With the rest of the world now completely shut down, Western businesses are increasingly looking to China. As the average consumer returns to everyday life, new and exciting commercial opportunities are quickly emerging. However, a more important reason we’re looking to China, is to learn and understand. We need to recognise how they have adapted to the intense pressure exerted on their commercial infrastructure by COVID-19.
This will be the first article in a five-part series. Over the coming weeks, we will explore some of the broader lessons western businesses can take away from China’s experiences and various industry responses. We hope you enjoy this week’s update.
When COVID-19 initially hit China, the population was confined to their homes with little chance of going outside. This placed immediate pressure on businesses to swiftly migrate their operations from offline to online. Last week, we saw IKEA launch through a third party retailer (Tmall) for the first time in their 77-year history. We also saw Weibo launch an eCommerce tool for its’ 500 million users.
With COVID-19 now shutting down the rest of the world, we’re seeing growth in most of the same industries – including online gaming, home cleaning products, personal care, medicine, health and fitness, consumer electronics and notably, groceries. Year on year, Meituan and Alibaba’s Freshippo (formerly HEMA) encountered two-fold and six-fold respective rises in fresh produce sales. In response to the demand increase, JD, Alibaba and Meituan were able to swiftly resource their logistics operations. By contrast, other global e-retailers have struggled; revealing comparative weaknesses in their supply chains. Amazon Pantry was recently forced to temporarily close due to demand. Similarly, Coles and Woolworths suspended their online grocery deliveries while they work through the demand challenges [Note: we will explore COVID-19’s impact on logistics and supply chains in greater detail next week].
The reality of the new normal is that most brands must now be online. Furthermore, they must also be quick to adapt to a changing landscape. Nike is perhaps, the posterchild for this concept. When China was rocked in late January, Nike swiftly migrated their focus to online marketing and sales. This approach saw them offsetting much of their retail losses.
Throughout the outbreak, we’ve seen China’s leading tech giants actively supporting businesses to set-up their eCommerce operations. Many view this as a win-win. The platforms gain new channels to build exposure and sales, meanwhile businesses are able to offset their offline losses.
It’s important to recognise however, that much of this support is being delivered via mini-programs. Mini-programs are an iconic Chinese approach to tech-integration. They support consumers to seamlessly interact with businesses (both online and offline) without ever straying from their preferred social/payment platform.
Although these technologies are yet to take off in the west, a growing number of western businesses are launching comparable direct-selling initiatives on platforms such as WhatsApp. Over the coming months, it’s possible that we may see mini-program technologies starting to emerge in the west.
Last week, Pinduoduo, JD and Alibaba took their support one step further. They commenced actively procuring and promoting Hubei Province goods in an effort designed to kick start their devastated local economy. We see this as a strong community initiative which we expect will similarly play out in the west as countries and communities pull together to support each other.
With most of the country legally confined to their homes, China’s eCommerce giants had a strong obligation to support the people of China. Their responses can aptly be described as ‘humanitarian’ in many respects, earning them the respect, admiration and loyalty of their millions of customers. Beyond investing millions into the research and development of a vaccination, all companies scrambled their resources to support frontline health workers, the vulnerable, the unemployed and all who need support or assurance. In recent weeks, many western tech giants have followed suit, donating money, masks, food, laptops and other resources to those most in need. Notably, Amazon is prioritising medical supplies in its warehouse above all other products.
In a decision that was universally praised, Alibaba and JD.com also swiftly reduced and/or waived platform fees to support struggling businesses. Many western businesses are now replicating this ‘compassionate’ approach. Some examples include India’s Swiggy, Paytm Mall and the UK’s Just Eat. By stark contrast, Australian food delivery services UberEats and Deliveroo are demonstrating considerable apprehensiveness to follow suit. This is earning them a level of criticism from both consumers and the broader hospitality community.
As we have seen, businesses who demonstrate a strong social conscience are most likely to fare well during this period of heightened online scrutiny and build their brand credibility with consumers.
When we look to China, we catch a glimpse of what retail might look like in our new global society. In the short term, all offline-customers in China are subject to mandatory temperature and health screenings prior to store-entry. Australia is yet to implement such an approach, though it may become a necessity as lockdowns gradually ease.
In the long run, businesses are likely to emerge more technologically connected and engaged with their customers than ever before. The most innovative western companies are using the global pandemic as an opportunity to ‘catch-up’ to China’s smart retail technologies. Following the lead set by Alibaba’s Freshippo, Amazon launched ‘just walk out’ technologies earlier this month, resulting in an immediate uptake.
When we speak of Industry 4.0, contactless deliveries and health-screening tools are not the types of tech-innovations that immediately spring to mind. However, as we are seeing, COVID-19 is exposing the weakest components of our societies and retail infrastructure. It is acting as a catalyst forcing businesses globally to adopt smarter, omnichannel strategies with public health and safety in mind.