2011-2013 felt like bad years for fakes in China. When writing the Skinny it seemed like there was a new exposé every week to include, whether it be rat meat dressed up as lamb, fake Apple stores that even fooled the staff or even fake chicken eggs.
These days there is an occasional headline about a police bust of counterfeit condoms or infant formula, yet the constant bombardment of media about fakes has subsided. There has been a genuine increase in public and private resources and direction, coupled with more positive court rulings. Beijing’s clampdown on corruption and the growing number of Chinese brands with their own IP to protect has increased the focus on fighting fakes. But don’t be fooled – just because we’re not often hearing about counterfeits, the dark underbelly of fake products remains rampant in China.
Just this month four separate gangs were arrested in Guangdong with millions of dollars’ worth of fakes from wine to health supplements. This is just a drop in the ocean of the wholesale counterfeiting happening in China, noted in a 2016 US Chamber of Commerce report that Mainland China was the source of 72% of global physical trade-related counterfeiting. Add Hong Kong to the mix and you’re up at 86% – an estimated $397 billion. 12.5% of China’s 2016 exports were calculated to be fakes. Whereas some Chinese consumers are attracted to cheap rip-offs, many are duped unwillingly. As recently as Singles’ Day last November, 40% of cosmetics purchased from cross border platforms were fake.
China’s fake endemic spans far beyond products. The latest wave to sweep ecommerce sites is fake advertising using stock images of weathered old men, praying on consumers’ empathy to ‘help poor rural farmers’ selling fruit.
For brands, there are a host of steps businesses can take to minimise the risk of fakes. The first and most obvious is ensuring you’ve done all necessary trademarking in the relevant classes. Here are seven other ways businesses can fight counterfeits in China from Harvard Business Review.
One of the recommended steps is to join forces with ecommerce firms, the most obvious being Alibaba. Alibaba has long been labelled a villain in the counterfeiting world – the enabler for vendors to get their fake products to the market. While many argue Alibaba could be using more of its immense technology resources to rid its platform of fakes, listing on the NYSE in 2014 and then being booted out of the prestigious International AntiCounterfeiting Coalition in 2016 were catalysts to up its game. The company now uses algorithms to scan the 1.8 billion listings on its platforms, runs test-buying programs that seek out fakes, and assesses reports from brands and rights holders. Members of its AACA (Alibaba Anti-Counterfeiting Alliance) receive priority treatment, which has helped increase its membership from 30 last January to 105 today.
Beyond the Harvard Business Review recommendations, there are numerous smart marketing and channel initiatives to reinforce your products’ authenticity with consumers. Agencies such as China Skinny can assist with this.
On another topic, for our Shanghai-based readers in the food & beverage/FMCG categories, next Wednesday 23 May China Skinny’s Mark Tanner will joining speakers from Mondelez, Coca-Cola, Starbucks, Hema, Meituan-Dianping, Wahaha, Bain, Zespri and Yum at AmCham’s A Taste of Tomorrow: Innovation in Changing Market discussing the exciting opportunities presented by China evolution into New Retail. More information here. We hope to see you there. 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.
Happy 2018! The year has started off on a positive note with China’s premier Li Keqiang announcing last year’s GDP growth is expected to roll in at 6.9% – north of the 6.5% target and the first acceleration in seven years; a time when GDP was less than 40% of today’s value. Consumers’ enthusiasm to shop continues to drive this growth accounting for almost two thirds of the 6.9% with retail spending growing 10%.
Although consumer anxieties persist and concerns around food safety and the cost of health and education are common, the signs are pointing to 2018 becoming another bumper year of the Chinese consumer. Whilst well-marketed foreign brands still hold significant appeal across many consumer categories, brands should be aware that shoppers are less inclined to view foreignness with the same awe and curiosity as they once did.
