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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 are many relatively unknown cities in China with GDPs as large as countries. For example, the city of Zibo has an economy the size of Panama’s and Tangshan’s GDP ranks up there with New Zealand by some measures. These smaller cities are helping drive China’s consumer demand, and by proxy, the global economy. Morgan Stanley forecasts that lower tier cities will account for two-thirds of the increase in consumption between now and 2030.

As China’s biggest cities have become the most crowded and contested markets on the planet, more and more brands are looking to cities like the Zibos and Tangshans where growth is often faster and competition less fierce. We only need to look at FMCG which has been growing 2-3 times faster in lower tier cities than big cities over recent years. In tourism, the 10 fastest growing airports by passenger numbers are all tier 2 cities and below. A third of all Cadillacs sold in China were bought in tier 3 & 4 cities.

Yet while it’s become common to talk about China’s less-competitive lower tier cities, brands shouldn’t just be throwing darts at maps and reviewing GDP figures in determining where to focus. Consumers in many lower tier cities don’t yet have a level of sophistication to demand many products and services.

Before looking to the hinterland, brands should critically assess consumer behaviour and preferences in those cities. Lifestyles, climate and travel habits are often as much of a contributor to demand for a product than GDP per capita. Ecommerce data, although much less developed than tier 1 and 2 cities, can also provide hints into potential demand. Even local government policy can impact consumer demand – just look to Electric Vehicles, where six cities contribute to 40% of sales.

In many cases, the hyper-competitive cities like Shanghai and Beijing can still be the most lucrative markets to target. They have become incredibly wealthy with GDP per capita adjusted for purchasing power now comparable to Switzerland. They have been wealthier longer, were allowed to travel abroad sooner, and as a result, have much more mature and sophisticated tastes. As a result, they are more ready for some Western products and services.

With both cities having more than 20 million people, just focusing on specific demographics or districts can itself produce material sales and a beachhead for further expansion.

A good example is American wholesaler Costco. Four years of testing the water with cross border commerce has given them confidence in demand for their products and formats. This month they announced they will launch two large Costco bricks & mortar stores in Shanghai. Unlike most of the 226 brands who opened their first stores centrally in Shanghai last year, Costco is opening in the outer districts of Minhang and Pudong New Area.

The bulk sales model like Costco hasn’t really taken off in China yet. Consumers have smaller kitchens and less storage than in the US, lower car usage for shopping, and a preference for freshness. However Costco is likely to have evaluated the last 4-years of ecommerce sales data to make informed decisions. If it will work anywhere, Minhang and far-flung Pudong are good bets. They are affluent areas with many large villa residences and a population who is more reliant on driving for daily needs. Costco’s first 33,000 square metre store opening in April 2019 will have 1,000 carparks. One would hope that they are integrating New Retail into their stores to ensure they are relevant and engaging for consumers.

Whether you are Costco, a fashion brand or selling vitamins, there is no consistent answer about which city is best to target. Brands would be wise to analyse different cities and regions before making a call. The cities a brand chooses to target should be an important factor in developing localised marketing strategies, selecting distributors and even lawyers familiar with local laws and regulations. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.

When an estimated 500 new products and services launch in China every day, separating your brand from the rest can be an endless struggle. Of course an informed and intelligent approach to the market is vital in driving success, but recent times have seen high-performing brands begin to move towards more collaborative methods to open up opportunities.

Some of China Skinny’s clients and other aspirational brands are increasingly opting not to tackle China alone. New trends, business models and changing influences and touch points are constantly emerging, giving rise to the effectiveness of partnerships. They have allowed brands to more easily build meaningful and emotional connections with their target markets by engaging and accessing new channels previously out of reach for them.

Many of the highest profile b2b partnerships include China’s big tech companies. It seems there are almost daily announcements of an FMCG brand, car brand or retailer signing a partnership deal with Alibaba or Tencent. The Ford-Alibaba car vending machine is a novel example which captured imaginations across China and the world. Similarly, Tencent recently teamed up with Lego to develop games, videos and a social network for Chinese children.

Beyond the well-publicised and more obvious partnerships, there are many lesser-known collaborations that are sure to surprise those both in and out of China. With China’s sought-after millennials constantly looking for more ways to express themselves, fashion and music are at the heart of the most popular cross-industry collaborations. Unexpected partnerships have blossomed, including Lipton Tea joining forces with designers in a streetwear-inspired fashion show to reach a completely new body of consumers, and TripAdvisor who partnered with Beijing-based handbag brand Rfactory to create handbags emblazoned with the online travel firm’s logo. Blackmores have teamed up with top-20-world-ranking Tsinghua University to develop a health communication curriculum course for natural medicine. In addition to the aspirational associations and the perceived commitment to China, the course puts Blackmores in good stead, set to reach some of the industry’s most persuasive future influencers during their formative years.

Like anywhere, partnerships in China allow plenty of scope for creativity and can produce much higher returns than mainstream marketing initiatives. Yet they should be well-considered, appropriately executed and kept relevant to both the existing consumer and those targeted to justify the investment and risks that come with such collaborations. Agencies such as China Skinny can assist in identifying and maximising such partnerships.

On another note, China Skinny’s Mark Tanner will be joining an esteemed line up of experts at The Secrets To Doing Business In China forum in Shanghai on Friday May 18. Mix and mingle with China-based businesses and a large delegation of visiting Australian businesses in town for the Aussie Rules and SIAL. For more details tap/click here. Go to Page 2 to see this week’s China news and highlights.

The strategies and recommendations that China Skinny developed five years ago were quite different than those we do today. When we cited the best examples of marketing in China, we would typically look to foreign brands. Back then, most domestic companies’ marketing plans were focused on price promotions and discounts.

Things have changed in recent years. The allure of overseas origins remains attractive with many Chinese consumers and there are some great case studies of foreign brands backing that up with a smart marketing strategy, yet our recommendations are increasingly drawing on lessons from domestic brands. We only need to look to the dairy category where imported brands have a natural perceived advantage for health and safety, yet domestic players still manage a 38% premium per litre for online sales. This is due to slicker marketing and usually a better understanding of the market overall. Our recent survey of Australian businesses with Austcham confirmed that exporters are increasingly waking up to this, with domestic brands seen as more of a source of competition than foreign brands – 50.7% versus 49.1%.

Domestic brands are also much more likely to have stronger distribution networks and more of an appetite for lower tier cities, which are the fastest growing markets in China. Of the 50 million new households that are expected to enter China’s middle and upper classes between 2016-2020, half of them are likely to be located outside of China’s top-100 cities according to a BCG-Alibaba study. Although incomes in smaller cities are less than in larger cities, the lower cost of living means more cash is available for discretionary purchases. Further, rising property prices and increased indebtedness help fund consumption from consumers starved of the choice available in China’s high-tier cities.

Traditional domestic brands are not the only source of local competition for foreign brands in China. One of the newest competitors to the mix are the key opinion leaders – the same folk that foreign and local brands are paying hundreds of thousands of dollars to endorse their brands. Just as George Clooney built his billion dollar tequila brand and Gwyneth Paltrow with lifestyle brand GOOP, China’s influencers are realising their value not just as endorsers of other brands, but to launch their own brands such as Zhang Dayi’s own fashion label and Mi Zijun’s snack shop.

The most potent new string of competition isn’t going to come from celebs though, it is likely to come from the platforms who are selling your brands themselves – China’s online giants who are becoming increasingly powerful in both the online and offline world. Although China have been late adopters of private-label brands, it is another area the big ecommerce platforms are likely to lead. Netease is the latest platform to launch its own private label, Yanxuan, selling clothing, furniture, and appliances from the same Chinese suppliers who manufacture for international brands like Kering’s Gucci, Burberry, and Deckers’ UGG. It follows Taobao’s Xinxuan which launched last year, and JD’s Jingzao in January.

The ecommerce platforms have the data to evaluate the attractiveness of the private label products coupled with the ability to test them with little risk. Just look at the 80,000 smelly Thai durians Alibaba sold in a minute. While Alibaba may be best known for its multi-billion-dollar acquisitions such as RT Mart and food delivery Ele.me, it is making plenty of smaller purchases that could add to its arsenal of home brands such as NZ dairy company Theland. Some would say it could be a conflict of interest, particularly given Alibaba’s ability to dial brands on and off, but it is the inevitable reality of supplying dominant retailers much like supermarket chains in the West.

New sources of competition all cement China’s position as the most competitive marketplace on the planet. Even categories that have been out of reach of domestic players such as the auto industry are now starting to see more and more threats from hungry and smart domestic brands – both Alibaba and Tencent have made notable investments in car manufacturers. Brands should be aware of who their competition is in order to carve out their unique place in the market and not become too reliant on one channel. Agencies like China Skinny can assist with such market mapping, gap analysis and differentiated branding and positioning. Go to Page 2 to see this week’s China news and highlights.

Australia and China’s relationship has become a fascinating representation of the delicate balancing act between politics, economics and sovereignty that this modern age of globalisation presents to nations. And with no Western country more dependent on trade with China than Australia, this particular balance holds great intrigue.

To date, Australia has managed to strike a fine balance with the Middle Kingdom. It negotiated the ‘most favoured nation’ clause into the China Australia Free Trade Agreement and was a founding member of the China-led Asian Infrastructure Investment Bank (AIIB). Yet it has deviated from China’s influence in several ways. Australia has remained firmly in the US camp for defence-related policies, it is yet to support President Xi’s pet Belt & Road project and is even exploring alternatives with China foes the US, Japan and India.  It has been overtly distrustful of Huawei due to national security concerns, and its recent claims of Chinese espionage have prompted Chinese state media to call Australia an ‘anti-China pioneer’.

Regardless, Australia’s continued prosperity is becoming increasingly dependent on its relationship with China. Australian exports to China grew 25% last year to US$86 billion accounting for 29.6% of exports, with Japan being the next most important market at 12%.  China is Australia’s highest-spending source of students and tourists. Australia has also been the world’s second largest recipient of Chinese investment since 2007, accounting for more than $90 billion of accumulated investment. In short, virtually every Australian is impacted by the flow of trade, people and investment from their Asian neighbour.

There are few better barometers to gauge the continued opportunities and threats in this relationship than the diverse range of Australian businesses on the ground in China and those with strong trade relationships. China Skinny was honoured to work with Austcham on the 2018 Westpac Australia-China Business Sentiment Survey which launched in Sydney yesterday.

161 businesses generously gave their time and information to help Australia understand the direction of its connection with China, identifying positive areas, and those that need work. The resulting report is full of fascinating insights from challenges, risks and competition to macro influences impacting Australian businesses in China.

Australian business sentiment was remarkably upbeat. 78% were positive about the next twelve months – higher than similar surveys of American, European, British and Canadian businesses – increasing to 83% for the 5-year outlook. This positive sentiment was particularly striking given the survey was conducted in November and December last year, a time when the China-Australian bilateral relationship was turning awry.

For 58% of respondents, China revenue outpaced other markets. These results have contributed to over half of businesses planning to increase their investment in China this year – with more investing than in 2017 and at a greater rate than their American cousins.

Arguably the most concerning finding from the survey was engagement of digital platforms which have become an important channel for B2C and B2B segments in China. Whilst we found the majority of respondents recognised innovation in technology, media and communications as the number 1 trend shaping businesses in China for the next 3-5 years, just 16% currently have a detailed China digital/ecommerce strategy in place. Those who did were 12% more likely to turn a profit in China and were 18% more likely to see China revenue outpace other markets.

The beautifully presented report (thanks Charlotte, Kate and Stephanie) delivers a valuable perspective into the overall health and opportunities for Australian businesses in China. It also provides a benchmark for your own performance – not just as an Australian business, but any foreign firm trading with China. Download your free copy here. 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.

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.

Happy Year of the Dog! For our readers who took a break, we hope it was a blast.

One of the defining factors of the last lunar year was the Government cracking down on overly-leveraged Chinese conglomerates, particularly those who’d made “irrational” trophy acquisitions abroad. Some of Beijing’s highest profile targets have been in the news this month, with Wanda selling 17% of Atlético Madrid football club and $16 billion of deals since last year and Hainan Airline’s parent HNA hard times continuing. Yet the most extreme example is the elusive insurance company Anbang famous for its $1.95 billion purchase of New York’s Waldorf Astoria in 2014 and $30 billion in deals since. Last week, Anbang was taken over by the Government.

Whilst the tightened curbs on capital outflows and closer scrutiny on deals saw Chinese outbound investment plunge 29.4% last year, the Dog has started off with some well-known foreign brands becoming Chinese-owned, as Chinese companies continue to extend their global reach and appeal through acquisitions. The string of recent high profile investments mostly concern European luxury brands following 20% growth in the category in China last year, and Chinese nationals making up a third of global luxury purchases.

Last week, Club Med’s owners Fosun purchased France’s oldest fashion house Lanvin, following Shandong Ruyi’s acquisition of Swiss luxury brand Bally earlier this month. Volvo’s parent company Geely also became the largest shareholders of Germany’s Daimler. The announcement came not long after Daimler’s Mercedes-Benz was blasted by China for quoting the Dalai Lama – a symbolic move given the quote was on the China-banned Instagram and a sign that even marketing teams targeting markets miles from China may want to start reading up on Chinese sensitivities (subscribe here).

Yet whilst Chinese boardrooms may have spent the lead-up to the festival finalising luxury takeovers, on the ground China’s largest gifting period highlights other interesting insights.

At China Skinny we always watch CNY purchases closely, as the importance that Chinese place on these gifts for family and friends acts as a good barometer for what Chinese perceive as valuable and on-trend. This year’s theme was healthy and imported food. A People’s Daily article claimed imports accounted for 63% of Chinese New Year-related purchases whereas Alibaba’s platforms saw imported produce grow 300% from last year’s festival. Ymatou saw imported food grow 60% with Belgium chocolates, Spanish olive oil, American nuts and Australian oatmeal high in demand.

Overall, spending during China’s mega-festival increased 10.2% on last year – a sign that Chinese consumer confidence continues to bubble along, although it was slower than last year’s 11.4%. Other categories that saw runaway growth included smart home appliances and cinema, which jumped 67% from last year. We hope your fortunes follow suit this year. Go to Page 2 to see this week’s China news and highlights.

Earlier this month JD launched its first 7FRESH, a 4,000 square metre grocery store in Beijing that follows many of the new retail concepts from Alibaba’s Hema stores. JD heralded the supermarket the first of 1,000 stores that could open in the next three to five years. Hema also plans to significantly ramp up its presence, with 2,000 stores planned over the same period.

The focus of 7FRESH is a “personal and educational” hands-on shopping experience including “magic mirrors” that sense when customers pick up a product, and display product information such as nutritional facts and origin. JD also plans to introduce smart shopping carts allowing consumers to shop hands-free, which will be particularly helpful for shoppers with kids in tow. Facial recognition allows shoppers to check out and pay using the technology, able to walk out directly with the purchases or have them delivered within 30 minutes.

It is part of the growing new retail trend in China which has seen online giants shake up the bricks & mortar scape by creating richer, more convenient shopping experiences which drive significantly higher sales than traditional retail stores. Much like Alibaba’s Hema, JD is using big data from its 266.3 million shoppers to help craft the experience.

Physical stores still account for more than 80% of China’s retail overall and well over 90% of grocery sales, so JD and Alibaba’s battle for supremacy will be interesting to watch. Unlike the pure ecommerce world, where Alibaba has significantly higher margins by farming out most marketing, stock holding, fulfilment and customer service to brands, in the physical world it will be operating a more ‘full service’ model like JD.

Whilst JD’s market cap is just one-seventh of Alibaba’s, it has some very powerful organisations behind it. Tencent is the largest shareholder of JD, owning a fifth of the retailer. Its super-app WeChat leads China’s o2o and social media spheres, which will provide valuable data and influence to assist in the success of 7FRESH. Tencent’s new retail grocery ambitions will also be supported by the stake it purchased in Yonghui in December, yesterday’s investment in Carrefour’s China business and Saturday’s launch of its first unmanned WeChat store in Shanghai.

Walmart – the world’s largest company by revenue – owns 12% of JD and is likely to provide insights and support to 7FRESH from its wealth of retail experience including 22 years in China. It will not only help Walmart gain traction in China’s previously elusive ecommerce and new retail segments, but it will also provide plenty of learnings to roll out in its Walmart stores in China, and potentially to its stores in the US and globally.

