A quick quiz to start this week’s Skinny: What is the most valuable marketing company in the world? Most people probably couldn’t care less, but there are a few folk in the industry who would say WPP. Whilst the company hasn’t had a great year, it remains the largest marketing company in the world measured by billings and revenue. The London-based conglomerate has a market cap of $18.9 billion, putting them ahead of the other well-known marketing companies such as Omnicom at $15.3 billion, Publicis at $12.6 billion and Interpublic at $8.3 billion.
Before using your guess on the familiar marketing giants, you may want to consider the lesser-known companies, like Focus Media. Last week Alibaba acquired a 10.32% stake in the company for $2.23 billion, which as of yesterday had a market cap of ¥162 billion ($23.8 billion). Focus Media is the company behind many of the digital advertising screens in streets, subways and elevators across 300 Chinese cities.
With the acquisition, Alibaba plans to collaborate with Focus to merge offline media and digital marketing, slated as an upgrade to “New Marketing” which will support the growth of New Retail across all sectors. Focus has ambitious plans to soon control 5 million terminals covering 500 Chinese cities and reaching 500 million consumers.
Powering the evolution of Focus’s screens will be Alibaba’s vast banks of consumer data from the more than 550 million online shoppers on its platforms, 520 million AliPay users, and potentially the hundreds of millions watching Youku videos, navigating with AutoNavi maps, taking Didi taxis, browsing on UCWeb, ordering food on Ele.me, cycling on Ofo, using Weibo along with the more than 100 other businesses Alibaba owns a share in. When Alibaba figures out how to truly integrate and harness its massive data, there will be few stones unturned in consumer knowledge that can help direct what gets displayed on advertising screens or whatever they evolve to. Throw that in with their facial recognition technologies and you’ll have Minority Report-type advertising folks!
Alibaba’s investment into Focus Media will support its irrepressible expansion into physical retail and further strengthen its presence across the whole customer journey. What does it mean for companies such as the WPPs and Omnicoms of the world? The continued structural shift in marketing and advertising will force them to evolve beyond their traditional services.
One thing we have found at the Skinny is that while big data is valuable in planning, marketing and product development, it is a complement, rather than a replacement, to human creativity for determining how to best push consumers’ emotional buttons. It is likely to be a while before any machine can do that. Based on the early stage talks involving Alibaba and Tencent to buy a stake in WPP China, the big tech companies may be thinking so too. Go to Page 2 to see this week’s China news and highlights.
Out for a lunchtime stroll in most Chinese cities, you may not get that refreshed feeling you get elsewhere in the world. China’s carbon dioxide emissions have grown almost 150% since 2000. Although growth has flattened out this decade, emissions have crept 17% higher than in 2010 when Chinese power plants emitted as much nitrogen oxide as the rest of the world’s cars combined.
Similarly, there’s a good chance that the water you showered in, washed your clothes with, cleaned the dishes and rinsed your food with was less than pristine with over 70% of the watersheds that supply water to China’s 30 largest cities severely polluted. Then there is the 19.4% of farmland that’s contaminated by organic and inorganic chemical pollutants and by metals such as lead, cadmium and arsenic.
It’s not breaking news that China’s pollution has been responsible for a sharp rise in respiratory diseases such as Asthma, caused cancer rates to soar, and contributed to host of other issues as far reaching as infertility and obesity. Pollution coupled with sedentary lifestyles from more white collar jobs and gaming, poorer diets and even rice consumption has seen 11% of Chinese suffer from diabetes and a further 36% are prediabetic. There are countless other ailments on the rise in China, but you get the point.
With the above factors an everyday reality of living in China, it is unsurprising that the H-word is on almost every Chinese consumer’s lips. Health is something that Chinese have proactively addressed long before microscopic pollution particles blanketed Chinese cities. Use of yin and yang principles have dated back since at least the 3rd century BC. Considering the changes in China just over the past generation, there are more reasons than ever to balance out the yin with the yang.
Virtually every category with a health label in China has been hot over the past five years, resulting in venture capital investments in healthcare growing from $1 billion to $12 billion in China between 2013 and 2017. This has seen some innovative world-leading companies evolve from China, such as Shenzhen-based medical devices company Mindray which invests 10% of its more than one billion dollar annual revenues in research and development – a rate unheard of with Chinese companies not long ago. Mindray is the market leader globally across several segments and is likely to be helped further by Beijing’s streamlining rules for drugs and medical device approvals last October.
One of the most exciting health companies coming out of China is Tencent-backed WeDoctor in Hangzhou. Hoping to become the ‘Amazon of Healthcare’ the $6 billion dollar company already has 160 million registered and 27 million monthly active users by focusing on unclogging bottlenecks in China’s struggling health system. The company is one of many less-traditional channels that health-related companies hoping to ride China’s burgeoning health segment use to sell their products.
Beijing’s three-year action plan on air pollution control released last week is likely to improve China’s air pollution, but many other health issues will continue to plague China for some time yet, accelerated by its ballooning elderly population. Demand for localised and well-marketed health equipment and medicines, healthy food, healthy living and even healthy holidays will continue to soar in China. Agencies such as China Skinny can assist to ensure you make the most of the opportunity. Go to Page 2 to see this week’s China news and highlights.
There’s no shortage of coverage about China’s New Retail revolution, its mouthwatering rise of shared bikes and its 227 million active users, along with WeChat, ecommerce, mobile payments and other uniquely China trends such as cream cheese tea and face-kinis. Yet there are many other phenomenons happening in China that attract less attention but are also impacting consumers at a level that brands should take notice of. Here are three trends that Skinny readers are likely to be aware of, but maybe less familiar with the full scale and speed of their rise:
1. Consumer Credit
Consumption has been the most robust sector of China’s economy in recent years, with growth trucking along at double digits as long as most can remember. While other factors such as manufacturing, investment and house prices haven’t maintained the same momentum, three contributors have allowed Chinese consumers to defy the odds and keep spending more and more: record consumer optimism, soaring wage growth (with China’s hourly incomes now exceeding every Latin American country except Chile) and rising consumer credit.
Although China is well known for its high saving rates, these figures are skewed by older folk. The younger generation haven’t lived through the same periods of austerity and feel much less need to save for a rainy day. They’ve seen their wages grow every year, their parent’s real estate assets soar, and have been lured by the bright lights of consumerism – often calling on easy credit to spend more than they earn. Between 2015 and 2017 consumer credit grew fivefold, with those aged 24-35 making up more than 70% of consumer borrowers in China.
2. ByteDance’s Douyin
At a much more micro level, some brands looking for ‘the next WeChat’ could be heartened by the remarkable rise of Douyin and the overall ascent of short video. Launched less than two years ago, Douyin’s user numbers have quadrupled since January to boast more than 150 million daily active users watching an average of 82 short videos a day. The 15 second videos serve Chinese millennials’ craving of instant gratification, to fill any down-moment with cheap entertainment. Douyin’s growth has been so drastic that even Tencent has felt threatened and banned the service on WeChat last month. Douyin’s popularity and rapid rise has enabled fast-moving brands to use the platform to build awareness and preference with those indebted young consumers at a fraction of the cost of the more crowded and mature platforms like WeChat, Tmall and Weibo.
What makes Douyin, and its sister app Musical.ly, special is that they are two of the few Chinese apps that have been able to crack the elusive Western markets. Douyin, known as Tik Tok outside of China, was the most downloaded iPhone app in the world in Q1 of this year. Any concerns in the US about the Chinese Government monitoring your every move, something which has plagued brands such as Huawei and even WeChat, seems to be irrelevant for the Western millennials shooting and watching short videos on Tik Tok.
3. DJI Drones
Drones, while not on the same scale as consumer finance or Douyin, are making an impact across many sectors in China. One company leading the way – DJI – has beaten out formidable American competitors such as GoPro and 3DR and now owns 70% of the world’s drone market. DJI’s confidence is represented by their new HQ being built in Shenzhen complete with a skybridge for testing drones and rings for fighting robots.
DJI is creating efficiencies in industries as diverse as agriculture and food delivery, which will have a downstream impact on supply and consumption in China. It is representative of increasing automation modernising China’s supply chain and logistics, particularly in the online-to-offline categories. DJI is symbolic of the rise of China’s ambitious mega-businesses who are investing real money in R&D, while remaining nimble and long term-focused to lead their category. Expect more to come.
Those are just three of the numerous developments coming from China daily, many which are likely to be relevant to your brand, or how you market it. Agencies such as China Skinny will ensure you keep up with those trends and develop a plan how to make the most of the opportunities they bring.
Speaking of trends, China Skinny’s Mark Tanner will be sharing more in Brisbane next Thursday July 5 speaking at the ACBC-Brisbane Airport Welcome for the Air China Direct Flights Between Beijing and Brisbane. If you’re at the event, please pop over and say ni hao. More information here. Go to Page 2 to see this week’s China news and highlights.
Just as live sports are helping prop up the old world of television advertising, they can also be a potent force in international relations and trade. We saw it with the ping pong diplomacy of the early 70s, and as sport becomes an important part of life in China, it will be an increasingly significant driver for geopolitical relations and the goods and services trade. FIFA, the NBA, snow sports and other physical activities are taking advantage of this. As proud supporters of rugby in Asia, China Skinny would be grateful to start seeing some real rugby love in the Middle Kingdom.
With the FIFA World Cup kicking off in Russia tomorrow, the trend is looking positive. During the month-long football festival there may be times visitors feel like they’re at a Guangzhou Evergrande Taobao match. Although China hasn’t played in a World Cup Finals since 2002, an estimated 100,000 Chinese are expected to visit Russia for the Cup, dwarfing the 10,000 football-mad English expected to be there – and their team qualified! On top of that, Chinese brands Hisense, Mengniu, Vivo, electric bike maker Yadea and Dalian Wanda are joining the party to plug the World Cup sponsorship gap.
Like many things in China, Xi Jinping’s passions and policy are helping drive China’s enthusiasm for the beautiful game. The avid football fan Xi hinted last year that China will be bidding to host a World Cup in 2030 or 2034 and will be a “world football superpower” by 2050. Feeding into the grand plan, Xi has announced that the number of football fields in China will grow from less than 11,000 in 2015 to 70,000 by 2020. China will have 50 million regular football players including 30 million students by then, and 50,000 schools will have a strong emphasis on football by 2025 – up from just 5,000 in 2015.
The 100,000 visitors are a sign of changing times in China. They illustrate how Chinese are increasingly able and prepared to spend big bucks on their leisure pursuits. Back in 2002 – when consumers were much less affluent than they are today – no more than 50,000 Chinese went to the World Cup Finals in South Korea and Japan when China was actually on the field.
The swathe of Chinese visitors ascending on Russia will have been further tempted by visa-free travel to its northern neighbour. On top of that, China’s blossoming relationship with Russia will also drive preference – as geopolitical circumstances usually do with Chinese travel trends. Russia seems to be the flavour of the month with Beijing as they look to provide a scalable alternative to Western ideologies. The friendship comes at a good time for China as its dog box is marred with imprints of South Korea’s THAAD, ASEAN-contested island building and river damming, Japanese-disputed islands and historic invasions, the encircling of India and territory skirmishes, undermining of Australian sovereignty, Europe’s wariness of Chinese investment, lack of reciprocal access and sporadic trade disputes, and Trump.
As a symbol of their bond, Vladimir Putin was presented China’s first ever “friendship medal” by President Xi at a lavish event broadcast live from the Great Hall of the People. Since becoming president, Xi has visited Moscow more than any other capital city and Putin said that Xi Jinping was the only world leader who celebrated his birthday. Putin was in China last week for the enlarged Russia-China led Eurasian SCO bloc meeting as the G7 floundered. Russia, which is managing its own diplomatic challenges elsewhere has recently signed a series of deals with China who announced relations between two countries were at “the best level in history.”
In short, this year’s World Cup couldn’t have been better timed for Russia to tap into the opportunity that China presents. For the Russian businesses that stand to benefit from an influx of Chinese visitors – let’s hope you make them welcome. Mobile payments and the slew of other China-ready initiatives will ensure they have a better time, spend more and advocate Russia to the masses at home. And good luck to the 32 nations who made it to the finals! Go to Page 2 to see this week’s China news and highlights.
The lure of WeChat for brands is clear; last year it drove $32.9 billion of information consumption and $52.4 billion of traditional consumption including travel, food, shopping, hotels, and tourism, according to a report from the China Academy of Information and Communications Technology released this month. 34% of China’s data traffic happens on WeChat, versus the 14% on Facebook in North America.
There’s no denying WeChat’s enormous impact into everyday life in China as it has progressed to become a near unparalleled marketing tool. Yet its popularity has also made it hyper competitive. Official Accounts now number 20 million, with 3.5 million of those active, raising the bar for any brand hoping to make an impact on WeChat – seeing consumer expectations surge with it.
Last year over half of WeChat Official accounts saw less readership than in 2016. Whilst the way consumers use WeChat is continually becoming more sophisticated, many brands’ WeChat strategies haven’t done much to keep up. Few provide genuine value through entertaining and educational content. Even less build communities that engage and resonate with their target market and potential advocates. And many brands still see WeChat as a one-way communication stream to push content out to followers, and are yet to tap into the plethora of interactive functions available in the WeChat ecosystem or integrate offline touch points.
In most cases, WeChat initiatives do cost money. Many brands realise this and allocate a material budget for WeChat marketing. China Skinny gets many approaches from brands wanting a ‘WeChat campaign’, but often haven’t even defined their target market, positioning or what makes them unique from the thousands of other brands in their category. Without having these foundations, investing in WeChat will often be throwing good money after bad.
Although we hear so much about marketing opportunities on WeChat, in some cases an Official WeChat account isn’t appropriate for a brand. Take a small tourist attraction overseas for example. For many Chinese tourists, they are likely to only ever visit it once – and it will be just one of many places they’re seeing on their holiday. So few travellers will go to the effort and care enough to follow something that will fill their WeChat account with content that isn’t very relevant. Nevertheless, even if the attraction doesn’t have an Official Account, WeChat can still be very effective for that tourism business using less traditional advocacy initiatives or payments.
Brands shouldn’t blindly just invest in a traditional WeChat account just because everyone is talking about WeChat. They would be wise to ensure that they have the foundational strategy defined first and then consider the context of WeChat with regard to their product or service and positioning. Agencies such as China Skinny can assist with this.
For our British and European-based readers, China Skinny’s Mark Tanner will be in London at the Clavis Insight 2018 EMEA eCommerce Accelerator Summit on June 6 sharing ecommerce industry trends and case studies alongside GSK, L’Oreal, Unilever and PlanetRetail. More information here – we hope to see you there. Go to Page 2 to see this week’s China news and highlights.
In the first quarter of 2018 China’s GDP growth continued to bubble away at 6.8%, largely driven by consumption which accounted for 77.8% of the growth. Powering this critical economic driver is the ever-evolving millennial; higher-earning, freer-spending, and in many cases with child in tow or one not far away.
17.2 million babies were born in China last year – the population of the Netherlands – expanding the already-significant demand for child and family related products and services. A child born in China today will have parents earning 130% more than those born a decade ago. Their parents will be four and a half times more likely to have travelled beyond Greater China. The millions of new parents are more educated, open minded and worldly than any generation before them, and as a result are more inclined to Western products and lifestyles.
The shifting profile of Chinese parents has also changed the way they research and shop and the products they are seeking. Although parenthood remains steeped in culture and tradition and is heavily influenced by family structure, mothers are the least-trusting consumer group in China and among the most digital. They are large contributors to the rise of China’s ecommerce which grew three-and-a-half times faster than traditional retail last year. One of the fastest growing categories online is FMCG, where 43% of the value of products sold are bought by families with children aged below 14. Similarly, two-thirds of cross border shoppers have children, a result of easier access to trusted, safer products from abroad.
Yet family-relevant products aren’t exclusively focused around health and safety. Brands have found success catering to families’ busy lifestyles with products that are also attractive to kids. An example is animal-shaped dumplings that are easy to prepare within a few minutes. Products that understand and minimise those pain-points of hectic family life or contribute to the happiness of families are well placed to appeal to the lucrative segment.
China’s young families are an incredibly important demographic for relevant and well-marketed products. Yet for a larger share of Chinese at child-rearing age, parenting WeChat groups, imported infant formula and panda-shaped dumplings are not relevant. Despite initial enthusiasm from the loosening of the One Child Policy and youths having sexual intercourse earlier, Chinese millennials are becoming more indifferent about sex and less likely to be parents.
China’s fertility rate of 1.24% is even lower than Japan’s 1.46%. Slowing birth rates mean there remains plenty of opportunities in products and services unrelated to families such as health, travel, entertainment and fashion which can seize a share of spending that may have otherwise been used on childcare. Go to Page 2 to see this week’s China news and highlights.
“Analysis by the Environmental Working Group found that 160,000 people living in the region may be harmed by pig waste … pigs are treated with antibiotics, vaccines and insecticides, all of which eventually pass into the lagoons, which have been found to contain toxic chemicals, nitrates, parasites, viruses and more than a hundred strands of antibiotic-resistant microbes, including salmonella, streptococci and giardia. People die with distressing regularity in the waste.”
Your mind will likely jump to images of pig farms in Henan or Sichuan province, yet the exert was taken straight out of a Rolling Stone article on the hog industry in North Carolina; America’s pork-producing heartland where the country’s largest pork producer Smithfield is located. In 2013, Smithfield was acquired by the Chinese conglomerate now known as WH Group for $7.1 billion. Due to lower pig-feed prices, larger farms and loose business and environmental regulation, it is 50% cheaper to produce pork in the US than China, prompting China to outsource some of its environmental and human costs abroad. The Smithfield acquisition has been so successful, WH Group has subsequently made similar purchases in Poland and Romania.
Whilst we could fill thousands of newsletters with similar examples from toxic Chinese farms, the North Carolina exert is representative of a broad trend that is happening in China as it becomes wealthier, moves up the value chain and sees its citizens demand more.
China’s outsourcing spans far beyond food production. As China’s labour costs continue to soar and environmental regulation gets tougher, many manufacturers are looking towards South and Southeast Asia – and probably Central Asia and Eastern Europe as infrastructure improves with Belt and Road initiatives. While China celebrates its reduction in coal consumption and improving environment, it is offloading surplus coal to an outdated dirty coal plant on the coast of Kenya that it recently financed, poised to become the country’s largest polluter. China recently built a $250 million fast fashion factory in Ethiopia in addition to other significant manufacturing investments and agricultural production like in many other countries in Africa.
The trend certainly isn’t a new phenomenon. Similar outsourcing happened with the British empire, and more recently with American multinationals who ironically outsourced much of their dirty industry to China. In short, it is another indicator of how the world is pivoting.
From a purely commercial perspective, the allure of selling cheap commodities to service Chinese consumers’ ever-growing appetite while polluting lagoons, rivers, land and people may appeal in the short term, there are some factors indicating that it may not be sustainable in the medium-long term. There are the obvious hideous effects of the pollution, but also the fact that through technology and increasing infrastructure investments in poorer countries across Asia, Africa, Eastern Europe and Latin America, the market is likely to see a rise of large scale competitors bringing down the overall price of commodities.
From a branding perspective, Chinese consumers are trading up across almost every category from smartphones to dairy. Well marketed brands from developed nations are able to charge a premium based on the exemplar reputation their country has, playing well to this premiumisation trend. But this comparative advantage shouldn’t be taken for granted. Stories such as Smithfield’s pork producers will be seen by Chinese consumers and chip away at the value of Brand USA as a whole, if proposed tariffs weren’t enough already. Although Chinese place less significance on the environmental impacts of food production than their Western peers, this is changing. With origin being such an important decision driver for many Chinese purchases, it would pay to think strategically. Go to Page 2 to see this week’s China news and highlights.
To understand the impact of Government directives on consumer behaviour in China we’d suggest watching the rise of winter sports over the next four years. Already well underway, the surge in related content through state-controlled traditional media channels provides a clear insight into Beijing’s strong influence over digital touch points.
In 2022, Beijing’s hosting of the Winter Olympics will see it become the first city to ever host both a Summer and Winter Games – remarkably within less than a decade and a half of one another. Beijing’s dual-hosting symbolises the dramatic rise on the sway China now holds across the world.
Looking back to the effort and expense Beijing made for its Olympic host campaign 10 years ago, it is clear how serious China takes the Games to showcase the new face of a powerful China. Beijing spent $42 billion hosting the 2008 games – almost three times the $15 billion Athens spent just four years earlier. But beyond the infrastructure investments and ceremonies, the success of China’s athletes was just as impressive. Almost half of China’s medals were gold – 48 – a third more than second-placed USA.
China is a different nation than it was in 2008 – much more assertive, wealthy and influential, but equally focused on not losing face in front of the world. That is why Beijing will be doing everything it can to ensure it puts on a good show when it hosts the Winter Olympics.
Beijing will be bitterly disappointed with the woeful showing in Pyeongchang last month, where China’s short track speed skater Wu Dajing was the only athlete to bring home a gold. China was squeezed out of the top-15 by Belarus with just 9 showings on the podium. The legends of Norway earned around 3,700 times more gold medals per capita than China.
No doubt there’ll be plenty of Chinese lurking through the snow in Norway studying how the country is producing so many champions, but that is just the start of it. Not long after Beijing was awarded the hosting rights in 2015, China announced it would build 650 skating rinks and 800 ski resorts (complete with fake snow) by 2022. It hopes to attract 300 million people into winter sports by then. There are reports of highly paid foreign coaches combing cities, towns and villages for the most promising kids – Cool Runnings-type stuff.
Yet the success of hosting its second Olympic games won’t just be built on medals – the buzz and support of the hosting city and country is equally important. For that reason, Beijing may also be concerned about the 200,000 Chinese visitors that Korea was aiming to visit the Pyeongchang Olympics, only 20,000 came. The Korean tour group ban and negative propaganda over their THAAD defence installation won’t have helped, but China will be wanting a little more enthusiasm for winter sports by 2022. Rent-a-crowd has got a lot more expensive than it was in 2008 in China.
So for the next four years, expect Beijing to be pulling a lot of levers so they can showcase China’s brilliance in the 2022 Olympics. Expect there to be a major uptick in airtime and interest for anything related to exercising in the cold stuff. There’ll be a lot more presence for ice skating gear, snow boarding exhibitions, skiing KOLs, and winter tourism promotion. Alibaba has already jumped on the wagon, but expect most of China’s other big companies to follow suit. If nothing else, it will be a fascinating four years to observe! Go to Page 2 to see this week’s China news and highlights.
In April 2016, pundits were predicting the demise of China’s cross border ecommerce channel after hefty new taxes were suddenly introduced on all online cross border trade. Fortunately, some slick lobbying from Alibaba and JD saw the new tax rates ‘postponed’ the following month and good old cross border was soon back on track.
Shaking off the scare of ’16, eMarketer estimated China’s online consumers spent $100.2 billion on buying products cross border last year. This is more than ten times China’s General Administration of Customs’ value, which announced last month that cross border imports growth rocketed 116.4% in 2017 to ¥59.6 billion ($9.4 billion).
A 2017 Tmall Global Annual Consumers Report published last week (in Chinese) by Tmall Global and CBNData, forecasted the 2017 figure at around $68 billion. Enormous data disparities are not unusual in China, which is why China Skinny typically cross-references a number of sources. From what we’ve seen, the cross border figure is around the $60-75 billion mark. Custom’s low numbers are likely to indicate that many products could be slipping through customs unnoticed, values may be fudged by exporters, or there is some dubious bookkeeping at the borders.
Getting back to Tmall Global’s report, an interesting insight was consumers born in the 1990s are the biggest spenders on cross border products. Last year they accounted for nearly 50% of Tmall Global users and 40% of total sales. The three biggest motivations driving them to buy imported products are trying new things, aspiring to own luxury items and anxiety over aging.
Beauty products, food & supplements and mother and baby products were the top selling categories on Tmall Global, helped by the 60% of households – and almost 70% in high tier cities – who purchased FMCG products online last year.
The top countries selling products on Tmall Global were Japan (baby & beauty products), USA (health, baby, bags), Australia (health, baby, milk powder), Germany (milk powder, dietary & nutrition, cups & kettles) and Korea (beauty). One positive development is that shoppers are becoming more adventurous, with the purchases from outside the top-3 countries breaking 50% for the first time. In 2017 there were 16,400 products from 68 countries on Tmall Global alone.
Yet behind the pomp and pageantry from ecommerce platforms, not everything smells quite so sweet. Cross border is heralded as providing certainty of authentic products direct from a trusted overseas source, but 40% of cosmetics products purchased from cross border platforms on Singles’ Day were fake according to a consumer association report. The issue is clearly real given Alibaba’s recent announcement to push into Blockchain for the channel.
On the subject of ecommerce, for our Shanghai-based readers China Skinny’s Mark Tanner will be joining an esteemed line-up of speakers at the Clavis Insight 2018 APAC eCommerce Accelerator Summit on March 28. The event is for brands currently selling online in China and looking to up their game, it is a complementary full-day event with limited spaces remaining. More information here. Go to Page 2 to see this week’s China news and highlights.
Back in 2012 scouring content for the Skinny, it seemed almost every week there was another article praising KFC’s success in China. It was the Western pin-up brand; finding the much sought-after balance that tempted the masses with its alluring foreignness, but localised its offerings just enough to appeal to Chinese tastes – with the menu sporting old favourites like congee.
