Chinese e-commerce has performed strongly during the COVID-19 outbreak, despite earlier challenges in supply chain systems and a shortage of delivery personnel.
NZTE understands 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 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) over high-value products.
Alibaba has 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-free loans for Tmall Global merchants.
JD Fresh, and other vertical fresh produce e-commerce platforms such as Missfresh, Dingong Vegetable and Suning, have reported positive performance. JD.com has announced first quarter results - net revenues were RMB146.2billion, an increase of 20.7% from the first quarter of 2019. Annual active consumer accounts increased by 24.8% to 387.4 million in the twelve months ended March 31 March 2020, from 310.5 million in the twelve months ended March 31 2019. Mobile daily active users in March 2020 increased by 46% as compared to March 2019.
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 and 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 two-hour delivery, which, while fast, is slower than its 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 third-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.
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 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 that 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.
The restaurant sector is recovering, however customers still have concerns about dining out and some local authorities have been restricting in-restaurant dining - but allowing takeaway and food delivery services. There are provisional guidelines for the food service industry during the Epidemic Control Period, not permitting venues to hold banquets or large-scale group dining.
Restaurants are also not back to normal operations for commercial reasons, particularly from a lack of foot traffic due to people working from home or lack of staff. This situation has been easing and will continue to do so over coming weeks and months. However, some in-market contacts are predicting that it may not be until the third quarter of 2020 before the food service industry fully recovers.
Examples have emerged of restaurants quickly evolving their business model to work with e-commerce platforms to sell semi-prepared meals to consumers, or even supermarket-style retail, to increase the use of their kitchen and dining space.
There are signs that hotels are returning to operation, but most still with limited services and suffering from low guest booking levels. For hotels now open, gyms and banquet facilities may not be operating, and in-house restaurants will likely be offering scaled back services (such as not serving buffet food) or may even be closed in some cases.
Advice to exporters
Companies should continue to maintain regular contact with their importers, distributors and other channel partners to keep up to date on their state of operation, understand any specific challenges they are facing, and offer support during this difficult period. These companies will have first-hand insights into how the local market is currently shifting, including what channels are working and how to manage logistical constraints.
Have open and empathetic dialogue with partners. Whilst there may be immediate pressures, it is important to not only discuss the short-term but also the mid-term picture for the market.
Consider working with your importers and distributors to tailor products to the change in consumer behaviour driven by the outbreak – this includes the increasing use of online ordering and food delivery, and some restaurants diversifying into semi-prepared meals.
Supermarkets are largely open and well stocked despite challenges around logistics and delivery. Retail promotional activities are starting to be undertaken again as foot traffic returns to pre-pandemic levels.
No large-scale retail promotional activities are to be undertaken during this period without special approval, as per the Provisional Guidelines for Retailers in Epidemic Control period. Retailers have said most retail promotions are cancelled as they are not appropriate during the COVID-19 outbreak.
Online-to-offline retailers such as Hema, 7-Fresh and Super Species are busy and need consistent supply of quality products for consumers across China's large cities. Retailers, such as Sam's Club and Walmart, are also partnering with logistics platforms to ensure speedy delivery to consumers.
Analysis by Shanghai Business Information highlights the recent growth trajectory of online fresh platforms. For example, Ding Dong, a Shanghai-based fresh produce online sales and delivery platform, has built a logistics and sales network in Shanghai, Shenzhen, Suzhou, Wuxi, Hangzhou and Ningbo.
Advice to exporters
Companies supplying the retail sector – whether it be fresh or packaged products – should be coordinating stock with their importers and distributors to optimise efficiencies. This could include working with them to shift stock into O2O platforms.
It is also worth discussing whether your packaging is optimal for current market conditions. While this is typically difficult to adjust quickly, there may be ways to bundle or do bigger package sizes for delivery through O2O platforms. This increases the 'basket' size and reduces delivery costs per item.
Companies could explore options to work with non-traditional retail channels for their product category. For example, some convenience store chains have been restructuring their product profile to better meet consumer needs during the outbreak (for example, Suning mini stores have listed fresh products). Consumers can place orders via an app and pick up the orders from a nearby convenience store the next day.
Whilst it may be difficult, it is also important that you maintain focus and communications regarding stock levels and other business-as-usual matters. One of China's large e-commerce players has noted that not all companies are currently proactive in their communication with them – whilst others are, and are therefore top of mind.