As the new coronavirus epidemic continues to spread, its influence on China’s economy is gradually becoming more pronounced, with many economic experts worrying that losses stemming from the current outbreak may surpass those caused by the 2003 SARS epidemic, and even those created by the U.S.-China trade war.
The beverage and alcohol industries have been important contributors to the development of the Chinese economy, and it goes without saying that they have been severely impacted.
The Spring Festival is the peak period for the beverage industry in China, with sales typically accounting for 30% – 35% of the entire year
The Spring Festival is the peak period for the beverage industry in China, with sales typically accounting for 30% – 35% of the entire year, but the epidemic has largely obstructed any sales in the affected regions.
Due to the regulations put in place in order to prevent further spread of the virus, mainly in the epicenter of Wuhan but also in Shanghai, Beijing and other large cities, millions of people have been isolated in their homes, resulting in a greatly reduced demand for food and drink, retail, and gifts; the cancellations of many gatherings and events have also left consumers without the need to purchase alcohol.
Retail channels have been temporarily shut down, with liquor stores and caterers ceasing operations and leaving the industry without many of its normal distribution channels. It won’t be long before sales of every brand of wine begin to suffer.
The industry should see an 8% – 15% reduction in profits
The impact on the first quarter financials has already become a reality, but the shockwaves will extend into the second quarter as well. The China Alcohol Drinks Association likens the impact on the industry to “falling off a cliff.” The well-known Chinese wine company Zhang Yu announced via its official Weixin account that in the wake of the outbreak, the company has already adjusted its yearly sales targets down.
Hejun Consulting Group, a Chinese management consulting company that has a department focusing on the beverage and alcohol industries, has estimated that these industries as a whole will see an 8% – 15% reduction in profits.
Major events are canceled or delayed
Meanwhile, as weeks of crisis have turned into months, adjustments are also being made for many planned conferences and conventions. Many events within the industry were initially set for February or March, but have been forced to delay or cancel. It is already known that the 102nd China Food and Drinks Fair, originally planned for March 26-28 in Chengdu, will be delayed, with the specific date and revised event programming to be announced.
The majority of wine distributors have expressed their support with the changes; after all, it is most important to consider the situation from the aspect of safety, which leaves postponement as the best choice. In the end, what distributors want the most is orders and not exhibitions.
A period of “retaliatory consumption”
Although the short-term losses experienced by the wine industry due to this epidemic are evident, as people throughout the region and even the world unite to fight the outbreak, consumer confidence will subsequently rise up and eventually realize a huge increase in consumption.
Once the disaster has passed there is a period of retaliatory consumption, during which consumer activity will typically reach 2-3 times normal levels
Guanfeng Intelligent Consulting has looked back into its consumer data following the 2003 SARS epidemic, and the company’s chairman Yonghua Yang described their findings as follows: although consumer spending is inhibited during a disaster, once the disaster has passed there is a period of “retaliatory consumption”, during which consumer activity will typically reach 2-3 times normal levels.
Focusing marketing toward health and wellness
From Yonghua Yang’s point of view, this “bright” period following the epidemic is due to the retaliatory spirit of consumers, and businesses that pander to the special needs of consumers during this abnormal period will reap the profits; for example, focusing marketing toward health and wellness.
The outbreak will cause Chinese consumers to put an increased emphasis on their health, and therefore increase sales of healthier wines, as well as those with lower alcohol contents, and even overall brands that are presented as being healthy. This opens the door to many new opportunities for winning sales long into the future.
The opportunity to invest in online retail channels
In addition, Mr. Wang, a wine distributor, states that when compared with past years, wine sales figures prior to the Spring Festival had not seen a large impact, and in fact “consumer data during the Spring Festival experienced a definite and brutal drop, but online platforms saw an increase.”
Although his overall sales numbers are not as good as predicted due to the impact of the epidemic, Mr. Wang also states that he will continue to strongly support multiple channel development for his distribution, increasing his investment in online retail channels.
The refinement of online sales platforms and the establishment of new internet media has led to increased interaction with the consumer base. This trend toward modernization of the economy through the internet will present an opportunity for revolutionary developments of the wine industry, and the following six months will be the best time for low-cost and high-efficiency distribution at the beginning of this new phase.