What caught our eye in the build-up to this Chinese New Year is not the nearly-3 billion trips to be made via China’s transport system, not the thousands of ways to make pigs cuter including carving one into a watermelon, but the NBA’s pick for its Chinese New Year ambassador: 20 year old boy band member Cai Xukun from the group Nine Percent.
In a land where there has been much public debate and negative state media over the influence of ‘sissy boy’ role models, the decision caused the expected uproar online. On popular sports platform Hupu, known for its masculine user base, 82% – 39,363 voters – checked the option “I’d rather die” in a poll about Cai’s NBA mission.
On the surface the choice seems like an outrageous misalignment with the esteemed NBA brand. The NBA has some of the most athletically-impressive beings of the sporting world – poles apart from the effeminate 65kg pop idol. Yet the expensive decision is likely to bear fruit.
For a start, although the NBA already has an epic following in China including the largest social media fanbase of any sports league with 150 million followers, that only accounts for a small portion of China’s population. Like any business, they will be wanting to grow that base.
In choosing a target market, they will look to the Gen-Zs (those born in the mid-90s to early 2000s) as having a high propensity to support and spend on the game. Gen-Zs are an open-minded generation in a society that has never been so enthusiastic about sport, causing them to explore and embrace sports more than the generations before them. They’re also big spenders. Although most haven’t yet banked a single pay cheque, they account for 15% of household expenditure, versus just 4% in the USA and UK. As the only child/grandchild of six doting adults, and having never lived through tough times, they are free spending with seemingly few worries in the world.
You’ve probably guessed that many of Cai’s fans are Gen-Zs, and particularly females – another lucrative yet untapped sector by the NBA. Last year’s NBA All-Star Celebrity Game featured Chinese-Canadian singer Kris Wu, which reportedly increased female viewers by 30%.
There are plenty of examples where endorsements of effeminate pop-idols have bolstered sales for brands in China, albeit most are more closely-aligned to each other’s core values than the NBA and Cai. Yet the NBA’s China fans are so deeply rooted in the game, they are unlikely to stop supporting the game en masse due to a Chinese New Year endorser who doesn’t fit the league’s image. Most brands in China would struggle to pull that off.
There have never been more options for consumers to spend their money. Sport – like everything – has to find ways to boost the entertainment factor to stay relevant. Whilst there would be better ways to entertain their loyal fan base, they are likely to entertain a segment who may have never considered the NBA before. Although many of the NBA’s execs are unlikely to get down to Cai Xukun’s music, they are putting their own opinions aside to attract a new and wider pool of fans. Hats off to the league for embracing China’s countercultures – those who dare to rebel from entrenched traditional values – something brands are increasingly having to do to reach the younger, freer-thinking generations.
On that note, we’ll leave you to celebrate the coming of the Pig. Happy Chinese New Year, wishing you a prosperous and productive Zhūnián. We’ll be back after the break – enjoy this week’s Skinny. Go to Page 2 to see this week’s China news and highlights.
Just as live sports are helping prop up the old world of television advertising, they can also be a potent force in international relations and trade. We saw it with the ping pong diplomacy of the early 70s, and as sport becomes an important part of life in China, it will be an increasingly significant driver for geopolitical relations and the goods and services trade. FIFA, the NBA, snow sports and other physical activities are taking advantage of this. As proud supporters of rugby in Asia, China Skinny would be grateful to start seeing some real rugby love in the Middle Kingdom.
With the FIFA World Cup kicking off in Russia tomorrow, the trend is looking positive. During the month-long football festival there may be times visitors feel like they’re at a Guangzhou Evergrande Taobao match. Although China hasn’t played in a World Cup Finals since 2002, an estimated 100,000 Chinese are expected to visit Russia for the Cup, dwarfing the 10,000 football-mad English expected to be there – and their team qualified! On top of that, Chinese brands Hisense, Mengniu, Vivo, electric bike maker Yadea and Dalian Wanda are joining the party to plug the World Cup sponsorship gap.
Like many things in China, Xi Jinping’s passions and policy are helping drive China’s enthusiasm for the beautiful game. The avid football fan Xi hinted last year that China will be bidding to host a World Cup in 2030 or 2034 and will be a “world football superpower” by 2050. Feeding into the grand plan, Xi has announced that the number of football fields in China will grow from less than 11,000 in 2015 to 70,000 by 2020. China will have 50 million regular football players including 30 million students by then, and 50,000 schools will have a strong emphasis on football by 2025 – up from just 5,000 in 2015.
The 100,000 visitors are a sign of changing times in China. They illustrate how Chinese are increasingly able and prepared to spend big bucks on their leisure pursuits. Back in 2002 – when consumers were much less affluent than they are today – no more than 50,000 Chinese went to the World Cup Finals in South Korea and Japan when China was actually on the field.
