China's Retail

Physical retail

Supermarkets are largely open and well stocked despite challenges around logistics and delivery. This also reflects the effort of the government to put in place measures to ensure sufficient supply of daily necessities.  

According to the China Chain Store & Franchise Association in late February, 98.9% of supermarkets operated by the Top 100 retailers in China were operating, with the figure placed even higher at 100% in Beijing and Shanghai. Guangdong was lower at 93.3% and was the lowest amongst 29 provinces in China. This may reflect the fact that more of these supermarkets are located within shopping malls facilities that are yet to re-open.  

Chinese New Year ‘gifting’ sales were very small. As a result, there is now high levels of stock in the value chain – which means retailers may have enough stock to supply the next couple of months. 

There are to be no large-scale retail promotional activities 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. 

Concerns exist about the ability of retailers – many of which are small or medium-sized enterprises – to survive a prolonged downturn in consumer demand, especially as people remain reluctant to leave their homes and shop in the community. Bloomberg reporting also suggests that half of China's listed consumer companies don't have enough cash to go beyond six months of sustained downturn.

Online-to-offline (O2O)

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. Ding Dong a Shanghai-based fresh produce online sales and delivery platform for example, they have built a logistics and sales network in Shanghai, Shenzhen, Suzhou, Wuxi, Hangzhou and Ningbo.

During the first 7 days of Chinese New Year, sales reached 1000 metric tonnes of vegetables, 439 metric tonnes of meat and 350 metric tonnes of eggs. Fresh Daily, achieved a sales increase of 350% in the first 9 days of Chinese New Year compared to the same period in 2019. Suning's fresh produce home delivery increased by 400% comparing with the corresponding period of last year.

Benlai experienced a traffic increase of 300% and its daily vegetable sales were around 100,000 orders. And Carrefour, which is a more traditional retailer, has gained significant sales through its O2O WeChat mini App.

Consumer behaviour

Consumers are focusing less on discretionary purchases and more on staples. The sales of staple food items (as more people eat at home) and other products such as disinfectants and household cleaners are strong. Items that help pass the time of day or are seen to enhance wellbeing are also up in terms of online sales. For further insights you can read this WeChat article (translation needed).

It is not the peak season for New Zealand fruit products, so it is too early to make any forecasts on how the market will play out over the coming weeks and months. What is evident is that there has been growth in vegetable and fruit consumption.

China's Chamber of Commerce for Import & Export of Medicines & Health Products has highlighted that since the start of the COVID-19 outbreak, Chinese consumers have started to place even greater attention on health and nutrition. It is anticipated that there will be an increase in sales of, multivitamins, vitamin C and fish oil. There has also been demand for various Traditional Chinese Medicine (TCM) products and associated dietary supplements – something linked to Chinese consumers currently spending more time indoors.

China's health food market is worth approximately RMB400 billion (about NZ $80 billion). Commentators see the COVID-19 outbreak as further stimulus for market growth, especially given that Chinese consumer knowledge of health foods has grown in recent years. An area to watch is health foods that are associated with boosting immunity.

Having said that, China is a market that is cluttered with many brands and, as such, the ability of brand owners to reach consumers will come down to well-designed promotional plans with sufficient budget, online and offline channel strategies, consumer education and pricing. Local regulations will also need to be met in terms of the products themselves and promotion. For further insights you can read this WeChat article (translation needed).

The pet market appears to be stable but performance across offline and online retailers will differ considerably. 95 percent of Beijing's 3,500 pet stores, which provide grooming and bathing services etc, closed as the outbreak grew. In contrast, online retail seems to have performed better, potentially as a result of owners stuck at home and giving their pets even more attention. The online sales growth also hasn't needed the same investment in buying traffic.

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.

You should consider diversification of sales channels to include both retail and food service channels. Consumers will remain fairly rational in terms of their food shopping habits, and will expect the products they prefer to be in consistent supply. Whilst demand is primarily for staples and necessities, consumers will still want to eat well and potentially enjoy some luxuries.

Further insights

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