Back to survival mode: How the COVID-19 lockdowns affected consumer behaviour in China

 What is on your survival list?

Imagine that you are locked inside your home for months, what are the most important things that you need to keep you healthy, happy, and alive? Basic groceries would be essentials on your survival list. 

During the various lockdown periods in China, consumers were faced with an abundance of time at home, changes in social habits and new quarantine restrictions, which all had a great impact on the food market. Whilst grocery providers had to invent new strategies to cope with lockdown policies and to avoid losing a competitive edge in the market. 

In this blog post, we prepared findings and stories from both the demand side (i.e. consumers) and the supply side (i.e., grocery providers), to unveil the economic logic behind the scenes.

The Demand Side: Shifts in consumption behaviours

Based on heightened concerns about food safety, consumers engaged in panic buying behaviour during the pandemic, resulting in short-term stock-outs of certain key commodities (e.g., pasta, rice, canned goods, etc.) (Jill E. Hobbs, 2020). With the closure of the food service industry, there has been a significant increase in home meal preparation and consumption (Jill E. Hobbs, 2020). In addition, after the outbreak, with the concern of food safety, consumers were willing to pay an average premium of 18.14 yuan for fresh food reserves, which accounted for 60.47% of the fresh product reserve price.

We discovered that the preference of consuming sustainable food varies with age, gender and income level. Specifically, during lockdown, females were 1.517 times more likely to increase purchase of food with sustainable attributes than males when compared to the situation before the lockdown (Shanshan Li et al., 2021). Olivas, Bernabéu and Ureña suggest that this was because of the presence of social pressure for women to maintain their bodies than men. Shanshan also demonstrates that people aged 40–59 years were more likely to purchase more food with sustainable attributes than those aged 18–39 years. It is in line with a study which showed that Chinese consumers aged more than 36 were more likely to buy certified organic food (McCarthy et al., 2014).

In this situation, consumers are exhibiting price inelastic demand, where the demand for certain food items does not decrease significantly even if food prices increase. These findings also play into behavioural economics, namely, the psychological aspects of how people make decisions. In specific circumstances, the rational choice model does not systematically and correctly predict behaviour. When consumers put a high premium on certain goods, the specific effect is called salience, that is, the perceived importance of a good or a service.

The Supply Side: Impacts on food market dynamics

The series of changes have impacted the dynamics of the food market in China strongly and forced food supply chains to quickly adjust to cope with sudden changes in consumption patterns (Erpeng Wang et al., 2020), including re-evaluating marketing strategies, product offerings and distribution services.

The obstacles and delayed response faced by the supply side, such as labour shortages and transport disruptions, seriously affect the efficiency of food supply chains, causing price volatility and supply instability, consequently altering the equilibrium in food markets. To address these challenges, retailers may ration resources by raising prices, changing transport routes, or using local suppliers to reduce reliance on transnational supply chains. Meanwhile, the market, known as ‘the invisible hand’, seeks to rebalance demand and supply accordingly. In the end, everyone works together to cope with short-term supply uncertainty and long-term changes in market demand.

The General Equilibrium Theory applies here. Below is a graph showing the change in equilibrium, a consequence of changes in demand and supply.

When an external shock happens to the demand side, the demand curve shifts upward, and the supply curve does not move. The equilibrium point moves along the supply curve to the new price and quantity level.

The story of Freshippo

Freshippo, a subsidiary of Alibaba focusing on grocery delivery has positioned itself as a leader in meeting new consumer needs, with its innovative strategies, technology adoption and online offline integration.

However, Freshippo still struggled to meet demand for the most part. According to one of the authors’ friends who experienced a 70-day lockdown in Shanghai starting in March 2022, residents were waking up as early as 5am to get delivery slots from online grocers but found they sold out in seconds. This happened in a city where 25 millions of its residents were in lockdown.

Sudden shocks in demand resulted in higher price in equilibrium and demand not being met on time. But in the long run, with improvements in infrastructure and supply chain management, we find supply gradually climbing up and catching up to demand.

So what next...?

To conclude, the COVID-19 pandemic caused vast changes in China’s food market, shifting both consumer behaviour and market dynamics. If you happen to be in the food service industry, here are some tips for you for future reference.

First, consumers prefer to prepare meals at home, which results in online grocery delivery services expanded significantly during the pandemic, and this trend is expected to continue after the pandemic is over (Jill E. Hobbs, 2020). Additionally, demand for local food is expected to grow as consumer confidence in food safety and supply chain reliability may be affected. Second, consumers' high willingness to pay a premium for fresh food also suggests that food producers and retailers can earn higher profits by providing high-quality food that meets consumers’ expectations (Erpeng Wang et al., 2020). Meanwhile, this also calls for improved supply chain strategies, in order to effectively manage and distribute foods to ensure the freshness and quality. Businesses ought to remain wary of potential shocks to their model, using technology and innovation to adapt to the evolving needs of consumers.

Reference

Reuters (2022) 'Alibaba's Freshippo adds more couriers, still unable to meet Shanghai demand', Reuters, 24 April. Available at: https://www.reuters.com/business/retail-consumer/alibabas-freshippo-adds-more-couriers-still-unable-meet-shanghai-demand-2022-04-24/ (Accessed: 14 April 2024).

Shanshan Li et al. (2021) ‘Did the COVID-19 lockdown affect consumers’ sustainable behaviour in food purchasing and consumption in China?’, Food Control, 15 Jan. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9716012/ (Accessed: 14 April 2024).

Erpeng W. (2020) ‘Consumer food stockpiling behaviour and willingness to pay for food reserves in COVID-19’, Food Security, 6 August.

Hobbs, J.E. (2020). 'Food supply chains during the COVID-19 pandemic', Canadian Journal of Agricultural Economics, volume(issue), pp. 171-176. Available at: https://onlinelibrary.wiley.com/doi/epdf/10.1111/cjag.12237 (Accessed: 14 April 2024).