Chinese are showing increasing pride and interest in Chinese heritage and nostalgic themes. 2017 wrapped up with some gleaming examples such as CCTV’s show about Chinese antiques receiving millions of views, rave reviews and social posts from Chinese millennials. Even more widespread was a New Year fad which saw Chinese cluttering their social media feeds with old photos of themselves.
Few things inspire, influence and indicate preferences more than cinema. Last year five of China’s six most popular movies were domestic productions, including the overtly nationalistic Wolf Warrior which broke all-time box office records for the country.
Chinese consumers’ increasing interest in their roots was always going to happen as they matured, but it has been accelerated in light of a strong, confident and consistent China leadership and wavering heads of state in the West, amplified by the all-powerful state media.
So does this all mean that the foreignness of imported brands is becoming irrelevant? Definitely not. Foreign brands should promote the characteristics of their origin and heritage that make them special, but not with the blind swagger that some have portrayed in the past. They should also consider the opportunities to tap into the growing resonance of the Chinese renaissance through thoughtful communications, promotions and product development. Agencies such as China Skinny can assist with such initiatives. Go to Page 2 to see this week’s China news and highlights.
‘Tis the week before Christmas with not a reindeer in sight,
Yet Chinese streets brim with trees and twinkly light.
Those trees are decorated with the logos of brands,
helping keep shopping atop consumers’ Xmas plans.
Like with many things in China, consumerism trumps all,
With festive themes used by brands local and foreign, big and the small.
For brands, Christmas-themed promotions showcase their international bend,
Big name KOLs similarly, are cashing in on the trend.
In the last month 600,000 Christmas trees bought on Tmall alone,
Over 3 million decorations, socks and hats with a tap on the phone.
Whilst Japanese will be celebrating Christmas with a bucket of KFC,
Chinese will be at Starbucks sipping festive mochas and teas.
Like most offices in the kingdom, we’ll be open Christmas week,
but the Weekly Skinny will be back in January sharing the insights you seek.
Silly rhyming aside, the Skinny team wishes you the Merriest of Yuletides,
Hanukkah, Kwanzaa, New Year, with your loved alongside.
圣诞快乐 – Shèngdàn kuàilè!
Go to Page 2 to see this week’s China news and highlights.
Food and Hotel China (FHC), is one of the biggest trade shows in China and China Skinny was on the floor to scope out the latest trends, newest product entrants and to hear from attendees on their China experience. This year had less of the X-factor of editions past, but there were still main takeaways that hint towards new developments and indicate how ongoing trends are taking shape. Below are China Skinny’s top three takeaways from the 2017 show.
The land of pizza and cheese
Everywhere one looked there was pizza and cheese at this year’s FHC show. While there is typically a good showing it seemed as if this year there was enough cheese to feed China’s 1.4 billion people. There were parmesan rings, mozzarella sticks and flavoured cheese as well as bulk cheese. Much of the cheese was topping the pizzas that were being slung left and right. To indicate the range of pizzas there was even something called “Cake Pizza”.
The vast number of cheese and pizza offerings bodes well for the growing out-of-home dining market. According to the 2017 China shopper report, the value of dining out grew 10% from 2013-2016 compared to in-home meal prep at 3% and food delivery a robust 44% over the same period. The fact that products such as cheese and pizza were ubiquitous signifies that consumers are becoming more adventurous and increasingly have a taste for Western style products when out and about. This is a good sign for direct-to-consumer food sales too. As ingredients and dishes become more common outside the home, it’s more likely the Chinese consumer will try, become familiar with, and eventually buy for in-home consumption.
Western-style offerings are typically far fewer outside of Tier 1 cities (Shanghai, Beijing, Guangzhou, and Shenzhen). But with improving cold chain logistics and increased familiarity, lower tier cities are quickly following suit. But the offerings must be tailored to each specific area. China Skinny research across Tier 1-3 cities has found distinctly different styles and offerings between restaurants which reflect consumer preferences and their choices while buying for in-home. For example, restaurants in Shenzhen tended to a lighter fare and more subdued restaurant design. Chongqing proved to be adventurous in fare and lively in atmosphere, compared to a more sophisticated experience and food in Shanghai. These are representative differences to take into account when selling nearly any consumer product in China.
