How to Read the Coronavirus' Impact on Chinese Consumer Behaviour
If you're selling massage chairs in China, things are likely to be uncomfortably rosy at present. Online sales of chairs that mimic the hand motions of a massage therapist have shot up 436% from a year ago. From that chair, there's a good chance your customers are passing away the days indoors playing a lot more mobile games, flicking through short videos and watching about 42% more TV than they were a month ago.
While those selling massage chairs, air purifiers and disinfectant are likely to be seeing some of their biggest ever sales as a result of the coronavirus outbreak, the past four weeks haven't been so positive for the majority of retailers. With more than half of China's population facing varying forms of residential lockdowns most retailers have shuttered stores or reduced their opening hours. Those hoping to counter lost store sales with ecommerce are likely to be disappointed too.
Looking into consumer spending behaviour over the past few weeks paints a clear picture that most consumers aren't yet back in the mood for making frivolous purchases. Rather, they have knuckled down in survival-mode. As we reported last week, JD's sales spikes all came from staples such as rice, dairy, vegetables and meat, with few other categories warranting a mention. This has been confirmed by app behaviour which has seen a soaring usage of apps selling fresh produce, with consumers buying a week's worth of vegetables and other household supplies at once.
Interestingly, food delivery apps have seen a drop in usage, as consumers cook meals for themselves, not wanting to take risks contracting the virus from chefs or delivery men, on top of having more time to prepare food than in their usual busy lives. To counter the limited stock availability on its fresh platforms, Alibaba and JD are supporting farmers so they're not left with rotting fruit and vegetables, promoting a service where consumers can buy fresh goods directly from the farmers at cheap prices.
In its latest earning report, Alibaba mentioned the dip in ecommerce purchases as a result of the outbreak. It claimed “the demand is there, but the means of production have been affected,” however it seems consumers weren't interested in buying non-essentials such as clothing and electronics during the height of the epidemic. Many listed products warn halfway through a product description that the seller will not ship orders for weeks, while orders that are shipped can get stuck in logistics company's warehouses. Alibaba did note that it has gained many new customers from lower tier cities who have started using the service to buy produce online, which it expects will amount to more customers in the elusive lower tier cities in the longer term.
Consumer purchases and behaviour since the outbreak points to a populace who have been a little frazzled, and brands should take note. As we've suggested over the past couple of weeks, consumers are unlikely to respond positively to big promotions and flashy sales campaigns. Instead, it's a good time build a further connection with the target audience over the digital channels they're using, particularly as the cost of acquisition is less than half of what it normally costs.
There are a number of brands who have executed well, by recognising the current environment, reacting quickly, and connecting with their target audience at an emotional level. Local cosmetics brand Perfect Diary recognised that gaming has soared 38% on mini programs since the outbreak and released their Protect the Single Dog game ahead of their Valentine’s Day campaign as a way to ease the stress, while rewarding users with samples and coupons. Similarly, Lululemon identified that people aren't going to gym or training outside but still want to stay fit and occupied, so they shared a list of trainers offering livestreaming or short video workouts. Food brands only need to look at the uplift of folk cooking at home, and provide some livestreamed recipes and cooking tips to help as an example of responding appropriately.
News that the number of new confirmed cases in China outside Hubei province has been dropping for 14 consecutive days, coupled with a general weariness of being cooped up, has seen the streets in most Chinese cities start to come back to life. Not quite to their normal vibrancy, but there are some positive signs that consumers will loosen their 'survival' stance over the next week or two as the hundreds of millions of returnees from Chinese New Year travels end their quarantine period and things settle. We'd suggest not waiting until then and start using this time to set the foundation for when spending bounces back. Go to Page 2 to see this week's China news and highlights.Here are this week's news and highlights for China:
Coronavirus
How the Coronavirus Impacts SMEs looking to Enter China in 2020: There's been plenty of media about how big brands are dealing with the coronavirus, but we've seen little airtime about smaller brands and entrepreneurs who are looking to test Chinese waters in 2020. How should they be approaching China in these unique times?
To Tame Coronavirus, Mao-Style Social Control Blankets China: Residential lockdowns of varying strictness — from checkpoints at building entrances to hard limits on going outdoors — now cover at least 760 million people in China, or more than half the country’s population according to NY Times analysis. 80.41 million residents have seen their internal transportation such as buses and metro lines shut. The tier-1 city of Guangzhou - known as China’s most open city since the 1600s - has banned eating at restaurants.
China Retail Shutdowns Spread as Virus Concerns Grow: Chow Tai Fook, the world’s biggest jewellery chain by revenue has temporarily halted operations in about 80% of its 3,600+ stores in mainland China, with no planned date for reopening. The majority of the remaining stores have reduced their operating hours. Yum China, which has 9,200 KFC, Pizza Hut and Taco Bell and other outlets across over 1,300 cities in China, has temporarily closed over 30% of restaurants. Haidilao, China’s largest hotpot restaurant chain, has not announced a date for reopening its 550 stores shut since 26 Jan. Nike and Starbucks have each closed about half of their stores in China. Uniqlo has closed 350 of its 750 stores in China and Burberry has shuttered 24 of 64.
Chinese Consumers
The Next Wave: Rurban Consumers: 22 minute vid: Big box retailers and E-commerce are exploring the vast untapped spending potential of rural consumers living on the fringe in China and India. China Skinny's Mark Tanner share's his views on reaching the vastly untapped rural Chinese consumer.
