As U.S. supermarkets brace for the effects of the abrupt and extraordinary changes underway in consumer lifestyles as a result of the coronavirus pandemic, they can learn from their counterparts in China, which withstood a similar phenomenon in previous months.
IGA, the international network of independent retailers, this week published a summary of the impacts—from changes in shopper behavior and the supply chain to what they might expect in terms of sales and profits—from Zhe Zeng, IGA’s deputy representative for China.
Zeng’s message: Prepare for big volume gains—but strains on profitability and operations—and big disruptions in the supply chain lasting two months or more. Shopping patterns changed over the course of the outbreak, Zeng noted, with initial hoarding behaviors giving way to delivery volume increases and types of products sold as quarantines were enforced, as well as a gradual return toward normal patterns as the threat subsided.
The phenomenon put a unique strain on supermarkets in China, which, in some cases, were the only businesses up and running yet were affected by heavy levels of absenteeism among workers. That put a premium on retailers to communicate efficiently and effectively over the course of the crisis, which hit China in December before finally subsiding in February.
Zeng also revealed some subtle and seemingly unusual lessons: For instance, with sanitation and cleanliness valued by shoppers, the aroma of chlorine and bleach in the stores made them feel safe. With shoppers facing the prospect of preparing all their own food, demand for appliances to prepare them increased. And while price sensitivity on staple items declined, sales of nonessential items fell, and retailers learned to be “cautious” when pricing or risk damage to their reputation if perceived as taking advantage.
“At the beginning of the outbreak, cashflows were hit, but the supermarket business bounced back,” Zeng said. “Shopping malls and restaurants were the most impacted businesses because they closed, whereas grocery stores stayed open. As you can imagine, fear, doubt and panic among associates was widespread in the early days of the outbreak. Sharing information and educating our associates on the facts—like IGA USA is doing with their new IGA Alert website—significantly helped in boosting morale and creating a sense of unity among our associates. Also important was enacting protocol that demonstrated we were doing all we could to protect associates and shoppers.”
Zeng cited a “typical” China IGA retailer, with 60 stores and $300 million in annual sales, showing big sales increases in January and February but profits in the period increasing only slightly. Within the store, produce sales soared, but the gross margin rate dipped. Meanwhile, the center store food department gained in sales but less so in margins, while general merchandise sales declined.
Read more of Zeng’s account here.