Can SMBs Avoid Being Left Behind In The Great Digital Shift?

Can SMBs Avoid Being Left Behind In The Great Digital Shift?

Under normal circumstances, trying to engender a big change in consumer behavior is usually more of a marathon than a sprint. Unless one happens to be an incredibly enthusiastic early adopter of new things, most people – without an incredibly compelling reason – are more content to wait and see before making major changes to what they are already doing.

As it turns out, a black swan global pandemic that shuts down physical businesses worldwide and drives consumers to the safety of their homes to do just about everything is just such a compelling reason. The digital transformation of the commerce ecosystem, which had been underway long before COVID-19 reared its ugly head, flipped into overdrive overnight, as consumers were forced to change their habits and shift almost everything they once did in real life to an online substitute.

And the depth and breadth of that consumer changeover has made itself seen in PYMNTS’ six months of consumer surveys, and in our latest round of data. As of fall 2020, a third of consumers report that they are very or extremely likely to select a merchant based on the availability of suitable digital, touchless offerings. And merchants, Karen Webster observed in a recent commentary on the subject, have “gotten and read the memo,” so to speak – on average, consumers report that their digital experiences have gotten a lot better over the pandemic period.

When it comes to digital ordering from restaurants, the experience has gotten two to two-and-a-half times better over the last three months, according to consumers, while in the same time period, digital grocery shopping has gotten nearly twice as good.

That big bump in the estimation of services among consumers seems to be a direct outgrowth of the volume of capabilities merchants have added. Seventy-nine percent of consumers report that the merchants they shop with have added or improved their digital-first and touchless experiences over the course of the pandemic. Among the leading new capabilities were curbside pickup (55 percent) and contactless payments (51 percent).

The Surprise in the Unsurprising

The fact that consumers have shifted to digital is not all that shocking. In the face of widespread closures, consumers still had commerce needs that needed filling, and being the only available game in town has definite advantages. And though stores have reopened, consumers have remained reticent about returning, as safety remains a leading concern. When asked, fear of crowds surfaced as consumers’ primary reason for preferring to carry on with digital-first experiences when it comes to shopping for groceries (57 percent), purchasing retail products (52 percent) and even ordering food from restaurants (45 percent).

And, the studies show, consumers are in this for the long haul – as of September, the majority of consumers were predicting that it will be another 374 days before they feel comfortable getting back out there, traveling and intermixing with large crowds again.

What is perhaps surprising is the degree to which consumers are learning to like their digitally shifted lifestyles, embracing them not as temporary stop-gaps in a disrupted economy, but as simply their new way of doing things. The number of consumers who report missing the physical shopping experience has dropped by 20 percent since April. Restaurant visits have done a little bit better, but those who reported missing dining out have dropped by 10 percent.

In fact, as the data make clear, when “normal” returns, it will find consumers who have permanently shifted to digital channels. The latest PYMNTS study found that 85 percent, 84 percent and 80 percent of consumers who have shifted to digital for shopping for groceries, purchasing retail products and ordering food from restaurant aggregators, respectively, say they will stick with all or most of those habits moving forward, and will do less in physical channels in favor of transacting digitally.

The SMB Pinch

The great digital shift and the increasing probability that it will become a permanent change in the retail world has presented challenges to nearly every retailer – but, as Webster pointed out, those difficulties have not exactly been evenly distributed.

“Some merchants are doing better than others — the enterprise merchants, in particular, are capturing more of the consumer’s attention and spend. Part of that is because they have the resources to make a quicker pivot, or maybe they think they stand to lose more if they don’t. In some cases, like retail and restaurants, it’s because they are open for business. Many of the Main Street businesses, which were once options for consumers, have closed or operate with limited hours and inventory,” Webster noted.

And big players have demonstrated the ability to make pivots and capture average volume in a retail race that has become heavily digitized. Chipotle, McDonald’s, Dominos, Walmart and Amazon have all reported consecutive quarters of surging sales and rapid recovery. What those firms all have in common is that they entered the pandemic well ahead on the digitization curve, and were able to simply speed up existing initiatives as opposed to having to invent them from scratch in response to a pandemic.

Smaller firms have not fared as well. Three-quarters of the nearly 22,000 restaurants that closed across the U.S. between March 1 and Sept. 10 were businesses with fewer than five locations, according to listing site According to forecasts from the National Restaurant Association, 100,000 restaurants will close this year, doubling the 50,000 closures that typically happen in an average year.

And most of those restaurants, according to Wall Street Journal reports, will be small, independently operated locations.

And according to MerchantE Chief Financial Officer Shimon Steinmetz, those small, independent restaurants and retailers have already suffered through a bumpy 2020 and aren’t entering 2021 on the surest footing, which means at this phase, may be a lot to hope for.

“I actually think 2021 may not be a good year — I’ll be blunt in saying that,” he told Karen Webster in a recent conversation.

Those SMBs are now facing a consumer base that has had its preferences and expectations radically shifted in a way that data indicate has become permanent. That leaves those business owners facing the necessity of making a lot of upgrades and investments in modernizing themselves into multi-channel, digitally ready firms – right as their revenue has crashed and they have absolutely no money to make those kinds of changes.

“You cannot restructure when revenues go to zero,” Steinmetz noted. “There are a lot of people that have, over the last 25 or 30 years, been building small businesses that will not come back.”

But as PYMNTS has learned over a half-year of interviews with SMB owners that have moved from weathering the current crisis to leaping across the digital divide, there will also be quite a few that come back, albeit a bit different than they once were.

The Power of Persistence

Before the pandemic, James Beard award-winning Boston wine bar haley.henry was an eatery known for small plates, tinned fish and all-natural, small-batch wines shipped from all over the world. When the pandemic closed its doors, as owner-operator Haley Fortier told PYMNTS in a recent conversation, the company was forced to reinvent itself digitally.

Using DIY methods, to boot.

“We just did it all ourselves,” Fortier said. “There were so many outlets like Caviar and DoorDash that you could order from – but they take 30 percent of the profit, so it didn’t make sense for us. We just did all of our deliveries ourselves to conserve money and give it back to the business.”

In fact, that is a refrain PYMNTS has heard several times over the last several months: The pandemic came and shut everything down, and the retailer or restaurant came back – not quite stronger than ever, but doing things differently and envisioning a slightly different road to recovery than they’d previously imagined.

As Tim Griffin, founder of the small business payments platform Cloosiv and chief product officer of its new parent company, Odeko, told PYMNTS in a recent conversation, SMBs are a persistent group that won’t go down without a fight.

And so, while their obituaries are getting written a lot in media these days, he’s not counting them out yet, and doesn’t think anyone else should, either.

“Having rubbed shoulders with plenty of tech entrepreneurs, they don’t hold a candle to small business owners in the grit and general passion they have for what they’re doing,” Griffin said. “It’s far easier to go out and try to raise millions of dollars to build a piece of technology than to bootstrap something on your own and try to build it within your community. It takes guts. We shouldn’t underestimate the general grit behind a small business owner.”