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April 10, 2020

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Coronavirus crisis bites those who feed us

We all have to eat, but the coronavirus outbreak has altered where, how and what we eat. Small restaurants and eateries, in particular, have been dealt a blow by a dramatic drop in foot traffic since late January.

People wary about eating out or prevented from doing so by quarantine measures look for safe food options. Even as epidemic restrictions ease, many consumers tend to avoid the unavoidable personal contact of wet markets and supermarkets.

The impact on the food catering industry nationwide has been striking.

A survey by the China Chain Store Franchise Association in early March found nearly 80 percent of companies reporting their cash flow would last less than three months, and only 16 percent said they could survive for more than half a year.

The survey canvassed 71 food services groups that operate 201 restaurant brands and had combined sales of 196 billion yuan (US$27.6 billion) in 2019. Only a third of respondents said their eateries were open in January and February.

Over 90 percent said they have resorted to takeout deliveries to try to stay afloat.

Smaller businesses were hit even harder. One example is Shanghai’s Sanada Shokudo, a 5-year-old Japanese eatery business that had to close its two outlets in Jing’an and Changning districts last month and now relies solely on online orders.

“Although I’m not sure whether or when physical outlets will return, we are trying to keep the business open for the time being,” owner Emily Zhang told Shanghai Daily.

She said rent and labor costs squeeze the slim profit made from delivery service, and she is unwilling to sacrifice food quality.

The two eateries used to bring in monthly revenue of about 600,000 yuan. Online revenue covers the salary of only one manager.

Lin said there are more than 700,000 followers on her Xiaohongshu account, a social and video platform that also sells beauty and fashion accessories. On the livestreaming site, she offers cooking lessons and shares travelogues.

Her cooking lessons span not only Japanese dishes but also Western meals. Her husband, a native of Hokkaido, films the lessons.

She is considering expanding online selling to Japanese wine, food ingredients and cooking tools. Lin has already used Tencent-backed Weidian, a smaller-scale shopping site for individual business, to sell packaged deserts and some food ingredients.

“Weidian limits exposure to only acquaintances, but other social platforms and shopping sites have a wider audience,” she added.

Kate Zhang, who owns a small consultancy business, said she’s spending time on social platforms like Bilibili and Xiaohongshu to take a break from household chores.

“I read travel tips and sometimes restaurant reviews,” she said. “It’s easier to buy some food-related products from these sites directly.”

Packaged-food businesses have also had adapt to the coronavirus era.

Shanghai Haisu Food Co, which supplies frozen dim sum and partially cooked meals to local eateries, schools and airlines, is among those turning to online fresh food sites after foot traffic dropped at physical eateries.

General Manager Cao Zhehui said revenue has been down by as much as half. The company provides food to a dozen or so steamed bun, or xiaolongbao, eateries in the city. Many reopened last month.

“Some on the city’s outskirts have yet to resume operation,” Cao said. “At those that have reopened, we’ve seen about two-thirds of customer traffic return.”

At its factory in Songjiang District, about 80 percent of staff have returned to production lines. Cao said he is thinking about new products to offer dim sum makers, but not all Shanghai-style dim sum are suitable for frozen processing.

“Still, we are better off than some others in the food industry,” he said. “Especially those involved solely in offline eateries.”

Internet giants have seized opportunities to deepen their connection with vendors and consumers.

Both Alipay and Tencent-backed Meituan are hoping by connecting with eateries and food manufacturers, they could will further strengthen their dominance as the go-to place when consumers want to order online.

Meituan is offering lower commissions for businesses to offer food takeaways.

Haijinzi, a Shanghai-style eatery, has worked with Meituan to provide corporate meal catering to compensate for the loss of dine-in customers. Haijinzi has eight outlets in the city, and food takeaway that once accounted for half of its business now comprises 85 percent of revenue.

Food delivery platforms, backed by cash-rich Internet giants, also have resorted to contact-free delivery lockers in selected cities as a trial for safer and more efficient food takeaway delivery.

Alipay also connected with Meicai through a small application, combining the food ingredient provider’s existing supply chain and IT structure. Meicai, which formerly served only restaurants, has been taking orders from individual consumers. It has accumulated more than 800,000 buyers who never used the service before the epidemic outbreak.

But is digitalization the panacea for the catering industry?

At Sanada Shokudo, Zhang said delivery fees and discounts cut revenue on a 48-yuan fried chicken set meal by two-thirds.

Another concern is whether delivery of frozen meals is really sustainable and profitable if consumers order only in small quantities.

“We have to consider the delivery cost for frozen food, and we’re thinking about selling in larger packages instead of just small units,” Haisu’s Cao said.

He noted that it has been less than a week since the company started selling partially cooked packaged meals online and it’s still too early to determine if revenue will be sustainable.




 

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