COVID Impacts part 2 - Supply Chains
Bryan Car CEO RooLife Group

Bryan Carr
CEO, RooLife Group

The Global Matrix of Economies

With each day that passes, the COVID-19 pandemic further reveals just how interconnected global economies now are. There was a time when markets were (to a degree) protected from fluctuations in other markets. Looking at the current state of global supply chains, it is apparent that those days are over.

According to Trivium’s National Business Activity Index, China is now operating at 82.6% of usual output. This is astonishingly positive. Trivium has also estimated that roughly 97% of China’s firms have returned to operation. The difference largely reflects under-utilised capacity. Amidst slowing global demand, the index isn’t forecast to surpass 85% over the coming months.

In January to February, we saw a 15.9% decline in China’s exports. We also saw a 13.5% reduction in China’s industrial production; the fastest contraction in 30 years. Many of the same trends are taking place globally. In the US up to 30% of US manufacturers reported drops in production activity. As demand for international travel stagnates, airlines are converting their planes to haul cargo. The limited availability of workers, trucks and interstate movement is proving challenging for many countries. For logistics companies, social distancing measures are also slowing down productivity. Meanwhile in the hospitality sector, global online restaurant bookings are down 100% YOY.

Operating in a Shifting Commercial Landscape

For businesses that obtain their parts and materials from different corners of the globe; frozen or hampered global supply chains are a real issue. However, supply is only part of the equation. Rising unemployment and social isolation measures are also significantly curbing demand. Even Apple is cutting retail costs to boost sales.

However, in spite of the doom and gloom, there is light on the horizon. While, according to Goldman Sachs, the US will see a 24% contraction in GDP over Q2; this is predicted to be followed by 12% and 10% growth in Q3 and Q4 respectively. When we do emerge on the other side, the world will be a very different place.

Here at RooLife Group, we see the coming months as the great opportunity to prepare your business for the new world. Naturally, this week, we look again to China for insight into their supply chains and explore what the future might hold. We hope you enjoy this week’s article.

Apple China Store
Apple only shifted 500K phones in February. Image Source: AFP

Different Markets, Similar Phenomena

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Online Shopping Boom

In China’s quarantine-driven online spending boom, Alibaba’s Q1 sales jumped 44% year on year.

Similarly, customer spending on Amazon is up 35% The company has reportedly implemented over 100 drastic changes to operational workflows and procedures to manage OH&S as well as the unprecedented demand. Non-essential shipments which were previously under suspension are now reopening.

Following the global trend: Australian consumers are finally switching to online. Some online retailers have experienced 300-400% growth in their online sales channels

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Online Grocery Boom

In China, online grocery demand was the first category to take off. Daily active users for fresh produce eCommerce platforms grew from 5.3 million to 10.1 million during the Spring Festival Holiday. Alibaba’s Freshippo sold six times their normal trading volume.

Similarly in the US, we saw Instacart reporting that they sold more groceries over the past 3 days than in any other 3 day period in history. Amazon announced this week that they will be suspending new grocery customers. Meanwhile, Walmart’s Grocery app surpassed Amazon by 20% to claim the #1 ranking for US shopping apps.

In addition, UBS estimated that online grocery orders in Australia are up 25% YOY.

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Emergence of Grass-Roots Grocery Services

Dingdong Maicai is emerging as the dark-horse of China’s grocery delivery industry. February saw them claim Quest mobile’s coveted first place of the top 10 of fastest growing shopping apps. Maicai’s USP pertains to their asset-heavy logistics model; operating hundreds of self-operated ‘front warehouses’ (distribution centres).

On the other hand, Coles and Woolworths are still unable to fully support Australia’s online grocery demand. This is spurring massive growth in grass-roots produce collectives and start-ups, including businesses like Small Farmers United and YourGrocer. Meanwhile, restaurants across Australia are pivoting their business models to offer specialised grocery boxes.

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Stockpiling & Panic Buying

Tmall Warehouse

In China, consumers stockpiled masks and groceries. Tmall Global has reportedly stockpiled 6 million cans of milk powder to keep on top of surging demand.

By contrast, Australian consumers stockpiled hordes of toilet paper. We’ve also focused on stockpiling packaged goods in favour of groceries.

People wait outside gun store in the US

In the US, fear and panic has led many to stockpile guns and ammunition.

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Price Gouging & Counterfeit Selling

In China, Taobao took down 570,000 listings; including price-gouging face mask listings as well as counterfeiters. Similarly, Pinduoduo also took down over 500,000 items from 40 stores.

The same thing is taking place in the west. Amazon is removing thousands of listings selling counterfeit products and/or price-gouging sellers from their platform, including those selling $400 hand sanitizers.

Furthermore, in Australia, Gumtree and eBay are working to counter the price-gouging taking place. Some masks have been reportedly selling for 10-20 times their RRPs.

