The COVID-19 pandemic is continuing apace globally, posing the greatest humanitarian challenge of our age as governments scramble to address devastating health and economic impacts. The challenge for policymakers is to strike the right balance between containing viral transmissionand restarting locked-down economies to secure employment.
Retail and consumer packaged goods (CPG) companies also have an essential role to play, not just in helping us coexist with the virus, but also as sources of employment and social stability. From a global perspective, their outlook is deeply uncertain. As of September, many countries are battling a second or third wave of infections, even as a failure to arrest the first wave in the Americas means the region now accounts for 55 percent of new daily cases.
By contrast, China is optimistic. Having worked hard to contain the original outbreak of the novel coronavirus in Wuhan, the government has effectively controlled virus transmission. Since mid- March, a combination of travel restrictions, testing, and digital health and tracking initiatives, has kept most of China virus-free. China consequently hosted just 0.01 percent of new global COVID-19 cases as of Sep 22nd (Exhibit 1). Local health authorities have rapidly traced and suppressed new outbreaks, including a high-profile outbreak in Beijing in June, helping reassure anxious consumers.
Chinese consumers: Confident, optimistic, and ready to spend
The effectiveness of China’s public health response has inspired an unparalleled rebound in consumer confidence; McKinsey consumer sentiment surveys show that net optimism over the recovery of the economy in China has hovered around 50 percent, compared with about 22 percent in US, and in stark contrast to the pessimism that pervades Europe, Australia, and Japan (Exhibit 2). A notable outlier is the US, which has a relative optimism that is likely driven by culture and future expectations.
From a global perspective, Chinese consumers are most confident they will be able to resume their daily routines after the pandemic, with 60 percent indicating they expect to do so within two to three months. In comparison, a mere 13 percent of consumers in Germany, and 5 percent in Japan, expect their lives to return to normal within the same timeframe (Exhibit 3). Four out of five people in the rest of the world believe it will take at least four months for normality to be restored.
Channel hopping: China’s advanced digital infrastructure enabled a rapid shift to online
Prior to COVID-19, China was already among the world’s most digital nations, accounting for close to half of global ecommerce sales. When the virus struck, lockdown measures accelerated an ongoing trend of consumers shifting away from traditional retail towards online channels. This opened online ordering to new customer segments, with people over 30 years old increasing their share of ecommerce spend by 11 percentage points between January and February, according to QuestMobile data.
China’s sophisticated digital infrastructure ensured that online initiatives launched in response to COVID-19 offered quality service, not least in fulfilling orders in hours or days rather than the weeks it might take in less developed economies. Companies already engaged in digital transformations were able to accelerate momentum, and successfully cater for increased demand for online shopping and other digital services.
Usage of delivery apps surged during the crisis, driving higher online sales of food and daily necessities. According to our COVID-19: China grocery consumer survey, online penetration of grocery sales in China rose 15-20 percentage points during the peak of the crisis (Exhibit 4). We expect at least 6 percent of that increase to stick; more than 55 percent of Chinese consumers told us they are likely to permanently buy more groceries online.
Leading online-to-offline grocery retailers such as Freshippo, RT-Mart, and JD Supermarket, as well as Xingsheng Selected, a leader in community group purchasing, all capitalized on early strategic decisions to focus on omnichannel fulfillment and digitization. This meant these players already had the necessary supply chain and digital app infrastructure at the onset of the crisis, allowing them to smoothly accelerate the adoption of ecommerce.
Homing in: Rethinking at-home occasions
Aside from online shopping, Chinese consumers have embraced new digital activities that do not require in-person interactions, leading to a rise in at-home occasions that poses a significant new test for retailers and CPG companies. For example, one in four people tried remote learning for their children for the first time, while services like online streaming and video chat experienced substantial increases in usage. These changes are set to endure; a majority of consumers told us they intend to keep watching e-sports and online fitness programs. Remote learning for adults looks like another trend that might be here to stay (Exhibit 5).
In keeping with these trends, both retailers and CPG companies need to rethink their approach to marketing and portfolio management. For example, alcohol consumption shifted almost exclusively to at-home at the beginning of the year. While restaurants and bars have strongly recovered, we anticipate at-home occasions to remain more relevant than pre-crisis (Exhibit 6). Beverage makers should work to improve their understanding of why people drink at home, and adjust their brand and pack offerings accordingly.
