Effects of COVID-19 on the Chinese F&B Industry

The Coronavirus has affected all industries in China, and the food and beverage industry has not been spared. As China’s leading B2B event for the health and food ingredients industry, we are keeping track of how the industry has been affected. We have teamed up together with leading market experts ChemLinked to prepare an overview of the market in China, how it has affected consumers purchasing behavior, and how the food and beverage industry has been affected.

Health and wellness have been a key trend inthe Chinese industry in recent years, but since the start of the virus, it has become even more important. Chinese consumers are now, more than ever before, aware about the importance of health, and the sale of health products have seen an increase. This demand is expected to remain steady after the virus, making Hi & Fi Asia-China together with Healthplex Expo, Natural & Nutraceutical Products China(HNC) even more important than ever before.

These events taking place together from 25-27 November in the National Exhibition and Convention Centre (NECC), Shanghai are the meeting place for the health and food industry, from ingredients to finished health products. Onsite at the event, we will once again be teaming up with ChemLinked, when they join us in the Innovation & Content Hub to present about food regulations and laws in the Chinese market. A topic not to be missed. Register for free today to learn more onsite in November.

How has the Coronavirus outbreak affected the Chinese food industry?

The novel coronavirus epidemic has proven to be a headache for the country’s economy, which also brings large demands or certain opportunities for some sectors like supplies of goods, logistics/delivery and new retail[1]. ChemLinked has summarized related questions & answers below to interpret what is going on and what will happen next.

Part-1: Consumer’s Situation

What’s the routine of Chinese consumers during the epidemic period?

Chinese government has proposed many restrictions on citizens to prevent the spread of the disease, especially for some cities with a severe outbreak. Currently, according to some leading social media, such as Weibo, Wechat, etc., the majority of the people’s daily life is quite similar:

  1. stay at home
  2. have to cook oneself
  3. keep an eye on the development of the epidemic and pay more attention to personal body health
  4. stock up a large number of daily necessities
  5. spend more time on social media and online game apps

How do Chinese consumers get supplies, especially food? Or how do Chinese people select purchase channels during the epidemic period?

The situation differs. For people living in China’s first and second cities, online channels such as comprehensive e-commerce platforms (Taobao and Jingdong, etc.) and O2O delivery platforms (Eleme, Fresh Hema, etc.) have become their main choice[1]. But for people living in lower-tier cities, rural areas and hardest-hit areas like Hubei, the neighborhood supermarkets, convenience stores and other small offline community businesses have become their primary choice because of the lockdown of the streets and disruption of logistics.

Part-2: Impacts on Food Industry

In the short term, how has the epidemic affected the food industry?

As the outbreak occurred in close temporal proximity to the Chinese Spring Festival, celebrations and festivities were reduced or even cancelled altogether. Purchasing of gifts suffered significantly, translating to significant reductions in sales of alcohol[2]and beverages. Restaurants and the service sector have suffered considerably. Conversely, demand for frozen foods[3], and convenience food has increased[4]. The epidemic has had little influence on dairy products and condiments yet[5].

How is the supply chain? Which link is the most affected?

In fact, the whole supply chain is suffering significantly. Currently, China has put several major urban hubs on lockdown and placed restrictions on transport. For upstream links, these restrictions will noticeably impact output and production capacity[2]. Raw materials supply is expected to suffer a rapid decline. As a result, other links in the supply chain associated with processing, production, blending, canning, etc. will also be severely affected as the government has placed restrictions on the dates when employees are permitted to return to work.

On the other hand, bricks and mortar businesses are expected to be the most affected by the epidemic. In some major cities, there are rules in place that restrict the movements of families. Under these restrictions, families are only allowed to send one person out every two days to purchase essential goods. Consequently, traffic and sales of those offline stores showed a sharp decline.

Which food categories have developed rapidly during the epidemic?

Frozen food and convenience food: because people have to stay at home for a long time during the epidemic, they would choose to purchase some life necessities and stock some food. Frozen food and convenience food with longer shelf life become their priority selection.

Fresh food e-commerce: Fresh food e-commerce also becomes popular since people couldn’t go outside to buy fresh food such as vegetables, fruits and meat while the demand for this kind of food increased during the epidemic. During the Spring Festival, the daily online ordersof vegetables and fruits in SuFresh(a new retail fresh food e-commerce owned by Suning) increased by more than 200%. Besides, Suning Food Market, a part of the Suning Small Store(Suning’s community-based convenience store), saw a 245% increase in online orders[6].

Health foods: due to people’s concern about health, the demand for health foods, like nutraceuticals, also increased in this period.

How does the epidemic affect health foods?

Since more people realize the importance of health and immune ability, the demand for health foods has increased. It is expected to remain steady after the epidemic, especially those that can help improve people’s immune ability. Nutraceuticals like Vitamin C and Vitamin A are worth attention[7].

How will the epidemic affect the food industry in the long run?

Here are 4 points which can be predicted:

  • Most sectors in the food industry are necessities, so the consumption demand for them will recover quickly and remain steady after the epidemic[7].
  • Some consumption needs, which were restrained at present, are likely to rebound immediately after the epidemic, such as snacks[8].
  • Some shopping habits which cultivated during the epidemic may remain. For example, people who have been familiar with multichannel shopping, especially fresh food online shopping during the epidemic may keep this habit.
  • For some brands which left a positive impression on consumers during the epidemic, consumers are expected to remain higher loyalty to them.

