How Traditional Chinese Businesses reinvented themselves during COVID-19 and what we can learn from their successes

This content was originally Episode 12 in the Get World Savvy Podcast.

I want to talk about something on everyone’s minds: COVID-19. Now I don’t want to be a broken record, so instead of the stats, I want to talk to you about what we can learn from China in terms of what the businesses there did to reinvent themselves during the crisis. 

As we know, the first case of COVID-19 was in Wuhan, China in late December 2019. China had quarantined off multiple cities and many citizens started working from home by late January. As of late March, most of China is recovering with all offices and restaurants opening again in Shanghai and Beijing and many more affected cities like Wuhan in April. 

What did businesses do to succeed during these turbulent times? What interesting strategies did we see so that we can know what to expect in other places in the world and in your own neighborhoods?

By learning from what Chinese businesses did, what industries or cases ended up doing really well, we can take action today to make sure we as individuals and our companies make it out of this crazy time better than when the virus even started.

I’m going to break down the innovations seen during this time by industries from Offline Food and Retail to Entertainment and then to Online Learning. We will then spend some time talking about Chinese consumers, their actions, and what the future might look like.

Offline Food and Retail

Let’s start with restaurants. Restaurants and shops are clearly hit very bad and now all around us, everything is closing down. 

Even though going online should clearly be a big trend, it’s still quite surprising for me. This is because when I was in China in 2019, every restaurant or shop already needed to be on multiple digital platforms in order to just survive. In my head, there was no way a restaurant or a shop could possibly compete without having a community on WeChat, a mini-program on WeChat to run deals, being on Da Zhong Dian Ping, where people go to search where to eat, and likely Xiao Hong Shu or Douyin to promote themselves.

But I guess even then there are those that are only starting to come online now. When even those that STILL didn't have an online presence by 2020, you know that they had absolutely no choice but to go online or shut down. Unlike in the West where Shopify and D2C e-commerce have carved out a piece of the market outside of marketplace e-commerce platforms like Amazon and eBay, in China, you still start a store on a platform. When these new stores come online, they are hoping to depend on the traffic of the platform to keep their business alive.

1. Financial and Operational Resources from Platforms

The first trend that we’re seeing in food and retail is that these mega-platforms like Taobao, Tmall, JD, and PinDuoDuo, knowing sellers are dependent on them more than ever, are doing their best to serve the sellers on their platforms with financial and operational resources. Many have offered low and zero-interest loans, interest exemption, and Alibaba has opened up Taobao live-streaming for use by more sellers (not just verified, top sellers) and many operational tools for free such as marketing automation and warehouse operations software. 

2. Live-Streaming

The second trend that restaurants are doing instead of simply going on delivery in China is going on live-streaming. 

In mid-February, Alibaba launched a "Cloud Chef" event, allowing chefs from 8 major food and beverage brands, such as Xibei and Haidilao, to open up at-home kitchens, cook live, and at the same time sell online ingredients, semi-finished products, and packages in online stores.

3. Employee Sharing

The third strategy that food and retail businesses took was developing an "Employee Sharing Model."

While some industries were struggling, like restaurants and offline stores, grocery, food delivery, and e-commerce saw a huge rise. So just like how Amazon is hiring for 100k warehouse workers as soon as possible right now, there was a lack of online retail and delivery workers in China as well. With many restaurants and offline companies unable to pay their employees since their offline storefronts were closed, the corporate version of the sharing economy was born. 

Fresh Hippo, the grocery branch of Alibaba, would borrow employees from restaurants that were closed to fill their own positions both in-store and for delivery. Fresh Hippo would compensate the employees and after the crisis is over, the chef or waiter would still go back to their restaurant. Currently, more than 5000 employees at Fresh Hippo are shared.

This is not just a temporary play. It was such a success that Alibaba announced a few days ago that they will be building an employee sharing platform to be launched in April. There’s not a lot of information out there yet around how this will work regarding problems that may arise such as the lack of familiarity within the 3km delivery range or shared employee and also employees coming on board as well as safety, benefits, and recall issues. 

