Edition 216 – Essential vs. Discretionary

As Australia moves into a situation that the Prime Minister and Treasurer are referring to as Economic Hibernation, and as my own state, New South Wales, moves to restricting movement outside the home to very limited circumstances, the effects of the COVID 19 virus continue to be felt far and wide.

In my opinion, what small and family businesses are experiencing now, and how they respond to it when we are through the other side, will determine which stand and which no longer re-open.

I have a firm belief that we are going to see two very different economies open up in Australia, being:

1. The Essential Economy.
2. The Discretionary Economy.

The Essential Economy represents goods and services that people, businesses, governments and the international community will need. Businesses in the Essential Economy will experience a bump through this time, and will come out of it with some bruises and scratches. However, they are ideally based to bounce strongly, if they take time now to position their strategy, budgeting and cashflow right.

Examples of Essential Economy businesses include:

1. Trades – we can’t function as a country without electricians, plumbers, carpenters and welders.
2. Health – pure medical as well as allied health.
3. Science – R&D as well as production.
4. Cleaning & Maintenance
5. Some, but not all professional services.
6. Manufacturing.
7. Transport and logistics.

On the other hand, the Discretionary Economy represents exactly that – goods and services that have been purchased in the past but, on reflection, we’re now asking ourselves, did we really need it? Businesses in the Discretionary Economy will, in my opinion, suffer the biggest impact as a result of the COVID 19 outbreak and many will simply not return from it.

Examples of Discretionary Economy businesses include:

1. Cafes, restaurants and bars – where I believe up to 30% will simply never re-open.
2. Some retail – which was already teetering on the brink. I’m thinking both smaller, independent retail that are seen in the suburbs and small towns, as well as larger chains that fill the country’s shopping centres.
3. Some professional services that are limited in the scope of their service offering. Licensed conveyancers, in my opinion, are at risk as they have nothing else to fall back on in a post COVID 19 world.
4. Some personal services – home gardeners, event planners, home cleaners – as people look to close their wallets.
5. Travel and leisure.

If your family business operates in the Discretionary Economy, you should already be re-pivoting to a new model. For instance, those cafes and restaurants that are doing home delivery will survive through this time. Those that haven’t may have lost the ability to keep their brand in the marketplace during this period of hibernation.

If your family business operates in the Essential Economy, you also need to re-pivot to consider what opportunities are opening up that might create new business for you. For instance, HSV, the company that modified Holden Commodores and currently converts US motor vehicles for the Australian market, have used their 3D Printing capability to develop ventilators that can be used in the hospital system. Their product doesn’t have the life of a standard ventilator – but they have quickly learned the knowledge to, potentially, move into that space in the future.

Right now, business is moving very fast as the situation changes dramatically. It’s the perfect opportunity to take a moment to determine what your future strategy is and how you can best take advantage of the times we now live in.

Take 15 minutes to list down all the goods and services that you produce and sell in your family business right now. Then, check whether those are in the “Need” or “Don’t Need” category. This will help you to quickly ascertain whether you are on the right course, or you need to re-pivot.