China: drastic changes and alternatives in the food and beverage market

In 2019, China's food industry earned revenues of $672.65 billion (approximately), with annual growth of 9.4%.

In the first two months of 2020, most product categories recorded a significant drop in sales, except for cereals, oil, food, beverages, and medicines. Frozen meat and instant noodles grew by 13.5% and 11.4% respectively.

Although the impact of the virus on China's food sector has yet to be determined, the Asian country is showing a gradual rebound in this sector.

What will the world be like after the crisis? That is probably one of the most difficult questions to answer in this global emergency scenario in which the pandemic has demonstrated devastating power in economies, only comparable to that of major disasters or even world wars.

The nature of this crisis and the changes that health prevention measures generate in customs accentuate the problems faced by some industries and strengthen the position of other sectors that appear to be better prepared for this context.

Food and beverage production is a good example to analyze, particularly in China, where the emergency has put some traditional practices on the line and has brought very important changes in marketing and consumption habits.

It is estimated that the coronavirus originated in a traditional and widespread market in Wuhan City, southeast China. This fact did not go unnoticed by consumers in that country. Similarly, the identification of confinement as the main health care measure also impacted the forms of consumption and that includes food.

The immediate reaction of resorting to greater supply than that required for quarantine; a greater rejection of the consumption of wild, live animals; staying home to eat instead of looking for options outside; and the difficulties generated by the risk of contagion from going to a supermarket are some of the trends that have marked the last few months and that will leave their mark on the economy once the crisis is over.

China, slowly, is trying to recover its economy and its usual dynamics, but as in other countries, the change will come after the crisis. The available data shows that this is the case. Food ordering applications reported three times more income in this period than in the previous year. Restaurants closed down completely, and more than 70% quickly joined the different food delivery platforms.

In that line, the decision to bet on a more careful and healthy diet will also have its consequences. According to official assessments, the popular markets -which are just reopening in some cities- are one of the most affected sectors of the economy. Similarly, agricultural and food production will be subject to more demanding consumer scrutiny, and in response, the government has stepped up supervision of companies to certify the quality of their production.

These are changes and measures that not only impact large global companies present in the Chinese market but have direct consequences on family businesses. In China, about 95% of the companies in the food industry are family businesses, which face the great challenge of adapting to a new reality from now on.

One example is the incorporation of chopsticks for diners in restaurants and chains, even for dishes that used to be eaten by hand as part of the tradition. The prevention and avoidance of contact with germs also have an impact on the use of space, by setting up tables where even a single person can sit.

Consumers are choosing new tools to consume and market players are trying to adapt their businesses to follow the trend.

The industry's challenges

Analysts in different parts of the world have repeatedly stated that food and beverages will be the first sectors to recover from this complex scenario. In China, consumer purchases are expected to normalize by the second half of 2020, when they could reach similar levels to those before the crisis.

It is true that the dimension of the Chinese market favours the survival of the industry, although it faces the challenge generated by lower demand, a greater tendency towards other types of food, and significantly greater use of food delivery services.

The health emergency made it clear how changes in customs can redefine the economy, and it will depend on the adaptive power of large and small businesses to survive.

Source: Elaborated by Uruguay XXI based on a report by the Strategic Public Relations Group