With the IGA China headquarters located at the Coronavirus epicenter in Wuhan and 1,000 IGA stores throughout China, IGA has insider knowledge about what it’s like to face the Coronavirus outbreak.
IGA CEO John Ross and representatives from IGA's global wholesalers recently spoke with Zhe Zeng, deputy representative to China, about his experience, how it impacted retailers, suppliers, associates, and shoppers, and what they would have done in the early stages of the virus had they known what was coming. See his answers for how to prepare, and visit IGA ALERTfor updated information and resources on the virus.
How did the outbreak impact your business and retail associates in China?
At the beginning of the outbreak, cashflows were hit, but the supermarket business bounced back. Shopping malls and restaurants were the most impacted businesses because they closed, whereas grocery stores stayed open. As you can imagine, fear, doubt, and panic among associates was wide-spread in the early days of the outbreak. Sharing information and educating our associates on the facts—like IGA USA is doing with their new IGA ALERT website—significantly helped in boosting morale and creating a sense of unity among our associates. Also important was enacting protocol that demonstrated we were doing all we could to protect associates and shoppers.
- Employees wear disposable face masks and gloves, replacing their face masks twice a day. High-risk positions like cashiers have goggles and disposable raincoats for extra protection.
- Associates were instructed to wash hands properly, for at least 20 seconds; to avoid touching their eyes, mouths, and nose; to avoid eating, drinking, and sampling; and to avoid shaking hands.
- The store ventilation system is regularly sterilized. Door handles, shopping carts, and baskets are sterilized every two hours.
Once quarantines and lockdowns began, we saw frequent absenteeism—30 percent was not uncommon. For contractor positions, such as loader and sanitation workers, the rate could be as high as 80 percent. As a result, many of our associates worked long and unpredictable shifts and logged a lot of overtime.
How has the virus and China quarantines affected the supply chain?
In China, indiscriminate lockdowns seriously disrupted the supply chain, creating a widespread labor and material shortage.
- Wholesalers nationally reported a loss of more than 50 percent of drivers, as they must be quarantined after they return from a "plagued province" or when crossing the provincial border.
- A survey conducted among transportation companies indicated a 20 percent drop in bulk batch volume and a 90 percent drop in less-than-full-truck batches. Only 30 percent of the logistic transits such as truck stops and consolidated centers remain operational.
- Fulfillment centers have been overtaxed as inbound shipping became unpredictable due to the lockdown and extra paperwork requested by various local authorities.
- As restaurants shut down, their customers eventually bought from grocery stores, which translated into two to four times the sales in vegetables industry-wide. Most truckloads are for produce, foods, and daily necessities.
- Vegetable and fruit repacking—a labor-intensive position—creates a bottleneck in outbound delivery. Quarantine made hourly laborers hard to get.
How did shopper behavior change as the virus progressed?
For us, there were three phases in the progression of the virus, and each has had a significant impact on our ability to serve shoppers.
- Stage 1: No quarantine, panic-driven hoarding (December to late January)
- Stage 2: Indiscriminate house-arrest style quarantine, where we had to create a delivery system for heavily quarantined communities (Late January to early February)
- Stage 3: Tiered quarantine, gradually getting back to normal (since early February)
In the initial stages, the biggest changes to the way people shopped were related to virus prevention measures. For example, in areas where shoppers are allowed to leave their homes, shoppers must wear face masks and have their temperatures read before entering the store. When in line, they are required to maintain at least one meter distance between them and the next person in line. While these protocols have not been enacted in all countries, there are some additional insights we gleaned about shopper behavior that will be helpful at any stage of the outbreak.
- Shoppers say the smell of chlorine and bleach make them feel safe, so we try to make sure they smell it in the stores.
- Limit the quantity of certain items each customer can buy to prevent hoarding, especially the masks, bleach, and hand soap.
- Based on year over year statistics from a typical member retailer (an IGA retailer who is not in Wuhan), the virus drove shoppers to buy masks, bleach, sterilizing wipes, long shelf life packaged foods, staple foods, frozen foods, water/beverages, and root vegetables in the first two weeks. Then, as people began to be quarantined, restaurants shut down and home cooking became a must, so shoppers began buying fresh vegetables, condiments, meats, poultry, deli, and even kitchen appliances. Over the counter cold and flu medications and pain relievers have continued to be key purchase items.
- In contrast to last year’s records, shoppers cut out buying fruit, Western-style bakery goods, pricey liquors and large package beverages, recreational items, and linens and fabrics that are considered gift items or group dinner items. One reason is that people are discouraged, and even forbidden, to visit and have group parties.
- Switching to survival mode, shoppers have become less price-sensitive on essentials and categorically walk away from non-essential products related to luxurious indulgence, vanity care, or recreation.
In the U.S., quarantines are just beginning to impact schools, work, and businesses. How did you continue to serve shoppers in areas with total lockdowns?
We created community group deals for heavily quarantined communities, such as those in Wuhan and Beijing. As residents are forbidden from leaving their homes, they have three ways to know what is available at the nearby store and to place their orders:
- By retailer-developed apps
- By phone
- By social network apps such as WeChat (the Chinese version of WhatsApp), where the government-appointed social workers and store sales reps are online 24/7.
