COVID-19 Consumer Sentiment Snapshot #12: The Pace Car

All eyes are on China. Months ahead of Europe, the US, and the rest of the world in managing the COVID-19 crisis, China has reported, on average, 150 or fewer confirmed cases per day since early March and 10 or fewer per day since the beginning of May. ¹ 1 Reflects a trailing seven-day moving average. WHO Situation Report. Notes: 1 Reflects a trailing seven-day moving average. WHO Situation Report.  During the same period, it has been progressively opening businesses and schools, allowing consumers to resume key parts of their daily life. (See Exhibit 1.) 

The government has also been quick to act to ensure containment of new cases at any sign of resurgence. In early May, Jilin province reported at least 34 new cases in a two-week period, leading to a lockdown in Shulan—a city within Jilin province with a population of 700,000. For two weeks, the lockdown permitted only one individual per household to venture out for 2 hours every other day, before authorities reclassified the city as low risk. ² 2 Laura Zhou, “Shulan Locked Down as Fears Grow over China's Northeast Virus Cluster.” South China Morning Post, May 18, 2020. Notes: 2 Laura Zhou, “Shulan Locked Down as Fears Grow over China's Northeast Virus Cluster.” South China Morning Post, May 18, 2020.  As many countries ponder the potential for a resurgence of the coronavirus in their geographies, one question looms large: What will be the impact of taking less assertive measures at the first signs of a flare-up?

The Reconnaissance Lap

Although China is considerably farther along in the outbreak timeline than the US, consumer behavior in the two countries looks generally similar. This suggests that a return to normal pre-outbreak activity levels may be slow not only in China, but also in other geographies. (See Exhibit 2.)

Of course, some of China’s slow progress is due to its deliberate, graduated release of residents from lockdown restrictions. One promising sign is the visible difference between China and the US in out-of-home activity level. We see smaller stated declines from pre-coronavirus levels in China than in the US across all out-of-home activities tested. As consumers begin to resume out-of-home activities, we are beginning to see some decline in the corresponding replacement activities that spiked during the lockdown. For example, as eating out increases, the numbers for delivery and takeout are dropping slightly, although the takeout and delivery category is likely to remain somewhat above pre-COVID-19 levels as consumers recognize the advantages of the new digital behaviors they adopted during the pandemic. (See last week’s Snapshot, “Getting to the Other Side.”)

Many consumers believe that the coronavirus has permanently changed their lifestyle—and not necessarily for the worse. (See Exhibit 3.) In fact, most consumers see their adjustments either as neutral and “just different” or as changes for the better. This may reflect consumers’ sense that a number of the perceived lasting changes are profound and meaningful—such as prioritizing health and wellness, cherishing time with loved ones, and appreciating the simple things in life (themes that we noted in Snapshot #8, “A Glimpse of the Horizon”).

Although concern over catching the virus has trended downward in China as the recovery has progressed, worry over personal finances has remained relatively flat—and higher for younger generations of consumers. (See Exhibit 4.) This may be attributable to continued uncertainty about the economy. China’s domestic consumption has recovered somewhat since the depths of the lockdown in February, but it is still not back to 2019 levels. The country’s Purchasing Managers Index for manufacturing indicates that new export orders have continued to fall short of those for the previous year through the end of May. After a record decline in February, new export orders recovered somewhat in March; but then, as countries around the world entered lockdown, new export orders sank again in comparison with last year in both April and May. Overall, domestic consumption drives 40% of China’s GDP and exports 20%. ³ 3 CIA World Factbook. Notes: 3 CIA World Factbook.

Losing Velocity

For many years, we saw a continuous trend toward trading up in China, but COVID-19 and the concerns about personal financial security that the pandemic has generated have flipped this trend. (See Exhibit 5.) Today, we see more trading-down behavior, especially among younger (Gen Z and millennial) consumers and among residents of higher-tier (larger) cities. The trend toward trading-down behavior among younger consumers suggests that they have greater financial concerns than older generations do.

Trading down seems to be concentrated primarily in discretionary categories, especially apparel and accessories, and trading up in essentials such as food, personal care products, and household care. (See Exhibit 6.) We see similar category trends in both the US and Europe, where consumers are likewise trading down in discretionary categories and up in essentials.

