In the Face of Lockdown, China’s E-Commerce Giants Deliver

by Chengyi Lin - April 01, 2020

On Jan. 23, 2020, the Chinese government imposed a full lockdown on the City of Wuhan. Eleven million citizens were placed in quarantine and all major highways were blocked. The lockdown would last for 60 days – a duration no one expected at the time of the announcement.

The lockdown posed serious challenges. In a city like Wuhan, the retail sector is like the body’s circulatory system: pumping groceries and everyday supplies through an extensive network into every neighborhood. The lockdown put an instant, hard barrier in the system’s major arteries, cutting off communities from their regular supplies. After a burst of initial panic-buying stripped the shelves bare in local stores, people hunkered down in their apartments, unwilling to risk contamination by going outside, effectively cutting themselves off from access to future supplies.

Let’s look at how two of China’s retail giants rose to the challenge of keeping Wuhan’s quarantined residents supplied during their two-month isolation. Their response is characterized with a high degree of innovation and flexibility in terms of technologies deployed, skills leveraged, processes applied, and the range of products and services provided.

Technologies

Alibaba was the first to move, leveraging its digital logistics platform. In less than 48 hours, it had identified and contacted all qualified manufacturing partners, which reopened plants in over 58 cities during the Chinese New Year vacation in order to produce N95 masks and other medical supplies. Alibaba was also able to fast-track shipping of warehouse stock to Wuhan, setting a rolling release schedule for critical supplies, such as facial masks and hand sanitizers, at guaranteed prices through its B2C and C2C marketplaces, Taobao and Tmall. At the same time, it leveraged its integrated digital payment system, AliPay, to collect online donations from the entire country, collecting $1 million in the first eight hours alone.

In terms of physical delivery, Alibaba’s Cainiao Network and its competitor JD.com had already been experimenting with new automated technologies in a bid to gain an advantage on Western rivals Amazon and Alphabet.  In 2018, for example, JD.com had tested drone delivery in remote areas near Xi’an and driverless smart vehicles in Haidian District in Beijing.

During the Wuhan lockdown, digital retailers faced an immediate challenge: How could they increase delivery capacity within Wuhan city without moving manpower into the province? It was not a perfect solution, but JD.com and other retailers deployed their new automated technologies into Wuhan. They shipped smart vehicles to the Wuhan boarder, loaded the local map, and remotely operated (from Beijing, about 750 miles away) deliveries of donated goods to hospitals and household purchases to communities in Wuhan. The empty streets were an ideal sandbox for experimenting with the smart machines. At the same time, they made it possible for the retailers to cope with surges in demand needs without violating government restrictions.

The lockdown also blocked major roads and highways, making it difficult for retailers to deliver goods to remote areas affected by the virus. Delivering essential supplies to villages across Baiyangdian, a large lake in Hubei province, would take at least six hours by the small road or ferry that remained open. In a moment of creativity, JD’s local logistics team proposed deploying the drones, which did the job in just 20 minutes.

Talent

The lockdown caused a spike in demand for staples such as rice, wheat flour, and cooking oil, as well as vegetables, meat, fish and other seafood. With consumers that had traditionally purchased many of these goods offline switching to digital almost overnight, China’s e-commerce supply chains were suddenly confronted with a shortage of human resources.

Freshippo, a grocery subsidiary of Alibaba, confronted the challenge by hiring workers from shuttered restaurants and retail outlets to staff the supply chain. JD.com’s 7Fresh branch quickly followed suit. The companies were able to leverage these workers’ supply chain and logistics skills, which meant they only had to provide limited training to transfer the skills to the e-commerce context.

The retailers also leveraged these “new talents” to adapt their product range. During the lockdown, 7Fresh significantly increased production of semi-processed “ready-to-cook” foods because they could use the skills of their temporary workers that came from the catering industry.

Similarly, MTDP, a super-app restaurant delivery platform extended its service to the delivery of everyday supplies, partnering with over 7,000 brick-and-mortar supermarkets to process digital orders and deliver to individual households.

Process

Delivery workers interact with a large number of consumers on a daily basis, putting their own health on the line and creating a vector for transmitting the virus. To reduce these risks, JD.com and Alibaba not only equipped their employees with facial masks, gloves, and disinfectants, they also added new safety processes, such as daily temperature checks, mandatory disinfection before and after each hand-off, and mandatory disinfection before final drop-off.

The last mile delivery process also needed rethinking. Delivering goods typically required a customer signature. But once the lockdown was imposed many gated communities would no longer allow delivery service personnel to enter the community. Consumers didn’t want to provide a signature because this meant they had to interact with a delivery employee.  As a result, e-commerce firms like JD.com were initially forced to take back many “unaccepted” delivery packages and had to swallow the costs.

To get around this problem, JD.com added more deposit boxes in gated communities and changed the process. Once a package was placed in a box, a bar code was sent by mobile app to the consumer for pickup at any time. They also recruited volunteer residents to help distribute goods to those who couldn’t leave their apartments, managing the network through mobile apps as well.

Category

The lockdown crisis has also created opportunities for some e-commerce firms to catch up with the competition in areas that they looked to have lost out in. JD.com’s telemedicine unit, for example, had so far failed to gain traction with consumers, who preferred PingAn’s Good Doctor or Alibaba’s AliHealth.

Anticipating a spike in demand for online consultation for Covid-19, JD.com ramped up its telemedicine business, quickly adding more doctors to its network. In a matter of days, it not only became a major channel for processing the purchase of medical products and standard telemedicine, but also turned itself into one of the front-line Covid-19 triage services for citizens all over the country. Through a series of prescribed questions (following a government-set protocol), telemedicine doctors can assess whether a caller is likely to be Covid positive. They apply this protocol to all callers and if a given caller is deemed to be at risk, they are connected to a local hospital for a physical checkup. If the caller is not identified as being at risk, the consultation proceeds as normal. JD.com also rolled out a smart epidemic assistant to share official information about the virus and offered psychological service online.

AliHealth also moved fast, pushing Covid-19 information through Taobao and Alipay. As the virus spread across the country, it offered free online consultation on both platforms. For its part, MTDP has expanded its MTDP University-level educational offering during the lockdown, creating online classes in small business management and related skills. These programs are helping to keep housebound people occupied during the crisis while gaining new capabilities.

As businesses and governments around the globe continue to combat the coronavirus crisis, the rapid responses of the Chinese e-commerce giants offer guidance on how digital-savvy retailers capable of accessing mass markets in Europe and the U.S. can play their part in keeping the supply chain flowing. The experience from China suggests that the most valuable contributions will come both from leveraging their digital logistics platforms and their high-tech last-mile delivery capabilities and from quickly engaging newly available workers with transferrable skills from other sectors. Aside from the moral imperative of engaging in this fight, those that do will find themselves well placed to compete in a post-Covid world, not only in terms of goodwill, but also in their strategic competencies and opportunities.

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