COVID-19 EDITION #5 Havas Group China 1 April 28th 2020 In this edition 1. COVID-19 situation update 2. Immediate consumption impact 3. Media consumption impact 4. Economic outlook 5. Outlook for key categories 6. Media market implications 7. POV & recommendation 2 More daily life positive picture, this one would have been for the peak not for now COVID-19 situation update 3 Everyday step by step Chinese are discovering and shaping the new normality, different than expected 50%+ 900M Top 1 43% traffic in 77% of Chinese are planning for concern of Chinese is: are optimistic in the recovered stores May 1 holiday traveling not knowing how long it will last China’s economic fast recovery Week of Apr 6th, 2020 Apr 22nd , 2020 Mar 30th, 2020 Mar 30th, 2020 Sources: CHINA COMMERCE ASSOCIATION FOR GENERAL MERCHANDISE , Tencent news, McKinsey 4 Chinese are discovering and shaping the new normality • With continuing imported cases, local infections slightly go up again, but within small scale and certain areas (Beijing, Heilongjiang, Guangzhou, etc.). Until Apr 26st , the national existing infected cases dropped to 801 from the peak ~60,000 in Mid-February, 15 provinces have reported 0 cases. • Chinese are getting used to a new normality. Less worrying about the virus, start to enjoy daily life again but in the meantime doing everything they can for protection. Wearing masks, washing hands, and keeping social distance have become the daily must. • Until mid Apr, China was to 90%-95% back to work - supermarket 96%, farmer’s market 97%, shopping malls 90%. 77% of stores recovered 50%+ traffic in the week of Apr 6, 16% increase vs. a week ago. • Popular restaurants are again lining up, even bars/clubs are packed with people on weekend night, most are still requiring “green health codes” and temperature checks. • 65.8% of tourist sites have reopened until QingMing Festival, a 21.5% increase versus the week before. Tourist sites and parks imposed daily traffic limitation and required reservations. Usually tickets of popular parks would be sold out before early afternoon on weekends. May 1 holiday is expected to see domestic 900M travelers, twice as Qingming holiday. Indoor tourist attractions and cinemas remain closed. sources：Dingxiangyisheng, Nielson 5 Chinese are discovering and shaping the new normality • In the heavy industry, pick-ups in the steel market, construction activity and crude processing have been noted. Coal power plants and oil refiners are operating at near 2019 levels. • China’s drivers have returned to the roads in greater numbers than this time last year as social distancing encourages more people to use their own cars instead of public transportation. Drivers are still avoiding non-essential trips. Car sharing services still have precaution measures in place. • 17 provinces have announced the school reopening times. While due to the unclearness of COVID-19, some colleges extended reopen time again. Some schools are having reopen drills to ensure the safety. Sources: China skinny 6 Consumption impact 7 After the daily enjoyment consumption rise, higher price purchases see light steps of recovery, many categories are further recovering Phase Cancel or reduce Unchanged or limited Increase • Big purchases see first step of recovery: real • Personal care products • Epidemic related products: estates, cars, luxury products rejuvenated masks, household cleaning, in Mar-Apr compared to Feb. medicine grow stable Phase 2 • Domestic travel is recovering, but it is • Food market overall shift to more Stabilization fresh food especially for vegie Feb 9 -End of the outbreak mainly the short distance travel or local (probably in mid of the year) visits and protein, less dining out • International travel keep postponed • Online shopping through live • Dining out is reenergizing after the hard hit streaming keep booming • Entertainment, especially OOH • Major appliances, • Big family purchase categories without activities like cinema, outdoor. consumer electronics, urgency: cars, furniture etc. • Travel liquor, etc. • Online entertainment • Health related categories, • Luxury: overseas buying Phase 3 • Financial investment including healthy food, gym high decrease, Post outbreak - Recovery • Kitchen appliances domestically to • Pet category compensate • Community shopping • Apparel • Outdoor gear Sources: desk research and social listening 8 Key developments during the end of stabilization phase 9 Consumption of daily food enjoyment, shopping and day trips have surged in recent weeks as policy-driven stimulus kicked in A glance of Over 17 provinces and cities governments have given out coupons which worth 5 billion yuan, some cities have China driven consumption to 10+ times value of coupons issued Hangzhou Zhengzhou 303 million coupons 14.27 million coupons Shopping malls redeemed, generated redeemed, generated 3.25 billion sales until 187 million