1、31 2020.02 Understand People Inspire Growth Assessing the impact: A cross industry view on the impact of COVID in China 1 Its an unusual Spring Festival with people fighting an unusual battle. As the epidemic caused by the novel coronavirus pneumonia (NCP) continues to escalate, the situation is ful

2、l of uncertainty with a tense climate across China The epidemic is undoubtedly affecting peoples lives and its impact on social economy is felt across all industries. Kantars consulting team have been paying close attention to the market during the epidemic. Using our in-depth market knowledge, cros

3、s- category expertise and eyes on the ground, Kantar presents this report, in which the challenges and opportunities that various industries are confronted with are analyzed and assessed for their potential impact. We also explore the potential trends of the industries in the special market environm

4、ent, with the intention to help enterprises cope with uncertainties, seek stability amid rapid change, and unlock opportunities against this crisis. 1. Economic impact 2. Retailing impact 3. Industry impact 4. Consumer research 1 Introduction 2 In 2019, the annual GDP growth rate of the Chinese econ

5、omy was 6.1%; the year-on-year growth rates in the four quarters were 6.4%, 6.2%, 6.0%, and 6.0% respectively, showing a slow decline. 2020 has been identified as an important goal post for China to achieve the goal of doubling its total GDP from 2010. Considering the impacts of NCP epidemic on the

6、economy in Q1, the year-round macroeconomic target for 2020 is now under a significant challenge. Under the epidemic, there are four possible economic scenarios that businesses need to consider: Downward pressure on Chinas economy rises, the tertiary industry being most affected In terms of industri

7、es, the tertiary industry has been most affected by the epidemic. The tertiary industry leads the Chinese economy, its GDP contribution accounting for as much as 54% in 2019. The highly contagious NCP epidemic has significantly reduced peoples outside movements, with transportation, tourism, caterin

8、g, retail and entertainment industries expected to bear the brunt. The growth rate of the tertiary industry is expected to slow dramatically in Q1. The impact of the epidemic on the secondary industry should not be underestimated either. Due to the need for epidemic prevention and control, measures

9、adopted in various regions, including delayed resumption of work and traffic control. These have led to delays in working population mobility and logistics transportation. As such, manufacturing enterprises may face difficulties in employment and raw materials shipment in the short run, affecting no

10、rmal production of some enterprises. As for the primary industry, the impact is expected to be relatively small, and it only accounts for a small part of the overall GDP, 7%. Exports of some Chinese agricultural goods, however, may still be affected in the short term. Looking at similar situations,

11、SARS in 2003 to H1N1 in 2009, the economic impact of the epidemic has been historically short-term as long as it the control is obtained. After the epidemic, a large amount of depressed and lagging consumption and investment will be released, and the economy will thus gradually recover. We believe t

12、he NCP epidemic will affect Chinas short- term economic trends, but shall not reverse the long- term growth of Chinas economy. Scenario 1: “Baseline” 50% likely The epidemic turns to be under control at the end of Q1, and economic growth slows down in Q1; but as the epidemic influence decreases, the

13、 economy looks to rebound. The year-round GDP growth rate in 2020 is expected to reach 5.4% Source: The Economist Economic impact Scenario 2: “Optimistic” 25% likely The epidemic is effectively controlled by the end of February, and the year-round GDP growth rate is 5.7% Scenario 3: “Pessimistic” 20

14、% likely The epidemic continues until the end of Q2, and the year-round GDP growth rate falls to 4.5% Scenario 4: “Nightmare” 5% likely The 2020 epidemic fails to be effectively controlled, and the year-round GDP growth turns to be less than 4.5%; a real worst case scenario for the market. 3 Departm

15、ent stores and shopping centers Disadvantage: Advantage: Retailing impact Data source: , Due to the epidemic, department stores and shopping centers in China have closed or reduced their business hours. To offset some of the losses, 77 commercial real estate companies in China announced a reduction

16、or exemption in commercial rents as of February 3. While this may help ease cash flow problems, there are still significant other fixed expenses that will expose difficulties for continued operation under the epidemic. Additionally, as this is a period of significantly increased sales, the losses of

