Many brands are aware of how China’s innovations around New Retail, digital and mobile payments are fundamentally changing the way consumers research and buy products. Yet, what is often overlooked is how they are altering the format and even the type of product they buy.
Research was recently published claiming that Chinese mothers are moving away from traditional frozen ready meals, like dumplings and buns, and instead opting for frozen full meal sets such as beef noodles. Whilst this isn’t untrue, our research has found a much bigger trend pointing to a shift away from frozen foods altogether.
On numerous research projects, China Skinny has visited many homes across different China cities. In the kitchens, small freezers are stuffed with once-popular products like bags of dumplings coated with freezer-burn, seemingly untouched for many a moon. The ageing packs are representative of frozen formats falling out of favour with Chinese consumers as alternatives perceived as healthier become more convenient and accessible.
With healthy and natural having become key criteria for purchasing food, frozen options sit many rungs below fresh on the hierarchy of healthiness. That’s nothing new, but what has changed is the accessibility of fresh food, particularly for busy mothers. With stores like Hema/Fresh Hippo, 7Fresh and even the massive RT-Mart now delivering orders within 30-minutes, the incentive to have quick access to frozen products has diminished. There are currently 355 million users of delivery apps in China – a quarter of all Chinese are regularly having food brought to their homes and offices.
While the booming restaurant meal delivery service is cannibalising many food categories and changing countless restaurants and cafés’ strategies, China’s ever-discerning mothers still want an element of food preparation. They wish to have more control over their cooking, ensuring it is fresh when served – not soggy or luke-warm – while still deriving the emotional self-satisfaction of feeling they having played a part in cooking the meal. These factors, coupled with being time-short, have contributed to a stark rise in the demand for ready-to-cook fresh/chilled meals in China.
As brands define the appeal of their products, ingredients, packaging and sizes for the Chinese market, they should also consider the format. Frozen, tinned or other forms of preservation has provided a way for food to make the long trip to China and still be good for sale. While there is likely to long be demand for such food, brands should consider product development for alternative formats that will meet the growing demand for fresh, natural and convenient food.
Food is just one category that is being turned upside down by New Retail, and brands across almost every category should be cognisant of the changes to ensure that they aren’t left behind.
On a not-entirely unrelated tangent, China Skinny will be in Australia later this month with Austcham and Westpac to launch the 2019 Australia-China Business Sentiment Survey results. We’ll share the differences we found from last year’s survey, and how Australian businesses are tracking in this interesting geopolitical and economic climate. The events are in Sydney on 26 March, Brisbane 27 March, Melbourne 28 March, Perth 29 March and Shanghai 18 April. Let us know if you can make any of the events, it would be great to catch up there. Go to Page 2 to see this week’s China news and highlights.
As China’s urban millennials have become the most sought-after consumers on the planet, marketers have been seeking less contested consumer groups to target their wares. The next growth areas that we often hear about are the rural consumers and those with silver hair.
For the rural folk, many expect their latent demand to step up and fill the gap from the city dwellers – those who already have everything from cars to appliances to smartphones. 577 million Chinese lived in rural areas in 2017, and the big tech companies have been all over it. Alibaba and JD are investing in rural fulfilment centres, marketing and even drone delivery. Interestingly, the latest Internet growth data points to a rural population that may not be as enthused about spending up a storm as many had hoped.
China’s heaving Internet population stood at a whopping 829 million at the end of 2018 – 57 million or 7.3% more than the year before. The segment that has the most room for growth – Chinese living in rural areas, grew just 6.2% to 222 million, indicating a widening digital divide between China’s urban dwellers and those in the countryside. That’s not a great sign for consumption in these areas. The Internet represents the most promising channel for rural consumers to buy things – they can’t just pop down to the local IKEA to purchase a new sofa. Another barrier for sales is that rural consumers make less than a third of what urban-dwellers make and are much less likely to spend it on aspirational foreign brands.
The other well-cited growth opportunity – China’s seniors – by sheer numbers along should be one of the greatest opportunities marketers have ever seen. Last year, the number of Chinese over 60 reached 249.5 million to outnumber those under 16 for the first time in history. Since 2010, the demographic has seen an average annual growth of 2.08 million. At the same time, the under-15 brood has been dropping at 2.25 million a year.