Differentiation between health claims is far and few between
Despite the clamouring over pizza and cheese the health trend is still going strong in China. It is estimated that China’s health food market will grow from ¥260 billion ($39 billion) in 2016 to ¥400 billion ($60 billion) in 2021.
More brands are positioning themselves as the healthy choice. Brands pushing the ‘healthy’ claim left much to be desired: many were too general in just saying they are the ‘healthiest’ or ‘the best’ which will be caught up by regulators who don’t allow superlatives. The relevant and differentiated positioning of a brand is vital as health foods are becoming less of a treat and more integrated into everyday diets.
While there are many brands trying to capture health-conscious consumers with general marketing, a few savvy brands were getting down to the core. Punchy, short claims are preferred among Chinese consumers. This is especially relevant for new-to-China brands, who are competing in an already crowded market.
Products lauding extra protein were among the most common targeted health products. The success of targeted products depends on a well-considered entry plan. Concepts like added protein may resonate with a specific target market, such as health and fitness aficionados. Other products used such claims as “gluten free”, something which is still early days in China.
In terms of other food products, the offerings were fairly standard. There were not as many inventive products or eye-catching packages as in years past. Additionally, a large majority of exhibition booth staff failed to spur excitement. If they engaged, they would meekly suggest to scan a QR code linking to uninspiring Official Accounts. Including a call to action, a personalized message or special offer to encourage engagement is likely to have gone over better.
In years past the number of inventive beverages have been impressive. This year there were only a small number of beverage innovations. A line of soy milk attracted a number of interested tasters and distributors while beautifully packaged Italian water is already selling in China and hoping to expand its presence to smaller tier cities.
China has become the largest bottled water market in the world, overtaking the United States in 2013, and it is projected to expand 58% by 2019. Coca-Cola, who sought to sell a $9 water in China earlier this year, is an example that just because a category is hot, doesn’t mean anything will sell. As Coca-Cola learned, price point isn’t everything, but it is a crucial part of the puzzle. Consumption habits vary by region, with domestic companies tailoring to meet the needs of local consumers.
The presence of foreign wines at FHC’s ProWine hall was notable. Australia, Italy, Chile, the U.S. and Canada all had a strong showing. The different offerings and regions were more expansive in years past. Exhibitors stated that interest was strong and knowledge among the passersby was stronger but still much education was needed.
Country of origin (COO) is vital in marketing wine and countries did well in presenting a strong front. But beneath the COO brands must remember Chinese consumers are still relatively new to wine culture. This can get tricky as Chinese consumers value a wine’s brand over its COO, grape variety or quality level. Zeroing in on consumers’ detailed perceptions of a brand’s qualities, including its COO, will help position wine brands to stand out among consumers. The wine sector in China continues to progress quickly and wine brands must keep pace to remain relevant.
The FHC show this year was as popular as in years past, but the lack of innovative products, packaging and marketing was notable. Staying inventive in your offerings and top of mind among Chinese consumers is an ever-evolving task. Get in touch to learn how China Skinny can help you enter or expand in China and for imaginative and resourceful marketing tactics.
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.
When a Chinese consumer makes a decision – from picking a bottle of water, to choosing which country will best educate their child – the influence of KOLs (Key Opinion Leaders) can be dramatic. A feature of Chinese thought since the days of Chairman Mao, the KOL economy is set to boom; 2016’s value of ¥53 billion ($7.8 billion) is estimated to near double to ¥102 billion ($15.1 billion) next year. To bring some perspective, that is three times the forecasted value of China’s newspaper and magazine advertising in 2018.
Chinese consumers are well aware that influencers are rewarded for endorsing brands (in addition to ‘tips’ from fans). Despite this, their social media broadcasts have become some of the most authoritative and trusted sources for information.