The swathe of Chinese visitors ascending on Russia will have been further tempted by visa-free travel to its northern neighbour. On top of that, China’s blossoming relationship with Russia will also drive preference – as geopolitical circumstances usually do with Chinese travel trends. Russia seems to be the flavour of the month with Beijing as they look to provide a scalable alternative to Western ideologies. The friendship comes at a good time for China as its dog box is marred with imprints of South Korea’s THAAD, ASEAN-contested island building and river damming, Japanese-disputed islands and historic invasions, the encircling of India and territory skirmishes, undermining of Australian sovereignty, Europe’s wariness of Chinese investment, lack of reciprocal access and sporadic trade disputes, and Trump.
As a symbol of their bond, Vladimir Putin was presented China’s first ever “friendship medal” by President Xi at a lavish event broadcast live from the Great Hall of the People. Since becoming president, Xi has visited Moscow more than any other capital city and Putin said that Xi Jinping was the only world leader who celebrated his birthday. Putin was in China last week for the enlarged Russia-China led Eurasian SCO bloc meeting as the G7 floundered. Russia, which is managing its own diplomatic challenges elsewhere has recently signed a series of deals with China who announced relations between two countries were at “the best level in history.”
In short, this year’s World Cup couldn’t have been better timed for Russia to tap into the opportunity that China presents. For the Russian businesses that stand to benefit from an influx of Chinese visitors – let’s hope you make them welcome. Mobile payments and the slew of other China-ready initiatives will ensure they have a better time, spend more and advocate Russia to the masses at home. And good luck to the 32 nations who made it to the finals! Go to Page 2 to see this week’s China news and highlights.
The 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.
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.
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.
A quick Google image search for ‘dogs in China’ will return row after row of horrifying snaps that you wouldn’t show your kids. Yet the reality is quite different in most of China’s cities.
Wandering through urban Chinese streets it is hard for even the most macho of men not to find China’s pets adorable. Poodles sporting puffer jackets jostle for pavement space with pugs wearing penny loafers. China’s immaculately groomed pooches would leave many folk in Western cities for dead on the fashion stakes, representative of just how much Chinese dote on their pets.
China’s pets, numbering more than 100 million, have become the centre of one of the country’s fastest growing retail categories. Last year Chinese consumers spent ¥122 billion ($18 billion) on pets and related purchases, with spending expected to rise on average 20.5% each year between 2017 and 2020 – around double retail growth overall. It is no surprise given 99.8% are prepared to spend on their pets; 40.9% take their dogs to a beauty salon, 25% pay someone to wash their pets and 4.5% have had professional photos with them. Although the hounds have more profile, average spending on felines is even higher.
China’s pet industry has a lot of similarities to other categories. For a start, the majority of owners aren’t empty nesting oldies with a lot of time on their hands, but the urban female millennials who are driving China’s overall retail sector. Two thirds of pet owners are female and 73.2% are aged 20-35 according to Goumin.
It’s little wonder pets are pampered so much in China. 41.4% of owners are single and 23.8% are married without kids, so in many ways the bichon frises and shih tzus are the child of the house. China Skinny sees pet owners showing much of the same buyer behaviour as Chinese parents do with their precious child. Pet food is a good example, where many owners have a strong resistance to additives with natural food accounting for quarter of the market and growing at 55% a year. The need for quality sees foreign brands account for the majority of the market.
Like every category, Chinese do their research to get the best product for their furry friends. 46.9% actively search for product information, with product quality and what others say about the products being what owners care about most, ahead of price.
One recent development in the pet industry is relevant across most industries in China. An online pet food vendor in China has been successfully sued by Alibaba for selling fake Royal Canin cat food on its Taobao platform. It is the first ruling of its kind and, whilst only a spit in the sea, it will hopefully be followed by many more, possibly making counterfeiters think twice before selling fakes online. 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.
The advent of towering office buildings, glitzy malls and unending super highways will quickly capture the eye of any traveller looking for signs of the new China. Yet beyond the glamour and scale, the day-to-day lives of China’s people best signify the huge advancement of the nation since its reformative years four decades ago.
In 1979, the average Chinese person lived in 9 metres of space with a shared tap, kitchen bench and neighbourhood john. Over the next 38 years the average living area has grown by almost 400%, and with it kitchens adorned in shiny appliances and bathrooms of a much more private nature.