If we look to the Baby Boomers in the West – the empty nesters riding on the back of a lifetime of savings and equity gains on their house and other investments – they have been spoiling themselves while their joints still allow it. Yet most of the seniors in China aren’t such free spenders. They have grown up in austere times, and have an inherent necessity to save for a rainy day and be frugal, even more-so than those who were around during The Great Depression in the West. The rising consumer debt in China can almost be solely attributed to the consumption-crazed youth; people between the ages of 24 and 35 account for more than 70% of consumer borrowers in China.
While there will inevitably be increasing opportunities by targeting China’s silver surfers – there will be a half a billion of them by 2050 – they will remain much less likely to pay a premium for better products and services than their younger peers. They also won’t be as easily wooed by foreign lifestyles, products and services.
In short, millennials and the younger post-95s/Gen-Zs remain the most lucrative consumer group in China. Yet the rules to reach and resonate with them are constantly changing. Companies need to dive much deeper in understanding their emotional and functional needs, what influences them, where they research and buy, and how to make advocates out of them. If a brand can understand and serve those needs, there’s still plenty of legs in the contested younger demographics in the city – particularly the lower-tier cities. China Skinny can work with you to ensure you’re there. Go to Page 2 to see this week’s China news and highlights.
In the first quarter of 2018 China’s GDP growth continued to bubble away at 6.8%, largely driven by consumption which accounted for 77.8% of the growth. Powering this critical economic driver is the ever-evolving millennial; higher-earning, freer-spending, and in many cases with child in tow or one not far away.
17.2 million babies were born in China last year – the population of the Netherlands – expanding the already-significant demand for child and family related products and services. A child born in China today will have parents earning 130% more than those born a decade ago. Their parents will be four and a half times more likely to have travelled beyond Greater China. The millions of new parents are more educated, open minded and worldly than any generation before them, and as a result are more inclined to Western products and lifestyles.
The shifting profile of Chinese parents has also changed the way they research and shop and the products they are seeking. Although parenthood remains steeped in culture and tradition and is heavily influenced by family structure, mothers are the least-trusting consumer group in China and among the most digital. They are large contributors to the rise of China’s ecommerce which grew three-and-a-half times faster than traditional retail last year. One of the fastest growing categories online is FMCG, where 43% of the value of products sold are bought by families with children aged below 14. Similarly, two-thirds of cross border shoppers have children, a result of easier access to trusted, safer products from abroad.
Yet family-relevant products aren’t exclusively focused around health and safety. Brands have found success catering to families’ busy lifestyles with products that are also attractive to kids. An example is animal-shaped dumplings that are easy to prepare within a few minutes. Products that understand and minimise those pain-points of hectic family life or contribute to the happiness of families are well placed to appeal to the lucrative segment.
China’s young families are an incredibly important demographic for relevant and well-marketed products. Yet for a larger share of Chinese at child-rearing age, parenting WeChat groups, imported infant formula and panda-shaped dumplings are not relevant. Despite initial enthusiasm from the loosening of the One Child Policy and youths having sexual intercourse earlier, Chinese millennials are becoming more indifferent about sex and less likely to be parents.
China’s fertility rate of 1.24% is even lower than Japan’s 1.46%. Slowing birth rates mean there remains plenty of opportunities in products and services unrelated to families such as health, travel, entertainment and fashion which can seize a share of spending that may have otherwise been used on childcare. Go to Page 2 to see this week’s China news and highlights.
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.
Next week sees the Year of the Rooster end as we embrace the Dog for the next 12 lunar cycles. The dawning of the pooch marks the beginning of the enormous Spring Festival holiday, which will inevitably be marked with millions of selfies from teeming transport hubs, billions of WeChat messages and red envelopes, and probably a good few fake boyfriends to keep the family at bay.
For a large portion of China’s 280 million migrant workers, it will be the one time of the year to return to the family with cases full of gifts. The mass homecoming has become well known globally as the world’s biggest annual human migration; 2.98 billion trips will be made during this year’s festival period from February 1 to March 12. This includes 2.48 billion trips in cars, 390 million in trains, 65 million by plane and 46 million boat trips – a staggering operation, even by Chinese standards.
Just seven in 10 will head home for family reunions during Chinese New Year, with 13% opting for leisure travel according to a Tongcheng-CCN survey in December. 6.5 million of those travellers are expected to head to 68 countries this festival – 7% more than the last year’s festival.
Thailand is forecasting 400,000 Chinese visitors over the week-long festival and tiny Macau is expecting 960,000 Mainland tourists as Chinese sideline tradition to serve their increasing lust for travel experiences. Even Finland will have its time in the sun with Alipay showcasing the widespread acceptance of their payments platform in the country.
