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Coronavirus 2020: Risk identification for international trade

The coronavirus outbreak has caused strain for many industries, but overall impacts depend on how the virus is contained and its severity continues. The FMCG industry is among those feeling the most pressure from the outbreak, due to lower exports of good to China, logistical issues and shipment delays.

However, within the FMCG industry, some sectors are managing to minimise interruptions, while others are failing, representing uneven impact across the industry. United Media Solution (UMS), an independent marketing-to-China agency has been servicing global FMCG brands for years and has closely monitored the outbreak’s effects on different industries. FMCG organisations should look to enlist the help of a professional body with China specific experience to assist with digital content creation, social monitoring and their overall strategy during the outbreak.

 

UMS has identified six risk areas for FMCG brands during this period and will continue to monitor and release information and advice regarding overall strategy and marketing activities in China.

 

Share Risk: China sector share minus China total export share; the higher China’s share of the sector, the higher the risk.

Health Risk: higher risk for fresh or live products; higher risk for services where people are gathering in large groups.

Place of Consumption Risk: higher risk for consumption in public places; lower risk for consumption in homes.

Border/Port Risk: Higher border risk for the movement of people across borders at airports etc.; as ports prioritise goods movements, higher risk for low-priority goods.

Value Chain/Activity Risk: higher risk for exposure to supply chains, and higher risk for goods that rely on economic activity.

Timing Risk: risk as it relates to the seasonality of each export sector.

 

UMS has identified different levels of risk in the industry and why each sector has a different risk level.

 

High risk – forestry, tourism, education, seafood and mutton.

UMS has published in depth analyses for the tourism and education sectors, providing extensive recommendations for brands in the wake of the outbreak. These can be accessed HERE.

For Australia, Canada and New Zealand, China accounts for a considerable portion of their forestry exports share, therefore demonstrating a high share risk which has contributed to it being in a high risk category. Chinese construction has essentially been ground to a halt and, with timber a low priority compared to food and medicine, ports are turning away log shipments (boarder/port risk). This has heavily impacted the forestry sector, and forestry prices are feeling the pressure. For New Zealand, benchmark log prices are anecdotally down by around 12%, and while lower shipping costs and a temporally stronger CNY are helping, the magnitude of the log price fall has been enough for logging to completely stop in some regions. This effect can also be seen globally.

The seafood sector (Australia, US, New Zealand) also heavily relies on the Chinese market (share risk). Seafood is often a luxury item and bought or consumed public places such as markets or in restaurants (place of consumption risk), but with many restaurants closing, with no certainty of when they will reopen, seafood brands are feeling the pressure.

As the virus was suspected to originate from seafood, public opinion has greatly shifted meaning that meaning Chinese are avoiding the consumption of seafood and are turning to meat or fresh produce instead. This factor, along with seafood being highly perishable, has contributed to a huge drop in prices and demand.

 

Medium risk – meat, fruit, wine, overseas cosmetic products and luxuries

In comparison to FMCG sectors that fall under the “high risk” category, many meat, fruit, wine and overseas cosmetic brands have been able to mitigate risk thanks to their logistical and digital marketing strategies.

Although cosmetics and luxury products have seen a decrease in sales due to the closing of physical stores and warehouses, these brands have been able to limit disruption through diversifying trade channels and allocating more investment behind online sales and promotion. By distributing highly engaging and creative content, Chinese audiences (who now have a lot of spare time) are highly engaged and providing these brands with excellent data and ROI. These brands have also limited any negative public opinion through the clear and consistent communication of impacted delivery times and logistical changes.

Meat and fruit have been somewhat impacted due to their perishability; however, these goods are still in high demand and can be kept in storage for in the right conditions. However, for brands that did not invest in a string digital presence in China, they are now seeing a huge drop in sales. An example of this can be seen through the purchase of Chilean foods – Chinese purchasing of these items has fallen 50-60% because these products were weakly positioned within China.

 

Low risk – dairy, health supplement products (including foods) and infant formula.

Evidence has shown that key dairy products as well as infant formula brands have held up relatively well in China’s market during the outbreak. Dairy forms a staple part of many Chinese diets, and with milk products often purchased in powder form, it poses little health risk and is often consumed within the home (place of consumption risk). With that in mind, dairy products (and health products) are likely to be a relatively high priority good at ports, placing them in a low risk category compared to timber, which is being turned away.

Compared to other international brands from other industries, historically, many dairy and infant formula brands have invested more in e-commence and social media, resulting in a strong China-focused digital infrastructure and asset base. Now, in the midst of an outbreak, dairy and infant formula brands are seeing greater advantages as, along with the nature of products themselves, these strategies and digital infrastructures play a significant role in the resistance of impact during a time like this.

For health products, those brands that have shifted their marketing campaigns during the outbreak to keep their products relevant are experiencing the most success. For example, products that market how they can boost one’s immune system are being sought after to help fight off viral infections (such as the coronavirus). In addition, many Chinese are in lockdown and have more spare time to read and consume long form content. As a result, brands that are sharing scientific/academic articles related to their products to boost legitimacy are also seeing an increase in sales. This massively enhances the authenticity of a brand and shows that they are well established with a strong history of research.

 

Who Are We?

United Media Solution (UMS) is an award-winning marketing to Chinese agency. We are a full-service independent agency which specialises in digital and social marketing.

This article was created by Richard Zhu who leads UMS Establish team that provides China consultancy and advisory services. You can contact Richard via email: zhu@umssocial.com.