The limited number of available choices are decided by the retailers according to their stock level and bundled into sets (think fast food meal deals). The orders are then consolidated and sent to the store or fulfillment center, which will deliver to the community gate or checkpoint where those reps will receive, sort, and repack the orders according to households.
One important thing stores learned when exploring business via social network apps was to be cautious on price-setting in order to prevent drastic differences between locations and groups. Some stores in Wuhan were criticized for such practices, leaving customers feeling like they were treated unfairly and the stores suffering reputation damage.
How have the retailers' top and bottom lines been impacted so far?
Based on information from a typical IGA China retailer with 60 stores and $300M in annual sales that is not in the 'hot' Hubei Province, we have these statistics:
In January and February, year over year sales increased, but the margin rate only slightly increased.
By department, the produce department increased sales by nearly a third but the margin rate dropped slightly. The food department saw slight sales gains and a very small increase in margin. The general merchandise department sales declined slightly but maintained a small margin increase.
In the past two months across China, most local grocery sales happened online via the online portals operated by physical retailers, national and regional alike. Walmart’s online orders increased six times and its biggest labor cost item has been the order selectors, packers, and riders who fulfill online orders.
What early action steps would you have taken had you known the virus was coming?
- Ensure good cash flow and create a substantial reserve.
- Use IGA resources, like the new IGA ALERT website and IGA Coca-Cola Institute training classes, to educate staff about the virus and protocols, promote readiness, and share your experiences with other retailers.
- Conduct onsite drills to estimate labor and material requirements under different scenarios. Prepare for surge capacity, ensuring the front-line readiness and supply chain efficiency. However, do not encourage hoarding by customers.
- Talk to local authorities and congressional representatives about how to keep the store and supply chains open, even if a state of emergency or lock down is enforced. Remember that it is the retailers' priority to keep stores and logistics running even under extreme conditions.
- Closely track employees’ health conditions and ensure they know not to come to work if they are sick.
- Look into using popular social networking apps (WeChat was used in China) to receive and sort online orders based on locations and publish information about offers. During public crises, the cost of acquiring new app users are very low as people heavily rely on social networking apps for information and shopping.
- Use your Facebook page, website, and online and print ads to reach out to customers to promote products and peace of mind.
- In the event of a quarantine, it's important to find alternative purchase sources. Talk with local restaurant owners and negotiate to buy their raw-material stock if restaurants close, and investigate working directly with local farmers.
- If under quarantine, recommend in-store shoppers avoid crowding in a close range and help them keep good spacing when in line.
- Talk to your wholesaler and fellow retailers to share information on sourcing, compliance issues, and best practices.
- Prevent discrimination or profiling any particular social or ethnic group based on assumptions or fear. If possible, work with the NGOs to take care of the local people, especially those vulnerable groups such as the elderly and disabled in confined facilities such as nursing homes.
What personal tips do you have for keeping yourself, your team, and your family safe?
Twice during the outbreak, I traveled to Wuhan. I took precautionary measures to keep myself safe from the virus so that I would not become infected, and had a plan in case I did become infected. These are the tips that worked for me:
- Avoid public transportation when possible.
- Keep rooms well-ventilated when possible.
- Testing for the virus is difficult, so when traveling back from risky areas, I didn’t rush to hospitals for tests. When I got home, I changed all my clothes, took a shower, put on a mask, and locked myself in a room for a few days, watching for any fever, diarrhea, or aches in limbs.
- If such things had happened, my plan was to strengthen the self-quarantine, which would have meant no bodily contact with anyone until either I got better or I had breathing difficulty, which is the most obvious symptom of the virus. Luckily, I didn’t have the virus and none of the team contracted it.
What went wrong during the outbreak in China, and how could the same happen in the U.S.?
From my observation, Wuhan's outbreak was made worse by the following:
- The government withheld information and reacted too slowly.
- The medical resources were disproportionally concentrated to a few big hospitals. As people with symptoms swarmed the hospitals, few could get diagnosed and even fewer could get admitted, so they were forced to shuttle between hospitals and communities, and even families.
- The large population confined in a city, which relies heavily on public transportation, plus sub-par sanitation practices accelerated the spreading.
As people returned home from Wuhan for the Chinese New Year or fled from the rumored plague, they spread the virus across China and along the public transportation system, allowing the cycle to repeat itself again in a new city.
Information transparency, medical readiness, and a sensible deliberation on quarantine policies will ultimately determine the nationwide situation in the U.S. and other countries. But for individuals, the first line of defense is by far the most effective one. Again, avoid crowds, change clothes when returning home, and wash your hands properly.
How will the virus affect China's retail industry in the future?
I predict the virus will force the Chinese physical retailers to compete more on accessing customers online, focus more on community-level stores and outlets, leaner and more effective SKU combinations, and more social responsibility, logistics, and cold-chain delivery.
*Editor's note: this article was updated on November 22, 2020 to reflect the latest IGA resources and CDC guidance.
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