The growth in Chinese investing more in decorating their homes has produced a byproduct that may be the biggest trend for Spring Festival travellers this year – empty paint buckets. Railway stations are already dotted with travellers carrying the white plastic tubs, which have become popular chairs, tables and food storage containers and an endearing reminder that Chinese trends aren’t always related to luxury handbags, shiny smartphones and quirky online campaigns.
Whilst widespread adoption of paint buckets takes a different path from Beijing’s aspiration to cultivate local tech innovation, there remains plenty of riveting trends coming from China. At China Skinny, we’ve used the New Year as an opportunity to identify what we think will be the biggest trends to watch in the Year of the Dog – ones that every brand and marketer should be aware of – here they are!
If you’re taking a break for the Chinese New Year festivities next week, we hope it is a good one. For the tourist operators in Macau, Thailand, Finland and other popular spots – we trust it will be successful and selfie-filled. Happy New Year, we’ll back in the Dog.
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.
Talk about China’s remarkable digital consumer ecosystem is often dominated by ecommerce, WeChat and mobile payments. Whilst there’s no discounting their impact on the market, there are a host of other significant digital channels that are very relevant for Western brands looking to understand Chinese consumers and sell to them.
Have you heard of Kuaishou? It’s an Instagram-style photo sharing app with 400 million users which has evolved into a livestreaming and video platform. Kuaishou is valued at $18 billion, over three times more than mega-toy brand Mattel. The relevance of photo and video for Chinese consumers (and most consumers these days) should entice brands to consider the platform in their marketing mix.
Similarly Meituan-Dianping, best known as a restaurant and entertainment guide, is often likened to China’s version of Yelp, but is significantly hungrier with plans for ride sharing, hotel bookings and more. It has a market cap of $30 billion – a similar value to the West’s internet darling Airbnb. Foreign brands in the food, beverage, entertainment, lifestyle and tourism categories could be wise to take a look.
The current cool kid on the block Toutiao is most famous for its AI-powered news app with 120 million daily users. It also owns other apps such as the red hot Watermelon Video livestream quiz, musical.ly, and others. Much like Meituan-Dianping and Airbnb, Toutiao’s market cap is $30 billion.
Unlike a lot of the high valued tech companies of the past, many of China’s behemoths have healthy ways of making money. Chinese consumers are increasingly prepared to part with cash online, helped by the effortlessness of payment platforms. In fact, Chinese spent 270% more on apps in 2017 than 2015 – $35 billion. By comparison, American consumers spent $15 billion last year, a 75% increase over two years.
Chinese consumers’ obsession with apps is altering behaviour in almost every aspect of daily life in China -it is also shifting spending patterns. China’s big-spending online shopping females have finally been knocked from the top spot for digital spending by males, largely due to the explosion of gaming and, as a result, food delivery. That gives some hints to brands about another possible way to reach the often elusive Chinese male consumer.
They’re a few of the main ones – there are plenty more and then the fast-coming trends such as livestream quizzes and travelling frog games that are taking China by storm, all providing clues about how to unlock the potential of the mighty Chinese consumers.
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.
The big bull of ecommerce festivals comes charging into town this Saturday to much anticipation. Singles’ Day and the week that follows will see millions of frenzied electric scooters ferrying an estimated one billion deliveries to offices and apartments across the mainland. If you wanted proof that the Chinese consumer has become a force to be reckoned with, then this is it.
Purchases during the 24-hour period and presales represents over one-fiftieth of China’s annual ecommerce sales, with some brands even making half of their annual turnover on the day. However, many sellers will not make a dime from it. For a number of brands it is an opportunity to accumulate much-needed sales numbers and consumer reviews which are vital to Alibaba’s, JD’s and other platforms’ search results algorithm. It’s also important for consumer perceptions given they are much more likely to buy products that already have sales histories and glowing reviews, further emphasising the need for top notch end-to-end service, even with the added volume from the festival.
Although consumers are very much in a spending mindset, it is not just a case of throwing up a promotion on Tmall and expecting the masses to tap ‘buy’. There will be 140,000 brands – including 60,000 international ones – promoting 15 million products during the festival, so much like the rest of the year, smart marketing tactics will help.
Alibaba has taken the day from just being an online shopping fair to an annual celebration firmly cemented in the festival calendar, arguably the one that generates the most buzz after the Spring Festival-Lunar New Year celebrations. Its evolution to an entertainment-focused event has been vital to its continued growth. Every year, countless pundits have commented that its growth rates couldn’t continue, but with every 11.11 it continues to soar, growing 32% last year to $17.8 billion. This year is likely to be tougher for such growth, with consumers already showing fatigue from the endless ecommerce festivals playing on word associations with dates and China’s festivals. But falling on a Saturday will help, particularly with the entertainment and brick & mortar focus is likely to see sales figures continue to climb.