Accelerating Through the Curve

In China, 17% of consumers identify travel as the activity they miss most in the post-COVID-19 period—meaning that it is the most strongly missed activity overall. And 48% of Chinese consumers say that they can’t wait to start traveling again, which appears to be translating into some recovery in domestic airline ticket sales. (See Exhibit 7.) Nevertheless, when we asked consumers if they had traveled for the Chinese Labor Day holiday (May 1 through 5), the majority of those who had originally planned to travel told us that they subsequently either canceled (51%) or changed (28%) their plans because of the coronavirus. Concern over catching the virus was a key driver of those cancellations and changes, but consumers also cited uncertainties over potentially getting quarantined as a result of traveling (40% of those who canceled or changed plans) or getting stuck away from home (27% of those who canceled or changed plans) as other key reasons for avoiding travel. Such uncertainties have encouraged consumers to put off travel decisions until the last minute, resulting in a large spike in domestic flight ticket sales above 2019 levels on April 29 and 30. We are seeing the same phenomenon emerge in other countries, and we anticipate that it will continue for at least the next several months as uncertainty persists.

We have seen an acceleration in online penetration all over the world during the pandemic, including in China. This change in digital purchasing habits has manifested itself across generations, but it is especially pronounced among Gen-Zers and millennials. (See Exhibit 8.) In China, however, where younger generations had already reached a very high level of online penetration prior to COVID-19, we are also seeing more members of older generations become first-time buyers online than in other countries. As we observed after SARs, this increased online behavior is likely to stick following the recovery from the coronavirus.

E-commerce has increased significantly across platforms during the pandemic, and several new forms of e-commerce that emerged across China in recent years have gained traction at varying rates. (See Exhibit 9.) One such platform involves selling through social media livestream and short videos. Often employing influencers—also known as key opinion leaders (KOLs)—the platform enables KOLs to interact with customers live or to produce short videos for consumers to watch. The platform (of which Taobao Live is an example) goes beyond marketing products and services, and lets influencers receive orders directly through the app that consumers are using to view the livestream or video. Group buying is another platform that is showing strong growth. This platform allows a group of peers, neighbors, or coworkers to make a shared purchase at a group discount. A third rising form of e-commerce is one-on-one selling by brand reps through social media (such as WeChat). After a sales associate completes a sale with a consumer, the associate retains the consumer’s personal contact information via WeChat and can use it to engage with the buyer on new products and promotions going forward. WeChat differs structurally from Western chat modes in that it permits payment within the app, so sales can occur immediately as part of the experience.

The Pit Stop: Necessity Drives Invention

Companies in China and elsewhere are thinking creatively about how to transition their business models to an online environment, and are developing new products and engagement models that will likely endure in the post-COVID-19 era. For instance, we have seen restaurants in both China and the US begin delivering raw ingredients to support home cooking. In China, KFC has made uncooked chicken available to customers, and Pizza Hut has made pizza ingredients available; and in the US, Potbelly has supplied customers with sandwich kits, and Texas Roadhouse has offered steaks for grilling. (See Exhibit 10.) In China, restaurants are also developing new forms of entertainment to engage and win consumers. For example, Xiao Longkan, a dine-in hot-pot chain, had already developed its own line of single-use hot-pot meals before the COVID-19 outbreak. During the pandemic, the chain started leveraging (typically paid) influencers or KOLs on the Taobao live streaming platform to prepare and eat Xiao Longkan hot-pot meals live while consumers watch and interact with the KOLs through the platform. Consumers then receive coupons and can purchase their own meals in real time.

Looking Ahead

While we do see some signs of recovery and improvement in China, progress has been slow to date, suggesting that it will be critical for companies to exercise patience and adapt creatively to situations as they arise during the recovery period and as we look toward the future and new normal.

Our next Snapshot will be a special feature that focuses on Gen Z and millennial consumer sentiment and spending across the US, Canada, France, and the UK. The article will address how marketers can win with Gen Z and millennial consumers during the COVID-19 recovery and on into the new normal period.

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