The coronavirus outbreak in the middle of January has put the world’s second-largest economy in a stand-still for almost three weeks. During which time, productions are delayed, transports links are disrupted, shops and restaurants are forced to close, and the stock market slumped over 8% in one day, the biggest daily drop since March 1997. However, there is one kind of economy that breaks through the gloom and hopefully become the new growth driver in spite of nationwide anxiety over economic slowdown. This is what we call “stay-at-home economy” or “homebody economy”.
What is Stay-at-Home Economy?
Activities that used to require transportation or at least conducted outside the residence are now moving to your own house as the self-quarantine policy is strongly advocated by the Chinese authorities. Stay at home economy triggered businesses such as e-tailing, food delivery, online education, collaborative office software, and gaming. However, whether the growing trend of these segments would last in the longer-term remains a question.
The Business that Benefits from the Growing Stay-at-Home Trend
China’s e-commerce giants, which earlier developed their fresh food arms, had a good harvest recently. JD Fresh, the fresh food arm of JD, saw orders rising 215% YoY[1] from the Lunar New Year Eve on January 24th to February 2nd. However, great opportunities always came along with big challenges. Hema, the offline retail store of Alibaba, which also offers home-delivery service, faced a strong labor shortage due to skyrocketing orders in the past weeks. In the city of Wuhan – the epicenter of the crisis, people stayed until midnight just for a new batch of vegetables hitting shelves. Due to the labor shortage, the delivery quotas usually go in less than one minute. It seems that the whole city shrouded by the deadly virus is relying on fresh food deliverymen to feed people’s stomachs. Hema was reported to hire employees at chain restaurants in Beijing, which had their business shut down because of the coronavirus, to help with packing and operating. But it was still not enough.
Another food-related business that saw rapid expansion during the coronavirus outbreak is food delivery. Hong Kong’s major food delivery operators are enjoying a big boost in demand as a growing number of people tend to eat-at-home to avoid the risk of human-to-human transmission in crowded restaurants. One of the commonly-used food delivery platforms in the city recorded a 60% increase in order volume, month-on-month, in January[2]. While in early February, the pace of growth dramatically accelerated when the reported cases climbed in China.
Apart from the food issue, the massive stay-at-home population also benefits some other industries and gaming is probably one of the top winners. One of Tencent’s most popular mobile games hit a new record-high in daily average users during the week of January 30th. The game with around 60 million to 70 million daily active users saw its number of users surged to over 100 million over the Lunar New Year holiday[3].
As schools delay opening in the spring semester, some 276 million Chinese students are trapped at home and forced to become online-learners. Offline after-school operators were dealt a strong blow while their online counterparts’ enrollments grew dramatically even when spending less on promotions and advertisements.
Will Stay-at-Home Economy Continue to Grow After the Epidemic is Over?
As the newly reported cases number of coronavirus epidemic shows a downward trend and people gradually get out of their homes, the beneficiaries of the stay-at-home boom need to reinforce the strong momentums of their businesses.
If we look at the online education sector, the virus outbreak largely changed the K12 after school tutoring market landscape in a short period. However, although online schools were flooded with new enrollment, there are already reports saying parents are worried that too much screen time would cause a surge in childhood myopia. Others say the education quality in online schools is not as good as that of regular offline ones. Thus, the future growth of this business model is still constrained even if online education becomes more acceptable for parents after this ‘involuntary trial period’.
Office collaboration software, such as video conference apps, ranked at the top in terms of downloads during the first half of February as millions of people started home office. This might be an opportunity for China’s SaaS (Software as a Service) industry, which is relatively small compared with North America and Europe. Although those apps are downloaded for free at present, as more and more people get used to them, they could be profitable in the future.
It is widely believed that one can make or break most habits when consistently practicing a routine for 21 days. If the same rule applies to industries, the stay-at-home economy stands at the boundary of fun experiments and long-term shifts. It is unknown whether the alteration would remain after the epidemic season. However, a journey of a thousand miles begins with a single step. For those video conference apps or e-tailers, this is a mighty kick of their adventures.
[1] Source: JD.com Corporate Blog, as of Feb 2020
[2] Source: South China Morning Post, as of Feb 2020
[3] Source: South China Morning Post, as of Feb 2020
Disclaimer
This document is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this document, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. All opinions or estimates contained in this document are entirely Zeal Asset Management Limited’s judgment as of the date of this document and are subject to change without notice.
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