Netflix and chill? Yes please, but not with a Coca-Cola.
Recent announcements from these two corporate giants have given us an interesting insight into consumer trends and how staying at home is affecting demand differently for the products of two of the world’s best-known companies.
Netflix, the global leader in online entertainment services, has recorded a year-on-year increase in first quarter sales of 27.63% from $4.521 billion in Q1 of 2019 to $5.770 billion in Q1 this year. This increased revenue comes mainly from a 22.8% increase in subscriptions for the same time period.
The success of Netflix in the last three months should come as no surprise. With billions of people living in lockdown around the world, most are utilising the internet to satisfy their need for both entertainment and social stimulation.
One company which is not doing so well is Coca-Cola, the world’s largest soft-drink manufacturer. With such widespread popularity for the product around the world, and fierce brand loyalty, Coca-Cola has proven to be largely recession proof in recent decades.
Then along came the coronavirus. They now find themselves in a situation they have never been in before, with sales and profits both declining for the first three months of the year.
In the early months of the outbreak of Covid-19, Coca-Cola saw a short-term boost in sales as many consumers stockpiled their much-loved beverage. However, as restaurants, bars, and other entertainment venues such as sports stadiums shut their doors, demand for Coca-Cola plummeted, with global sales figures for April down by an astounding 25%.
With the coronavirus showing no signs of abating, and on the contrary a resurgence of cases in Japan and Singapore, there is no way of telling when normal economic activity will be able to resume. The problem for Coca-Cola is that even when economies do reopen, it is likely that many consumers will remain wary of going to restaurants, bars and large events, meaning that demand could continue to be dampened for many months to come.
THINK LIKE AN ECONOMIST!
Q1. Explain why demand for Netflix is increasing. Which demand-side factor is this?
Q2. With reference to the term ‘demand-side shock’, explain the problem that Coca-Cola is facing.
Q3. Discuss the other winners and losers of a global lockdown.
