We have just passed the 200-day mark of the US-China trade war, and what a 200 days it has been! Whilst we are finally seeing some positive signs that an agreement could be imminent, there has been plenty of commentary about the beating that America’s reputation has taken in China.
There’s no discounting that the spat has sped up the rise of nationalism in China, and there are consumers who may have directed their spending away from American businesses, but the impact has been much less severe than it could have been.
If we look back to the row between China and Japan in 2012 over the Daioyu/Senkaku Islands, many Japanese brands were hammered and some even shuttered. Similarly, the South Korean fiasco over THAAD in 2017 was estimated to cost the Korean economy $6.8 billion that year. Apple has attributed its poor results to the trade war, and Ford and GM have had better years, nevertheless all-American brands like Coke have reported no impact, and Nike saw a stunning quarter last December. Even Tiffany & Co. saw a double digit rise in Mainland China sales during November and December of last year.
One of the key differences between the US-China trade war and the disputes with Japan and South Korea is that the propaganda machine has not yet ramped up criticism of the US. China also hasn’t introduced regulations such as it did banning tour groups to South Korea. Such plays wouldn’t be well timed during the already-precarious trade negotiations with the US.
Tourism to the US was a sector that many commentators expected would take a hit as a result of the frosty relations, much like Japan’s visitors fell 34.3% in 2012, South Korea’s dropped 60% between March to October 2017, and numbers sunk at other ‘out-of-favour’ countries like the Philippines and Vietnam.
In late September, Ctrip reported that flight bookings to the US were down 42% for the October Golden Week holidays – one of the busiest weeks of the year for international travel. Other anecdotes have flooded in from travel agencies, echoing similar falls. So it will come as a surprise that Chinese tourist numbers to the US actually looked quite healthy in 2018. Although the national figures are yet to be published, Los Angeles reported a 6.9% increase in Chinese tourists last year to 1.2 million visitors. New York also hit record numbers last year, hosting 1.1 million Chinese visitors. It appeared Chinese tourism to the US took a hit in the early months of the trade war, but by November, the US Commerce department was projecting a 2% increase in Chinese tourists.
Like we’ve noted in previous Skinnies, tourism generally builds an affinity with the country, its cuisine, culture and lifestyles, which has a halo effect on preference towards many other product categories. In a world that seems to be more divided than it has been in a long time, China’s tourist growth to the US is refreshingly good news!
On the subject of tourism, China Skinny’s Mark Tanner will be sharing some insights at the beautiful Terranea Resort in Los Angeles for the Visit California Outlook Conference on February 12 & 13. Please pop by and say ni hao if you’re there. More information here. Go to Page 2 to see this week’s China news and highlights.
Over the past few years, one of the fastest growing trends in China has been sports and fitness. This has led to the growth of sporting products and services, as well as consequential purchases spanning categories as diverse as vitamins and tourism. The trend is being driven by both the Government who realises the health, social, economic and patriotic benefits of sports participation, and consumers who appreciate the upside in health, and are often seeking more from life.
China’s tech giants have been flirting with the craze for some time, but of late, more are utilising their pools of cash and the ever-increasing capabilities of their apps and algorithms to take things up a notch.
Last week Ctrip announced that they would be subsidising skiing-related activities by ¥100 million ($14.5 million). This follows Beijing’s push leading up to the 2022 Winter Olympics and undoubtedly user data is pointing to a spike in skiing-relating traveller activity.
In late-November the current cool kid on China’s tech block, ByteDance, announced a partnership with the NBA. This will see the league take advantage of China’s short video craze by offering bite-sized content on its Douyin, Toutiao and Xigua platforms. Unlike previous content deals between Chinese tech giants and the NBA, the content will be much more personalised to users’ needs, served directly to them using ByteDance’s clever AI algorithms.
The most interesting recent initiative in China’s sports world was last week’s announcement that Alibaba is offering a ‘Money Ball’ approach to individual sports. Just as professional teams use reams of data to maximise performance, Alibaba is hoping to use analytics to help individuals improve their performance, change the way sports events are managed and – obviously – influencing the related goods and services they buy.