17、 this peak period will be felt throughout the year. However, department stores with established online platforms have seen a smaller impact than traditional ones. Suning Plazas across the country has reacted quickly by changing its direction, driving consumers online to the Suning Plaza APP and appl

18、ets. Suning Plazas in different cities, have set up their own marketing community where consumers may join by scanning QR codes to buy products and services at home through online order placing and logistics distribution. Rainbow Department Store has launched a “door-to-door” service, enabling consu

19、mers to place orders with free shipping by SF express by means of the “Rainbow” applet or the APPs counter delivery service. In the short term, the decrease of customers as a result of the epidemic will affect the business of brick-and-mortar department stores and shopping centers to varying degrees

20、. With Moncler, the luxury fashion retailer, recently citing a 80% reduction in traffic when compared to last year after it was forced to close 14 stores (1/3 of their total China stores) nationwide. However, in the long run, the acceleration of digital transformation, strengthening of online promot

21、ions, application of new digital tools and technologies, developing world leading online/offline integration, and full utilization of membership data, will help business protect against the impact of such crises. The importance of online platforms such as online shopping malls, official WeChat accou

22、nts, WeChat applets will be emphasized for department stores or shopping centers throughout the year and the future as the economy recovers. Companies will shift these aspects to be their core strategy to achieve high-value and high-quality member and sales growth through member relationship managem

23、ent, optimum utilization of data, personalized products and customization of promoting programs. Experience-oriented consumption will continue to be the main approach of offline consumption, and in normal times the important of tangible offline brand experiences are not projected to diminish. Howeve

24、r, it is also very important for the industry to find out how to create an immersive online shopping experience by taking advantage of new technologies. 4 Retailing impact Malls and supermarkets Disadvantage: Advantage: Even though malls/supermarkets have shouldered the task of ensuring peoples dail

25、y supplies, there still have been great challenges under these adverse conditions. To begin with, profits have declined due to rising costs. With suppliers increasing the prices of popular goods such as fresh food and with epidemic prevention items seeing significant variance in line with their shor

26、tage of supply, a vast majority of supermarkets are still following a principle of “stable supply with no price rise”. This in part reflects a high sense of social responsibility which is admirable considering the circumstances. Additionally, the home rush during the Spring Festival holiday typicall

27、y leads to a shortage of staff. With the staff shortage compounded by increased demand for workers to fulfil extra work such as deep disinfection and sterilization. To alleviate the problem of staff shortage, Yonghui, Greenland and other supermarkets are “renting” employees from catering service pro

28、viders who face the inverse problem of staff over-supply after their businesses have been temporarily shut down. Lastly, there is a substantial backlog of Spring Festival goods (such as tobacco and wine) which have not been consumed as usual due to behaviorial changes associated with the epidemic. I

29、n the short term this causes significant pressure on capital turnover, and in the long run over stock issues may be seen in certain categories within the retailers. However, crisis breeds opportunity. During this period, we have seen that offline supermarkets are able to quickly fill supply gaps, ta

30、king the opportunity to alleviate the impact of customer decrease brought about by a rise in e-commerce adoption. The stable supply for offline supermarkets has shown a resilience that has not been reflected in the e-commerce channels, which is facing its own issues, resulting in slow logistics. Thi

31、s has brought a large number of customers back into the offline buying habit, and the challenge will be to keep them in that habit after the epidemic subsides. Wal-Mart, RT-mart, Carrefour and other large supermarkets are developing more online channels to push services through their own and third-

32、party apps / applets; small supermarkets are expanding their sales scope by relying on O2O services in the same city, such as Eleme / Meituan / Paotui. The self-service cash collection featuring contactless transaction represents an opportunity to develop new checkout habits, which in the long run c

33、an represent cost saving opportunities for retailers, by achieving the full automation of cash register. In a word, the performance of the malls/ supermarkets under the epidemic is remarkable, and they have improved their brand reputation and public favor in the crisis. The long term challenge is cu