I expect it will work similarly to other parts of the sharing economy. For example, Uber drivers and cars are not directly employed by Uber or any other company. I imagine once a “shared employee” like an uber driver is onboarded, they can pick up odd jobs from the platform.

4. Hyperlocal Community Retail

The fourth trend I see driven by COVID is the birth of hyperlocal community retail.

In China, community retail is the decisive battlefield of the retail industry in the future at least and it is believed that 60% of retail will occur in neighborhoods. 

Even before coronavirus, the concept of community e-commerce was growing in China primarily through WeChat groups.

Short excerpt to explain the WeChat Group phenomenon:

Wechat is like all the social media platforms combined in the West, it started as a messenger platform with a voice note function allowing many older generations to get on without needing to know how to type and for young urban workers to connect and send money back home.

WeChat group chats have been turned into a business by many. There are thought leaders that monetize off exclusive group chats by having members pay to join and businesses use groups for onboarding, membership, retention, and everything in between by creating groups of potential customers or existing customers and sending out carefully curated content. Businesses would often have multiple WeChat groups: one serving more like an interest group, another for potential customers, and another for VIP members.

This model is starting to be used more often in the West as communities become ever more important to businesses.

For example, a makeup business might want to publish content on how to apply foundation so they create an official account and post on there. They then loop their subscribers into a WeChat group for better engagement, discussions on beauty, and invites to events. The users that show more interest will get pulled into another WeChat group that focuses on presenting products, how to best use them and service the users who are considering making purchases or have made their first purchases. These users upon hitting a certain engagement level may be added to another group of VIP members where they are sent the newest products, promotions, and are encouraged to give feedback, share, or review for the company.

Something else that has risen in popularity in China is Social Commerce. This term means buying and selling with someone that is in your network of people you know. In third and fourth-tier cities (less populated, lower GDP and cheaper standard of living), companies are rising by utilizing community managers to create local neighborhood WeChat groups to sell products through it. Groceries are a common example. The community manager receives the whole order and people in the neighborhood come to pick up their orders from the manager. These managers are typically housewives or retired women who are social and trusted in the community.

Now companies that didn’t have their start in group or community e-commerce are stepping away from building giant grocery stores in central areas holding millions of SKUs. Instead, they are building mini grocery stores and stations in neighborhood communities so that people don't need to travel far to do groceries. Mini grocery stores should not be confused with what we know as our local convenience store. Mini grocery stores will bring in specific SKUs by running analysis on what to carry and what is particularly popular by neighborhood and allow the mini grocery store to offer more tailored and personalized services.

Not to mention FreshHippo is already fully digitalized and new-retail powered with unmanned checkout kiosks, mobile-scanned product details, fast-running fulfillment conveyor belts for in-store workers to fill bags ready for grocery delivery, and robots serving in the grocery restaurant.

Entertainment Industry

A lot of offline entertainment businesses in China have stated that their cash reserves can only last 3 months . The global film industry is facing $5 Billion in losses amid the coronavirus outbreak.

During these last few months, many movies actually sold all rights to Bytedance, the creator of Douyin and TikTok as many more tech companies move into media. 

When it comes to clubs and gyms everyone is live streaming, DJs are streaming online and trainers going on live. They usually sell products or services and even though it won’t make up for lost business because everyone is online browsing, it’s also a great way for brand building.

Finally, the last thing I see in entertainment is that there are still a lot of internet clubs with a lot of computers for gaming. These cafes are renting out their computers by the day for under 10RMB. Rent whatever assets you have right?

E-Learning

Okay finally let’s talk briefly about online education, an industry that has soared. In fact soared so much that there’s a funny story about how Chinese students all had to use this one app and they decided to team together and give it so many 1 stars on the Appstore that this app was removed. I died.

More Social Functions

E-learning platforms in China have incorporated social functions. Many platforms are utilizing the same strategies as social commerce. For example, you can get a discount by just sharing the course within WeChat. Chinese companies are forever iterating and innovating around social functions and user loyalty.