Budweiser adapted by launching new ecommerce and omnichannel at-home consumer experiences, including DJ livestreams and e-gaming events that provided a platform for customized marketing, and home delivery promotions. Tsingtao rolled out a no-contact delivery service, leveraging its vast distribution network in 300-plus cities. Consumers ordered via phone or WeChat, and collected their beverages at a nearby pick-up point.
Taking advantage of an increase in demand for in-home wellness and fitness services, leading Chinese workout app KEEP launched hundreds of livestreams featuring key opinion consumers–everyday consumers whose value lies in perceptions of reliability, trustworthiness, and independence. Streams teaching yoga, collaborations with brands to promote in-home fitness tools, and question and answer sessions on fitness topics such as post-partum body recovery attracted 56 million views within a week, more than tripling KEEP’s daily active users compared with pre-crisis levels. Fitness coaches curated WeChat groups and managed daily training sessions, offering tips and guidance to attract new traffic and maintain user engagement during lockdown.
Healthy choices: Building trust amid shifting consumption patterns
Chinese consumers have become more health and quality conscious as a result of COVID-19, and are trying to improve their overall health and ability to fight off infections. According to our research, the safety of family, overall public health, concern over spreading COVID-19 and personal health are among Chinese consumers’ top ten concerns. These anxieties underpin significant changes in consumer behavior: two-thirds of our respondents claim to care more about product safety than they did before the pandemic, for example. Almost a third of consumers are also spending more on fresh foods, in keeping with a heightened focus on healthy living (Exhibit 7).
Shoppers are also becoming more prudent spenders; one-third said they are more mindful of where and how much they spend as a result of COVID-19. According to our surveys, Chinese consumers lead the world in researching brand and product choices before buying, with 45 percent telling us they have stepped up this behavior since the outbreak of COVID-19, compared with only 11 percent for France and Germany, and 12 percent for Japan.
As consumers rethink their purchase options, we are seeing sweeping shifts in brand choice that illustrate the make or break nature of China’s current retail environment. One-third of consumers told us they have switched to new brands during the pandemic, driven by factors such as availability, convenience, price discounts, and product promotions, as well as perceptions of safety.
Trust is vital as consumers navigate an uncertain information environment, with 89 percent telling us they are turning to brands that they trust. Three-quarters of Chinese consumers also stated they have convinced other people to stop using brands they felt were not acting appropriately during the pandemic. On the other hand, 82 percent of consumers said they recently started using a new brand because of the innovative or compassionate way the brand responded to the crisis.
Rising to the challenge
While much of the world debates when or if daily life will return to normal after COVID-19, Chinese consumers are already moving on, propelling a strong rebound in domestic consumption. Though the virus is under control for now, the consumer environment has fundamentally shifted, challenging brands and retailers to reconsider their operating models across product mix, pricing, channel strategy, and marketing. Consumer companies should consider adopting the following actions:
Innovate product offerings and services: Trends such as the shift to at-home occasions and rising health consciousness among Chinese consumers demand a coordinated response, beginning with a thorough analysis of changes in consumer behavior. Segment trends by category and consumer archetype, focusing on pre-, during and post- COVID-19 differences, before revamping product mix and service delivery accordingly.
Accelerate online and omnichannel: Brands should view online as a must-do and start setting digital key performance indicators, while considering the role and interaction of different online and offline channels, including direct-to-consumer, social commerce, ecommerce marketplaces, and physical channels. Clarify whether each channel’s role is for brand-building, consumer engagement, or to drive sales, and allocate investment accordingly.
Build a resilient and balanced supply chain: Start with having transparency of the supply chain that goes beyond the four walls of the company and into the layers of the supply network. Build end-to-end omnichannel capabilities and mitigate risks and uncertainties through revised sourcing and product design strategies.
Improve organizational agility: Facing increased uncertainty in the post-pandemic era, companies should embrace a nimble mindset and build agility into their organizations. Astute executives can prepare for disruptions by war-gaming scenarios that test the resilience of existing operating models– for instance, revised demand projections for lower- tier cities and rural areas creating the need for change in current distribution models–and set up cross-functional teams to address any gaps that arise from this pressure-testing.
Institutionalize M&A: This may be an opportune time to pick up valuable assets at a fair price, or to ‘acquihire’ by buying companies for their talent and capabilities.
Clarify purpose: Companies should take the opportunity to clarify and communicate a clear company vision and purpose both internally and externally, and in doing so, deepen trust with employees, business partners, customers and consumers.
Despite all the post-pandemic uncertainty, one thing is clear: China will continue to be the engine that powers global consumption growth. This was true prior to COVID-19, and is arguably even more relevant as the world looks to a future beyond the virus.