There is unlikely to be another company globally who is better placed to serve and profit from athletes than Alibaba. Alibaba will be able to leverage its far-reaching data sources and customer connection across many of its platforms. These include Tmall and Taobao to sell sporting accessories and nutrition, Fliggy for sports event travel, AliHealth for aching joints and everything else that can go wrong in training, Focus Media for targeted sports-related advertising to users, its New Retail stores and partners such as Intersport, Ele.me for delivery of sports-related stuff for training and events, Youku for paid sports-related content and tipping, the list goes on…
One of the key takeouts from each of the tech giant’s initiatives is the extra user data that they’ll glean, allowing them to better personalise to individual’s needs and behaviours. A survey this month by China Skinny found sport and fitness is the category consumers most seek personalisation – with 44.8% of respondents finding it appealing. Brands should take note of the rise of sports and related categories, and how fans and athletes are participating in the digitally-integrated China. These realities should be integrated into many China marketing strategies – something China Skinny can assist with. Go to Page 2 to see this week’s China news and highlights.
Since 1990, the People’s Liberation Army (PLA) has accounted for more than 60% of the growth in global defence spending. In close to three decades, China has built a remarkable armament, with military drones and the odd unreliable stealth fighter, and is making some solid progress with AI. Just like the superpowers before, China aspires to have strong armed forces. But any good military needs good soldiers – for now at least.
Last September we noted the PLA slammed young Chinese males’ high failure rates in fitness tests, attributing unhealthy lifestyles, too many fizzy drinks, masturbation and video games, which has contributed to a complete freeze of new game approvals. But it turns out the Military’s issues with the male gene pool span far deeper.
It seems China has a masculinity crisis. Whilst Beijing has banned hip hop culture and tattoos from TV, for now it is a free-for-all for ‘feminine-looking’ boybands, which has led to much debate online. In September, state media outlet Xinhua declared “these sissies promote an unhealthy and unnatural culture which has a not-to-underestimate negative impact on the youth. The sissy culture, driven by consumption, challenges the public order and worships a decadent lifestyle”. Niángpàonán, or ‘sissy-boys’ has become a popular term online for Chinese males paying much attention to their clothing, hair, and make-up.
In some Chinese cities, males born in the 80s are more likely to own a pair of platform shoes than work boots or cleats. Yet effeminism is less of a concern than other trends seducing Chinese males. One teenager in eastern China bankrupted his parents by tipping a livestream host $37,000, claiming she was his girlfriend. China has more than 150 live stream sites, mostly funded by tipping from the 80% male viewership.
Whilst every male in China isn’t a gaming, live-stream-addicted ‘sissy boy’, as marketers it’s important to consider that this group has more spending power than the total consumption of many countries. They have their own distinct needs and respond differently to marketing than males on the streets of Sydney or Seattle, and even other sub-tribes in China. China Skinny can assist your brand with defining their needs and planning how to best resonate with them.
Not all is lost for concerned parents across China. Their desperation for their one-child to be a boy saw the male:female birth imbalance hit 1.15:1 in 2016 (second only to Liechtenstein). For those wanting their boy to be a hǎohàn – a real man, there are ¥10,000 ($1,400) training camps aimed to tackle the “crisis in boys’ education” and “help them find their lost masculinity.”
On another note, a big hat tip to Alibaba who continue to reach new heights with their 11.11/Singles’ Day extravaganza, growing 27% from last year’s massive base (in RMB terms) to $30.8 billion in gross merchandise value. See the infographic here. JD had similar growth of 26% on their 11-day Single’s Day festival, with sales climbing to $23 billion.
Your Thoughts: We received some passionate responses to our article about CIIE last week, not all of it positive. Over the past week we’ve spoken to a number of brands who exhibited at the event – some considered it a roaring success, other reviews were mixed. We’d love to hear your thoughts if you were there. Similarly please let us know how Singles’ Day went for you. Just reply to this email with any comments or feedback. Go to Page 2 to see this week’s China news and highlights.
You’ve got to give it to China: This week’s inaugural China International Import Expo (CIIE) in Shanghai – the ‘Canton Fair for exporters’ – has attracted representatives from 85% of the countries that the Olympics attracts, all hoping to sell their wares to China.