One of the reasons for this can be traced back to 2011 when two of China’s new fast trains crashed, killing 40 people. While state media attempted to cover it up, consumers posted about it as it happened on Weibo, which was the primary social channel at the time. This had two notable consequences: 1. Chinese began to trust what they read from reliable sources on social media much more than traditional state-run media channels like TV, radio and print; and 2. Beijing, having already lost a lot of face from the Weibo reports of the train crash and subsequent citizen exposés and protests, saw the need to wrestle back influence from the people.
In 2013 legislation was passed threatening jail to those who created viral social posts that weren’t aligned with the Government mandate. This fundamentally altered the way influential Chinese posted on social media. With several celebrity social media accounts shut down in recent weeks, Beijing continues to tighten control on what KOLs actually say. In short, any KOL who doesn’t toe the party line will be shut down and in most cases, lose their livelihood.
The reality of operating in China on any scale, whether you are a celebrity, brand, or any type of business, you need to play by Beijing’s rules. Notwithstanding, although some would say KOLs are increasingly becoming state cheerleaders, their attraction certainly isn’t waning.
40% of food & beverage advertising in China is fronted by a KOL, versus around 10% in the US and UK. Luxury brands are among the most prevalent users of KOLs with watchmaker Jaeger-LeCoultre paying Papi Jiang over ¥5 million ($740K) for a campaign which saw their awareness more than double. Michael Kors threw a birthday party for actress Yang Mi. Brands are also using lesser known individuals, but who are well respected in their fields to appeal to an increasingly discerning Chinese consumer who are looking deeper into KOL endorsements. An example of this is Giorgio Armani supporting Chinese designer Xuzhi Chen.
KOLs can help break through the extraordinary clutter in China and amplify messages at a time when just 28% of 12-14 million official WeChat accounts saw an increase in content readership last year. But much like WeChat, a relevant and smart KOL strategy is imperative to ensure brands aren’t throwing good money after bad. Agencies such as China Skinny can help devising such a strategy.
On the subject of marketing strategies for China, our US-based readers in the Bay Area should consider attending the Export 101 Series on Thursday July 20 in San Jose. China Skinny’s Ann Bierbower will be sharing wisdom, joining the US Department of Commerce, DHL Express and the CalAsian Chamber at the event. Register here. Go to Page 2 to see this week’s China news and highlights.
If you ask a Chinese consumer for their thoughts on imported food, you’ll get countries described with a dreamlike reverence. Australia and New Zealand conjure images of endless green fields and roaming livestock taking in the crystal-clear air and water. The clean paddocks assisted by efficient systems and leading technology denote European farms, with North America associated with strong regulations that make for well-policed and protected farmland. These perceptions have contributed to imported food growing 17% last year to $39.4 billion.
An exploration of similar thoughts on domestic produce sees the collective opinion quickly sour. Abundant pesticide usage, corrupt supply chains, cadmium-laced paddocks, toxic additives and the constant concern of morsels masquerading as something they are not plagues the Chinese consumer mindset.
Foreign brands hold all the aces – so why are they struggling to keep up with their local counterparts? Amazingly, when it comes to fast moving consumer goods (FMCG) categories (mainly food), local brands are growing much faster than multinational brands and in many cases charging more than their international competitors.
A report released by Bain/Kantar last month illustrates that domestic players continue to erode multinational brands’ shares. China’s urban FMCG market grew 3% last year, with domestic players’ sales soaring 8% and foreign players’ growth limping along at just 1.5%. Brands owned by multinationals lost share in 18 of 26 FMCG categories last year, gaining in just four.
Whilst growth in premium food products is faster than non-premium in every category, foreign brands aren’t riding the wave quite like their Chinese competitors. The perception advantage of imported brands is being negated by the fact that many foreign brands do not understand the Chinese market as well as they could, their marketing strategy isn’t tailored enough and they don’t move as nimbly as domestic brands.