Digital China
Infographic: Changes in Online User Behaviour Resulting from the Coronavirus: The lockdown saw Chinese spend 6.11 billion hours on their devices on 4 Feb, up from 5.06 billion hours on 14 Jan. Here's how behaviour has changed.
Ecommerce in China Hit Hard by Covid-19: Chinese consumers have made few ecommerce purchases during the first three weeks of China’s battle with the coronavirus says Alibaba. The company says that supply-side disruptions accounted for much of the decline, as many merchants on its online marketplaces were unable to do business under quarantine conditions, not helped by disruptions to logistics which is seeing slow delivery. Online sales of disinfectant, hair care accessories, massage chairs, air purifiers, and disposable gloves grew multiple times last week according to suning.com.
ByteDance Eroding Ad Revenue Share from BAT: Report: Digital ad spending in China is expected to rise 22% year on year in 2019 to $79.82 billion - 60-70% of all ad spend in China according to eMarketer. ByteDance has seen phenomenal growth with its share of ad spend nearly doubling from 2018 to 2019 (estimated) after more than doubling from 2017 to 2018. In the past 12-months it overtook Baidu and Tencent in advertising revenue. Brands looking to reduce costs and improve audience targeting are increasingly "defecting" to smaller, more niche, vertical channels.
Food & Beverage
Food Prices are Soaring in China Because of the Coronavirus and Swine Fever: China's consumer price inflation hit 5.4% in January, the fastest rise since October 2011. Pork grew 116% from a year ago due to the African Swine Fever, and vegetables were 17% more expensive. Healthcare nudged up 2.3% and clothing prices rose 0.6%. Late last month, regulators in Shanghai fined a supermarket store ¥2 million ($290,000) after they said it deliberately hiked the cost of vegetables by as much as 692%. In Zhengzhou, regulators recently fined a supermarket operator ¥500,000 ($71,600) for charging as much as $2/kg for cabbage.
Sports & Events
NBA Expects to Lose ‘Hundreds of Millions’ From China Rift, Silver Says: NBA says that the league will likely lose "hundreds of millions of dollars ... probably less than $400 million" because of a rift with the Chinese government that has affected sponsorships and television revenue. The league believes that there would "be a return to normalcy fairly soon." CCTV still isn't airing games and Tencent has been showing an average of three games a night.
Chinese Grand Prix Postponed Due to Coronavirus Outbreak: The 2020 Chinese Grand Prix, which had been scheduled for April 17-19, has been postponed as a result of the novel coronavirus outbreak. Similarly, the HK Sevens Rugby scheduled for April 3-5 is postponed until October 16-18. Asian Champions League matches involving Chinese clubs have been postponed until April and May. April's big scheduled golfing tournaments, the Maybank Championship in Kuala Lumpur and Volvo China Open in Shenzhen have been postponed. World Athletics Indoor Championships, which had been scheduled in Nanjing from March 13 to 15, is postponed until next year. Some Olympic qualifying events cancelled or relocated, among others. The Shanghai Fashion Week and Beijing's China Fashion Week, both in late March, and the Beijing Auto Show in April have been postponed. Trade shows in China over the next couple of months have also been postponed.
Entertainment
China Quarantines Live Music Shows: There hasn’t been a live music show in China since late January. China’s indie musicians are live-streaming shows and organizing "bedroom" festivals. Options range from pop and hardcore punk to techno and experimental improvisation. The shows started off in Wuhan and have become a nationwide trend.
Education
China to Relax its Internet Restrictions for 100,000 Students Hit by Australia's Coronavirus Travel Ban: China has agreed to relax its internet restrictions, so international students can study online while they are banned from Australia during the coronavirus outbreak. Currently more than 100,000 Chinese students, who already have Australian student visas and were planning on commencing their studies this month, are stranded outside of Australia as a result of the government’s 14-day travel ban from mainland China. Australia’s main competitors for Chinese students, Canada, the US and the UK start their academic year in September, meaning they are less disrupted by the coronavirus outbreak this year. International students contributed $34 billion to the Australian economy in 2019.
Luxury
How are Luxury Brands Communicating with their Chinese Consumers During the Virus Crisis?: Basic consumer communication has been lacking from some Western luxury brands. For example, few luxury brands informed consumers about shortened store hours or delays in shipping services on practically all channels, and only a few of them posted a caring message shortly after the outbreak. This was quite a contrast to local brands, many of which published in-store safety guides right away or offered creatively-designed respirator masks.
Finance
Jack Ma’s Booming Loan Business Threatens Visa, AmEx in China: Jack Ma's Ant Financial is already the biggest player in China's $27 trillion payments market. Leveraging its ubiquitous Alipay mobile app to mount a rapid expansion into consumer lending this will allow customers to borrow with a few taps on their smartphones. The loans are wildly popular among China’s army of mobile-savvy shoppers, who often lack formal credit histories but generate enough financial data via Alipay for Ant to make informed decisions on whether they’ll default. The company’s outstanding consumer loans may swell to nearly ¥2 trillion yuan ($287 billion) by 2021 according to Goldman Sachs, more than triple the level two years ago. Around 61% of Chinese consumers born after 1990 use online consumer credit versus 45.5% who have a credit card according to Nielsen. 55% of respondents use An't consumer loan service. Last week, Mastercard received "in-principle approval" to grant it access to China's payments market.That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