President Xi Jinping officially opened the expo speaking to political and business leaders from 172 countries. Xi pledged to increase goods imports to $30 trillion over the next 15 years, and services to $10 trillion. The goods figures were $6 trillion higher than the existing target of $24 trillion that the Ministry of Commerce had re-stated just hours before. However the figures are parallel with – actually below – how China has been tracking. China’s goods imports grew 16% last year to $1.84 trillion in 2017. The $30 trillion target averages $2 trillion a year indicating a very unambitious official growth target as Caixin pointed out. Comparing the import growth targets to the rise in GDP is even more underwhelming as illustrated in this graph, posted on Twitter by Economist journalist Simon Rabinovitch.
Among other announcements, Xi vowed to “firmly punish behaviour that encroaches on the lawful rights and interests of foreign companies, particularly IP infringements.” He promised looser restrictions on foreign ownership in the education and health care sectors, expansion of the Shanghai Free Trade Zone to another area, stepping up of cross-border e-commerce, along with reduced tariffs and lower “institutional costs” of imports.
Although many details of the expo have been shrouded in mystery until opening day, the show floor attracted over 3,000 businesses sparing no expense, exhibiting everything from flying cars to Maori food to an estimated 150,000 buyers from across China. To signify China’s importance for global trade, 130 countries are represented in the enormous four leafed clover-shaped exhibition centre, just shy of the 132 who have signed up for Dubai’s World Expo in 2020.
Attending the opening day were around a dozen prime ministers and presidents from countries like Russia, Vietnam, Egypt, Hungary, the Dominican Republic, Pakistan, the Czech Republic, El Salvador, Kenya and Laos, the President of the World Bank, Director-General of the WTO, MD of the IMF, Jack Ma and Bill Gates and Australia’s trade commissioner in the country’s first high-level ministerial trip in over a year.
Like any big show in China, there is the obligatory mascot – Jinbao the panda, commemorative stamps, countless convoys disrupting traffic, and numerous deals announced such as Alibaba’s pledge to bring ¥200 billion ($28.8 billion) of imports over five years and JD.com’s ¥100 billion ($14.4 billion). It is anyone’s guess as to how many of the deals signed this week come to fruition, but the expo is an unquestionably positive step in promoting imports and potentially spreading their presence deeper into the hinterland. See photos of the expo here. All the best to our readers who are at the expo. Go to Page 2 to see this week’s China news and highlights.
There’s no shortage of coverage about China’s New Retail revolution, its mouthwatering rise of shared bikes and its 227 million active users, along with WeChat, ecommerce, mobile payments and other uniquely China trends such as cream cheese tea and face-kinis. Yet there are many other phenomenons happening in China that attract less attention but are also impacting consumers at a level that brands should take notice of. Here are three trends that Skinny readers are likely to be aware of, but maybe less familiar with the full scale and speed of their rise:
1. Consumer Credit
Consumption has been the most robust sector of China’s economy in recent years, with growth trucking along at double digits as long as most can remember. While other factors such as manufacturing, investment and house prices haven’t maintained the same momentum, three contributors have allowed Chinese consumers to defy the odds and keep spending more and more: record consumer optimism, soaring wage growth (with China’s hourly incomes now exceeding every Latin American country except Chile) and rising consumer credit.
Although China is well known for its high saving rates, these figures are skewed by older folk. The younger generation haven’t lived through the same periods of austerity and feel much less need to save for a rainy day. They’ve seen their wages grow every year, their parent’s real estate assets soar, and have been lured by the bright lights of consumerism – often calling on easy credit to spend more than they earn. Between 2015 and 2017 consumer credit grew fivefold, with those aged 24-35 making up more than 70% of consumer borrowers in China.
2. ByteDance’s Douyin
At a much more micro level, some brands looking for ‘the next WeChat’ could be heartened by the remarkable rise of Douyin and the overall ascent of short video. Launched less than two years ago, Douyin’s user numbers have quadrupled since January to boast more than 150 million daily active users watching an average of 82 short videos a day. The 15 second videos serve Chinese millennials’ craving of instant gratification, to fill any down-moment with cheap entertainment. Douyin’s growth has been so drastic that even Tencent has felt threatened and banned the service on WeChat last month. Douyin’s popularity and rapid rise has enabled fast-moving brands to use the platform to build awareness and preference with those indebted young consumers at a fraction of the cost of the more crowded and mature platforms like WeChat, Tmall and Weibo.