Like in almost every category in China, domestic products are becoming better quality, increasingly priced at a premium and backed by marketing that resonates with the local target market. In many cases foreign brands’ natural advantage can be enhanced by learning from savvy local brands about how to best appeal to Chinese consumers. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
Welcome to the final part of China Skinny’s Food and Beverage Trends in China series. Part 1 covered developments in China’s health trends, flavours and frozen products. Part 2 touched on the continued trend of premiumisation and packaging innovations. Today we’ll discuss some of the bigger changes we noticed.
More Diversity Among Countries Represented
SIAL brings together food and beverage products from the world over and this year saw more countries represented than in previous years. Not only did the number of countries represented grow but there was a strong presence from less well-known countries such as Slovenia and Estonia, who offered goods like crisps, puffed cheese and beer. Their eastern European fellow Russia took up a large section of the show exhibiting confectionery, condiments, wines, water and of course vodka. The increased interest in China is spurred by China’s growing consumer power but is also likely helped by the developments of China’s One Belt, One Road efforts.
The Guest County of Honor this year was Argentina, who showcased their meat and food options. Argentina’s presence was surrounded by other lively Central and South American countries such as Mexico, Belize, and Brazil. The diversity of countries represents the pull of Chinese consumers looking further afield for products and the growing interest in selling to Chinese consumers.
Local Branding on the Rise
Local brands have been stepping up their branding efforts in the past few years. This can be seen in their design, packaging and products. Chinese consumers choose a brand or product for many reasons, not only country of origin. Domestic players are making efforts to understand their target consumer and are using emotive marketing to grab attention and hearts. They are quickly learning that this type of marketing goes much further than typical functional marketing. An example of this is a variety of spicy snack food (‘la tiao’) marketed by Weilong Food (卫龙食品). The brand’s social media presence uses an unexpectedly modern approach to connect with millennials, surprising their target consumers that the brand is so interesting. Overall, domestic brands are upping their game, but this doesn’t come without mishaps and face palms such as the latest advertisements for Coconut Palm, a Chinese coconut drink.
At the trade shows, many of the mega-booths were represented by domestic brands and at first glance the booths were indistinguishable from the those of North America, Europe or Australasia brands. Chinese brands coupled their slick booths with smart marketing and engagement. VR, photo opportunities, live streaming and interesting dispensers caught and kept show goers’ attention.
More Cartoons & Cutesy Characters
Along with the sophistication of branding among Chinese companies, more are incorporating fun, adorable and cartoony characters. Chinese love cutesy characters and many brands are riding on the success of local snack brand Three Squirrels by adding fun and engaging personalities to their marketing.
Action figures, princesses, animals and other cute characters were all present in branding and marketing. To Western eyes these mascots may seem childish but Chinese welcome them and the imagery and personalities help them relate and connect to a brand. China’s Air Force even turned their machines into cute cartoon characters to celebrate Chinese New Year! When using characters there are plenty of opportunities to get it wrong in China so best to test and verify that a certain image, brand or name will resonate with the target audience.
Always fakes: Nutella, Super Mario
Much like last year, there were bad copies and even fakes that innovated on established brands. A few that caught our eyes were a take on Super Mario and a variation of Nutella. While there was only fake Nutella last year; this year offered several new Nutella-like spreads, including one made from dates. While consumers may initially be fooled, they are bound to find out the truth sooner or later.
Conclusions to Food & Beverage Trends in China Day 3
China’s fast-moving food and beverage industry is growing rapidly and allows for abundant opportunities. But it is also getting more competitive, something we see firsthand through our research and experiences in China. The competition from domestic brands and among other imported products is tough. Getting China right means taking a strategic approach to geographic locations, products, packaging, branding and marketing. Get in touch with China Skinny to see how we can help you succeed in China.
Following part 1 of China Skinny’s Food & Beverage trends, we bring you part 2 which delves into premiumisation and packaging.