The average Chinese home is no longer just a functional place to sleep but a valued feature of their lives. This evolution has been embraced by Chinese consumers and has seen living spaces across the country transform into increasingly comfortable and aesthetic abodes. This is reflected by some of the fastest-growing categories in last quarter’s robust 10.9% retail growth. Building and decoration materials purchases rose 17.8%, furniture increased 13.8% and home appliances grew over 12% in the year to March. The growth contributed to the overall rise in consumption which accounted for close to 80% of China’s higher-than-expected 6.9% GDP growth.
Freshly painted walls, plush new armchairs and smart appliances are all representative of a trend which is seeing more Chinese eating at home, entertaining at home and even baking at home. A few years ago consumption of most premium food items took place in public. Premium purchases were a chance to display your superior status, and consuming one privately would just be a waste. However today’s consumers can happily power through a tub of Haagen Dazs on the sofa just for the pleasure of it, and many more consumers are driven to more discrete locales for indulgence following Xi Jinping’s anti-graft campaign. All these elements culminate in a significant shift in home consumption.
Another contributing factor is the abundance of products available to consumers and finding their way into more and more fridges and pantries across the country. An average of 160 new consumer products hit store shelves every day for the past 12 months according to Mintel. Add that to the host of new apps, cross border commerce listings, new restaurants, cinemas, theme parks and airline routes, and Chinese have never had more to choose from. It is little wonder they keep spending more.
The good: Chinese consumers just keep buying more. The bad: direct and indirect competitors all vying for a share of China’s wallets are growing too. The prize is getting bigger, but it is also much harder to obtain. Something that may assist is China Skinny’s free five day email course to ensure that you have the main areas covered, know what to watch out for, and it may just help you tap into that increased spending, both in the home and out. The course starts on 2 May, so best to sign up today. For our Dubai-based readers, China Skinny’s Mark Tanner looks forward to meeting some of you at the Dubai Chamber’s Navigating China’s B2C e-Commerce Landscape workshop next Monday on 1 May. Go to Page 2 to see this week’s China news and highlights.
Earlier this month, Marks & Spencer announced that they were closing their remaining ten stores in China. This follows a string of exits from other retailers such as Media Markt, Home Depot, Best Buy, ASOS and the Barbie store. Tesco and B&Q also recently divested their China operations. Similarly well known local retailers such as Semir, Meters/bonwe, Feel100%, Baleno, Giordano and even Wanda are closing stores. With each closure comes the predictable commentary about how difficult it is to compete against ecommerce in China.
Ecommerce is proving to be a formidable competitor for many traditional retailers, yet online competition is just one factor leading to the demise of Marks & Spencer and others in China. A limited understanding of the Chinese market and not adapting quick enough are as much to blame.
M&S was structurally doomed to fail. It had huge stores in locations with sky high rents, but its stores failed to provide a special shopping experience to sway customers from cheaper online alternatives. It did little to maximise opportunities to integrate with digital channels and consideration for the local market was lacking – even the fashion didn’t fit Chinese body shapes.
While we often hear about the failures of physical stores in China, ecommerce is not without its challenges. Numerous online storefronts in China get few to no sales, and many others are yet to break even. In most cases, it isn’t because ecommerce is a poor channel choice. Many brands don’t fully understand online channels, how Chinese consumers use them and how they fit together with everything else. Just last week, Jack Ma himself said ‘plain’ ecommerce would face huge challenges in China in the near future, and success will require a combination of online, offline, logistics, and data. His company has been buying up a slew of physical assets for that reason.
The most effective brands in China are integrating bricks & mortar with ecommerce channels – complementing rather than competing with each other. Many are busily opening stores to increase their physical presence. Sephora has just opened its 200th store in Shanghai, at a similar time Microsoft announced it would triple its retail presence to 400 stores. Xiaomi realised that its pure play ecommerce strategy is no longer enough and are opening 300 new stores in China. Apple is similarly expanding its physical appearance, opening 25 new stores over the past two years. Adidas plans 3,000 new stores by 2020.
As we have seen, just opening stores isn’t the answer. Well considered target cities, locations in those cities, formats, and integrating online experiences are important and are continually shifting. Carrefour recently changed its strategy from large retail stores to a network of smaller convenience stores in China. Many malls and retailers are integrating more food and beverage and experiences to make themselves destinations.
Chinese consumers’ inherent lack of trust, among other things, means they do significantly more research than their peers overseas before buying. Chinese seek information and inspiration from 7-10 touch points before purchasing the average product. Real life stores done well, with great service and online integration can provide inspiration like nothing else. Many brands actually treat prime bricks & mortar stores as marketing channels, appreciating that visitors may go on to buy online or when they travel overseas – but they still buy that brand.
Understanding Chinese consumers to determine the right retail experience mix is a good place to start. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
China Skinny has been utilising big data for analysis, trend spotting and recommendations for some years now. Chinese consumers’ spirited uptake of the Internet and wide scale integration offline means that much of what online Chinese do during their day is recorded, allowing us to help demystify consumer behaviour.
