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Decoding COVID-19: How the Outbreak May Impact China’s FMCG and Retail Market
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Decoding COVID-19: How the Outbreak May Impact China’s FMCG and Retail Market

Almost 20 years ago, when SARS (Severe Acute Respiratory Syndrome) swept China, the habits of China’s population changed for good. And early indications across the country are that the new Coronoavirus (COVID-19) may have similar long-term effects.

The SARS epidemic, which also began in China, killed 774 people worldwide.

Nielsen has undertaken a deep comparative study on the historic impact of SARS on consumer behaviour and what may come with Coronavirus. Early indications are that manufacturers and retailers will be forced to rethink their offerings.

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Nielsen found that the influence of SARS in 2002-03 depended on the categories when it came to consumer goods. In the short run, luxury and durable goods like clothing were affected more heavily than daily necessities like food and beverages during the SARS outbreak.

And inevitably, the strong economy in China in the early 2000s ensured a return to growth when SARS was contained.

But there were still lessons to be learned and considered in the current outbreak of Coronavirus.

Below are some key areas of change that took place in key FMCG categories, according to new Nielsen research:

Disinfectants Led Personal and Household Care Products

The sales of these goods didn’t experience significant fluctuation during the SARS outbreak, but presented obvious differences among various categories in the long term. According to Nielsen research, sales of disinfectants fell by 29% in 2004 after SARS was contained in 2003. This would suggest that manufacturers of products in high demand during a short-term crisis  should adjust production and inventory plans after the epidemic and improve emergency capacities. Some product categories and segments swerve luckier and saw robust growth for an extended period after SARS, such as in sales of antibacterial personal care products and sterilizers which increased by 22% and 19%, respectively. 

“Health and hygiene is a natural habit shift post epidemic, and we observed a continuous boom in this area after SARS. Now is a key time for brands to consider upgrading for health and hygiene concepts, with consumer spending power significantly higher than during the previous outbreak in 2004,” said Ryan Zhou, Vice President, Consumer Packaged Goods, Nielsen China.

Milk Beverages saw Rapid Growth after SARS

Despite a relatively limited short-term impact from SARS, health and nutrition categories gained rapid growth over the long term. In 2004, the sales growth of yogurt was up 40% on the previous year, mainly driven by demand for more nutritious yogurts. And liquid milk increased by 20%, as consumers sought out high protein dairy products. Nielsen also measured a 22% increase in juice sales in 2004 as consumers looked for healthier consumption habits.  

Food Sales Became Stable after Rapid Growth 

Most food categories were stable during the SARS outbreak, though there were exceptions along the lines of what we’re seeing with the COVID-19 outbreak. “When China was dealing with SARS, we saw consumer stockpiling, with particular spikes in the instant noodles category, though they returned quickly to normal levels after SARS was contained. We expect to see a similar response during the current Coronavirus situation,” added Zhou.

WHAT SHOULD SUPPLIERS LEARN FROM THE EPIDEMIC?

  1. Consider the macro conditions surrounding China’s growth policies but develop a more nimble approach to throttling investment, depending on the direction the latest outbreak takes.
  2. Since primary drivers of the economy, especially tourism and catering are expected to be heavily impacted, impulsive consumption and “on-the-go” consumption will predictably be exposed to likely losses. Therefore, relevant suppliers must track the epidemic dynamics in order to resume corresponding sales as soon as possible. Meanwhile a “plan B” should be available to invest in other consumption scenarios like non-impulsive consumption.  
  3. The outlook for various consumer goods categories will be different after the epidemic. Appropriate production and sales plans are required for the goods that were stockpiled during the emergency period. Smart suppliers will pre-schedule post-epidemic production and sales to seize future market opportunities, while leveraging e-commerce platforms and O2O (offline to online) to offset influence on sales during the outbreak.
  4. Consumers developed new habits in health, nutrition and sanitation to counter the SARS epidemic, leading to increased near-term demands and growth of relevant categories in the longer term. This is an opportunity for manufacturers to further strengthen consumer awareness on health, nutrition and sanitation, so as to capture and amplify consumption demands. Moreover manufacturers should enhance long-term investments to relevant categories from R&D, innovation to marketing and sales, underpinning prolonged growth.

EXPLORE THE UNKNOWN: WHERE WILL THE RETAIL MARKET TURNAROUND AFTER THE EPIDEMIC?

Thanks to a tenfold increase in per capita GDP over the past 17 years, China is expected to have solid economic strength to support material supplies against the outbreak and recover consumption activities afterwards. Fast-growing diversified retail channels, especially e-commerce and O2O , enable consumers to purchase at home safely, and contribute to epidemic control. 

Nielsen believes there are three areas of focus for the FMCG industry and retailers in the current circumstances:

1.Online-offline integration will be accelerated

The current retail market pattern will be further challenged. Nielsen found soaring registration numbers on major fresh food and O2O platforms, with sales doubling, during Chinese New Year 2020. During this epidemic, existing e-commerce players lacked capacity to meet all customers’ demands, which indicated more market opportunity for new entrants. Additionally, China’s online fresh food and O2O platforms have a remarkable edge when it comes to logistics and delivery to consumers. As a result, offline retailers may suffer as consumers turn to grocery and fresh food delivery. During the extended holiday, many older first timers and younger loyal customers of meal delivery services turned to grocery shopping online. This will change the consumer composition of online and offline retail platforms and shopping purposes.

In the face of the changed retail landscape, manufacturers need to re-orchestrate channel strategies in order to adjust their product portfolio, specifications and pricing according to different channels with different consumer groups and shopping purposes. 

2. Escalated supply chains and logistics may incur changes in the manufacturer landscape

Given this outbreak, it’s a reminder of the need to further upgrade supply chains and logistics, involving flexible production, direct procurement, front-end warehouses, temperature controlled supply chains, non-contact delivery and direct-to-home services. Such improvements will be accelerated with block chain implementations and 5G services. 

These improvements will help suppliers explore new segments with new consumer groups. On the other hand, manufacturers will be pushed to perfect their production plans to improve cost efficiency and provide more customized products for increasingly diversified demands of Chinese consumers.  

3. Social media is gaining in importance

In China, social media often carries higher credibility and a larger audience than traditional media, largely due to up-to-the-minute news and information from authorities and government organizations. As news of the current outbreak is constantly emerging, Chinese consumers are increasingly depending on social media channels for quick updates and unfiltered information. 

With much of the population checking these channels multiple times a day for updates, manufacturers should review capabilities on various platforms and optimize their strategies for driving engagement and communication with consumers.

As this global health crisis continues to evolve, Nielsen will provide ongoing updates on the impact COVID-19 is having on consumer purchasing. Visit our content hub for the latest global consumer insights into the coronavirus outbreak.