In hindsight, 2019 seems like a nice dream that happened a long time ago. Faces were maskless, bars were so full that patrons stood shoulder to shoulder and lines outside of stores were reserved for Black Friday.
Flash forward a year to very different business conditions: a record number of consumers are making purchases online, Lysol is the “it” item on everyone’s shopping lists, and businesses old and new are closing their doors. Some businesses, however, have and will continue to weather the storm.
So how are those businesses spending their money as they feel and navigate the impact of COVID-19?
To find out we recently researched middle market companies – one of the most dynamic market segments – based on data we’ve collected from the more than 12 million payments processed each year throughout our AvidPay Networks.
The research findings and insights, summarized in a new report titled Middle Market Spending Trends, reveal how and where middle market companies are increasing or decreasing their spending across the following five industries: technology, finance and insurance, construction, transportation and warehousing, and accommodation and food service.
During the pandemic, technology has gone from optional to a requirement. Consumers have come to expect things such as buy online/pick-up in store, contactless payment options and machine-readable Quick Response (QR) barcodes. It’s not surprising then that spending on technology by middle market companies has seen steady growth over the course of the year.
Among the five industries observed, none saw more consistent growth than technology. Tech leaders reported a median additional spend of 5% to deal with the pandemic, totaling nearly $15 billion a week to support remote working.
Finance and Insurance
Spending in the finance and insurance markets also increased steadily during the first three quarters of this year versus 2019. Spending rose 3 percent in the first quarter. It then went up 7 percent and 14 percent in the second and third quarters, respectively.
A report by Deloitte lined up this trend noting that the global banking system “continued its positive streak with profitability increasing to new post-crisis levels” at the end of 2019 and start of 2020.
Spending on construction hit its peak in 2019, but has since fallen well behind technology, finance and insurance.
Our research found that spending increased 4 percent in the first quarter but then dropped to -2 percent in the second and third quarters compared with the previous year.
Consistent with this, a report by Construction Analytics indicates construction industry spending dropped for four consecutive months from March through June 2020, leading to the steepest four-month decline in 10 years.
Transportation and warehousing
Not surprisingly, COVID-19 travel restrictions combined with consumers’ health risk concerns had a severe impact on the transportation industry. There was a sharp decline in people taking flights, ordering Ubers and driving to work. These widespread behavioral changes led to a -38 percent drop in second quarter spending compared with the previous year. This downward trend continued through Q3, dropping by -29%.
Simply put, frequent flyers of 2019 are frequenting their living rooms in 2020.
Accommodation and food service
As you’re well aware, the restaurant industry has been one of the hardest hit during the ongoing global pandemic. In all three quarters of 2020, spending by the middle market in accommodation and food services has fallen by double-digit percentages.
People are choosing to order takeout or cook at home rather than dining in at restaurants. And because fewer people are traveling less hotel rooms have been booked. Since mid-February, revenue of U.S. hotels have dropped 50 percent and spending on food in the U.S. has been $12 billion less in 2020 versus 2019.
No industry has been immune to the effects of the virus. But the pandemic has forced businesses to seek out new and innovative solutions that may have never crossed their minds a year ago. So what’s the bright side? It has been a year of creative and imaginative productivity for business professionals, and much of it will carry on after the pandemic.
To learn more about middle market spending during this year’s health crisis, download the complimentary Middle Market Spending Trends report.