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