In short, there is no better player than JD to take on the mighty Alibaba in the new retail game. Two hungry, data-focused, well-funded and well-oiled players, and a host of other competitors, will ensure the rate of innovation in China’s retail segment will continue to dazzle. It will also create another segment where China is likely to lead the world and possibly export its systems globally. New retail in China is happening, and happening fast, and brands that best understand and embrace it are most likely to succeed in the years ahead.

Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What’s your biggest China problem? Contact us to see how we can help. 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.

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.

When you are just one out of a heaving mass of 1.4 billion, feeling special or unique is a treasured experience not often received. As China’s cities swell and lives become increasingly homogenised brands are finding ways to make their consumers feel that unique touch. Tailored communications, product add-ons and loyalty programmes are amongst the touchpoints which brands are personalising to engage the increasingly selective Chinese consumer.

Most successful personalisation initiatives are happening online where consumer behavioural data allows brands to cater to the unique tastes and habits of customers in real time.

Nevertheless, it is physical locations that lend themselves to the greatest gain from personalising the experience for consumers. With the rapid rise and subsequent disruption of ecommerce, physical retailers have been forced to soul search to understand their points of difference to compete with evermore savvy online channels. The most obvious area where bricks & mortar cannot be matched is the tactile experience that comes from authentic touching, feeling, smelling and physical social interaction that online alternatives are still a long way from matching, even with much-touted technologies such as virtual and augmented realities

Yet to maximise that experience, personalisation needs to be a component to ensure increasingly diverging preferences and needs are being met in bricks and mortar. The only tangible way to personalise en scale in the physical world is to incorporate that smartphone in every potential customer’s pocket or handbag. This allows brands to identify individuals, understand what they like and ensure their experience best meets that.

Providing such an experience effectively is no easy task, but even the basic foundation work is still not being done by most brands in China. For example, just 14% of fashion brands in China offer in-store product availability online, while 5% allow users to pick up online purchases in the store and none allow in-store returns of online purchases. Only 19% of fashion brands and 15% of watch and jewellery brands offer international locations on WeChat store locators. These services not only improve the customer experience, but also provide a great data source for consumer behaviour and lay a foundation to implement personalised services.

What makes China such a fertile ground for such initiatives is the infrastructure already in place to support them, in addition to a consumer who embraces it. This is represented by the two brands that topped China’s Brand Relevance Index – Alipay and WeChat who bridge the online and offline worlds better than anyone. Integrating the digital will only become a more important factor in the consumer world – building preference, advocacy and creating greater opportunities for meaningful personalisation for everything from supermarket shopping to driving a car. Agencies such as China Skinny can assist you to ensure you are making the most of the opportunity and are ahead of the curve.

One area that lends itself to more offline and online integration and personalisation is tourism. For our New Zealand readers in the tourism industry attending the Kiwi Link event in Foshan next week, China Skinny’s Mark Tanner looks forward to discussing this further. Please come and say ni hao if you’re there! 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.

Welcome back to our China-based readers; we hope Golden Week panned out well.

China’s dynamic startup scene typically takes a consistent path. New ideas usually follow innovations that have been successful overseas, then quickly morph to serve the unique needs of Chinese consumers; capitalising on the distinct ecosystem of embedded mobile payments, devout smartphone usage and lack of privacy concerns.

Any sniff of success and a slew of others will follow. Close to five million Chinese graduate with science, tech, engineering and mathematics degrees every year, many who are optimistic about becoming the next Jack Ma. Most who launch startups will fizzle, but a select few will get funding, followed by more, and more capital, often from one of the big gorillas Alibaba, Tencent or Baidu – bringing the crucial support and channels to scale up to the next level.

Over the past few years China has been awash with investment capital, and with so much money sloshing around these startups can shower consumers with subsidies, discounts and freebies ensuring they get hooked. What follows is a war of attrition, where startups fiercely compete with incentives, burning through cash with unprofitable business models until the less-resourced competitors fall away or are swallowed up by a better-funded player. Mergers and consolidation always follow with the winner usually taking all.