What makes Douyin, and its sister app Musical.ly, special is that they are two of the few Chinese apps that have been able to crack the elusive Western markets. Douyin, known as Tik Tok outside of China, was the most downloaded iPhone app in the world in Q1 of this year. Any concerns in the US about the Chinese Government monitoring your every move, something which has plagued brands such as Huawei and even WeChat, seems to be irrelevant for the Western millennials shooting and watching short videos on Tik Tok.
3. DJI Drones
Drones, while not on the same scale as consumer finance or Douyin, are making an impact across many sectors in China. One company leading the way – DJI – has beaten out formidable American competitors such as GoPro and 3DR and now owns 70% of the world’s drone market. DJI’s confidence is represented by their new HQ being built in Shenzhen complete with a skybridge for testing drones and rings for fighting robots.
DJI is creating efficiencies in industries as diverse as agriculture and food delivery, which will have a downstream impact on supply and consumption in China. It is representative of increasing automation modernising China’s supply chain and logistics, particularly in the online-to-offline categories. DJI is symbolic of the rise of China’s ambitious mega-businesses who are investing real money in R&D, while remaining nimble and long term-focused to lead their category. Expect more to come.
Those are just three of the numerous developments coming from China daily, many which are likely to be relevant to your brand, or how you market it. Agencies such as China Skinny will ensure you keep up with those trends and develop a plan how to make the most of the opportunities they bring.
Speaking of trends, China Skinny’s Mark Tanner will be sharing more in Brisbane next Thursday July 5 speaking at the ACBC-Brisbane Airport Welcome for the Air China Direct Flights Between Beijing and Brisbane. If you’re at the event, please pop over and say ni hao. More information here. Go to Page 2 to see this week’s China news and highlights.
There are many relatively unknown cities in China with GDPs as large as countries. For example, the city of Zibo has an economy the size of Panama’s and Tangshan’s GDP ranks up there with New Zealand by some measures. These smaller cities are helping drive China’s consumer demand, and by proxy, the global economy. Morgan Stanley forecasts that lower tier cities will account for two-thirds of the increase in consumption between now and 2030.
As China’s biggest cities have become the most crowded and contested markets on the planet, more and more brands are looking to cities like the Zibos and Tangshans where growth is often faster and competition less fierce. We only need to look at FMCG which has been growing 2-3 times faster in lower tier cities than big cities over recent years. In tourism, the 10 fastest growing airports by passenger numbers are all tier 2 cities and below. A third of all Cadillacs sold in China were bought in tier 3 & 4 cities.
Yet while it’s become common to talk about China’s less-competitive lower tier cities, brands shouldn’t just be throwing darts at maps and reviewing GDP figures in determining where to focus. Consumers in many lower tier cities don’t yet have a level of sophistication to demand many products and services.
Before looking to the hinterland, brands should critically assess consumer behaviour and preferences in those cities. Lifestyles, climate and travel habits are often as much of a contributor to demand for a product than GDP per capita. Ecommerce data, although much less developed than tier 1 and 2 cities, can also provide hints into potential demand. Even local government policy can impact consumer demand – just look to Electric Vehicles, where six cities contribute to 40% of sales.
In many cases, the hyper-competitive cities like Shanghai and Beijing can still be the most lucrative markets to target. They have become incredibly wealthy with GDP per capita adjusted for purchasing power now comparable to Switzerland. They have been wealthier longer, were allowed to travel abroad sooner, and as a result, have much more mature and sophisticated tastes. As a result, they are more ready for some Western products and services.
With both cities having more than 20 million people, just focusing on specific demographics or districts can itself produce material sales and a beachhead for further expansion.
