This is a micro-piece on economy and economic recovery in light of the last two years of the in-and-out Covid pandemic. Many businesses and almost all stock markets had taken a nose-dive in mid-2020 after the global clamping of lockdowns and with most businesses slowing down with a sickening crunch. Pundits started speculating on the shape of the recovery in the economy – a V or a U or a W? Quite quickly, the concept of the K-shaped recovery was proposed by some astute observers…and a consensus built up that this was the most probable outcome. And this is what actually happened.

The K-shape started coming from some companies in each sector improving their performance as compared to the past, while some other companies faring worse. This situation arose because the players with stronger balance sheets, and with stronger brands ended up cornering a higher share of the market. They could invest more, expand more and acquired more customers. With stronger brands, customers preferred them more, betting on companies which could last longer. As opposed to such strengthening companies, some other companies had weaker funding positions, their bottom-lines had got exposed with falling revenues and hence they cut costs and shrunk their businesses. Customers started walking away from such companies not sure if they would survive. So in effect, a virtuous spiral for the stronger companies and a vicious spiral for the weaker companies made the strong companies stronger and the weak companies weaker. This led to the classic K-shape curve.

2021 saw a small-case “k” recovery with more companies still struggling to grow and remaining on the lower leg of the “k”, and only a few companies able to scale up the upper leg of the “k”. However, in 2022, the small case “k” is quickly becoming a capital “K” with the upper leg gaining strength. As a result, most of the sectors have seen the leading 5-10 companies in each sector corner an increasing share of the market. This has been accompanied by an unfortunate shutting-shop of many small companies in each sector, unable to sustain the revenue shock from the pandemic and lockdowns. That slide continues forming the lower leg of the “K”.

In most of the sectors, the K-recovery is not bad for the end consumers. There could be some reduction of choice with some companies disappearing. But more than not, the number of players left behind are enough to provide a decent choice. And then there are market forces at work – for sectors where number of players have fallen below a threshold where choice is getting impacted, those sectors will see an entry of startups to balance the flow. This should leave some food for thought for smaller companies to mull on and prepare for any next such global event, on how would one develop unique competitive advantages and develop a stronger balance sheet to be able to climb on the upper leg of any K-recovery which happens. The K-shape is quite merciless and you can be on only one of the legs!!