Feedstuffs is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

coronavirus written on flag of China Gilnature/iStock/Getty Images

Chinese foodservice sector sees 50-80% revenue loss

Situation could lead to industry consolidation and change in consumer purchasing habits.

The impact of the coronavirus outbreak on the foodservice industry resulted in a 50-80% revenue loss during the Chinese New Year, but Rabobank said effects of the disease could last longer. Many foodservice stores, such as Starbucks, Haidilao, McDonald’s and Yum China, remain closed until further notice, with no clear sign that things will get back to normal soon.

According to China’s National Bureau of Statistics (NBS), monthly foodservice sales in February 2019 were at $103.6 billion. Given the 50-80% revenue loss rate, Rabobank said losses for February 2020 could total $51.8-82.0 billion.

Based on NBS data, trade interviews and its own estimates, Rabobank said a one-month impact could bring the 2020 industry level growth in a range of 1% to -4%.

“The same methodology is applied to two-month, three-month and four-month scenarios. As such, 2020 is likely to be a difficult year for the foodservice industry,” Rabobank noted.

While the financial impact will no doubt affect the industry moving forward, Rabobank said the situation could lead to a round of consolidation in the future.

“Larger foodservice companies have the chance to gain larger market share, considering that smaller foodservice operators will be cash strapped and forced out of the market if that cannot be controlled" in the first quarter of 2020, the bank said.

Rabobank referenced a survey from Tsinghua and Peking University showing that 85% of smaller operators can’t bear the cashflow losses from the virus outbreak for more than three months. However, large quick-service restaurant chains could have a better capacity to cope with cost/cash flow/supply chain issues because of their scale and stronger financial position.

“Due to stronger financing capabilities, those large chains are able to retain their workforce even for the closed stores, which, in turn, helps them to respond swiftly when outlets resume full operation,” Rabobank said.

Moving forward, Rabobank said food and workforce safety will remain key during the virus outbreak. For example, a KFC Xian outlet employee was recently diagnosed with coronavirus after working a full-day shift, and this may trigger further food safety concerns over the spread of the virus through human contact.

“In response to the concerns on food safety, foodservice operators, including McDonald’s and Yum China, have accelerated their ‘contactless’ services. In addition to the orders from the food delivery platform, they also rolled out pickup food options in store, in which there is no contact with staff,” Rabobank said.

As China continues to grapple with the disease, Rabobank said large e-commerce players, such as Alibaba and JD.com, have been using their capabilities in logistics, supply chains and technology to ensure the continuation of food supplies. The companies are also taking measures to help the foodservice industry, including:

  • Using an employee-sharing scheme that allows workers in foodservice sectors to get temporary jobs. Rabobank said this not only helps reduce the cost pressure for foodservice players but also eases the labor shortage in retail and delivery.
  • Subsidizing delivery staff to increase logistics efficiency. Alibaba has set up a fund for supply chain and logistics services, which is being used to compensate delivery staff and ultimately motivate delivery personnel and increase logistics efficiency.
  • Offering branded products in retail. JD has initiated the online sales program to encourage foodservice players to offer branded retail products, such as prepared ready meals and sauces. Rabobank said JD online retail sales of frozen food/ready meal sales through the JD Daojia platform increased by 790% year over year during the Chinese New Year. Additionally, while hotpot chain Hai Di Lao suffered from store closures, retail sales of its products, such as Hai Di Lao sauces, doubled on the JD online platform. Because the retail products are selling well, Rabobank said the foodservice companies are planning to work together with e-commerce players to develop more retail pack prepared ready meals in the hope that retail sales can partially offset the revenue losses from the foodservice outlets.

Overall, the virus outbreak may reshape how consumers are getting their food in the mid- to long run, Rabobank said, adding that convenient cooking may also become the new lifestyle, even after the virus outbreak is under control.

TAGS: Business
Hide comments
account-default-image

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish