February 22, 2017

China Social Media Review - Week of Feb. 13-19

600233 CH, 900923 CH, BABA, JD, YUMC
By Meredith Sun

Avian flu and the closure of two YTO Express logistics stations were the topics of leading posts on Chinese social media during the week of Feb. 13-19, as was Alibaba and Bailian Group’s new partnership, which could provide Alibaba access to even more consumer data.

  • Avian Flu H7N9: There have been a number of reports on avian flu from various major media outlets on Weibo Corp.'s Weibo.com and Tencent Holdings Ltd.'s WeChat during the week of Feb. 13 to 19. Most reports focused on the increased cases of infections and deaths from H7N9 in January 2017, which has more than doubled yy, reminding people to stay away from live poultry, the only confirmed channel for infection so far. The number of commenters on these reports on Weibo has increased slightly to more than 100 for each report, compared to only around 20 to 30 comments for each in previous weeks. There were also a few posts circling around in WeChat’s Moments. This level of attention and consumer response suggests there has been no panic about this round of avian flu, although it has indeed received more attention because of the increased cases and news coverage. However, Chinese consumers have dealt with news about H7N9 every spring since 2013, so most are well educated about how to prevent infection and are aware it is safe to eat fully cooked poultry. OTR Global’s recent checks found H7N9 had no impact on YUM China Holdings Inc.’s KFC chicken sales (see OTR Global’s Jan. 24 YUM China report), but OTR Global will monitor the development of the avian flu closely.

  • YTO Express: YTO Express Group Co. Ltd. (600233 CH) made headlines in almost every major economic and financial media outlet in China during the week of Feb. 13 to 19 when two YTO stations in Beijing were closed and tens of thousands parcels — mainly ecommerce parcels — piled up. One consumer posted on Weibo that his ecommerce parcel was on the way for more than 10 days when he was finally notified it was unable to be delivered because the delivery station in that area closed. The post got significant attention on social media and deepened concern about the current franchise model of logistics companies including YTO Express, ZTO Express Cayman Inc., STO Express Co. Ltd. and Yunda Holding Co. Ltd. (002120 CH). These four all rely heavily on franchised partners for last mile delivery, and those franchise partners hire the couriers, not the logistics companies. Logistics companies have been aggressively lowering prices to attract more orders (mainly from ecommerce platforms) in order to get listed and present good earnings. Meanwhile, franchised partners have suffered with increasing labor costs and endless fines and punishments from the logistics companies as they try to please consumers with better service and faster deliveries. (When consumers file complaints, logistics companies fine the franchise partners or couriers.) Additional station closures would not be out of the question, with franchise partners operating on very margins. Many commenting on the YTO closures in Beijing worried that 2017 could be a tough year for these logistics companies and that these problems of the franchise model will start to break out. If problems persist, JD.com Inc.’s delivery and SF Express Group Co. Ltd. are better positioned because they do not franchise. Another issue the closures in Beijing highlighted was the competition for labor wages between the logistics industry and O2O delivery platforms. YTO said some of their couriers joined O2O platforms such as Eleme Inc.'s Ele.me, Meituan.com and Baidu Inc.'s Baidu Waimai for less pressure and higher salaries, according to OTR Global’s checks on job postings on 58.com Inc. Ele.me and Meituan pay delivery employees 200 to 300 yuan per day in Shanghai, and they are aggressively recruiting; the typical monthly income for a courier was only 4,000 to 5,000 yuan in Shanghai, according to news reports. Courier companies are losing laborers to O2O companies — even SF Express, which is known for higher-than-average salaries in the express industry. However, OTR Global believes this competition will fade when O2O platforms stop competing for market share aggressively without any concern for cost.

  • Alibaba and Bailian Group: News that Alibaba Group Holding Ltd. and Shanghai Bailian Group Co. Ltd. (900923 CH) formed a strategic partnership hit the headlines over the weekend in China. Bailian is one of the strongest players in China’s retail industry with more than 4,700 retail outlets in more than 200 cities. OTR Global believes the partnership will enable Alibaba to provide its online consumers with more choices and a better shopping experience; plus, Alibaba can gain more big data from brick-and-mortar. Additionally, OTR Global has noticed China’s brick-and-mortar sales picking up slightly since 4Q16 and believes the trend will continue in 2017, which will also help online platforms that integrate online and offline businesses.

OTR Global's Consumer Retail Editor in China evaluates social media coverage of topics that affect the Chinese consumer or the retail industry.

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