Premiumisation Goes from Strength to Strength
Premiumisation of products and packaging was more evident this year than past years at SIAL China and Craft Beer China. Chinese consumers are maturing quickly and looking to trade up, so brands are providing plenty of options.
Premiumisation is particularly apparent in the craft beer scene. Total beer volume sold has been falling approximately 5% for the past three years, while the value of beer sold has risen as younger and more affluent consumers choose premium drinks such as craft beer. By 2020 premium beers are expected to account for over a third of the $80 billion Chinese market, compared to 10% in 2010.
Craft Beer China is supporting this trend through their second China trade show, which indicates where craft beer is going in China. One German distributor noted that of the Chinese distributors he works with, several are now trying to compete on quality and differentiation rather than traditionally promoted features – quantity and price. Efforts to differentiate products were seen through the types of beer being imported and their distinction through packaging and bundling. One distributor aimed to give their beer a ‘more luxury feel’ through fancy packaging complete with a necklace as an ‘extra treat’.
Premiumisation is also taking place in snack and beverage offerings with companies providing value through superior products and packaging. Branding among domestic companies also shows local players are catching on to the premiumisation trend, something that will be further discussed in part 3 of this series coming later this week.
Creative Packaging Innovations
Much attention is paid to getting the packaging correct, and rightly so as packaging is one of the categories Chinese consumers review via ecommerce. As packaging is one of the first things consumers see it should demonstrate the value of a product, communicate the benefits and clearly exhibit the brand’s ethos. Packaging is an extension of a brand and should not be an afterthought. Innovative packaging is typically well-received in China, and SIAL China showed off some of the latest concepts.
One product that we were impressed by was the incredibly secure ‘crocodile’ packaging that kept Polish cereal fresh and crisp. Cereal and big bags of snacks are often eaten over a period of days or weeks and the packaging must be easy to use and keep the product fresh. Chinese are particularly fussy over product freshness. Lids that pop off and bags that don’t seal tight are two of the top complaints when it comes to packaging.
Another inventive product was a drink from the Czech Republic that stored an ‘active substance’ sealed in the lid. The ‘active substance’, akin to an energy drink powder, is released from the lid and mixed with the bottle’s water. ‘Dosage’ control is allowed with cap settings giving you the option of one, two or three ‘doses’. Control over quantity is likely to be well-received as Chinese often complain that flavouring is too strong or that products are too concentrated.
Domestic brands are continuing to improve their packaging and meet the demands of consumers. Traditionally snacks are packaged in nondescript, low-cost plastic bags. Now brands are using more sleek and stylish packaging that makes it hard to detect where a brand is from without close examination of the package. This was more prevalent this year compared to last. An example of the superior packaging is the Beijing beer below looking as if it could be straight from Chicago or Copenhagen.
Conclusions to Food & Beverage Trends in China Day 2
The fact that Chinese consumers are trading up in droves has led to brands providing more premium offerings, both in quality and presentation. Both premiumisation and packaging are part of the mix in order to capture the Chinese consumers who are increasingly looking to try new products
The allure of its enormous 1.4 billion population and rising affluence has seen China become one of the world’s most attractive markets, but also its most competitive. Many international brands have struggled to gain a presence and generate sales. Foreign marketers often battle with understanding the intricacies of the China market, leading to initiatives being irrelevant or even inappropriate for Chinese consumers. Getting the basics right is crucial as the following three challenges reflect:
1. China is Crowded and Competitive
China is already the most crowded market on the planet, and becoming more-so by the day. New international brands continue to enter the space, while local players are becoming more astute at adapting to trends and consumer preferences. With 500 products launching daily in China, it has become clear that brands will struggle to make an impact without a meaningful budget. This is especially true for the digital space such as WeChat, where 14 million official accounts tout for Chinese consumers’ attention. Getting noticed is difficult and resonating with the target market even more so, as only 5% of WeChat users view subscription accounts. Brands with a limited budget have to be smart and employ creative initiatives to stand out.
