China’s new normal may be major export after pandemic

As they squeezed cappuccinos through a doorway barricaded with tables and stools last month, staff at a Starbucks in the Chinese city of Wuhan were determined to keep their customers as far away as possible.

The improvisation was one small store’s answer to an urgent global problem: how to get the wheels of commerce turning again without unleashing a second wave of the coronavirus pandemic.

Starbucks is just one of dozens of multinationals that have resumed business in China, where the virus began and a version of life after the lockdown is slowly emerging.

As western governments begin to loosen the restrictions that have plunged economies into deep freeze, companies say they are drawing on the experience of their Chinese operations in recent weeks for lessons on how to reassure nervous consumers and employees.

Kevin Johnson, chief executive of Starbucks, told analysts that China offered a “playbook” of new practices, such as taking the temperature of baristas before their shifts, that would be used when its US stores began to open their doors this week.

Bar chart of When did you return back to work? % of respondents who said... showing Work resumption in China has picked up progressively

Having shut down most of its more than 4,000 Chinese stores in February, Mr Johnson last week sought to reassure Wall Street that its business there “will fully recover over time”.

The chance for multinationals to draw up a list of dos and don’ts is not the only reason the world is paying close attention to China’s experience. A successful emergence from lockdown will reawaken a domestic economy that helps drives the global one. Ravaged by the virus in January and February, the first quarter saw China suffer its first contraction in gross domestic product since the cultural revolution in the 1970s.

As factories and retailers have resumed operations this quarter, companies from Ford to Yum Brands, the owner of the Pizza Hut and KFC fast-food chains, have been able to fine-tune safety procedures that can be exported elsewhere.

Bar chart of % of normal levels showing Production resumes across key sectors in China

Hilton Hotels, for example, said it had identified 10 specific “high touch” areas in guest rooms that would receive even deeper cleaning than the rest, including switches, remote controls, bathroom surfaces and door handles. Rival Accor, Europe’s largest hotelier, said guests’ temperatures were screened when they entered most of its sites in China and again at the restaurants.

Ford, which was already battling a sales slump in China before the pandemic hit, has gone further to entice consumers who are likely to be wary of taking unnecessary risks. The US carmaker has developed an app to make it easier to purchase cars online, creating a “zero touch” world with “doorstep delivery of sanitised vehicles”.

The company is also retooling how it manufactures vehicles to allow for more distance between workers — a process it, too, is calling “the playbook”.

“This protocol is being extended to Europe and will also be used when we restart our operations around the world,” Jim Farley, Ford’s chief operating officer, told analysts last week.

Customers use social distancing markers while waiting for their orders outside a McDonald's restaurant in Wuhan Customers use social distancing markers while waiting for their orders outside a McDonald’s restaurant in Wuhan © Bloomberg
A worker sorts packages at a delivery company warehouse in Yangzhou A worker sorts packages at a delivery company warehouse in Yangzhou. Online sales accelerated in March © AFP via Getty Images

The painstaking effort to eliminate human contact, including new ways of handing over the keys, is transforming the business of buying a car in China, industry executives say.

“The retail trade has very quickly moved to a kind of ‘New Normal’ in how to deal with the customer,” Ola Kallenius, chief executive of Daimler, told investors. The company’s Mercedes-Benz brand sells more cars in China than anywhere else.

These lessons are proving valuable to companies as they confront the challenge of restarting operations across Europe and in the US, according to Kent Kedl, a Shanghai-based partner at consultancy Control Risks.

“There are executives in China that have now been asked to help lead the global recovery at headquarters,” said Mr Kedl. “HQ didn’t understand when this started. They weren’t asking the right questions. And now they have people who are very good at thinking through these problems.”

Although not every practice from China will be applicable elsewhere, one early legacy that is likely to be universal is already clear: the virus has turned more people into online shoppers. Online sales, which make up about 30 per cent of total retail spending in China, accelerated in March, according to economists at Morgan Stanley.

“More people in China are using ecommerce than they were before the crisis, including older people,” Laxman Narasimhan, chief executive of consumer goods group Reckitt Benckiser, told reporters. “We expect that to actually stay because they have learnt a new behaviour now. People are going to shop differently coming out of this crisis and we are getting ready for that.”

Businesses with a strong ecommerce presence in China are finding sales easier to come by. A survey by UBS found that almost 40 per cent of respondents in China increased online shopping in early April, higher than during the worst days of the crisis, and three-quarters of them said they planned to keep up the habit in the future.

Part of the explanation for the stunning rebound in US stocks in April, said analysts, was the hope that China could lead the recovery of a stricken global economy before handing on the baton to the likes of the US and Europe. Companies on the benchmark S&P 500 generate about 6 per cent of revenues in China, according to FactSet, second only to the US.

Police march past Beijing’s Forbidden City as it reopened to visitors for the May Day holiday © Getty Images
People dance near Wuhan bridge at the start of the May Day holiday © AFP via Getty Images

Yet more than a month after multinationals began opening their factories to workers and shops to consumers, it is not yet clear whether such levels of optimism are justified.

Revenues from Starbucks’ Chinese business have, for example, picked up markedly from the peak of the crisis in the middle of February, when they were down 90 per cent. But April’s sales remained down 35 per cent from a year ago. Although almost all of its restaurants in China are operating, McDonald’s cautioned last week that there was a “reduced level of demand”.

The picture from hotels, an industry reliant on people’s willingness to travel, was subdued. Although more than 130 of Hilton’s 150 hotels have reopened, the group said the current occupancy rate was about 22 per cent, albeit up from 9 per cent in early February.

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Gary Rosen, who leads Accor’s operations in China, warned that although demand was growing “week by week”, there was a “long way to go before we return to pre-Covid levels of activity”.

The country’s May Day holiday offered one glimmer that Chinese consumers were at least beginning to recover some confidence. There were more than 50m tourist trips within the country last Friday and Saturday, according to official figures, including to Beijing’s Forbidden City, which was partially reopened for the first time since January.

But even as Wall Street stages a rebound, few global executives are getting a sugar high from China’s new normal.

“What they’ve learned as they’ve gone through the recovery is that it’s been a little bit uneven,” David Gibbs, chief executive of Yum Brands, said of the company’s reopening in China. “[It is] very difficult to forecast where bottoms are and exact trends.” 

With reporting by Don Weinland in Beijing, Joe Miller in Frankfurt, Claire Bushey in Chicago and Alice Hancock and Judith Evans in London