But studies and researches say that not everything is lost. Companies that operate in the FMCG sector, in particular the F&B segment, should try to keep a positive attitude and be ready to intercept the changes their market will undergo during this pandemic.
First of all, let's analyze the situation. The coronavirus pandemic has by now hit 124 countries, paralyzing several economies as governments are trying to contain it.
Extensive studies on the effect this emergency is having on the European and American economies are not available yet, but reports that investigate the situation in China are being published. As China alone accounts for 19% of the world GDP, such reports can give us an indication of how things will play out on a global scale.
An immediate result of the shut down of factories and the quarantine underwent by thousands of workers has been a disruption in the chain of production and distribution of goods - from China to pretty much everywhere. According to a survey conducted by Axios, US companies are experiencing heavy delays and can't reach out to the suppliers to get clear information. Clearly, this applies to FMCG goods as well and let’s not forget that China alone holds 7% of the global share of the food and beverage sectors.
But the real drama happens in the on-trade market, especially in its OOH segment. Simply put, people don't want to - and actually cannot, in many areas - go to crowded places. A report published by Kantar quantifies the loss in 500 billion yuan, which is around 60 billion euros.
Brian Lo, general manager of Deliveroo Hong Kong and board director of the HK Federation of Restaurants and Related Trades (HKFORT), explained that they estimate "in-store F&B retail sales to be down 30-50% year on year, with signs of further deterioration. Operators are reeling from worsening consumer spending out-of-home." Meal delivery companies like Deliveroo rely on restaurants and, in the event of a wide shut down, they would be severely hit as well.
The situation is quite grim, evidently, but as we anticipated there are two things to keep into consideration - that is, there are good reasons not to panic.
Studies say the market will grow even faster, on a global scale, after this backdrop. To understand why, it is useful to compare what is happening with what happened in 2003, during and after the SARS epidemic.
The Severe Acute Respiratory Syndrome - SARS hit the world almost 20 years ago, sadly claiming thousands of lives but actually spreading much less than the COVID-19. Back then, the Chinese monthly growth "dropped from roughly 10% (y-o-y) in early 2003 to 6.6%,” according to Rabobank’s calculations.
Their recent report explains the situation we are experiencing is worse, because of the current size of the Chinese market and because of the level of globalization we reached. What happens in China widely impacts the rest of the world's economies, and in a much broader way.
And yet, researches say markets will pull through and grow even stronger after the worst will be passed. According to Zan Yingying, researcher and doctoral director at Peking University School of Psychological and Cognitive Sciences, “the accumulated strength of people’s desire to shop will see ‘excessive compensation’ after the epidemic is over." It is a situation that resembles, he explained, what happened with the entertainment industry after the SARS outbreak receded.
Simply put, after the crisis people will go back to spending, and there is a good chance they will spend even more than what they were spending before.
Moreover, taking a look at this chart by Bain we can see that recovery has been steady both after the 2015 MERS and 2003 SARS outbreaks. The possibility of explosive growth envisioned by some researchers is contested, but a relatively quick recovery is a certainty.
It might seem like all is still, all is lost, but consumers are there, just less around. They are in need of the same things, but their habits are changing because of the emergency.
As a result of the coronavirus pandemic, a number of markets are suddenly thriving. It is the case, for example, of e-commerce. We already talked about it in our blog “3 Reasons Why the F&B Industry Needs E-commerce”, but now the importance of e-commerce is even more evident.
Let’s take the Out of Home - OOH segment as an example. If, on the one hand, consumers shy away from public spaces, avoid restaurants and don't or can't go to events, on the other hand, they are diving into the online or the Online-to-Offline - O2O worlds.
Supermarkets, brick-and-mortar shops, and on-trade outlets in China are expanding their scope to rely on O2O self-service methods. Consumers order the products and collect them at the stores, this way avoiding excessive exposure to possibly infected areas. This sector, according to the consulting company Kantar, will see explosive growth in the late stages of the pandemic.
E-commerce as a whole is booming as well. Referring again to this research published by Kantar, we see that it grew fast after the SARS outbreak in 2003, especially for what concerned the health sector. And the same happened to the overall FMCG market, even in its F&B segment. After all, meal delivery and ready-to-drink or ready-to-eat products have a crucial importance when you cannot leave your house.
Another important factor to take into consideration is that e-commerce market penetration, after having grown so fast, will probably not shrink back to its previous size.
Indeed, according to Kantar, who conducted a We-Chat survey about consumers’ habits right in the midst of the epidemic, 55% of the respondents declared they purchased through integrated online platforms. And although 37% of the interviewees think they will resume their habits after the worst has passed, the penetration rate of the e-commerce channels is expected to remain steady.
What this means is that F&B companies might want to reinforce their online presence, even increasing their advertisement budgets to let their customers know their products are still available.
Last but not least, meal delivery platforms, sometimes seen as cannibalizing the traditional on-trade market channels, are now coming as a ray of sunshine for the Horeca sector.
In the Netherlands, restaurants and cafes are subscribing "en masse" to Thuisbezorgd and Deliveroo. Food can be delivered in a "contactless" way, that is without any physical interaction between the rider and the customer.
As a shutdown of meal delivery platforms is not at the horizon, this market is thriving and needs to be taken into consideration by F&B companies. Some meal delivery platforms, like Glovo, are even in the process of opening their own "cooking centers" for meal delivery, thus providing a sort of end-to-end service to their customers. This cannot be overstated by F&B companies that want to minimize the damage of the pandemic and still reach their customers.
The Coronavirus emergency is most likely going to change consumers' habits permanently, forcing companies to rethink their commercial strategies. We are just getting a glimpse of it only one month into this crisis, so this is just the beginning of something that can revolutionize the entire market.
Therefore, now more than ever information on purchase preferences and customers behavior will make the difference, and will allow companies not to lose too much ground and be ready for when things start to get better. Solutions like the one we offer at Dashmote can be a game-changer, in the current situation.
But anyway, what matters now, we want to stress it, is the safety of the people. So be prudent, wash your hands and be safe.