When just one dominant player remains, the sweeteners lessen. We saw this with Meituan and Dianping in 2015, which provided an estimated ¥58 billion ($9 billion) worth of discounts and subsidies for restaurants and movies in 2015 combined. Since announcing a merger late that year, incentives have dropped off. Similarly within three months of the ride hailing apps Didi-Kuaidi-Uber merger, a typical ride that cost ¥8 climbed to ¥13. If we look across almost every online category in China – much like other places – they are dominated by a single player. Ctrip-Qunar control around 80% of the online travel market, Alibaba accounts for a similar amount of ecommerce, likewise Tencent and social media.

We’re starting to see similar consolidation for the latest hot sectors in China’s tech world. Baidu recently bowed out of the food delivery space selling its Xiaodu subsidy to Ele.me. And on the bike sharing front, where over 30 companies vie for pavement space, riders and critical mass, players are starting to drop off. Market leaders Mobike and Ofo are already said to be in merger talks.

Fortunately China’s tech scene isn’t just evolving to one big network of monopolies. Some areas are still passionately contested driving innovation and deals for consumers. In what would be a surprise to many, Baidu isn’t the leading search tool in China for products. In mature categories such as online travel there are flourishing niche sites that can be better-targeted than the leader. In ecommerce, less price-sensitive and more sophisticated consumers tired of trawling through the expanses of Alibaba’s platforms often swap to niche platforms in areas such as luxury, food and cross border, where Alibaba accounts for just a third of sales. Brands would be wise to consider them.

On the subject of cross border commerce, China Skinny’s Ann Bierbower will be sharing advice about effectively reaching and selling to Chinese consumers at the Reach Global Customers Through Ecommerce seminar in Los Angeles on October 24. More information here. Go to Page 2 to see this week’s China news and highlights.

At the dawn of the decade China was very much a cash-based society. Most transactions were untraceable exchanges of notes and coins and it wasn’t unusual for consumers to have stacks of red bills stashed away under their mattresses.

Whereas China’s older generations have lived through austere periods that have hard-coded an inherent need to save for a rainy day, a tribe of younger consumers has surfaced who have only ever known prosperous times, lured by the bright lights of consumerism and with it, a much more liberal view towards spending.

Chinese born after 1980 are the most educated and urban consumers, and as a result earn more on average than older age groups. Whilst their incomes are rising faster than in any other major economy, their retail spending is growing even faster. Much of the gap is being filled by consumer credit. Short term consumer lending is growing at 35% annually, often unserved by traditional lending channels, providing opportunities for some 1,800 online credit platforms as at the end of July this year.

Arguably more influential in driving consumer spending has been the ease and convenience of mobile payments where daily transactions now number 50 times that of the US. Much like credit cards have done in the West, China’s mobile payments marginalise some of the visible and psychological barriers consumers faced physically taking cash from a wallet.

Mobile payments have driven spending both in physical and ecommerce stores, and also created new categories for spending. Payments are now embedded in social media and other apps allowing purchases for services, games, gifting, tipping KOLs and plenty more. Alibaba’s new ‘Smile to Pay’ doesn’t even need a smartphone to pay. Beijing is an avid supporter of mobile payments as it backs its agendas of fostering innovative industries and transitioning to a consumption-based economy, and also provides a detailed footprint of citizens’ movements and habits.

One of the relatively new frontiers for China’s mobile payment platforms is overseas. It is expanding by targeting emerging markets through investments and using the all-important 135 million Chinese outbound tourists as a Trojan Horse to penetrate mature markets. Alipay’s parent Ant Financial alone has penned 24 major overseas investments or partnerships since 2015 and is now accepted by 120,000 overseas merchants in 26 countries. WeChat Pay is hard on their tail, growing almost three times as fast overall.

So what does all this mean for brands hoping to attract Chinese consumers? Quite a lot. For a start, any ecommerce site, social media account or app would be wise to enable transactions through Alipay and/or WeChat Pay. Similarly, sales are likely to increase for physical retail both in China, abroad, and in between – Finnair has seen sales of onboard purchases increase over 200% on China routes since introducing Alipay. There are added benefits such as gaining new WeChat followers with WeChat Pay and integrating into the popular AliPay app and receiving improved consumer insights.

Payments are another example of essential triggers brands should have covered to maximise the opportunity for Chinese consumers. Agencies such as China Skinny can ensure you have them all covered off, and utilised in the most effective wayContact us to find out more. Go to Page 2 to see this week’s China news and highlights.