For every 10 bucks spent on fast food in China, KFC accounted for 4. It had almost 4,000 restaurants, with another 16,000 planned. There were movie placements, celebs munching on drumsticks, lovebirds courting one another over buckets … then Bird Flu and a series of scandals happened.
KFC has never really recovered from the dark days of ’13. In 2014 the menu was ‘overhauled’ for the first time in 27 years, there’s been a refresh of some decor, but if you were to go into most KFC restaurants in China they still bear a stark resemblance to the golden years pre-2013. China, Chinese consumers, and their tastes on the other hand have changed – dramatically. A simple scan of restaurants on Dianping or a stroll through a city mall or restaurant street and it becomes clear that there has been an evolution in China’s hospitality sector. La Liste’s annual ranking of the world’s restaurants noted the big trend is the rise of restaurants in China who are meticulously preparing and presenting food, and charging real money for it.
Contrast KFC with another mega-chain from America – Starbucks. Over recent years, the coffeehouse chain has constantly adapted to Chinese consumers and their ever-shifting expectations for newer, shinier offerings. They have played well to Chinese consumers’ inherent need for status from what they purchase, opening cafes in highly visible spots in city streets and premium office building foyers where they will be seen sipping on their Green Tea Crème Frappuccinos. The look and feel of cafes have also evolved to keep up with changing tastes, with some of the latest cafes having fit outs that wouldn’t look out of place against some of the fine dining establishments on Shanghai’s Bund.
Starbucks has always played to Chinese love of all things digital and typically been an early adopter and innovative user of technology. In the early days of WeChat, it cleverly used the limited functions by encouraging fans to send emoticons reflecting their mood, receiving a short music clip related to that mood. A little later in the game they accepted WeChat Pay with some alluring features such as the ability to gift friends and family a drink or two.
Last week’s launch of Starbuck’s mega reserve roastery in Shanghai is one of its most exciting initiatives yet. In addition to a beautiful fitout, complete with contemporary Chinese elements, the venue plays true to the ‘New Retail’ movement that is fast making its way into the bricks & mortar landscape. Integrating the Taobao app, augmented reality brings Starbuck’s story to life in a format that China’s millennials love. The app also allows them to skip the queue and buy merchandise, which improves both customer experience and the likelihood of increased sales and advocacy purchases.
Much like KFC was before 2013, Starbucks has become a much-cited case study – with good reason. It illustrates how brands can successfully keep up and stay relevant to the ever-changing needs of Chinese consumers through offline and online initiatives and product offerings. Their lessons don’t just apply in the hospitality trade, but are applicable for any foreign or local brand trading in China. Go to Page 2 to see this week’s China news and highlights.
If you believe the press, there is only one show in town for selling your wares in China – ecommerce. Yet behind the hype, ecommerce accounts for just 15.5% of retail overall, and an even smaller percentage for categories such as food and luxury. That leaves over 80% of goods bought through the good old brick and mortar stores – albeit a very fragmented network, and one growing at less than half the pace of ecommerce. Even Mr. Ecommerce himself, Jack Ma has said “pure ecommerce” will soon vanish, replaced by more holistic retail strategies.
That’s not to discount the influence online shopping and China’s overall digital sphere is having on traditional retailing. 61% of online consumers start their product research on an ecommerce platform according to PWC and it is a vital touchpoint in the customer journey of both online and offline shoppers. Yet it’s about time the downtrodden shopping centre got some rightful airtime.
One of the positive outcomes from ecommerce’s disruption is that it has forced traditional retailers to up their game. That, with a host of other factors, has seen China’s retail space evolve to something unrecognisable from as recently as 2013.
China’s most successful shopping malls have become ‘lifestyle centres’, drastically changing their tenant mix and crafting a much nicer experience for shoppers to maintain a point of difference over the oft-cheaper and better ranged screens of the ecommerce stores. A typical centre in China is up to one-half food and beverage and can have cinemas, ice skating rinks, spas, gyms, children’s play places, language schools, bowling alleys, horse riding centres on the roof, indoor beaches, and amphitheatres and other areas devoted to public events.
The most savvy physical retailers also integrate online strategies to attract shoppers to their stores. One example is the popular utilisation of key opinion leaders to help build buzz for physical stores through their digital channels, be present at stores to wow shoppers and offer incentives to fans that can only be redeemed at the stores.
Distributors can often be incredible assets to get products into stores. Whilst they are likely to reassure you that they offer full digital marketing strategies and services, few have deep literacy in digital marketing and nouse to fully capitalise on the opportunities the channel brings. Many don’t even have a true view of what consumers are seeking, as some recent Australian research into the common nectarine recently discovered.
Any retail, tourism or services brand selling in China can learn from the way successful brick and mortar retailers have evolved to understand current Chinese consumer preferences. The moral of the story: physical retail should be a key pillar in most China strategies. Yet few bricks and mortar strategies will be successful without a robust and differentiating digital strategy to support it. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
Alibaba and Tencent have done it again. They’ve delivered record-breaking profits that blew past analysts’ forecasts, signalling just how healthy China’s consumer market remains, particularly for the digital sphere. Alibaba’s profit almost doubled to ¥14 billion ($2.1 billion) and Tencent’s grew 70% to a handsome ¥18.2 billion ($2.7 billion). The results have seen their respective stock values soar into the $400 billion-plus-club, which was formerly the sole domain of American tech giants Apple, Google, Facebook, Microsoft and Amazon.
