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China’s foodservice to see largest impact if coronavirus persists

Rabobank says aggressive government measures and consumer concerns about dining out to affect first-quarter sales.

China is bearing the immediate brunt of the Wuhan coronavirus outbreak, with Wuhan city under lockdown. However, Chinese consumers in other provinces are also being encouraged to avoid public spaces to lower the probability of infection. The impact of the outbreak is hard to predict at this point, according to a new report from Rabobank.

Still, Rabobank analysts and report authors Michelle Huang and Umesh Madhavan said retail sales of daily necessities are relatively resilient to the impact of a virus outbreak because consumers will continue to stock daily foods like vegetables, meat and noodles. The foodservice and tourism industries, on the other hand, are more affected by the disease because consumers will choose to protect themselves by not dining out or traveling.

Although it's still too early to measure the impact, the experience from the 2002-03 severe acute respiratory syndrome (SARS) outbreak can offer somewhat of a benchmark, the authors noted. In the second quarter of 2003, foodservice growth slowed more than gross domestic product growth, with May 2003 — the worst period of the SARS epidemic — showing a 15.5% year-over-year decline. However, after the disease was controlled, the foodservice industry rebounded at a faster rate than other sectors in the third quarter.

“Besides the rebounded consumer demand, the efforts from foodservice players in providing a better experience, differentiation and high-quality food helped to restore consumer trust," Huang and Madhavan said. "Compared with SARS, the government’s response to this virus outbreak has been swift and decisive. The government has taken aggressive measures to prevent the spread, like an early lockdown of the cities in which the disease has been reported.”

These actions, the authors explained, may affect the foodservice industry even more than the SARS period in the short run. As such, Rabobank believes first-quarter 2020 sales are likely to decline due to more aggressive government measures to curb the disease and consumer concerns about dining out.

TAGS: Business
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