China's digital pay mix holds is a road map for the world
The coronavirus pandemic is changing consumer habits around the world. As consumers are forced to stay at home, offline retail outlets, restaurants and bars are all but completely shut down. Many consumers are trying food and grocery delivery services for the first time, and many retail players are at a loss as to how to handle this unique situation.
China’s advanced retail ecosystem indicates what such a scenario should look like when every transaction moves online. Even before the coronavirus crisis occurred, a large percentage of retail transactions in China occurred online. According to eMarketer, approximately 44% of China retail sales are conducted online, compared to just 12% in the United States.
Trends in China such as mobile payments, omnichannel shopping and social commerce show us what a post-coronavirus world could look like for brands and retailers in the U.S. We take a deeper look and try to see how things may turn out in the very near future.
In China, the mobile payments penetration rate reached 86% in 2019, compared to 34% worldwide. Chinese e-commerce giant Alibaba’s Alipay platform was the first to roll out escrow payments for e-commerce, and aggressively brought China’s retail merchants online with its QR code technology.
Part of this success was due to the lack of credit cards in China; Chinese consumers historically have been averse to debt. China has no central credit score rating, making it difficult for consumers to obtain credit cards without pledging property or other assets as collateral.
Now consumers link their bank accounts to Alipay and WeChat Pay. Consumers use these platforms for both merchant and peer-to-peer transactions by simply scanning a QR code and entering a six-digit PIN code for each transaction.
This simplified transaction process makes it much easier and faster to process online transactions. In comparison, a consumer using his or her credit card for an e-commerce transaction has to take out a wallet and input a long 16-digit card number and security code. This leaves a lot of time for the consumer to think twice about making the purchase.
As the coronavirus crisis rages on, what we may see is the further adoption of online payment processes such as PayPal, as more and more merchants have no choice but to focus their efforts online. Making more options available and reducing the number of steps needed to make a transaction would do well to improve sales. Consumers may very well start using PayPal and other payments technologies to make online purchases for the first time and realize that doing so is much easier than using a credit card. Such a habit could continue even after the coronavirus threat recedes.
Buying groceries can be a hassle for many people; often the process can take up a whole weekend afternoon and lines at the counter can be long. In China, this situation is exacerbated as urban cities are much more crowded and there is less space for large supermarkets such as Costco or Stop & Shop.
This is why omnichannel grocery shopping platforms have become so popular in China. New concept store chains such as Alibaba’s Freshippo and Tencent/Yonghui’s Super Species are leading the way by offering mobile app ordering and on-demand delivery of fresh, high-quality groceries.
Such stores are much smaller on a square-foot basis and carry a more limited number of SKUs, but the limited number of choices enables merchants to buy in bulk and save on per-unit costs. Also, smaller assortments mean customers make decisions quicker as there are fewer decisions to make. After all, do consumers really need to choose between 100 different types of cereal?
In this type of omnichannel store scenario, longer-tail items are still accessible on the mobile app, where customers can order groceries delivered to their door within just a half hour. People taking the subway home from work or who forgot something at the store can easily order an item for a delivery fee of just $1 and a few taps of the finger.
According to OC&C Strategy Consultants, approximately 70% of Freshippo stores obtain their revenues online, and 25% of their shoppers become online-only customers. These numbers undoubtedly skyrocketed during the peak of the coronavirus crisis, when people were stuck inside for most of the time.
Now as the coronavirus threat recedes in China, it is very likely that the habit of purchasing groceries online will stick, as people realize that they don’t really need to waste a whole afternoon browsing a crowded, loud supermarket to pick up essential goods.
Will such a trend take off in the U.S.? It’s hard to say. Part of the issue is that Whole Foods and food delivery services companies have struggled to provide enough protective equipment and measures to keep workers from getting sick. By contrast, in China every apartment compound set up no-contact collection stations for delivery workers.
Amazon’s infrastructure and supply chain networks have also struggled to meet surging demand for Whole Foods groceries, with many items sold out and new members being put on waiting lists. But as the coronavirus pandemic rages on and shelter-in-place rules are likely to stay in force for the next few months, it is expected that Amazon will shape up and the level of service will improve for the millions of Americans stuck at home. After the virus threat recedes, it is highly likely that Amazon/Whole Foods will benefit from retaining all of the new users gained during the crisis and collecting new data insights from these consumers.