2. China is Different
Just as Chinese consumers have different motivations and tastes than their western peers, they use different platforms to research and endorse them. Facebook, Google, Instagram, Pinterest, Twitter and Youtube are all blocked in China. The resulting ecosystem of channels Chinese consumers are familiar with can often become confusing for foreign marketers. QQ, Weibo, WeChat, Baidu, Taobao, Tmall, JD are the best-known, but along with these come thousands of channels that might be more appropriate for a brand chasing a specific category or demographic. While the big players boast mouthwatering user statistics, smaller niche platforms can cater to a more targeted customer segment. The channels utilised by a wine brand will therefore differ greatly from those for fashion, cosmetics or mom & baby.
3. Chinese Consumers are Discerning
Various food and product scandals have led Chinese consumers to become some of the least trusting of product authenticity until the opposite is proven. They conduct much more research around a new product or brand, employing an average of 7-10 touch points from official online channels to offline influences like friends or family. With personal opinions being the most-trusted source of information, 70% of Chinese shoppers leave reviews online after purchasing a good. These not only include a product’s quality, but the whole consumer experience from responsiveness to logistics, purchasing process, packaging, safety, speed of delivery, after-sales service and more. Fulfilling this criteria effectively can be challenging for foreign brands, particularly as local competitors have the advantage of being closer to their target market and are therefore able to relate better to their needs and preferences.
However, many foreign brands have adapted smart methods to cater to Chinese consumers, undertaking considered efforts to understand their target market and China’s fascinating and unique characteristics. Smaller brands can even gain a substantial consumer base once an appealing brand strategy is developed.
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A cute little penguin with a scarf, a curious pussycat and a floppy-eared pooch. Not the beginnings of a children’s story but the iconic logos of three gargantuan powerhouses in the Chinese market. A brief survey of China’s top brands and the gulf in branding ideology from the West is clear. Where some may argue for Apple, the realm of cutesy logos remains confined to the Middle Kingdom.
With China’s rising horde of shoppers spending increasingly at home and abroad, it is best not to underestimate the contribution that China funnels to a brand’s value. Baijiu exemplifies this. Barely consumed outside of China, 37.5% of the world’s top-50 spirits brands are Baijiu brands. For the first time the value of Baijiu brands eclipsed that of Whiskey on the list.
Of course building a successful brand goes beyond mere words and symbols. Yet the name and logo make up the company flag that flies atop the mast, forever present across a brand’s dealings and communications – so its success is imperative. Having a Chinese brand name is crucial. For those foreign business yet to lock one in, there’s a good chance your distributor/s have adopted one, probably trademarked it and are trying to establish it as the accepted reference point. If they haven’t trademarked it, someone else may have, which can lead to all sorts of problems down the line.
Chinese brand names will generally roll off the tongue more naturally than foreign ones and be easier to share on social media and other digital platforms. Whilst it shouldn’t replace your recognisable foreign brand and in most cases not be displayed on the original packaging (otherwise consumers will question if your products are authentically foreign) it should be used on the Chinese label and in communications.
With its plethora of characters Chinese is a beautiful language presenting plenty of opportunities to develop a name with a clever meaning that resonates with Chinese consumers. However it can also go pear-shaped if taken out of context. AirBnB learned of the importance of getting your Chinese name right last month, launching a name that was both hard to pronounce and sounded like a love shop.
As part of developing a Chinese name, brands should be tested with consumers, ideally verbally as well as written, across different regions to account for cultural, slang and dialect differences. Agencies like China Skinny can assist with every step of the process. Go to Page 2 to see this week’s China news and highlights.
This time last year bike lanes in China’s big cities were the realm of migrant workers, with the occasional expat or hipster local on a single speed pedalling among the peasant peloton. For many Chinese, bicycles were for poor people and a cold or sweaty reminder of when few could afford a car and cities had no subways. In Beijing, just 12.5% of residents cycled in 2015, versus 38.5% in 2000.