sales until Tourist 2020/4/14 2020/4/18 attractions Restaurants Sources: Xinjingbao 10 People are more willing to do outdoor activities, but mainly focused on local visits, even during QingMing Festival 65.8% of tourist sites have reopened until QingMing Festival, 21.5% increase than a week ago people went traveling during Local visitors contribution significantly 432.5M increase vs. last year same period Qingming holiday QingMing festival travel place contribution 2020 QingMing Festival Local visitor : nonlocal visitor = 65:35 12.0% Natural site 9.5% Zoo 2019 QingMing Festival 47.2% Local visitor : nonlocal visitor = 45:55 12.1% Park Theme park Others 19.2% *Picture - Shanghai Gucun park on Apr 12 Sources: meituan 11 China’s retail sales are recovering, though fashion-related sectors take longer time to recover • In March China’s retail sales of consumer goods recorded 26,450 billion yuan (YOY-15.8%), though up from YOY 20.5% decrease in the first two months this year, according to a release by the NBS. • Meanwhile, fashion-related sectors from department stores to apparel e- commerce were still behind the curve. • In Q1 2020, retail sales in department stores saw a decrease of 34.9% compared to that of last year, while those of specialty stores dropped by 24.7% and brand boutiques by 28.7%. • In terms of e-commerce, the sales of the apparel category also dropped by 15.1% in in Q1, whereas food increased by 32.7% and daily necessities saw an increase of 10%. Based on Nielsen’s research, the COVID-19 impact on retail industry during 2020 CNY, has shown polarization in performance Decrease: 42% retail companies state sales have decreased YOY, and 29% terribly dropped down. Increase: 44% retail companies say their sales have increased, besides, 28% companies have increased obviously Source: https://jingdaily.com/chinas-retail-sales-recovering-though-fashion-related-sectors-remain-behind/ 12 Nielsen, 5th Mar, 2020 Consumers shop more offline again. Store traffic and sales are increasing week by week, but slowly % of store/mall traffic recovery % of store/mall sales recovery 2% 3% recover 100% 2% recover 100% 2% 6% 77% of stores 1% recover 90% 2% recover 90% 2% 75% of stores recovered 50%+ recovered 50%+ sales, 10% 8% recover 80% 3% traffic, 16% increase recover 80% 6% 12% increase vs. a vs. a week ago week ago 10% 15% recover 70% 8% recover 70% 6% 24% 31% recover 60% 18% recover 60% 23% 26% 17% recover 50% 29% recover 50% 24% 9% 8% recover 40% 23% recover 40% 19% 13% 17% recover 30% or below 16% recover 30% or below 17% Week of Apr 13 Week of Apr 6 Week of Apr 13 Week of Apr 6 Sources: CHINA COMMERCE ASSOCIATION FOR GENERAL MERCHANDISE 13 Particularly, outdoor outlets show good traffic, driven by more young people than families “The weather is good on weekends, outdoor outlet is suitable for friends to hangout, it’s more safe, can enjoy the good weather, eat ice creams, and there are lots of sales promotions.” --- Belle 27 y.o. from Shanghai Shanghai outlet on April 12th People lined up for shopping Enjoying the good weather while walking around Sources: market visit and interview 14 Restaurants are getting back to business but the recovery needs deals/news to attract more consumers Do you think it is safe to return to a Good deals/discounts or providing something new restaurant/bar now? (Apr 11-12) could be the trigger to attract more consumers 5.15% 20% 75% of people Yes think it is safe to go to Maybe No restaurant/bar now 74.85% But 58% of people are still preparing most of their meals at home, as people are in the habit of cooking at home and won’t change immediately Sources: Nomfluence 15 Overall, we see the China market is recovering but the rebound happens slowly 1 2 3 4 The uncertainty of Not always sure People focus more on People have built up economy restrains them whether it is safe to go practical needs than habits of EC purchase, from spending out or not shopping for pleasure cooking at home, home entertainment, etc. It takes time to change Sources: Havas interview and analysis 16 Innovation and agility help regain growth 55% Keep concerns about the COVID-19 situation Mar 20th, 2020 Sources: Ipsos; Cosmose; GWI 17 Higher speed to market and higher usage of digital opportunities, mainly demonstrated by Chinese brands Market share & growth rate (Jan-Feb) Reasons behind 1. Chinese brands are more agile for product supply GR 27% during COVID-19, quickly recovered production and -5.8% Chinese brand distribution, especially for the necessities International brand 73% 2. China government is launching policies to facilitate GR -3.8% Chinese brands (i.e. Guangzhou plan to incubate 1000 local star brands, 10 live streaming organization, etc.) Perfect Diary case Chinese cosmetic brand achieved 3. The booming EC and Live streaming make more local ￥100M monthly sales on Tmall brands get close to consumers store amid COVID-19, and become 4.