A good example is American wholesaler Costco. Four years of testing the water with cross border commerce has given them confidence in demand for their products and formats. This month they announced they will launch two large Costco bricks & mortar stores in Shanghai. Unlike most of the 226 brands who opened their first stores centrally in Shanghai last year, Costco is opening in the outer districts of Minhang and Pudong New Area.
The bulk sales model like Costco hasn’t really taken off in China yet. Consumers have smaller kitchens and less storage than in the US, lower car usage for shopping, and a preference for freshness. However Costco is likely to have evaluated the last 4-years of ecommerce sales data to make informed decisions. If it will work anywhere, Minhang and far-flung Pudong are good bets. They are affluent areas with many large villa residences and a population who is more reliant on driving for daily needs. Costco’s first 33,000 square metre store opening in April 2019 will have 1,000 carparks. One would hope that they are integrating New Retail into their stores to ensure they are relevant and engaging for consumers.
Whether you are Costco, a fashion brand or selling vitamins, there is no consistent answer about which city is best to target. Brands would be wise to analyse different cities and regions before making a call. The cities a brand chooses to target should be an important factor in developing localised marketing strategies, selecting distributors and even lawyers familiar with local laws and regulations. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
The lure of WeChat for brands is clear; last year it drove $32.9 billion of information consumption and $52.4 billion of traditional consumption including travel, food, shopping, hotels, and tourism, according to a report from the China Academy of Information and Communications Technology released this month. 34% of China’s data traffic happens on WeChat, versus the 14% on Facebook in North America.
There’s no denying WeChat’s enormous impact into everyday life in China as it has progressed to become a near unparalleled marketing tool. Yet its popularity has also made it hyper competitive. Official Accounts now number 20 million, with 3.5 million of those active, raising the bar for any brand hoping to make an impact on WeChat – seeing consumer expectations surge with it.
Last year over half of WeChat Official accounts saw less readership than in 2016. Whilst the way consumers use WeChat is continually becoming more sophisticated, many brands’ WeChat strategies haven’t done much to keep up. Few provide genuine value through entertaining and educational content. Even less build communities that engage and resonate with their target market and potential advocates. And many brands still see WeChat as a one-way communication stream to push content out to followers, and are yet to tap into the plethora of interactive functions available in the WeChat ecosystem or integrate offline touch points.
In most cases, WeChat initiatives do cost money. Many brands realise this and allocate a material budget for WeChat marketing. China Skinny gets many approaches from brands wanting a ‘WeChat campaign’, but often haven’t even defined their target market, positioning or what makes them unique from the thousands of other brands in their category. Without having these foundations, investing in WeChat will often be throwing good money after bad.
Although we hear so much about marketing opportunities on WeChat, in some cases an Official WeChat account isn’t appropriate for a brand. Take a small tourist attraction overseas for example. For many Chinese tourists, they are likely to only ever visit it once – and it will be just one of many places they’re seeing on their holiday. So few travellers will go to the effort and care enough to follow something that will fill their WeChat account with content that isn’t very relevant. Nevertheless, even if the attraction doesn’t have an Official Account, WeChat can still be very effective for that tourism business using less traditional advocacy initiatives or payments.
Brands shouldn’t blindly just invest in a traditional WeChat account just because everyone is talking about WeChat. They would be wise to ensure that they have the foundational strategy defined first and then consider the context of WeChat with regard to their product or service and positioning. Agencies such as China Skinny can assist with this.
For our British and European-based readers, China Skinny’s Mark Tanner will be in London at the Clavis Insight 2018 EMEA eCommerce Accelerator Summit on June 6 sharing ecommerce industry trends and case studies alongside GSK, L’Oreal, Unilever and PlanetRetail. More information here – we hope to see you there. Go to Page 2 to see this week’s China news and highlights.
China Skinny worked with Austcham to deliver the the 2018 Westpac Australia-China Business Sentiment Survey which was launched today in Sydney. Arguably the most concerning finding was the poor utilisation of digital platforms. Whilst we found the majority of respondents recognised innovation in technology, media and communications will be the number one trend shaping businesses in China for the next 3-5 years, just 16% currently have a detailed China digital or ecommerce strategy in place.
