our sector represents.”
The organisation has welcomed the launch of an urgent enquiry by the All-Party Parliamentary Group for Hospitality and Tourism into how to support businesses as they recover from the current crisis, as well as the recent extension of the government’s furlough scheme. However, for now the reality is that the hospitality industry is firmly closed for business.
That’s not to say it’s completely idle, though. UKH has set up a scheme to find those who are normally employed in hospitality temporary jobs in other sectors while they are furloughed or out of work. Many hotels have also opened their doors to help house key workers, with Nichols saying the action “will, we hope, ease the strain on those services battling to tackle the spread of the coronavirus,” adding: “It could also help save hotels at very real risk of going out of business and keep people in work at a time when many people’s jobs are at risk”.
Remote working and the search for a cure
On the other side of the coin, the technology and pharmaceutical industries are, at a business level, benefiting from the pandemic and the changes it has wrought.
With much of the country now working remotely, demand for everything from collaboration and video conferencing platforms to security software, AI and more has skyrocketed. In response, several tech companies are offering time-limited free access to their products, with the hope of establishing new long term client relationships.
While many of these studies are being done at an academic level, ultimately the drugs used to treat and prevent the disease will come from the pharmaceutical sector. The race to halt the pandemic has led to some of the biggest companies in the industry, which normally operate as rivals, working together.
In mid-April, GlaxoSmithKline (GSK) and Sanofi announced they’re partnering to produce a Covid-19 vaccine.
“This collaboration brings two of the world’s largest vaccines companies together,” said Emma Walmsley, CEO of GSK. “By combining our science and our technologies, we believe we can help accelerate the global effort to develop a vaccine to protect as many people as possible from COVID-19.”
Paul Hudson, CEO of Sanofi, added: “As the world faces this unprecedented global health crisis, it is clear that no one company can go it alone. That is why Sanofi is continuing to complement its expertise and resources with our peers, such as GSK, with the goal to create and supply sufficient quantities of vaccines that will help stop this virus.”
Bringing a successful vaccine to market could prove highly profitable for the company or companies involved. However, several international aid agencies are already pushing back against the possibility of profiteering following such a development.
Vickie Hawkins, Executive Director of MSF UK, said: “The UK is putting millions of pounds of public money into global efforts to finding [sic] a vaccine for COVID-19. This money cannot be handed to pharmaceutical companies with no strings attached. Conditions must be added to these funds to ensure that there are no patents or profiteering on any future COVID-19 vaccine.”
While the organisation that develops a successful vaccine may feel somewhat bruised if it’s not issued a patent, for the sector as a whole it could prove a boon, as all manufacturers would be able to produce and sell generic versions of the product immediately.
To say that there are winners and losers in the Covid-19 pandemic would be unfair; almost every business in every sector, irrespective of size, will have been negatively impacted in some way. However, the ability of organisations across the board to adapt to their new circumstances so rapidly is a testament to the strength of British business.
With the help of government-backed schemes, there are many reasons to hope that a majority of companies in the country will survive this upheaval, having learned some lessons along the way that will help them thrive in the years to come.
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