Online Chinese are among the world’s most easy-going with data privacy, creating a treasure trove of insights for those who can make sense of it. Yet with so much data available, fake sales on ecommerce platforms and fake WeChat fans, likes and comments are common and social listening can be skewed by a vocal minority; so it’s wise to cross reference the data with other offline and online sources.
Even though marketers have access to some very helpful data, we only get a glimpse of what is available. Even Alibaba, Tencent or China Mobile have a limited view of Chinese consumer behaviour. It is those in Beijing who have access to insights that would have most consumer analysts weak at the knees. In late 2013, we saw early signs of this, with cooperation between the Government and companies such as Baidu, Alibaba and China Unicom to assist with data collection for Chinese statistics. The Government’s enthusiastic embrace of their Internet Plus policy and online focus in recent Five Year Plans isn’t just to grow innovation, productivity and consumption. It enables them to better track everything from food supply chains to the opinions and behaviour of Mr. Zhou in Xuhui District.
Although most of us know in the Snowden era that our online activities aren’t off-limits to most Governments, the Chinese Government is a little less subtle about it. In fact, they have recently released a high level document outlining their social credit system, a scoring method based on online behaviour which Beijing hopes will build a culture of “sincerity” and a “harmonious socialist society” where “keeping trust is glorious.” Beijing plans to have it in place by 2020.
Those ‘poorly behaved’ online may struggle to take out a loan, book the “soft sleeper” class on trains, travel abroad or get their children into good schools, among many other things. There is even potential for social credit scores to be advertised on dating sites as a way to tempt potential suitors. Similar conduct is already happening on the popular Baihe dating site, where 15% of users display their Sesame Credit scores to add to their plausibility.
Chinese consumers already have to register their ID to use many online services and are well aware that they are being tracked. But such prescribed consequences may influence some behaviour online going forward, creating an even more unique environment. We will watch with interest.
For our Shanghai and China-based readers in the auto industry, China Skinny’s Nadja Rauscher will be presenting on Consumer Trends in China at the Global Automotive Plastics Industry Summit 2016 on Friday November 11. Come over and introduce yourself if you are there. More info here. Go to Page 2 to see this week’s China news and highlights.
Well there it was; another demonstration of the impact that Chinese travellers are having on the global tourism industry. An estimated 589 million Chinese travelled during the Golden Week holiday, collectively spending $72 billion in seven days – more than Kenya’s GDP for the year. With the number of trips growing 12% on last year’s Golden Week, consumers’ appetites for travel and experiences are showing no signs of waning.
If you needed further evidence of the scale of Chinese travelling en masse, the trusty annual Golden Week photos shouldn’t disappoint. Snaps of China’s crowded highways, glass-bottomed bridges, Shanghai Disneyland and other domestic tourism sites last week should help you understand why more Chinese are opting to travel overseas. A record 6 million Chinese left the Mainland over the week.
When travelling abroad, Chinese are becoming more diverse and adventurous in their choices. It’s representative of an overall consumer trend from fresh fruit to fashion, creating plenty of opportunities for niche brands, destinations and attractions.
Take Morocco for example. If you had been shopping for souvenirs in Marrakesh’s Souk Semmarine during Golden Week last year you would have struggled to spot ten Chinese tourists. This year you could have seen several hundred Chinese exploring the colourful bazaar. Visa applications for Morocco on Ctrip grew 3,500% this Golden Week. Similarly, you’d be much more likely to see tourists sending selfies on WeChat atop of Aztec Pyramids or forts in Montenegro.
Whilst destinations choices are becoming more varied, Chinese consumers’ love of a deal remains well-entrenched in the traveller psyche. With the pound at a 31-year low against the Renminbi, Golden Week visitors to Britain were up 60% compared to last year. Although the UK only received around one-tenth of the Chinese tourists France did in 2013, Britain was the most popular destination in Europe bar Russia this Golden Week. Perceived safety also bolstered preference to the UK over other Western European countries.
But even with overall numbers continuing to climb, destinations shouldn’t bank on Chinese shoppers continuing to spend at the rates they have previously. With the all-important youth travellers now seeking experience over accessory, and talk of lower duties in the Mainland, we are likely to see the way Chinese spend their travel budgets changing.
Shopping will remain a key component for happy Chinese tourists, but of less importance as travellers are becoming more rounded. This is represented by the growth of destinations not known for shopping such as Russia, Cambodia and New Zealand, which saw year-on-year gains of around 60% this Golden Week.
Chinese travellers’ constantly evolving preferences show that they are open to new experiences, allowing plenty of opportunities for well marketed and delivered tourism propositions. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.