Alibaba’s rise was mainly on the back of its ecommerce business whose active shoppers grew 33 million from a year ago – a third more people than live in Scandinavia, yet a modest 7% increase. Their average spend is what shifted the dial – around $41 – over a third more than this time last year, representing a maturing online shopper. Alibaba’s constant innovation continues to pay off, which has seen a host of new AI and marketing capabilities and investment in an ever-wider breadth of online and offline touchpoints, all held together with some impressive tech infrastructure and a wealth of data.
A comparison of the world’s two largest ecommerce companies, Alibaba and Amazon, shows some stark differences in operating models. Amazon’s end-to-end fulfilment model saw it earn $197 million in the same quarter Alibaba earned $2.1 billion. For every dollar of revenue Amazon made 0.5 cents; Alibaba took home 63 cents. Both companies are chasing the less tapped online shoppers of emerging markets, it will be interesting to see which business model is more sustainable.
Over at the Tencent campus, we are seeing a potent convergence of gaming and social media. On the back of 963 million active WeChat users – 19.5% more than a year ago, mobile gaming has drawn in some 200 million players. Smash hit game Honour of Kings allows users on WeChat to discuss strategy, pull in other friends, see each other’s scores and work together in competing for gaming glory. Its social nature has attracted a record number of female players for a game of its type. The game generated about $828 million in revenue in the first three months of this year, making it the biggest money making smartphone game in the world.
Tencent’s profit was just 69% of its closest global equivalent Facebook. Yet with 2 billion users, Facebook is making significantly less per user than Tencent. Revenue is also much more one-dimensional, with 98% coming from advertising. Of Tencent’s ¥56.6 billion ($8.5 billion) revenue, just ¥10.1 billion came from advertising – ¥6 billion from WeChat, offering plenty of scope for growth. For the majority of its income, Tencent has done a remarkable job of squeezing small payments from many of its users, from games, to digital add-ons and personalisation, to gifting, all enabled by the penetration of mobile payments.
The takeaways from Alibaba and Tencent’s results are not that they make a lot of money, but how China’s most successful consumer-facing businesses have quite different business models to what we know in the West. Understanding what makes their models unique provides invaluable insights into what appeals to Chinese consumers and how successful brands are serving them – many of which can be replicated on smaller scales for foreign brands. Pyramid schemes are out, entertainment and mobile micro-payments are in. Agencies such as China Skinny can assist with such insights and analysis.
On the subject of ecommerce: for our readers in Melbourne, China Skinny’s Mark Tanner will be joining AustCham and the Victorian Government next Monday 28 August at noon to discuss how to navigate and harness China’s ecommerce opportunity. Register for the event here. Go to Page 2 to see this week’s China news and highlights.
Last week Alibaba hosted their first conference outside of China – Gateway 17 in Detroit. China Skinny was there.
Jack Ma has long had a personal dream of cracking the US and with plenty of cash in the coffers, Alibaba was out to dazzle the audience. Jack Ma was joined by Martha Stewart, Lisa Ling, Charlie Rose and robots, backed up with an arsenal of big statistics and some sage advice to entice more American businesses to export to China.
The focus of Gateway 17 was to sell the Alibaba dream, yet exporters would be wise to consider the multitude of other options when planning a market entry into China. For big brands, a presence on Alibaba is an essential hygiene factor for both sales and marketing. Marketing on Alibaba’s platforms is becoming more powerful with new tools such as the Uni Marketing system offering features such as personalised and targeted communications.
Whilst there are great success stories on Tmall and Tmall Global, the platforms aren’t right for every brand. It is not cheap to set up and operate, and new stores are competing with over 10 million other vendors who are often well established. Smaller brands may also have difficulty being accepted by Alibaba.
Alibaba has a finely tuned sales machine attracting foreign brands to its platforms. It has set up offices across North America, Europe and Australasia, has shiny campus tours for visiting delegations and now hosts overseas events to woo Western brands to its cross border channels. Yet with all the good news stories, there are some cautionary factors. For example, Tmall Global’s sales drive saw the number of brands selling on the platform grow 169% last year, with sales growing just 30% – a similar rate to ecommerce overall. In short, there are many more foreign brands competing for a smaller piece of pie.
Cross border commerce is also much more fragmented than Mainland based commerce. Alibaba commands around 80% of overall ecommerce sales in China and 57% of B2C commerce. Whereas Tmall Global accounts for just 18.9% of the cross border market and Taobao Global 15.4%.
There are a host of smaller cross border platforms that are often more targeted to specific segments such as food, wine, cosmetics, mum & baby, health and fashion. They may only have 10 or 20 million shoppers, but they are generally qualified for your segment, often more affluent, and the competition is less fierce.
Alibaba is China’s most popular ecommerce platform and a great option for many brands, however China is a large market with a number of online and offline sales channels, so take some time to consider them. Agencies like China Skinny can help you work through your options. Go to Page 2 to see this week’s China news and highlights.