Chinese consumers and business people are among the world’s most engaged users of digital channels, spending an average of 200 minutes a day on their smartphones. The country’s ecommerce market is larger than the rest of the world combined and worth over $766.5 billion last year – more than 50 times the size of Australia’s online market.
A closer look into which businesses are proactively responding to digital/ecommerce opportunities shows that it can a powerful tool for B2B sectors. We found respondents from some of the least traditional digital industries leveraging online channels to their advantage, from facilitating instant B2B payments via mobile to relationship building. This position was supported by the survey which showed the B2B sector of ‘Professional and Business Services’, to be the most developed in this space, with +6.9% more likely to have a detailed plan in place.
Limited Diversification Of Digital Channels
In addition to the need for more businesses to establish a strategy, the survey also highlighted the importance of Australian businesses expanding their focus beyond WeChat and their own websites, which were the top two channels used to sell their products/services.
On the surface, it was promising to see Australian businesses embracing WeChat as the number one channel used to sell, as social commerce presents significant opportunities for clever social campaigns and advocacy-based sales. However, scratching the surface, the popularity of WeChat and own websites hint to a relatively primitive online strategy and reluctance to invest across multiple channels. Marketing and branding, logistics, warehousing and catering to the size of the market were cited as the biggest challenges for employing and growing ecommerce in China.
Whilst this expanded channel approach is recommended, it is important for businesses to understand that ecommerce in China is hyper-competitive and expensive to enter and maintain, particularly so for Tmall and JD. For many businesses, these two channels still present the significant opportunities – even after cost and competition is considered – yet there are gains to be had across niche and category-specific platforms, such Kaola, Red, Ymatou and VIP.
Extending the channel analysis further, the results suggest that Daigou’s are not being leveraged to their full potential, with just 3.7% of businesses using this channel to sell. Although not relevant for every category, some analysts estimate that Daigou collectively sent as much as US$470 million worth of Australian products to China in 2016 and are contributed significantly to the success of some of Australia’s highest profile products in the market such as Swisse, Blackmores and A2.
Cross-border commerce continues to be one of China’s hottest categories, with the number of ecommerce users who shopped abroad increasing from 34% in 2015 to 64% in 2017. Australian products’ enviable reputation is confirmed as the top origin for food for 44% of shoppers (iResearch). Nevertheless, just 13% of businesses rated cross-border as a top trend, suggesting that this area also represents an under-tapped opportunity for Australian businesses in China.
Looking Beyond Sales
The benefits for brands of a well-developed digital plan stretch far beyond sales. Ecommerce has become a powerful platform for marketing, integration into bricks & mortar and research – the data and behavioural insights derived from just Alibaba and JD boasts a sample of over 750 million consumers.
In the survey, we found businesses such as Metcash leveraging purchase behaviour made online to inform optimum product portfolios to sell offline in lower tier cities. Likewise, architects Woods Bagot use big data to inform optimal design of their mixed-used retail centres.
What Is The Opportunity Cost Of Not Having A Detailed Digital Strategy?
The analysis of the survey data showed there to be clear advantages to having a detailed strategy in place. The 16.2% of businesses with a developed plan were:
- +11.7% more likely to turn a profit compared to the average between 2016-2018 (Forecast)
- +18.1% more likely to state that China revenue would outpace other markets, and;
- +11.6% more optimistic about the 12-month outlook compared to those without a plan.
The full report contains a trove of interesting findings from challenges, risks and competition to macro influences. The findings deliver a valuable perspective into the overall health and opportunities for Australian businesses in China. They also provide a performance benchmark for any foreign firm trading with China, not just Australian.
“Analysis by the Environmental Working Group found that 160,000 people living in the region may be harmed by pig waste … pigs are treated with antibiotics, vaccines and insecticides, all of which eventually pass into the lagoons, which have been found to contain toxic chemicals, nitrates, parasites, viruses and more than a hundred strands of antibiotic-resistant microbes, including salmonella, streptococci and giardia. People die with distressing regularity in the waste.”