Fragmented Learning

Another way e-learning is improving is through fragmented learning. In a world where most students are watching 15 second Tik Tok Videos, attention spans are much shorter yet the consumption of information within a short time period has increased. Many platforms in China are playing with fragmented learning meaning that concepts are taught in 20-second videos or short texts.

These same e-learning companies are also using AI technology to form knowledge maps around the contents of fragmented information to connect them from easy to learn to hard and systematically build up a very strong knowledge structure on what kinds of information to feed the student. 

Learning on Recreational Platforms

The third trend we see in e-learning is once again going into live-streaming. Bilibili is a popular humorous live-streaming and video platform in lower-tier cities. It has turned into a non-professional education platform. Influencers or KOLs in China are teaching high school classes and many students come in to see their favorite influencers while taking the class and interacting with each other using the live-stream comments. 

Alibaba’s video-streaming site Youku has become an official platform for students in Wuhan to watch live-streamed classes since February 10, with over 700,000 students tuning in on the first day.

Even news platforms have partnered with live-streaming platforms like Bilibili to live-stream out what was happening in Wuhan, how the hospitals were built, and interviews with on the ground staff. 

In every way, the biggest trend we see is live streaming and paired with the 5G era, it’ll be even more impactful. AR and VR will be used more in new retail and restaurants. Every single industry will be part of the digital economy. Based on the innovations already seen in China, we can know there's a lot of positive changes that can be made in our businesses. We will be all right.

Consumer Behavior

In terms of consumer behavior, let’s face it history is rewriting itself. When panic set in in China, there was a lockdown, places sold out of sanitizer. As soon as WFH was announced, monitors sold out - as they are sold out of Costco this week I checked. The only thing Chinese people didn’t fight for was toilet paper, can someone explain to me why we all are stocking up on toilet paper?

This is probably the longest home-coming period for most Chinese people. Except for following the development of the disease outbreak, I did some research into what the Chinese have been doing at home from a report by Kantar. 

Understandably, watching videos is the most mentioned time-killer. Watching long video (mentioned by 58%), short video (56%), TV (41%) are among the most mentioned activities. Digital entertainment is also popular, such as playing mobile/online games (39%, male significantly higher than female), online entertainment (online karaoke, etc) (24%, Hubei higher than rest of China), watching live video/live stream (20%).

It might be an exaggeration that the outbreak has turned every Chinese into a chef, but there are 28% of people cooking/baking at home (female significantly higher than male). 23% are enjoying their parenting time. The same amount (not necessarily the same group) of people are working out at home (female significantly higher than male). Online education was mentioned by 30% of respondents, and 26% mentioned offline learning/reading. But as almost everyone won’t meet others for a long time, eventually people won’t bother to take care of their skin: only 10% would spend more time on beauty - which is one of the largest retail categories in China.

Interestingly, 54% said they are sleeping to kill time.

During the outbreak, many new and emerging retail channels experienced explosive growth, because 1) all consumers are required to stay home as much as possible; 2) many shops are closed for an extended period; 3) most families need fresh groceries to cook at home.

Among all surveyed consumers, 55% have bought from e-commerce platforms (Tmall, JD.com, Taobao, etc). Online-to-offline channels, such as Ele.me, Meituan, Dingdong Maicai, which connect stores with consumers at home, are mentioned by 35% of respondents. Since so many people are staying at home, the residential complex community WeChat groups became a key information source platform. Surprisingly, it emerged as a new group purchasing channel (mentioned by 35%) as well as neighbors would join together to launch group purchases.

So during this epidemic, we see an increase in trusted WeChat groups and companies targeting an individual trusted in a neighborhood to be a community and coordinate group buys. 

This outbreak has also forced many consumers to try something they’ve never used before, creating an opportunity for many new sectors. Among all respondents, 84% tried at least one new service for the first time, the highest being online medical consultancy (34%) and online education (33%), followed by working from home software/app (29%) and paying for digital entertainment service (26%).

As desperate as these times seem, especially to all the offline stores not getting any foot traffic and many services losing all their customers, we do need to keep in mind that this pandemic will pass, and what’s still being seen in China is for the industries that boomed during this pandemic like online learning, telemedicine, remote work, self serve grocery stores with no staff, snacks, medicine, cleaning supplies - it’s really about who can keep their customers after this has all ended. 

