Chinese e-commerce has performed strongly during the COVID-19 outbreak, despite earlier challenges in supply chain systems and a shortage of delivery personnel. During January and February, online retail sales (goods and services) recorded a yoy decrease of 3%, but online retail sales of physical good where actually up 3.0% and accounted for 21.5% of total consumer goods retail sales.
Reporting in the China Economic Review on March 13 indicates that Alibaba Group Holdings' arms for parcel and meal delivery are now back to pre-outbreak staffing levels, and its O2O retail platform Hema Fresh (Fresh Hippo) is also now understood to be operating at full capacity or close to it. Meanwhile, JD.com is forecasting 10% Q1 revenue growth.
Alibaba has suggested that many Tmall promotions have been cancelled for at least the first quarter. Reasons include Alibaba staff not yet returning to work, ongoing concern over the outbreak, and logistics challenges. This could result in a dip in revenue on Tmall and Taobao. Consumers are also likely to be favouring low-cost daily necessities (such as vegetables) instead of high-value products.
On 10 February, Alibaba announced a number of support measures for SME merchants, including:
reducing or waiving platform fees for new Tmall Global merchants coming onboard before 1 July 2020
waiving fees for warehouse rental space and logistics (Cainao bonded warehouses and overseas warehouses)
reducing operational fees for 21 service providers to the Tmall Global platform
low-interest and interest fee loans for Tmall Global merchants.
JD Fresh, and other vertical fresh produce e-commerce platforms such as Missfresh, Dingong Vegetable and Sunning, have reported positive performance during February. JD has reported that sales of staples such as rice and dairy products rose significantly.
Similarly, there has been strong demand for fresh produce through both JD's online and offline platforms. Feedback from JD team members suggests that consumers have been favouring "normal types of seafood" which are in daily supply rather than trying a wider variety of products.
Three business models are being used to speed up home delivery of perishable foods:
Using satellite warehouses not open for consumer shopping. Miss Fresh, DingDong, PuPu are examples of companies using this business model. Miss Fresh sales are reported to have grown 300% since the COVID-19 outbreak, with average basket size now at RMB120. In addition, daily vegetable supply for Miss Fresh has grown from 500 tonnes to 1000 tonnes and is forecast to increase further to 1500-2000 tonnes. Miss Fresh is currently aiming for 2-hour delivery, which, while fast, is slower than their previous delivery target of one hour (a result of staff shortages). DingDong sales have also grown by 200%.
Using retail stores as satellite warehouses. This is the model being used by Hema, for example. Goods can be delivered to consumer homes within a specified radius of the stores in as fast as 30 minutes from the time of placing an order on the Hema app.
Offline retailers combining with 3rd party delivery providers. This model has been adopted by retailers such as Walmart, Sam's Club and Yonghui. The delivery service is handled by providers such as JD Daojia.
Some constraints on the delivery system have included delivery workers not being able to return to work due to self-isolation requirements. Delivery workers are also being refused entry into residential compounds – instead, they stop at entrance gates and wait for customers to individually come to the gate to collect their parcels. This is now referred to as 'contactless delivery.'
Advice to exporters
For companies that already have an online presence, it’s time to review campaigns for the next six months of the year with their trade partner (TP). This includes the logistical aspects of these campaigns, the brand messaging, and any events. It may also be time to look at shifting offline promotional budget to online formats, with many retail promotions cancelled (or indeed prohibited) during the epidemic control period.
Review whether your ‘hero’ products fit with the current market situation. Products which are more closely associated with health and wellness, or personal care, look to be in higher demand.
O2O platforms, including 7-Fresh and Hema, should still be of interest to companies exporting perishable products which require fast delivery.
Community-based social commerce is growing. Many community based ‘grocery shopping’ WeChat groups have quickly established themselves to meet demand and to share product supply information. This model existed before the COVID-19 outbreak, but growth could well accelerate. Therefore, it is worth asking partners in the Chinese market whether they can service this business and if it would be appropriate.
Manufacturers or distributors that are traditionally B2B in focus are also ramping up their e-commerce efforts through their own WeChat platforms and mini programmes. Their aim is to reach not only restaurants or retailers, but also direct to consumers.
Companies that do not have an online presence should accelerate work to assess the commercial viability of channels for their products and qualify their trade partner options.