For a consumer who has been conditioned to expect more glitz and lights with each subsequent promotion, Alibaba has to deliver an ever-more engaging experience. Alibaba is following many of the themes from last year, with big name celebs herded together in a TV countdown gala again directed by David Hill. Tapping into China’s growing love for hip hop, Pharrell Williams will be making the trip to Shanghai’s Mercedes Benz Arena to perform and give the inevitable fly hand gestures and selfies with Jack Ma. ¥250 million ($37.7 million) worth of hongbaos (red envelopes) will also be there to sweeten the deal.
Offline continues to be an ever-bigger part of 11.11, with Alibaba opening 60 new ‘Retail-powered Pop-up Stores’ across 12 cities in China taking inspiration from innovations such as Lancôme’s augmented-reality virtual makeover app at Singapore’s Changi Airport. There is also the conversion of nearly 100,000 stores throughout China into “smart stores.” If you’re in China, it would be worth going to have a look.
If your brand is participating in 11.11, we wish you success and sustained growth following the event. If you’re shopping on the day, we hope you find some good deals and are entertained.
In other news, China Skinny is seeking a smart, passionate marketing manager to join our all-star line up in central Shanghai. If you or a friend is looking to be titillated during working hours and learn oodles about China marketing and consumers, please let us know. Click here for more information. 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.
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.
Visit any popular tourist spot in China or abroad next week and you’re likely to appreciate the scale of China’s tourist machine operating in top gear. October Golden Week is the yearly climax of leisure travel in China; for many, it concludes as much as 6-months of deliberating and planning for the big annual holiday. The Chinese Tourism Academy expects 710 million trips will be made by Chinese between October 1-8. That’s 10% more than 2016 with spending up 23% to ¥590 billion ($90 billion).
Whilst the large majority of trips may be domestic, they can provide a glimpse into travelling preferences which are likely to follow for outbound travel. One of those trends is self-driving holidays. 560 million road trips are forecast to be taken – 10% more than in 2016 – providing no respite to last year’s ‘Carmageddon’ which saw 50-lane traffic jams as travellers returned home to Beijing.
Over 6 million Chinese will travel abroad during the festival, with more and more travelling beyond the traditional Hong Kong, Macau and Taiwan destinations. Parts of Thailand, Singapore, Japan and the US are likely to be inundated, but the once-popular South Korea won’t see a lot of love. China’s trade diplomacy remains in full swing over the US missile defence system THAAD fall out as package holidays to the country remain suspended. CTrip expects a 70% drop in Chinese visitors to South Korea over Golden Week, following a 20.9% drop between January to July this year against a 5.1% increase of outbound tourism overall.
With the exception of a few long haul destinations and ‘red tourist‘ hotspots, most Chinese visitors are likely to be fresh faced millennials. Just one in ten international trips from China are made by travellers 45 or older, with 60% of seats filled by 18-34 year olds.
Young, independent and Chinese travellers are driving change beyond those traditional Chinese traveller stereotypes of bus tours and shopping holidays. As proof of their increasing sophistication, dining, sightseeing and leisure activities took out the top spots in terms of daily expenditure, displacing shopping from its throne this year according to Hotels.com research. Chinese travellers born in the 90s spent an average of 35% of their income on international travel in 2016 versus 28% overall.
Across all age groups Chinese are taking more trips and for longer, with days per trip increasing from 3-4 and from 5-7 days over the past year. 80% of travellers surveyed are visiting multiple cities while away, presenting opportunities for lesser-travelled regions.
Fortunately, the growing wave of sophisticated Chinese travellers won’t just benefit the travel industry. Education, investment, migration and a slew of well positioned consumer products will also profit from the halo effect of tourism.
Las Vegas will be one of the popular destinations for Chinese tourists over the next couple of weeks, and for Skinny readers in the dietary supplement, beverage, functional food, personal care and sports nutrition industries who will also be there for Supply Side West, ensure you attend the China Opportunities Workshop on Friday September 29 at 8:30-noon. China Skinny’s Ann Bierbower will be opening the workshop, covering the what, why and how of trends in China. Please pop by to say hi! More information here.
For our China-based readers, we hope you have a great Golden Week holiday and manage to escape the crowds. We’ll be back after the break in the second week of October. Go to Page 2 to see this week’s China news and highlights.
