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Shanghai lockdown – lessons for consumer businesses

Volunteers sorting delivery packages at the entrance of a residential compound

We’re now on day 36 of lockdowns in Shanghai (longer in Pudong) and it’s been very educational watching what consumers do, what they buy, which businesses manage to create opportunities for themselves and so on. Here are some key lessons we learned.

1. The importance of diversified supply chain

Shanghai is, after all, just one city. Even if it represents 25 or 50% of your business, there is still a market in other cities for most businesses that they can continue to service, possibly try to grow to compensate for the loss of revenue in Shanghai.

There are many companies who are unable to to do this for one simple reason – all their supply chain is in Shanghai and it’s been locked down with everything else.

While they’re trying hard to find alternative sources, it’s obviously very difficult to accomplish at short notice and while working from home.

2.The importance of diversified markets

By the same token, businesses that weren’t completely dependent on Shanghai have managed to keep their revenue chugging along – even if it’s not as healthy as before. This assumes, of course, that they weren’t entirely dependent on Shanghai for supply. Of course, Shanghai is a big market and there will be a revenue hit for a couple of months but that is less damaging than if it was your only market, which is the case for a lot of the smaller retail businesses that haven’t yet looked beyond one city.

3. Voluntary group-buys, a new (old) channel for brands to reach consumers directly:

As a preface to this point, bear in mind that big-city dwellers in China are used to a level of delivery convenience unparalleled elsewhere in the world. It was feasible to order a single drink (bubble-tea and such) because delivery costs were so low and it was possible for a delivery courier to show up right at your doorstep.

Obviously during lockdowns, couriers aren’t allowed beyond the main gate of a compound, most restaurants are closed anyway, most couriers are in the lockdown as well and no volunteer in a compound is going to appreciate making deliveries of small individual items – so that entire ecosystem crashed completely.

However, what took over very swiftly is various forms of group buys orchestrated via informal groups on WeChat (mostly). Residents of a building or compound coming together to meet a minimum order requirement for all kinds of things – from essentials like vegetables and dry goods to coffee, indulgences like KFC, Shake Shack and wine. After the initial few weeks of short supply, almost everything is now available through these channels and companies that have found ways to quickly build delivery capability and social media groups of their consumers have rescued at least some revenue through these means.

What’s particularly interesting about this new development is the brand-new, direct channel to groups of consumers who have self-selected themselves as being interested in a brand or category. Premium coffee drinkers ordering Nespresso pods, for example – under normal circumstances it would have been really difficult for a brand to find them – during the lockdown it’s become really easy because people are voluntarily registering to set up group buying, finding participants, collecting the money and placing the orders. Why should this stop when the lockdown ends? It’s a golden opportunity for brands to bypass normal distribution channels and sell directly to these consumers.

Incidentally, purchases during the lockdown weren’t just food / consumables / classic FMCG. Two appliances that have done really well (anecdotally, we don’t yet have hard data for this) are refrigerators – especially the smaller ones used as extra cold storage – and air-fryers. Given the number of people who would normally never cook for themselves who are now forced to do so, there are probably other kitchen appliances as well that have had some new opportunities come up during lockdown. Of course, if they weren’t adequately stocked in Shanghai before the lockdown started, that opportunity has passed them by.

Of course, lockdowns are (hopefully) not frequent, recurring events – for the most part it makes sense for businesses to optimize for business as usual, but these circumstances at least raise the question of having a plan B in place. Also, problems or crises often bring opportunities of their own, some of which can become long-term and very valuable for businesses that think differently and move quickly.

If your business in China is facing challenges that you’d like help to navigate, reach out to us at enquiries@searchlightchina.com

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