Covid-19’s Impact on Consumer Trends in China
As our nation enters into the fourth week of lockdown and 97% of the US population is at home, we want to spend the next two episodes sharing with you what we have heard from experts tracking consumer and retail businesses.
Our focus begins in China, where the pandemic started in Wuhan in January. Then we will move on to the US, where in most states, the virus has not yet peaked. Our purpose is to share with women businesses, some lessons from the last three months in these two countries and highlight the challenges and opportunities to better position themselves.
Here are some trends that experts have seen from China.
China went into a nationwide lockdown shortly after Wuhan was quarantined on January 23rd. The country has applied very strict lockdown policies between cities as well as within cities. People were prevented from leaving their homes, and groceries and medications were delivered to them by volunteers.
On April 8th, Wuhan was finally able to end the lockdown and travel by air. Train and bus have resumed throughout the country. Malls, restaurants and parks have been opened for more than 3 weeks in the rest of the country.
1: Affordable Brands Are Trending in China
Both during and after the lockdown, one of the most noteworthy trends in China was an increased demand for super affordable brands. Before the pandemic, China was one of the largest consumers of high-end luxury items from designer bags to imported seafood and high-end wine. But during the pandemic, data from Alibaba shows that people have been pulling back from spending in these luxury areas and shopping mostly for lower priced basic items.
Basic items consist not only of protective gear but also old staple brands such as Chef Kang’s Instant Noodles, which has been the most popular instant noodle brand in China for over 30 years. Such simple heritage brands have seen a huge comeback in demand because people seem to be looking back fondly at the old days. This means that there are a group of brands that will gain new followers during the lockdown because of their ability to meet their consumer’s needs.
2: Challenges for Brick and Mortar Stores
As in the US, it is brick and mortar businesses that are facing the biggest challenges. Even after China opened up most of the cities for work, fast food chains were among the first to file for bankruptcy or simply closed down for good.
Weaker operators have been able to ride in high tide when the economy is good. But as times get challenging, the operational model has to be nimble and able to shift rapidly.
For example, many restaurants with a great following for their chefs opted to on go online and give free cooking classes during the lockdown, thereby continuing to build consumer loyalty and connections. Some of them also experimented with selling premade sauces and ingredients to help consumers prepare their own meals at home.
These restaurants stand to gain as soon as they are open because of their investment on the consumer connection. This is an important lesson for everyone that is consumer and customer facing. It is crucial to find ways to connect with your customers through social media, offer free training and information, engaging in community-building activity and maintaining that much needed connection.
However, it has not just been brick and mortar companies that have been facing issues. Even companies who do not directly interact with customers face struggles of their own.
3: China’s Manufacturing Struggle
China’s large manufacturing base has been struggling ever since they were shut down in January and February. They were quick to reopen thanks to many positive measures taken such as the gradual returning of staff to work, and wearing masks and testing temperatures daily to avoid outbreak.
But what these factories quickly realized is that orders from Europe and US were getting canceled. So, some of the factories have to close down for another 3 to 6 months and furlough workers who already lost two months of working.
The country is facing one of the biggest challenges in the recent history with the lack of demand for its exports. So instead they are refocusing on the domestic market, and trying hard to find different channels for domestic distribution.
Now is the time if you are already working with Chinese vendors to find ways to get some relief for your inventory payments. And also find ways to ensure your fall and holiday orders will be delivered on time and with quality.
4: China is Spending Less on Luxury
China is already seeing a slowdown of luxury product sales and even the trendy sneaker resale market has cooled off considerably. It is too early to tell if this is a temporary change or the beginning of a larger shift, but one thing emerging is that people in China will be spending less on expensive luxury items for the rest of the year. The lack of disposable income and the uncertainty of the economic outlook in the near term would pose the biggest challenge to discretionary spending!
5: Household Consumables Market will Continually Grow
The household consumables market will continually grow, and new brands will be welcomed.
During the peak of the break, China experienced a complete wipe out in the supply of hand sanitizers and wipes. While the cleaning supplies sector has been dominated by large multinational brands such as Johnson & Johnson and P&G, true innovation has not taken place in this category because margins are continually low, and the lack of increased demand has resulted in little growth.
With the Covid-19 outbreak, the disinfection category has seen the biggest growth and new demands have been raised by consumers that are looking for a better experience: could there be fragrances that help make the cleaning of your hands more enjoyable? Can there be innovation in the lid, so our hands don’t have to touch the bottle? Could there be even better travel sanitizers that helps us disinfect? What are the ways to be both sustainable and effective at the same time?
6: China Sees Increase in Meal Delivery Services
The meal delivery service, as in the US, was not considered profitable in China until Covid-19. Suddenly there is so much demand for delivery of food, groceries and household items that those companies are struggling to keep up.
In China where e-commerce has already seen over 65% of total retail business, they are continually seeing consumer trends tipping toward more e-commerce. Alibaba invested in Hema Fresh Delivery before the virus, a brand known for its variety and high food quality. During the outbreak, they gained many more consumers because they had already built up trust in their quality and assortment.
What is clear to China is that after this crisis, it would be very difficult to be an effective brand if you have no online presence. The days where brands focus on brick and mortar or wholesale are over. There will be brands that only exist online, but not the other way around.
Now we will continue on to the US market and see if the same can be said here.