Daily Insights

Virus Crisis Accelerates Digital Innovation in China’s Food Delivery Industry

By: Asa Mazor-Freedman | Feb 21, 2020

Three weeks since the central Chinese city of Wuhan went on lockdown to stop the spread of new coronavirus Covid-19, businesses in China’s restaurant and food delivery industries are beginning to feel the heat. But in the midst of the crisis, key players are seizing opportunities to accelerate China’s digital innovation.

With customers fearful or unable to leave their homes and hyper-attuned to kitchen cleanliness, restaurants have faced a steep drop in sales. 69% of restaurants in an early February survey report “very high losses” (损失非常大) from the virus outbreak, nearly 26% report “substantial losses” (损失较大) and only 5% report a “relatively small” impact (损失较小). 

Many restaurants have had little choice but to leave large quantities of raw ingredients, purchased to serve a surge of holiday customers, to slowly go bad. Facing weak demand and complying with local government orders, restaurant chains including Haidilao, KFC, Burger King, and Starbucks closed some or all locations throughout mainland China.

With little choice but to cook in their own homes, consumers have turned to supermarkets and grocery delivery apps to buy food. But the prolonged closure of roads and traditional food markets along China’s grocery supply chains has constricted the flow of raw ingredients, creating a food shortage in city grocery stores and leaving produce to rot on the vine.

“People are afraid of catching the virus in public spaces and will order basically everything online as much as possible. The streets, restaurants, and supermarkets are empty, probably the only place that people will risk going to is the pharmacy,” reports Gartner Digital Performance Benchmarking specialist Wilson Zhao.

Restaurant chains with open locations are attempting to boost business by emphasizing increased store cleanliness and “contactless delivery”. Burger King, KFC, McDonald’s, and Starbucks each unveiled similar programs on their WeChat accounts. Starbucks shared images on WeChat of employees checking each others’ temperature and wearing timers to remind them to wash their hands. The coffee company also posted articles explaining contactless deliverya user orders from home, face-masked employees handle beverages with gloves and seal them in paper bags, delivery drivers chemically disinfect their vehicle’s food compartment and leave the bag outside for contactless drop-off.

Some Chinese restaurant chains have taken an out-of-the-box approach to survive the crisis: reselling their raw ingredients to consumers. Noodle chain Xibei and Sichuanese restaurant Meizhou Dongpo agreed to supply raw ingredients to online grocery delivery giant Miss Fresh (每日优鲜). On February 12, Meizhou Dongpo also released the “Meizhou Produce Stand” (眉州菜站) mini-application within WeChat, China’s omnipresent social platform, specifically for delivering its surplus raw ingredients and branded flavoring mixes to in-home customers.

Quickly reacting to the sudden interest in grocery delivery, B2B bulk food supply startup Meicai (美菜) rolled out B2C grocery delivery beginning in late January. With offline food markets out of commission, Meicai also began contacting small logistics companies and local governments in rural areas to directly supply its platform with fresh produce a change that may have lasting implications for grocery delivery in China.

Other companies see opportunity as well: Alibaba’s Taobao B2C e-commerce platform, locked in fierce competition for China’s “lower-tier cities” with startup Pinduoduo, unified branding for its various Taobao food delivery offerings under the name Taobao Foodie (淘宝吃货) in April 2019. When Covid-19 disrupted traditional food markets, Taobao, Pinduoduo and other e-commerce giants each unveiled programs encouraging consumers to “assist farmers” by buying their produce directly online. Taobao’s “Taobao FoodieHelp the Farmers” (吃货助农) page includes livestream commerce, videos of the farmers and branding from Foodie and Juhuasuan critical marketing tools in Taobao’s effort to compete with Pinduoduo in lower-tier cities.

Sudden disruptions caused by Covid-19 will likely have substantial, lasting, and unpredictable consequences for China’s restaurant and grocery delivery industries. In the short term, a food brand’s survival will rely on consumer trust that it can deliver food safely and that it shares public concern for the wellbeing of those suffering from the outbreak. 

“In the long term,” writes Gartner Senior Director Analyst in e-commerce Sandy Shen, “businesses will increasingly focus on digital channels so they can engage customers through more channels and touchpoints. This allows them not only to cater to the changing consumer preference to order online, but also to be more resilient to market fluctuations or disruptive events like this.”