Will Restaurants Go Online to Bear the Coronavirus Costs: China’s Food E-Commerce Under the Public Health Emergency
February and March so far have been one of the most unanticipated and disturbing times for Ellen Xu, the owner of a Hangzhou-based neighborhood bar named Chimney, as the business has declined sharply due to the coronavirus disease 2019 (COVID-19) outbreak. According to Xu, it could take months for consumers to resume their consumption routines. However, restaurants need to consecutively deal with taxes, payrolls, and rents, which have become increasingly unaffordable for many small business owners.
As of March 7th, 2020, over 101,400 individuals have been infected, with a cumulative death toll of more than 3,400. To contain the contagious situation, multiple regions in China extended the New Year holidays to let workers stay at home to avoid contracting the virus. Limited social mobility decreases people’s chances to dine out and significantly affects China’s food and beverage industry.
Research has shown that the profits made in Lunar New Year usually constitute 15%-25% of the annual revenue for restaurants in China. According to Bloomberg’s highlight for Rabobank’s report, alcoholic drinks in China such as baiju (白酒), a Chinese spirit, could gain as much as 30%-50% of full-year revenue from festival holidays’ sales. However, the potential income streams that could have been earned during the peak seasons such as Lunar New Year and Valentine’s Day are now erased by the disease. In response, food business owners have started to navigate the changing circumstance and proposed innovative channels to rejuvenate their business. Among various means, e-commerce has been widely perceived and discussed as a possible solution for restaurants to survive during the epidemic.
E-commerce serves as a major driving force for Chinese consumption power. The burgeoning growth of digital platforms such as Meituan (美团) and Xiaohongshu (小红书) enables customers to search, share, and even directly make orders on items such as food and clothing online. These shopping habits show great business potential in light of the epidemic crisis.
“We will be launching a creative beverage program on platforms such as Ele.me (饿了么),” said Xu, “It will be an online drink delivery service providing measured amounts of cocktail ingredients with easy instruction videos so people can make their own cocktails at home. The point is people can’t go out to have the bar experience so we bring the experience home to them.”
However, not all bar owners are optimistic about moving their business online. Feng Li, a Shenzhen-based wine distributor, bar owner, and food blogger, expresses his concern that the consumption of wine depends largely on consumers’ experience in the store and the exquisite requirement on the quality of ice and temperature of liquor. It is challenging to maintain the temperature and quality of raw materials for drinks when transporting from stores to doors.
Furthermore, as Li explains, “the wine and bar experience for people is more of a luxury and entertaining enjoyment rather than everyday needs such as food. So when the epidemic comes that affects people’s income and consumption power, they will focus on buying daily necessities and curtail the expense of wine and beverage.” For both reasons, he does not view this epidemic as an opportunity for whiskey and wine to become popular online.
Xu and Li are not alone in thinking about the viability of leveraging the power of digital platforms to expand the business. Not only the professionals in the wine and beverage industry but also the traditional catering industry are exploring the possibility of adopting the food e-commerce model today.
While many high-end dining restaurants are uncertain about the outcome of opening delivery services due to the concerns on brand image, food quality, and pricing strategy, some small and medium-sized restaurants have gone online with salient success. According to Vinie Huang, a food blogger and media practitioner based in Shanghai, orders on many hotpot stores’ delivery platforms have spiked in recent months. She points out that since hotpot is easy to make with a stove and could be either enjoyed alone or shared with groups, it stands as one of the most convenient and economical choices for people to dine at home. Therefore, hotpot will likely remain the single most popular food category in China even when unexpected events take place.
This phenomenon resonates with many food delivery services in China at this particular moment. Changlin Liang, the Founder and CEO of Dingdong Fresh, states that its market demand has jumped up tremendously after the outbreak as most people have stayed at home and have begun to cook for themselves.
In addition to continuing the service line of delivering fresh vegetables, meats, and fruits, Dingdong Fresh has advanced its model by opening a new option available for customers called “Chinese New Year dishes.” This new category includes pre-prepared dishes from well-known catering brands such as Xiao Nanguo, allowing citizens to easily process and make hotel dishes at home. This practice, similar to hotpot, meets the soaring market demand for quality and easily processed food when a public health crisis coincided with the New Year celebration in China.
While people hold competing views about the potential of the wine and beverage going online, the traditional catering industry in China finds the future of easily processed food such as hotpot and semi-finished dishes to be promising with the emergence of the gig economy. Expanding online options may not only include opening food delivery and semi-finished product sales but also promoting digital marketing and food e-commerce to accumulate customer base and establish brand trust and loyalty.
Individually, the shadow of this epidemic will lead to a profound repercussion in China’s restaurant chains as business owners start to explore the online platforms to diversify their revenue stream and to reduce future losses if such a black swan event happens again. On the macro level, however, analysts at Rabobank do not interpret the impact of this global health emergency as unrecoverable and catastrophic on China’s food & beverage industry, based on the country’s experience during SARS.
“During SARS the negative impact on the food service sector benefited the retail sector as consumers ate more at home. With the improvements since SARS in E-commerce and food delivery, some parts of the food service sector might benefit more than during SARS. Even so, there might be a temporary shift of how people consume, we do not expect a decline in overall consumption levels. Considering SARS experience, but clearly depending on the scale and length of the coronavirus outbreak, the impact on F&A might be short-lived.” writes the report.
Now, as the confirmed cases of COVID-19 increase every day in the U.S, a surge of e-commerce and delivery service usage might also be expected as people spend less time outside. According to a survey done by Coresight Research last month, over 27% of 1,121 U.S. internet users said they were already avoiding public spaces such as shopping malls and entertainment centers, while 58% said they would do so if the situation worsened. We have seen a growing number of businesses combining traditional catering services with new retail formats in China. If the outbreak escalates in the U.S, the developmental trajectory of the e-commerce trends will remain open to be observed here.
