Quick, Quick, Slow – The Reopening Dance

The US economy needs to catch fire again but simply opening business again won’t do it – consumers also need to re-engage, and in large numbers. A rapid and sharp resurgence depends upon millions of consumers again taking flights, using restaurants, staying in hotels, visiting theme parks, going to the movies, spending time in casinos, etc. By doing so we will revitalize the leisure, tourism and entertainment sector which accounts for more than 15% of GDP and employs tens of millions of Americans. So far though, the signs of re-engagement are tentative – by mid-June hotel occupancy had crept up to just 25% capacity, airline bookings were at just 20% and the restaurant industry, the US’s second largest private sector employer, was still 70% down compared to a year ago.

Intensified demand

One explanation could be that US consumers simply don’t want to return to restaurants or spend time in any of the other ways they did pre-COVID. ENGINE’s CARAVAN survey of US adults, fielded June 15-17, suggests the opposite is true – not only do consumers want to get back to what they used to do, they want to do more of it than ever: 44% of US adults used a national chain restaurant in the 12 months prior to the crisis but 88% intend to do so now that businesses are reopening; a fifth stayed in a national hotel chain last year but 78% now have plans to do so, a quarter of Americans took a domestic flight in the last 12 months but it’s now on the radar of almost 70%. The pattern is consistent across the board, from casinos to cruises to live sports and theme parks, Americans want to get back to doing what they love, and then some. Problem solved then, right? Not quite.

 

Anxious consumer will trickle not flood back

Even though the desire to re-engage is intense and widespread, consumers will not quickly flood the country’s restaurants, hotels, planes and other leisure and entertainment venues. Only a quarter of those who intend to use a national chain restaurant will do so immediately; just 14% of those who intend to stay in a national chain hotel will book straight away; only 9% of those who intend to take a domestic flight will book now; just 8% among those who intend to visit a theme park will fix a date to visit, and just 6% of those who intend to take a cruise will immediately do so.

Clearly, consumers are desperate to re-engage, but the majority are hesitant to make it happen, and the reason is not hard to find – 84% of Americans remain concerned about the Coronavirus and even among those who want the economy to fully open immediately, three-quarters are either very or somewhat concerned about the disease. The slowing effect of these worries is perhaps most evident in the fact that a significant minority (about 20%) will not re-engage at all until a vaccine is produced. For example, a quarter of those who intend to visit a theme park will not do so until there’s a vaccine, and a fifth of those who want to stay in a hotel or take a domestic flight will wait until a vaccine becomes available.

Plainly though, with a fifth of consumers holding back until we have a vaccine and only a minority racing out to engage immediately, most Americans must need something else before they re-engage with the businesses that need them. In this context it’s clear that health and safety concerns continue to be the number one reason for holding back, accounting for more than half of the reasons for delaying a restaurant visit, a flight, or engagement in any other leisure and entertainment activity. Clearly, businesses across the sector need to quickly figure out how to encourage consumers anxious about catching the virus that their venue is a safe place to visit. Only then will they benefit from the huge swell of pent up demand.

How hard can it be?

US consumers have set only a low bar for the standard of hygiene and sanitization they need in order to feel happy to re-engage. On a scale from 1 to 10 where 10 is the highest possible standard of hygiene and sanitization, US consumers require only a little over 6 before they’ll happily re-engage. The problem is that consumers do not believe that most hospitality, leisure and entertainment business can meet their modest expectations. In fact, only national and local restaurants are currently perceived to do so while every other business type is way off the pace – national hotel chains and airlines score only in the mid to high 5s, airports, cinemas and theatres score in the low 5s, while casinos score only in the high 4s.

Clearly then, even with only modest requirements to meet, consumers are hanging back from re-engaging on a large scale because they just don’t believe that businesses have so far prepared well enough to keep them safe. This is surprising – by now, every business must have established a reopening protocol that incorporates the very best medical guidance on social distancing and sanitization. No business could survive the fall out of reopening and then making the customers who give it life sick with COIVD-19, so it stands to reason that every business will have made this their number one priority. Assuming that’s true then even with profits down and cash preservation paramount, it’s become paramount for businesses to now urgently communicate widely the hygiene and sanitization steps they’ve taken to protect their customers and staff. Communications on this theme, hand in hand with promotions, will kill two birds with one stone; after health concerns the second largest reason for delay is reduced disposable income as a result of furloughs, pay cuts and unemployment.

A unique opportunity for businesses to share the burden

Competition is inherent in business, and in the US, competition is lauded more than anywhere else in the world. But at this extraordinary time, hospitality, leisure, travel and entertainment businesses would be better served to collaborate in driving and communicating consistent standards across the sector, rather than competing for our discretionary spend.

The old proverb “a chain is only as strong as its weakest link” captures the point well, but a concrete example will illustrate the point: when we decide to travel by air to a new city, several inter-connected steps are involved. The first is transport to a departure airport, followed by passage through security, time spent in the airport terminal, time on the plane itself, time spent in the arrival airport’s terminal, and then transportation from the airport to the first destination which for most is us is likely to be a hotel. For a traveller with concerns this ordinary trip is fraught with dangers. Taking the trip won’t just depend on how hygienic they think an airplane or hotel will be, instead the decision will depend on how safe they perceive the journey to be in total, and that will come down to the weakest link in the chain.

For the majority of American consumers on whom a resurgent economy depends, the chain of touchpoints noted above falls dismally short of even their modest requirements. Only hotels currently meet an acceptable standard – the TSA and airports rate only a 5, significantly below airplanes which themselves only rate a high 5; rental cars score only a low 5 while taxis and services like Uber and Lyft score only mid 4s. If these perceptions persist, the economic recovery will fizzle like a damp firework rather than vibrantly exploding.

For once, American capitalism’s health depends not on unbridled competition but on widespread, focused collaboration. The leisure, entertainment and hospitality sectors need to define and enact consistent standards, and then communicate them together to the anxious American consumer. Only then will the resurgence they need gain the energy to thrive and the quick, quick, slow of the Foxtrot become a Quickstep.

 

Written by Andy Turton, SVP at ENGINE Insights.