The big winners of Lockdown 2.0 will be very different from last time

Amazon will complete its annexation of a continent or two. Apple and Google will zip effortlessly through the $US2 trillion ($2.8 trillion) market value barrier. Zoom will triple in size, Netflix will sign up another 500 million subscribers and the IPOs of sourdough bread-making apps will be massively oversubscribed. With much of the global economy going back into lockdown, investors probably feel they have a pretty good idea how the next few months will play out. It will be tech, tech, and more tech, Nothing else will get any attention at all.

Last week, Netflix disappointed Wall Street with its results showing subscriber growth was slowing.
Last week, Netflix disappointed Wall Street with its results showing subscriber growth was slowing. Credit:Gabby Jones

But hold on. In fact, the big winners from Lockdown 2.0 will be very different from Lockdown 1.0. There are already signs in the northern hemisphere that if we have to hunker down at home through the winter while we wait for a vaccine to finally bring this crisis to a close then it will be the old economy that does better this time around. Why? Because technology is running out of steam; because consumers are turning to comforting staples; and because traditional businesses have started to figure out how to adapt to the crisis. Investors and chief executives simply expecting a replay of earlier this year are in for a surprise.

When economies across the world were locked down through April and May, it quickly became obvious which companies benefited from that. The technology giants posted huge gains in market share as we bought stuff from Amazon, watched box sets on Netflix, and switched to working on Zoom rather than in an office. Retailers crashed, and so did restaurant chains and coffee shops, along with airlines, hotels and cinemas. If your business model didn’t depend on reliable broadband you were in trouble. If you could deliver your product online everything was good.

And yet, as this epidemic drags on, and as we react to a second wave of infections with fresh lockdowns, there are already signs that is starting to change. The winners and losers are not the same as last time around. Not convinced? Just take a look at some of the companies reporting excellent results over the last couple of weeks. In consumer goods, Nestle beat expectations with a 3.5 per cent rise in sales in the first nine months of the year, its fastest rate for six years. Unilever was ahead of expectations, with a rise of 4.4 per cent in sales. Reckitt Benckiser reported strong sales growth, and so did Proctor & Gamble. There is nothing very hi-tech about that collection of companies. The investment banks have suddenly snapped out of a decade-long torpor, and started posting strong figures. Goldman Sachs delivered its best third-quarter results ever, driven by rising profits on trading and asset management while JP Morgan Chase, its closest rival, delivered results that were way ahead of analysts expectations, and the Swiss giant UBS reported a near doubling of profits on strong results from its wealth management unit.


In the US, the index of publicly traded restaurant stocks has just hit an all-time high (Domino’s, for example, is up 36 per cent so far this year and Chipotle is up 60 per cent).

Meanwhile Netflix reported relatively disappointing results this month, while retail sales figures in the UK last week showed online sales stalling. That is not quite the script we expected. In fact, there are three reasons why the winners and losers have switched around.

First, the tech boom has run out of puff. The industry compressed a decade of potential growth into just a few short months, and that led to some extraordinary advances. But there will now be a period of consolidation. According to the Office for National Statistics, from 2013 to 2020 the share of UK retail sales online went from 10 per cent to 20 per cent.

Between February and May, it climbed to 30 per cent: the share advanced as much in four months as it did in the previous seven years. But in August, that slipped back to 26 per cent. In reality, the online retailers have made some huge gains. But another 10 per cent in the next few months? That isn’t likely. In fact, the share will be flat for the next few years.

Next, the longer COVID-19 goes on the more we are turning to comfort staples. The reason giants like Unilever and Reckitt have been doing better than expected is because we are cleaning everything – not just our hands – a lot more than we used to. Likewise, we are buying a lot more familiar brands, and, it looks like quite a few of us are bingeing on comfort foods as well as box sets as we get through another lockdown.

Nestlé beat expectations with a 3.5 per cent rise in sales in the first nine months of the year, its fastest rate for six years.
Nestlé beat expectations with a 3.5 per cent rise in sales in the first nine months of the year, its fastest rate for six years.Credit:Bloomberg

That helps well-established businesses: it takes decades to create that kind of brand.

Finally, companies are adapting. The first wave of the epidemic was a shock. Many businesses had no real idea of how to respond. It wasn’t something that had been planned for. Six months later they are starting to get the hang of it.

One reason chain restaurants have started to perform so well is they have switched to take-outs, shortened their menus, and reconfigured their space to cope with the virus. Elsewhere, firms have closed offices, shifted to home working and changed the products they are selling to adapt to a very different economy. The precise mix varies business by business, but none of them have been standing still. They have learned what works and what doesn’t, and that is enabling some very basic, well-established giants to come back.

The first round of lockdowns was dominated by a handful of tech companies. In the second round, the old economy will strike back.

That won’t be true of every business. Some of the retailers are still likely to struggle, and so will the airlines and the hotel chains. Even so, technology is not going to have the market to itself. And neither investors nor chief executives should expect a straightforward replay of the spring.

Telegraph, London

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