If we asked Skinny readers to name some differences between a consumer in Beijing and Shanghai we’d be likely to get many responses. There are the obvious observations such as different food preferences, disparate climates, pollution readings and daily commutes. Beijingers pack a few more pounds around the waist and are a little taller. On a deeper level, emotional cues in communications that resonate in Beijing are often markedly different to Shanghai. What they do for fun, the TV shows they talk about, even their ideal weekend or trip abroad are often dissimilar.
Most China marketers appreciate that the country is akin to Europe in its diversity, yet many still employ a fairly homogenous strategy for marketing across China. Even adapting marketing to different city tiers will usually miss an opportunity to be meaningful and relevant to consumers.
Shanghai’s GDP is similar to Thailand’s and its population is greater than Australia’s. Most brands selling in either of those countries would localise, whereas Shanghai often gets the same generic treatment as Beijing, Guangzhou, Shenzhen, and the other eight megacities with a GDP greater than a trillion RMB.
The size of the China prize has seen her cities become the most contested markets on the planet. As a result the average consumer in Shanghai is bombarded by more than three times the advertising of their British equivalent. With such clutter, brands that miss key functional and emotional cues are unlikely to win and maintain any mindshare.
Fortunately there are big and small initiatives that brands can do to localise their marketing. Online, ecommerce, social media and search platforms all allow clever geographic-specific initiatives. Similarly, in the physical world there are plenty of quick wins and more significant ways to tailor sales, marketing and product development by city and region. Agencies such as China Skinny can assist with understanding differences and developing a strategy to best service these. 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.
Last week Alibaba hosted their first conference outside of China – Gateway 17 in Detroit. China Skinny was there.
Jack Ma has long had a personal dream of cracking the US and with plenty of cash in the coffers, Alibaba was out to dazzle the audience. Jack Ma was joined by Martha Stewart, Lisa Ling, Charlie Rose and robots, backed up with an arsenal of big statistics and some sage advice to entice more American businesses to export to China.
The focus of Gateway 17 was to sell the Alibaba dream, yet exporters would be wise to consider the multitude of other options when planning a market entry into China. For big brands, a presence on Alibaba is an essential hygiene factor for both sales and marketing. Marketing on Alibaba’s platforms is becoming more powerful with new tools such as the Uni Marketing system offering features such as personalised and targeted communications.
Whilst there are great success stories on Tmall and Tmall Global, the platforms aren’t right for every brand. It is not cheap to set up and operate, and new stores are competing with over 10 million other vendors who are often well established. Smaller brands may also have difficulty being accepted by Alibaba.
Alibaba has a finely tuned sales machine attracting foreign brands to its platforms. It has set up offices across North America, Europe and Australasia, has shiny campus tours for visiting delegations and now hosts overseas events to woo Western brands to its cross border channels. Yet with all the good news stories, there are some cautionary factors. For example, Tmall Global’s sales drive saw the number of brands selling on the platform grow 169% last year, with sales growing just 30% – a similar rate to ecommerce overall. In short, there are many more foreign brands competing for a smaller piece of pie.
Cross border commerce is also much more fragmented than Mainland based commerce. Alibaba commands around 80% of overall ecommerce sales in China and 57% of B2C commerce. Whereas Tmall Global accounts for just 18.9% of the cross border market and Taobao Global 15.4%.
There are a host of smaller cross border platforms that are often more targeted to specific segments such as food, wine, cosmetics, mum & baby, health and fashion. They may only have 10 or 20 million shoppers, but they are generally qualified for your segment, often more affluent, and the competition is less fierce.
Alibaba is China’s most popular ecommerce platform and a great option for many brands, however China is a large market with a number of online and offline sales channels, so take some time to consider them. Agencies like China Skinny can help you work through your options. Go to Page 2 to see this week’s China news and highlights.
In 1990, Greater China’s metro systems covered just three cities. By 2020, over 40 cities will sport modern, efficient underground commuter networks. In that same three decades, Beijing has gone from a couple of lines and Shanghai from nothing, to the two largest and busiest networks in the world.
Anyone who has immersed themselves in the swarms of China’s metro systems will have noted that subways are playing their part in fuelling the mass movement of consumers. Even with barely any room to move, heads are fixed on smartphones – be it social media, ecommerce, playing games or watching video, all consciously and subconsciously feeding China’s consumption machine. Yet more importantly, the zealous expansion of China’s subways represents something much bigger. It signifies the rapid rate of change and progress altering Chinese consumers’ cities and as a result, their residents’ lifestyles, behaviour and expectations.
