Delivery Technology Is Keeping Chinese Cities Afloat Through Coronavirus

Delivery Technology Is Keeping Chinese Cities Afloat Through Coronavirus

by Chengyi Lin - March 17, 2020

For the last month, China’s cities, with their empty streets and deserted shopping malls, have looked like the set of a post-apocalypse TV series.  It may be a glimpse of the future for Europe and North America, where lockdowns are quickly expanding.

Public discourse in Europe and the U.S. is predictably focused on how bad things will get and the practicalities of life under lockdown: How will people get food supplies? Can the medical services cope? Will people get paid?

But even at this stage in the lifecycle of the Covid-19 pandemic, some lessons are already emerging from China about how we can cope with the social and commercial disruption of this kind. A key driver, it turns out, is digital technology.

Let’s start by looking at China, where the most recent signs suggest that the epidemic has now stabilized. In Wuhan - a city of 11 million people - the lockdown posed a serious problem. Because it was the first city affected, its citizens were unprepared for what they faced. Initially, the lockdown imposed by the Chinese authorities triggered panic buying of food and other essential items, emptying supermarket shelves.

Yet in a matter of days, supplies began to flow into Wuhan. Although fears and concerns about the disease ran high, residents fairly quickly came to terms with the lockdown and have leveraged digital technology to organize and collaborate with suppliers, thereby ensuring that supplies have reached the people who need them the most.  Two factors have contributed to this remarkable show of resilience:

• Digitally Enabled Delivery Systems: In China’s major cities, groceries and other items purchased online can be delivered to the home within as little as 20 minutes following a purchase.  This is largely down to the deployment of digital technology.  Alibaba’s Cainiao network, for example, supports the supply chains of the merchants it serves via an AI-enabled digital inventory system that links the online and offline shopping worlds, in which merchants’ physical stores serve an extended distribution network.  As a result, almost as soon as the lockdown was declared in Wuhan, Alibaba was shipping medical and food supplies into the province.
• Consumer Comfort with the Online World: In the past five years, Alibaba Group, JD.com, MTDP (Meituan Dianping) and many other companies have transformed the purchasing behavior of Chinese consumers, moving them away from bricks-and-mortar shopping into online spaces, often consolidated through a so-called “super app.”  As of 2019, China’s e-commerce penetration had, by one estimate, reached 36.6% of retail sales, with 71% of Chinese consumers transacting online at some point, mostly via smartphone apps (80% of e-commerce transactions).

The combination of consumer digital maturity and digitally supported supply chains has enabled local residents to organize home delivery of essential supplies to people in self-quarantine.  In the gated communities and neighborhoods that characterize Beijing, for example, residents have organized small groups of volunteers via group chat apps to receive supplies at the gate for the whole community, box them for each household, and deliver them to people’s doorsteps.

In the U.S. and Europe, however, the digital landscape seems rather less favorable for this kind of response than in China.

Although U.S. consumers are more than ready to shop on Amazon and other e-commerce platforms, only 16% of total sales in 2019 were on e-commerce platforms - a number achieved in China four years earlier.

Moreover, groceries and ready-to-eat food remain challenging categories in the digital world, despite efforts to experiment with home delivery of foodstuffs on the part of Walmart.com and Amazon, which recently purchased Whole Foods. U.S. consumers have been much slower to shift to the digital marketplace in these categories than the Chinese, while last-mile logistics for the grocery category have yet to reach the standards seen in China’s major cities. Even in the restaurant business, the likes of Uber Eats and others lag far behind China’s MTDP, Ele.me, and many other similar services in China.

Europe, unfortunately, is even further behind. Although large retailers such as Ooshop.com of Carrefour and start-ups like Deliveroo are building last-mile logistical capacities, consumer demand and readiness are low, while old city infrastructures and labor regulations make the rapid construction of an efficient delivery system an extremely challenging proposition.

Just last fall, while Alibaba and Amazon celebrated their achievements during the Singles’ Day and Thanksgiving sales respectively, large merchants in Europe ran into serious difficulties in handling their logistics for “Black Friday” sales. I personally received apologetic letters and cancelation messages from a major French electronic retailer, which admitted, “We had unforeseeable difficulties in handling the large amount of transactions during the Black Friday period.” That is forgivable if all that happened was that one failed to impress a friend with a new gadget. When feeding their children is the issue, consumers will be less indulgent.

Of course, the pandemic will subside – and Americans and Europeans will find ways to cope with its effects; the Chinese do not have a monopoly on creativity and solidarity.  But as the U.S. and Europe emerge from the coronavirus epidemic, their governments, cities, and businesses should look at how China’s digital advantages have helped it respond to the logistic challenges presented by the crisis. Covid 19 is a wakeup call for European and the U.S., which both need to accelerate the digital transformation of their economies - ahead of the next pandemic.

Chengyi Lin is an affiliate professor in strategy at INSEAD in Fontainebleau, France