34、stomer retention, instead of a them being seen as a crisis solution. Convenience stores Disadvantage: Advantage: Even in the face of the epidemic, most of the chain convenience stores remain open. For example, 7-Eleven, Bee and other convenience stores adhere to “Open 24 Hours” during the Spring Fes

35、tival; those near living areas in cities, have taken advantage of their geographical position and won new business opportunities, while others in close proximity to transportation hubs and commercial areas have closed due to business downturn. During the epidemic fresh food is an important commodity

36、, with community convenience stores quickly adjusting the commodity structure and increased the supply of fresh food, making it convenient for residents to purchase nearby. For example, Suning Store, backed by Suning Vegetable Market, has become a service hub of communities by enabling online orderi

37、ng and pickup in stores, that is, users place an order on Suning Store APP before 9 p.m., and pick up what they have ordered at the neighborhood store at 7:00 a.m. the next day, avoiding any contact and linger time. To address the shortage of distribution manpower, convenience stores have also adopt

38、ed “online ordering and pickup in stores”. Today convenience stores in Wuhan, Hubei, a hyper epidemic area, for example, are relying on Eleme, using the in store pickup method to reduce personnel contact, with the result being to greatly improve safety and convenience by minimizing human contact. Th

39、e efficient performance of convenience stores and their role of as community hubs has raised their standing in consumers mindsets. After the epidemic, it is expected that consumers behaviors of shopping in the convenience store nearby the home will be preserved, the emotional ties and convenience st

40、ore communities formed in the special period will last. Additionally, we project that the epidemic will serve as a catalyst to the previously present trend of a shift in category structure within convenience store. An increase in the proportion of fresh food, vegetables and instant food compared to

41、previously. There is a strong outlook for the continuation of the prominence of convenience stores. 5PB Retailing impact Data from 2013 Worldpanel, a division of Kantar showed that during the SARS outbreak, the performance of grocery stores and “mom and pop” stores suffered. Affected by this epidemi

42、c, quite a number of grocery stores were forced to be closed and many shopkeepers said a large backlog of goods restocked before the Spring Festival, especially milk, pastry and fruit gift boxes with short shelf lives was problematic. This coupled with high store rents as commercial real estate boom

43、s, has posed a considerable financial pressure on these thin margin businesses. It is expected that, due to the epidemic, the business of traditional grocery stores will significantly suffer this year. Due to the closure of villages and blocked roads in some areas, there has been significant disrupt

44、ion in the supply chain for these stores across distributors and wholesalers. The longer these measures stay in place, there is a high risk of inventory of essential items running out, even if the stores intend to keep operating. Internet based purchasing platforms plays an important role, helping s

45、mall store owners ensure adequate supply of goods while refraining from going outdoors. According to the data provided by Alibaba LST, more than 3,000 stores on the LST platform in Wuhan remain open to provide services for the community. LST has also launched an emergency plan to timely adjust commo

46、dity structures and ensure the normal operation of stores. We predict that after the epidemic, shopkeepers will be more used to the contactless one-stop restock through the Internet, leading to an acceleration of the reform of the traditional Chinese retail stores and traditional trade models. With

47、the completion and delivery of Huoshenshan Hospital on February 2nd, the first unmanned supermarket in the epidemic area in China came into being. The supermarket offers 24-hour service with no cashier, where customers complete the whole purchase process by self-service. On the first day of business

48、, it welcomed more than 200 customers. The idea of unmanned retail was put forward in 2016 and developed rapidly in 2017, with financing of 6.3 billion yuan at its peak. There were more than 200 unmanned stores. However, after only one year, the model was challenged by the market due to the low acce

49、ptance of consumers and the lack of appropriate technological implementations. During the epidemic, unmanned supermarkets have had somewhat of a re-emergence, and the future important of unmanned shopping emphasized during a crisis. Similarly, vending machines had the consumer health advantage of not requiring human contact. The trend toward vending machines has been seen by many FMCG manufacturers before the outbreak. In Japan, there is 1 vending machine for every 25 people on average, and 1 for every 50-60 in the United States. However, in Chin