While [often highly indebted] local governments are funding the expansion of subway networks, private enterprise is driving another transport phenomena that makes the metro expansions look slow. By Q1 this year China’s bike loan schemes accounted for more trips than all on-demand transport in North America, Europe, Middle East, Africa and India combined with their Ubers, Lyfts, Olas, etc. Two thirds of China’s bike-loan users now ride three or more times a week.
China had just a few small single-city bike loan schemes until last year, when funding allowed them to expand nationwide and internationally. The rest is history. Ofo alone is said to have 20 million registered users and 6 million yellow bikes in 100 cities. Mobike claims to be even larger. And another 30 rivals vie for market share in yet another example of how spoilt for choice Chinese consumers are, and how quickly they embrace new trends.
No one saw it coming. Brands looking to build long-term strategies for China should keep that in mind. Everything from the types of holidays Chinese consumers choose, to the food they buy, where their health budgets go, to their preference for cars is changing as quickly as the adoption of new transport options. Add that to the regular stream of new regulations and sales channels and a China strategy is hard to pin down.
It is not unusual for foreign brands to want to build 5 or 10-year plans for China. While it is important to have a long-term focus in China, rigid plans will very quickly become irrelevant. Things that have taken 5-10 years to evolve in some markets can take 12-18 months in China.
Chinese entrepreneurs have been brought up in a constantly changing environment and many run their businesses with the same expectation, ensuring they maintain the agility to adopt new initiatives in weeks that bureaucratic corporations can take years to do. Anyone in the China market is competing against such companies, meaning staying ahead of the trends is imperative. Agencies like China Skinny can assist with just that. Go to Page 2 to see this week’s China news and highlights.
China Skinny works with clients across 17 industries which has given us a well-rounded perspective of Chinese consumer behaviour. It’s been a helpful way to identify what works in one category, how it can be applied in others and any affinities between them.
One of the most dynamic industries we work in is food & beverage, which has welcomed some of the most innovative and exciting marketing we’ve seen in China. There are mega-brands with annual marketing budgets exceeding a billion dollars, to niche players that cleverly hone-in on specific target markets. Costly celebrities and KOLs are a regular feature in campaigns; 39% of Chinese food & beverage ads have celebs in them, versus 10% in the UK and US, according to Millward Brown.
Premiumisation has become a commonplace buzzword in China and its effect is seen at every level. Even rice saw 25% of consumers trade up between 2011-2015 versus 3% who traded down, according to McKinsey. Premiumisation and health concerns have also led sales of the workingman’s favourite instant noodles to drop by billions of tubs. Buzzwords such as healthy, natural, organic, GMO-free, functional and probiotics are increasingly making their way onto Chinese labels and with it, heftier price tags. Between 2012 and 2016 the portion of high- and middle-end product sales grew from 26.2% to 34.4% on Alibaba’s retail platforms.
The one thing almost all successful food brands have in common is their adoption of digital channels. Food & beverage has become the fastest growing ecommerce category and will continue doing so following significant investment in cold-chain and cross-border logistics. 60.5% of fresh food is now available online versus 26% in 2014. What makes the online food & beverage category interesting is that it is much less dominated by Alibaba and JD, with niche food-specific platforms accounting for a larger share of sales. With ecommerce now as much a marketing channel as a sales one, food & beverage brands are embracing it and the diverse opportunities it brings.
Traditional offline food brands are also embracing technology. China’s giant ¥3.5 trillion ($507 billion) eating out industry is taking to mobile payments. 45% of McDonalds China’s sales are now paid for through a smartphone. China’s insatiable appetite for food delivery has seen a storm of food delivery apps surface, which prompted KFC’s parent Yum China to buy a controlling stake in Sherpas this month. Apps developed by food brands provide a host of useful tools and are now used by 60% of Chinese consumers, according to Kantar.
No mention of online channels would be complete without the good old fashioned Daigou purchasing agents promoting their wares through WeChat, Taobao and other niche platforms. Although the fear of regulations was circulating again online in China last week, enthusiasm doesn’t appear to be waning for the grey channel. Countries like Australia, New Zealand and the US have seen an army of Daigou on their shores. A NY Times article earlier this month reported that as many as eight in 10 of the 136,000 Chinese students in Australia are involved in Daigou businesses in some form.
Food & beverage is abound with opportunities in China, particularly for brands that embrace China’s unique and exciting channels. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.