Asia is a few months ahead of North America on COVID-19 progress. China shuttered the city of Wuhan in the Hubei province on January 23rd. Quarantines in Hubei were lifted on March 25, with Wuhan expected to lift theirs on April 8.
Counting weeks, Hubei was on lockdown for 9 weeks with Wuhan on lockdown for 11 (assuming they open on time).
The US has only been under quarantine for two weeks and already the market has melted through $10T by the time you add up government stimulus. Will we make it another 7 weeks?
First, the stimulus passed by the government is not going to reach SMBs in any short amount of time. Further, most SMBs wouldn’t know where to start. We’ll follow this closely and have been in communication with the National Restaurant Association to publish what guidance their lobbyists find. But it’s going to be at least a month before any of this is sorted out, and initial reading makes clear that furloughed or terminated employees will receive unemployment benefits much faster than if they waited for the SBA to figure out how to funnel them money through their previous SMB employer.
Second, economists have been hoping for a V shaped recovery: as fast as we went down is as fast as we’ll bounce back. Consumers are going to be skittish. Until there’s a vaccine, you can bet that there will be softness in the consumer market. It’s fundamentally cheaper to buy food and other products at a grocery store (or online from Amazon). With all the excess time people have in their homes these days, they might not mind cooking a home meal, especially with the economic uncertainty hanging over their heads.
Third, Asian markets are different. Because China is authoritarian, each citizen is tracked mobiley. Based upon where they’ve been and whom they’ve interacted with, they’re given a score of green, yellow, red. Consumers with a green code are free to move around; other color categories will have material restrictions. It’s dystopian but this will definitely affect parallels between Chinese recovery and US recovery.
Shiji, a public Chinese conglomerate, has published data on retail store reopenings. Shiji operates retail and hotel POS business lines, and thusly has timely data. Below is a chart showing that 60% of small retailers have reopened.
Unsurprisingly the further one gets from the epicenter of Wuhan, the more stores there are open. Still, it would appear that 35% of stores remain closed, perhaps alluding to the drop in consumer spend as consumers worry about the economy and the potential relapse in COVID-19 infections.
POS companies with large, enterprise restaurant exposure in China have told us that sales have rebounded to 70% of pre-COVID levels over the past two weeks. This is clearly skewed towards large, recognizable brands, but it is generally a good sign for enterprise brands at home.
One could look to the 2003 outbreak of SARS in Asia as a proxy for recovery. Bain has produced some great visuals here, showing how restaurants fared during the SARS. From peak to trough, restaurants were down 30% during the SARS outbreak, and it took five months to recover; during COVID-19 restaurant revenues fell 50%. We’re still TBD on the recovery timeline, but it will likely be longer unless the virus phases itself out of transmission.
That’s because SARS was over as fast as it started. Epidemiologists credit rapid societal response, a seasonal turn to warmer temperatures, and a virus that happened to replicate in the lungs, not in nasal cavities and throats, where it’s more contagious, as good fortunes. We still don’t know what we’re getting with COVID, and this could be a multi-year disaster if governments refuse to open markets back up.
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