Global Retailers Becoming Vital Supply Chain Infrastructure

When COVID-19 locked China down, we saw major eCommerce retailers JD, Alibaba and Meituan emerge as vital services. These giants kept China afloat; ensuring that the masses under quarantine could survive. Now, almost on the other side of the crisis, these giants are emerging stronger than ever. We’re now seeing precisely the same phenomena taking place in the west. Retailers such as Amazon, Costco, Walmart, Coles and Woolworths are consolidating their ‘institutional’ roles in our shifting societies.

When we compare the responses of western and Chinese internet retailers however, our supply-chain vulnerabilities become apparent.

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Supporting the Vulnerable

When Wuhan was initially locked down, Alibaba, JD and Meituan Dianping swiftly rose to the challenge. They swiftly dispatched much needed medical equipment from throughout China to frontline staff. ‘Deposit boxes’ were set up in gated communities to mitigate person-to-person contact. The giants also migrated their autonomous delivery ‘bots from across the country to support last-mile deliveries.

By contrast, in America, COVID-19 hot spots have proven to be out-of-reach for most internet companies. For over a month, many individuals in San Francisco and New York have been unable to order vital supplies, including disinfectant wipes and office supplies.

Coles Building

The situation is similar in Australia, as grocery giants struggle to support surging grocery orders. Coles and Woolworths initially launched a priority hour for the elderly and disabled. More recently, they have launched an online priority service for vulnerable customers to dip their feet back into online deliveries.

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Working Alongside Government

JD.com and logistics company SF Holdings worked alongside government regulators to fast-track drone deliveries for widespread use. This is opening up new doors to support rural consumers as well as medical professionals.

Interestingly, in Canada, the government is looking past its own national postal system. Instead, they are opting to work alongside Amazon to distribute medical gear.

In Australia, the ACCC has temporarily relaxed anti-collusion regime to enable Coles and Woolworths to support online deliveries for the vulnerable.

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Resourcing Logistics Capabilities

During the outbreak, JD and Dada Group collectively employed 35,000 new staff to manage warehousing and last-mile logistics. In more recent news, Alibaba is buying a 10% stake in Chinese Courier Yunda, and will also invest an additional $3.3 billion into its’ logistics company Cainiao.

Similarly, Walmart has announced plans to hire an additional 100,000 staff. Meanwhile, Amazon has created 175,000 new jobs since the initial outbreak.

Onto Australia, where Woolworths is hiring 20,000 new staff, and Coles is hiring 5000. Woolworths is also converting 41 stores across Australia into distribution hubs to support their online orders.

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Investing in New Technologies

COVID-19 is accelerating China’s utilisation of delivery robots and drones.

Furthermore, the world’s first’ drone delivery start-up has commenced deliveries in Ireland, having received the go ahead from Ireland’s Aviation authority.

Meanwhile, Alphabet’s drone delivery service ‘Wing’ is growing rapidly. The past couple of weeks has seen over 1,000 package deliveries in the US, Finland and Australia.

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Rideshare Companies Pivoting to Last-mile Delivery Services

Didi in China has launched courier service to compete with Ele.me and Meituan Dianping

India appears to be taking a different approach. Flipkart is working with Uber to handle last mile deliveries.

Similarly in the US, Amazon is working with Lyft to handle last mile deliveries.

China Offers a Glimpse of the Future

When COVID-19 fears and shutdowns hit, grocery retailers in the US, Australia and internationally were left unable to cope with the additional demand. By stark contrast, faced with the same predicament, China’s major grocery players were able to swiftly resource their operations. How was China so much more prepared for this?

For one, China’s government has spent many years prioritising investment in logistics infrastructure to support their massive population. This includes investment in new and emerging technologies, including big data, Artificial intelligence, blockchain, the Internet of Things (IoT) etc. It’s no stretch to say that currently, China’s logistics infrastructure is lightyears ahead of anything in the west, having routinely dealt with periods of extremely high and surging demand.

Furthermore, through Alibaba’s ‘New Retail’ initiative, even China’s elderly populations have become acclimatized to online shopping. For example, at established Freshippo stores, 60% of orders are placed via the online platform, as opposed to in-store. For consumers who live within a 3km radius of any given Freshippo store, deliveries can be guaranteed within 30 minutes of purchase. In 2019, 71% of China’s internet-active population made an online transaction, while eCommerce penetration reached as high as 36.6% of total retail sales. 

What is New Retail?

In 2016, Alibaba founder Jack Ma coined the phrase ‘New Retail’ as:

“The integration of online, offline, logistics and data across a single value chain.”
Jack Ma - Alibaba Founder
Jack Ma
Founder: Alibaba Group

New Retail deliberately aims to remove any and all distinction between online and offline retail experiences. It shifts the traditional ‘product-push’ retail paradigm to ‘demand-pull’. This is achieved by focusing first on supporting the personal needs of the consumer, which are largely ascertained via big data and AI. New Retail entails seamless coordination of smart technologies at each node of the supply chain. The net results are data-driven efficiencies on an industrial scale.

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