Part-3: Suggestions

How to do marketing for food enterprises amid the epidemic?

Based on some enterprises’ outstanding performance in this outbreak, ChemLinked has some recommendations:

  • Doing charitycan be beneficial in improving a brand’s value.
  • Interact with consumers. First, keep active on social media platforms[9]. Even if there is no newproduct release, it is wise to share with consumers the latest situation of the enterprise, like how to fight against the epidemic or invite consumers to participate in DIY activities. Second, operate in private communities like Wechat Group. It can help build a closer relationship with consumers.
  • Avoid explicit advertisement. It will inevitably result in major backlash and damage to the brand image. Pay attention to content marketing, and make use of brand’s own advantages to satisfy consumer’s needs, especially emotional needs, offering them warmth and comfort.
  • Explore the power of online channels. Mini-program e-commerce, live streaming, KOLs and KOCs development are all feasible ways.

What are some of the food enterprises doing? Are there any companies performing very well during this epidemic?

During the epidemic, many companies will donate money, but sometimes doing charity is not only about giving money but also about what brands do in this particular moment.

  1. Beingmate(贝因美), a domestic dairy brand, which is estimated to have lost in the range of 65 million to 95 million yuan in 2019[10], donated more than 2,000 boxes of adult formula milk powder to frontline medical staff, valued at more than $1 million RMB.
  2. Wantwant (旺旺), a traditional snack brand in China (also has a hospital), not only donated medical supplies to hospitals in Wuhan but also distributed disinfectants to citizens in several cities[9]. This brand also used its cute child-like logo (as shown below) to comfort consumers on social media, which helped it win a large number of fans and even led to a #Wantwanthospital hashtag trending on Weibo.
  3. Some catering enterprises such as KFC, McDonalds, and so on, corporate with online delivery platforms to launch “Contactless” distribution/delivery[11]. That is, the delivery man delivers the goods to the designated place according to the customer's request, but does not meet with the customer face-to-face. In this way, it can effectively intervene and reduce human interaction,thus avoiding the possibility of infection.

Any suggestions or something that a brand needs to pay attention to, what are the do’s and don’ts?

  1. Do not raise price, hard-selling or push products. Although the supply chain is suffering difficulties, citizens heavily rely on limited existing products, and the market seems to present a short supply. It would be unwise to continue to raise prices as this risks invoking the wrath of Chinese consumers who will see this price increase as an attempt to a cash grab during a time of crisis[12]. At a policy level, the government has alsoimposed rules to severely crack downon unethical price increases during the epidemic[13].
  2. A donation will bring a positive brand image, but charity marketing will not. Do not advertise what companies contribute to this epidemic. Do not overplay corporate social responsibility, because no one is forcing you to do that. Over-exaggeration can turn consumers against companies.
  3. Do not joke about the outbreak.

Part-4: Regulatory Aspect

Is there a list of food ingredients permitted to be used in China?

Sorry, there isn’t such a list, but we can find the regulatory references to support the usage, including:

  • Common food raw materials(which have been confirmed by the authority, like having product standard)
  • New raw food materials (which have been announced by the authority)
  • Bacterial Cultures that Can Be Used in Foods in China
  • Bacterial Cultures that Can Be Used in Baby Foods in China
  • Traditional food (Foods that have been consumed for over 30 years in China)

What if there isn’t a regulatory reference for my ingredients?

The enterprises can apply for new raw food materials.

What’s the requirement for ingredients used in organic food products?

It’s similar to the EU regulation that it allows for up to 5% non-organic ingredients. According to the Administrative Measures on Organic Product Certification, “Processed products with equal to or higher than 95% of organicingredient content (weight or fluid volume, excluding water and salt, the same below) shall, after obtaining organic product certification, label "organic" as word on the product or product package as well as organic product certification mark,.” GB/T 19630.2-2011 also states that “When the organic ingredients cannot meet the demand, non-organic ingredients can be used, but should less than 5% of the total amount of ingredients. Once the organic ingredients are available, the organic ingredients should be used.”

Can substances listed in Chinese pharmacopoeia be used in health food?

It depends. Raw material and auxiliary material should be discussed separately:

Raw material: animal or plant materials permitted to be applied in health food are listed in 2 catalogues, which are "Catalogue of Substances Used as Both Food and Traditional Chinese Medicine" and "Catalogue of Substances Used in Health Food" (they are attached in the No.51 announcement issued by MOH). If this raw material is listed in Chinese pharmacopoeia while not in the lists mentioned above, it should apply for new raw food material in China before it is applied in health food.

Auxiliary material: some non-functional and necessary pharmaceutical auxiliary materials without consumption risk, including conventional excipient and filling agent, can be used in health food production, such as polyethylene glycol.

Is an inactive bacterium considered a probiotic?

According to FAO and WHO, probiotics should be active and good to humanhealth. But currently in China, probiotics can be active and inactivated bacteria and their metablites. In a consultation draft of health food, probiotic health food refers to health food whose working ingredients are active probiotics, meaning the definition of probiotics in China is aligned with international standards.

Any reason why probiotics in liquid dosage is not recommended?

Because liquid probiotics are not as stable as the powder type.

If a product containing bacterial cultureshas been heat treated, do you still have to label the cultures (for example, heat treated yoghurt)?

There is no requirement for the total amount of active probiotics in heat treated products. And if it is heat treated, you need to label “heat-treated flavoring fermented milk” or anything along those lines.