Feb 21, 2020 (China Knowledge) - Possibly the most commonly-used abbreviation in China’s F&B sector permanently, ‘COVID-19’, a term coined by World Health Organization (WTO) to denote a form of human contagion air-borne virus broke out in the year 2019 will remain a ‘talk-about’ topic among people in the food and beverage (F&B) sector for many years to come. The casualties: shops closed, staff losing their jobs, and inherent financial and business losses are too hard to ascertain.
This coronavirus outbreak that ‘detonated’ last December has had a magnitude of destruction on caterers, restaurants, fast food outlets, and other related businesses and complex network of suppliers incurred could total more than RMB 500 bln. This is only based on a week-long Lunar New Year alone where the spending on the sector peaked. Only medical care, essential public services and providers of daily necessities are allowed to operate. The world’s manufacturing powerhouse has suddenly slowed, and outdoor activities reduced to the minimum to battle the virus spread.
The 11-day festive period that should end on Feb 2, received further blows again by the government’s strict measures on its citizens to self-imposed quarantine for a week; and, later another week was extended. Official date permitting all its citizens to resume working is set on 23 Feb; but, there are companies choose to postpone to later dates.
The disastrous hit on the sector in all angles has forced the sector to ‘rethink’ and ‘remodel’.
Financially, a very small percentage of independent or standalone restaurants could tide over no income for more than 3 months and able to meet to foot rental and staff costs. Even famous chain restaurant ‘Xibei’ that serves up China northwest cuisine with 20,000 employees across China, received a lifeline credit facility from the local commercial bank due to its sizeable operation, and past records of profitability. Such a generous and rapid credit line will be a challenge to most independent private operators. Being not listed on the stock exchange is seemingly a disadvantage for capital access in terms of channels and forms, from equity to debt sale. Once the normal lifestyle resumed，those that survive will emphasize more on cash flow and contingent financial measures; if not, it will take another similar mishap to be wiped out of business; hence, a vulnerable casualty without it.
It is not unimaginable for the F&B sector’s equipment makers and software developers to come up with a solution in times of reduced or without manpower. Due to the strict quarantine imposed on its citizens many workers in the sector are not allowed to return to work. This is to reduce human traffic and interaction to contain virus spread through human interaction. Fortunately, many well-run and –managed fast food and restaurant chains have carried on business during the epidemic outbreak where the self-operated cashier and automated cooking equipment. It is important to note that while food sales are allowed, all are available on takeaway, and not dine-in is allowed. Because kitchen automation is mainly manufactured for large operators, this crisis will set a trend in developing more types and a wider range of equipment for food preparation and cooking so to rely less on human input. It is likely to see more government policies in improving such automation development.
The last mile to complete the transaction is the delivery. This crisis has put the current delivery platforms; mainly, monopolized by Alibaba’s invested ele.me and HK-listed Meituan Dianping (3690) on a stress test. Taking into account their sign up costs and factoring relatively high commission of delivery by these third-party platforms, many caterers and restaurants have started to build their own delivery channels, and such initiative has brought in more orders in some operators. As the algorithms to generate the most cost effective delivery route and timing is a hurdle for most food operators, more software developers, and new platforms are expected to surface to reduce the puzzle – lower costs.
Already the world’s most convenient and cheapest food delivery, this unfortunate event has undoubtedly dealt with a big blow to millions of F&B operators in China, it should be seen as a new era for the operators to innovate and be better prepared with efficient operation and technologies that are immune to such mishaps. The Chinese government, on the other hand, should relook into these business operators and invigorate them with well-support measures and policies to advance the sector, possibly to be the world’s most advance.
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