Returning Hubei to Growth Post Covid-19
Hubei was by far the worst affected province from the Covid-19 outbreak with almost 68,000 confirmed cases and a lockdown period that lasted for 11 weeks. This undoubtedly meant that FMCG sales were the most severely impacted in Hubei but by how much and more importantly what can manufactures and retailers do to speed up Hubei’s recovery and return this important province to growth again?
Hubei province has an urban household population of 8.1 million households which represents 4.5% of the Chinese urban population and contributes to 4.7% of FMCG sales. Prior to the pandemic the FMCG market in Hubei was performing well growing at 7.4% in 2019 vs 2018, which is ahead of the 5.3% seen for National Urban China.
During the Covid-19 outbreak sales took a significant hit seeing a low point of 66% weekly decline in the week after CNY. This drop in sales was mainly contributed by both a decline in the number of shopping trips and a smaller basket per trip, in terms of both value and volume, during the months of February and March. The lockdown imposed strong restrictions on many communities meaning that there were limits on how many people in the household could leave to shop for groceries as well as how often they could make these trips. As the situation started to improve during March the decline in FMCG sales reduced but Hubei is still some way from the growth it was experiencing prior to the pandemic.
During this unique and challenging period the types of FMCG categories Hubei shoppers purchased, when they were able to leave their home, changed drastically compared to the equivalent 2 month period last year. Categories which really felt the impact of the coronavirus were those that were more likely to be consumed for enjoyment, such as alcohol and soft drinks, or non-essential for life in quarantine, for example cosmetics. Categories which saw the fastest growth in Hubei were those which became essential during the lockdown period. Sanitising products, such as hand wash and disinfectant, grew by over 150% showing that shoppers were able to obtain these much needed products. Many shoppers were left with little choice but to cook from home so the seasoning sector posted double digit growth during the lock down and snacks also performed well as shoppers looked to relieve their boredom. As restrictions started to ease in some areas of Hubei some categories, such as laundry detergent and paper products (e.g. toilet tissues), witnessed a strong rebound as the pent-up demand was released.
The retail channel households in Hubei used during lockdown also saw significant changes. All major channels experienced sales decline in the 2 months to the end of March compared to last year but some channels were able to weather the storm better than others as shoppers switched their spend. Similar to the national picture, eCommerce grew in share even gaining more shoppers compared to last year and the portion of households who used Wechat more than tripled. Other channels, however, saw significant sales losses with gifting seeing a large drop in household numbers. Due to the cancellation of most CNY plans in Hubei it meant many households did not receive gifts during this period, which is by far the biggest gifting season of the year with CNY occurring at the beginning of the outbreak.
Looking forward the Covid-19 outbreak will undoubtedly leave its mark on Hubei province, more than any other in China. Manufacturers and retailers should work together to ensure its citizens are able to obtain the necessary products to help them return to their daily lives whilst meeting their new demands. People from Hubei are likely to have an increased demand for products that can protect them from viruses whether this be sanitizing products or food and beverage products that can keep their bodies healthy and increase their level of immunity.
The path to recovery will be the most challenging in Hubei. Manufacturers will need to look at how reliant the category and brands are on this province and whether targeted actions need to be taken. Alcohol, for example, is more dependent on Hubei compared to other FMCG categories and this category was severely impacted by the pandemic. Therefore, alcohol brands will need to have a clear plan on how to recover the lost sales in this province with targeted promotions and communication to consumers in Hubei. In order to build this plan FMCG manufacturers will need to understand the following areas:
- Regular Update on Shopper Metrics – weekly or monthly read of how shopper behaviour is changing as the situation improves.
- Demand Forecasting – understanding of future demand in Hubei post Covid-19 and how to compensate for lost usage occasions.
- Marketing Growth Drivers – what elements of the marketing mix will help to drive more incremental sales in Hubei after the epidemic: advertising, promotions, in-store activities and distribution are likely to have different weights of importance post epidemic.
- Usage occasions – identifying new usage occasions amongst Hubei consumers that have arisen as a result of the coronavirus will be critical in helping to capture future demand and developing new products to meet these new needs.
- Media Investment – how to optimize your media investment will be more crucial than ever. Knowing who to reach and how to reach them in the most cost effective way will help to improve the return on investment.
- Channel Dynamics – online and O2O will be even more important channels in Hubei post epidemic so understanding how people’s behaviour changes when shopping via these channels will help to identify new growth opportunities.