We can also see from the data how Chinese consumers will change after the pandemic.

First of all, everyone wants to go out! The most mentioned activity for “what do you want to do most when the outbreak is over” is “go out to dine with others” (65%), followed by “go shopping” (58%), and “outdoor entertainment” (55%) and “outdoor exercise/work out” (53%). “Travel” was mentioned by 45% of respondents.

This means that although right now the travel, dining, and offline retail industries are practically dead and closed down right now, it is tough times indeed. However, consumers will be back tenfold ready to buy, dine out, and travel when this is over. For the companies that are able to shift online and survive, your businesses will soon thrive. 

While for the new businesses and online platforms that consumers and businesses switched to because of COVID-19 the challenge is whether you are able to serve customers well enough for them to stay after they have more options.

In this snapshot survey, under this circumstance, Chinese people’s consumption attitude will become more conservative. There are more people agreeing to “save up for rainy days”, “reduce unnecessary spending” than agreeing to “enjoy instant pleasure”. People will treasure things that money cannot buy, such as “spending more time with family and friends”, “richer spiritual world”, “becoming a better self”. Clearly, the self-development, spiritual development, and life coaching industries are booming everywhere right now.

Takeaways

Knowing all of this, and knowing that general trends of consumer behavior will be similar across markets when it comes to the same crisis, I have 3 major takeaways.

Takeaway 1: This is an opportunity for individuals, companies, and entrepreneurs to think about what new consumer problems have arisen and what new solutions we can provide for our clients and customers.

Customers are more likely to try new things during this time as they’re forced to change the way they used to do things.

We have an opportunity to innovate and build to help people.

Something that I have done lately is launch two Facebook groups. One, a community of professionals already in tech who are listeners to this podcast and my goal is to provide them level-up opportunities and services. Another one is a free Facebook group where I will be giving free content and support to those still job searching.

I am offering value to both, but I also see it as an opportunity to build an online community where most people are feeling a lack of social physical communities and want to spend more time online. It’s a great time for me to build out my email list for future product launches while supporting those in need as well.

For businesses there, of course, is the need to pivot, instead of regular launches, it’s important to move fast and forgo short term gains for the long term relationships. If you are a business that’s not able to do that, then launching low-cost offers, memberships, could be the way to go rather than higher ticket offers.

Something else I have been working on is building a course hosting platform for dance, yoga, or music teachers to teach online.

Takeaway 2: Even after we are able to gain new customers in this online age by solving customer pain points, the biggest uncertainty is whether they will continue using our product after the pandemic.

This is something I think about often, will people still participate in virtual events, will arts and fitness teachers still want to diversify income streams and teach online?

I would like to bet that a good proportion would. I would compare it almost to when people ask me how I sold sellers on joining the Wish platform. It was easy, it’s just another distribution channel for them. They’re not choosing between going on Amazon or Wish, they will go on both, two separate audiences, two income streams, two ways to make money.

This is the same as what I believe arts and fitness teachers teaching online will do. Some will stop teaching online, others will find this is a good alternative income stream, they may start doing both and diversifying so that in case we all have to go online and remote again, they are ready. 

As with consumers, they now know of more options open to them. More options mean competition but also better productions as businesses compete on providing better service and experiences.

Takeaway 3: I believe that there will be a surge of people wanting to dine out and shop as soon as we’re freed from the confines of our own home. This will be a slow process. 

Even if we hit a recession, the best way to recession-proof is to offer low fixed cost offerings - and the easiest way to do that is to have more online offerings. 

This is an opportunity for us to all pivot, analyze whether our businesses and our own market value are recession-proof and valuable in the digital world today.

This content was originally Episode 12 in the Get World Savvy Podcast. I’d love to hear how you’re feeling, your main takeaways, and your opinion on the opportunities and light out of these dark times. Join my community Get World Savvy on Facebook or connect with me on Linkedin at Ivy Xu. See you in the next episode!