Thanks to investments of more than $200 million, technology advancements and widespread adoption of mobile add-ons such as payments, China’s bike-sharing schemes have changed the face of city streets. Bike lanes in cities like Shanghai and Beijing are unrecognisable from 12 months ago.
At least eight bike-sharing start-ups have come to the fore. Launching just eight months ago, Mobike already has four million monthly active users of its 100,000 bikes across five cities. Urban middle class Chinese in suits and Hello Kitty knits now ride among those migrant workers and foreigners, in streets that resemble a Copenhagen with Chinese characteristics.
The overnight adoption of cycling is a testament of just how open Chinese consumers are to new things, particularly when they conveniently fill a need or want, and are assisted by some sort of mobile tech.
Talk of the orange, yellow and other jelly bean-coloured bike sharing schemes seems like a fitting prelude to talk about what else is changing in China and trends for 2017, particularly in the marketing and sales space. Of all the years that China Skinny has been crystal ball gazing, 2017 is looking like the most exciting yet. Here are our top-8 predictions.
We’ll leave you with that to ponder as this will be our last Skinny for 2016. The China Skinny office will be open for the rest of the year so please get in touch if there is anything we can do to help grow your brand and sales in China. For our readers who are celebrating, we wish you the Merriest of Christmases, and a Happy New Year to all! Go to Page 2 to see this week’s China news and highlights.
Following the melamine scandal in 2008, China’s dairy industry has changed dramatically. No other product segment experiences the same lack of trust in the domestic supply chain quite like milk. This has seen an explosion of dairy imports over the past 8 years. Yet even with such a perception advantage, foreign players have failed to capitalise, being outsmarted by local players who understand Chinese consumers and Chinese sales and marketing channels significantly better, as illustrated in the infographic below. Although this data applies to dairy, much of it could be equally applied to other product categories where foreign brands are behind the eight ball.
Chabuduo is a word used far too often in China, as British writer James Palmer eloquently scribed earlier this month. It spans wider than corruption; a challenge that Beijing must overcome to successfully deliver its Supply-Side reforms. It is why Chinese consumers buy countless foreign brands, and why data-rich companies like Alibaba ad JD place so much focus on imported products. In short, it is a deeply-embedded attitude in China that ‘close enough’ is good enough.
Whilst there are some true craftspeople in China, the vast majority of goods and service providers still don’t take pride in their work like a shoe maker in Milan, a chocolatier in Zurich, a toilet seat maker in Tokyo or an analyst at China Skinny.
Although many Chinese businesses and workers don’t appear to care, Chinese consumers see things a little differently. Recent research by Pew found that consumers feel the quality of manufactured goods and the safety of food and medicine is a bigger problem than China’s lung-choking air pollution.
Consumers are voting with their wallets. McKinsey’s research was the latest to highlight the trend of trading-up by Chinese consumers. 44% have traded up their cosmetics purchases between 2011 and 2015, compared with 4% who traded down. 25% even traded up their rice purchases versus 3% trading down. Cars selling for ¥100,000-¥250,000 ($14,800-$37,000) grew twice as fast as cars less than ¥100,000, and over ¥250,000 grew even faster.
Agriculture and food security is one of Beijing’s key focuses, and the recipient of hundreds of billions of investment dollars. Yet chabuduo still plagues many components of the supply chain. Understanding how China is addressing this is crucial for anyone in the food and beverage industry, whether exporting to China, being supplied by Chinese companies or competing against them. China Skinny’s Mark Tanner joins a remarkable line up of Chinese and foreign experts in New Zealand’s beautiful harbour capital Wellington next Thursday and Friday, 27-28 October to discuss the Rise of Chinese Agriculture. It would be great to see you there. More info here.
China’s chabuduo culture will continue to present significant opportunities to exporters of quality goods and services for some time yet; particularly those that are marketed well and in the right sales channels. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.