For millions of Chinese, Spring Festival is the most magical of times. It’s the one holiday of the year they get to spend at home, catching up with nearest and dearest with the chance to demonstrate their success in the city through generous gifts and red envelopes. For countless others, it’s a time to dread. Single 20 and 30-somethings across the country return home with trepidation as parents, aunties, uncles and grandparents get ready to pry and lament at their lack of a lover.
Over the past few years some of these loveless souls have taken certain measures to avoid this exact scenario. A simple search on Taobao and a cool ¥1,000/day ($140) + expenses, and you can find yourself a boyfriend or girlfriend – well, a fake one. If nothing else, it can keep mum off your back for another year and provide ‘legitimacy’ to your updates about how great life is in the city.
This year things have changed. A search on Taobao for “Rent boyfriend” 租男友 (Zu Nan You) returns the “According to relevant laws and regulations, we can’t display” verbiage.
Fake boyfriends are just a small part of a growing list of products that are getting tougher to buy on Taobao. Alibaba has been making noises about fighting fakes for some time now; in 2014, when the company listed on the NYSE, it made a lot of promises about cleaning up its platforms. But it would appear too little had been done when Alibaba was ousted from the prestigious Anti Counterfeit Coalition in May 2016, prompting Alibaba to overhaul its IACC MarketSafe Program, allowing any brand to access it at no cost.
Yet even after countless promises, Taobao remained a happy hunting ground for fake aficionados. After being taken off in 2012, December saw the platform make a villainous return to the Office of the US Trade Representative’s Notorious Markets registry. Keeping company with platforms supporting illegal online pharmacists and counterfeit security tags and circumvention devices wasn’t exactly the look Jack Ma was hoping for going into another inspirational speech about global trade at Davos last week and the announcement of Alibaba’s $600 million sponsorship deal for the next six Olympic Games, placing it up there with Coca Cola, Visa and McDonalds.
In what must have been a few late nights in Hangzhou, followed by a glitzy event and flurry of announcements, Alibaba claimed it would [finally] be tapping into its rich data analytics, working with brands such as Louis Vuitton, Samsung, SWAROVSKI, Mars and Huawei to form the Alibaba Big Data Anti-Counterfeiting Alliance in a bid to rid the world’s largest shopping mall of phonies.
Fighting counterfeits is not easy in China, even for a company with the resources and influence of Alibaba. The US Chamber of Commerce estimates that fakes add $396 billion annually to China’s economy – 12% of its exports and 1.5% of its GDP. With counterfeits contributing so much wealth, many individuals charged with cracking down at a local level are often ambivalent about enforcing it.
The effectiveness of Alibaba’s Alliance is still unknown, but no business is better placed to improve China’s IP-protection. Things still have a long way to go, but we’re positive that with Alibaba’s progress, coupled with reinforcement from Beijing – as China’s own patents soar and pivotal trademark rulings for Michael Jordan, Michael Bastian and a host of lesser-knowns not named Michael – things are moving in the right direction.
So we’ll leave you with that promising news to end the Year of the Monkey, on top of China becoming the beacon of hope for global trade. For those hoping to find that fake boyfriend or girlfriend for the Lunar New Year, there are plenty of other places you can get them in China! Wishing you good fortune (but not in the way Nike did) for the Year of the Rooster. Go to Page 2 to see this week’s China news and highlights.
Imported food and beverage is big business in China. While Chinese consumers may be buying more locally-made goods overall, foreign fare is one of the shining segments for exporters around the world. Chinese shoppers are trading up, adopting more international tastes and continue to worry about the health and safety of locally-produced provisions.
Nearly every year since 1990 China’s imports have seen steady growth. Bucking the trend are 2009 and last year, where total imports contracted 14% on the back of lower demand for natural resources. However, China Customs data puts 2015 food imports at 15% growth outside of dairy. Tanking global dairy prices dragged down imported food and beverage growth which sat at just over 7% for the year. The big movers were categories like vegetables, cakes and desserts, which all grew in the high 30s.
Yet with such great opportunities, we see many exporters getting the basics wrong.
These days, most brands know not to treat China as one homogenous market. This is particularly relevant in the food category, where taste preferences and eating habits can vary wildly between regions. However many China product strategies still have the same product offering and positioning across the China market.
Although targeting specific cities or clusters of cities is popular to launch food products, too many brands fail to factor in those regions’ unique traits. A common mistake is to do taste and concept testing with Chinese immigrants in a brand’s home country. These migrants have often developed local preferences and come from different cities than where brands are launching their products.
Another regular misstep is the ‘one-size-fits-all’ approach to sales channels. A product in a smaller premium supermarket will sometimes have quite different packaging size requirements to a super-store like Walmart or Carrefour.
It is also common to align one’s ecommerce and bricks & mortar strategy identically. On the theme of packaging, what is bought online can be quite different to physical retail channels. The look of the packaging is often notably different. Whereas customers in brick & mortar stores value transparent packaging so they can inspect the quality of items, it is much less relevant online, with an item’s ability to stand out on a page full of products of the most importance.
Food is one example where localising can ensure a brand makes the most of the opportunities China offers, but it’s valid across most categories. A small investment in understanding the market early on will usually pay for itself many times over. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.