Your mind will likely jump to images of pig farms in Henan or Sichuan province, yet the exert was taken straight out of a Rolling Stone article on the hog industry in North Carolina; America’s pork-producing heartland where the country’s largest pork producer Smithfield is located. In 2013, Smithfield was acquired by the Chinese conglomerate now known as WH Group for $7.1 billion. Due to lower pig-feed prices, larger farms and loose business and environmental regulation, it is 50% cheaper to produce pork in the US than China, prompting China to outsource some of its environmental and human costs abroad. The Smithfield acquisition has been so successful, WH Group has subsequently made similar purchases in Poland and Romania.
Whilst we could fill thousands of newsletters with similar examples from toxic Chinese farms, the North Carolina exert is representative of a broad trend that is happening in China as it becomes wealthier, moves up the value chain and sees its citizens demand more.
China’s outsourcing spans far beyond food production. As China’s labour costs continue to soar and environmental regulation gets tougher, many manufacturers are looking towards South and Southeast Asia – and probably Central Asia and Eastern Europe as infrastructure improves with Belt and Road initiatives. While China celebrates its reduction in coal consumption and improving environment, it is offloading surplus coal to an outdated dirty coal plant on the coast of Kenya that it recently financed, poised to become the country’s largest polluter. China recently built a $250 million fast fashion factory in Ethiopia in addition to other significant manufacturing investments and agricultural production like in many other countries in Africa.
The trend certainly isn’t a new phenomenon. Similar outsourcing happened with the British empire, and more recently with American multinationals who ironically outsourced much of their dirty industry to China. In short, it is another indicator of how the world is pivoting.
From a purely commercial perspective, the allure of selling cheap commodities to service Chinese consumers’ ever-growing appetite while polluting lagoons, rivers, land and people may appeal in the short term, there are some factors indicating that it may not be sustainable in the medium-long term. There are the obvious hideous effects of the pollution, but also the fact that through technology and increasing infrastructure investments in poorer countries across Asia, Africa, Eastern Europe and Latin America, the market is likely to see a rise of large scale competitors bringing down the overall price of commodities.
From a branding perspective, Chinese consumers are trading up across almost every category from smartphones to dairy. Well marketed brands from developed nations are able to charge a premium based on the exemplar reputation their country has, playing well to this premiumisation trend. But this comparative advantage shouldn’t be taken for granted. Stories such as Smithfield’s pork producers will be seen by Chinese consumers and chip away at the value of Brand USA as a whole, if proposed tariffs weren’t enough already. Although Chinese place less significance on the environmental impacts of food production than their Western peers, this is changing. With origin being such an important decision driver for many Chinese purchases, it would pay to think strategically. Go to Page 2 to see this week’s China news and highlights.
To understand the impact of Government directives on consumer behaviour in China we’d suggest watching the rise of winter sports over the next four years. Already well underway, the surge in related content through state-controlled traditional media channels provides a clear insight into Beijing’s strong influence over digital touch points.
In 2022, Beijing’s hosting of the Winter Olympics will see it become the first city to ever host both a Summer and Winter Games – remarkably within less than a decade and a half of one another. Beijing’s dual-hosting symbolises the dramatic rise on the sway China now holds across the world.
Looking back to the effort and expense Beijing made for its Olympic host campaign 10 years ago, it is clear how serious China takes the Games to showcase the new face of a powerful China. Beijing spent $42 billion hosting the 2008 games – almost three times the $15 billion Athens spent just four years earlier. But beyond the infrastructure investments and ceremonies, the success of China’s athletes was just as impressive. Almost half of China’s medals were gold – 48 – a third more than second-placed USA.
China is a different nation than it was in 2008 – much more assertive, wealthy and influential, but equally focused on not losing face in front of the world. That is why Beijing will be doing everything it can to ensure it puts on a good show when it hosts the Winter Olympics.
Beijing will be bitterly disappointed with the woeful showing in Pyeongchang last month, where China’s short track speed skater Wu Dajing was the only athlete to bring home a gold. China was squeezed out of the top-15 by Belarus with just 9 showings on the podium. The legends of Norway earned around 3,700 times more gold medals per capita than China.
No doubt there’ll be plenty of Chinese lurking through the snow in Norway studying how the country is producing so many champions, but that is just the start of it. Not long after Beijing was awarded the hosting rights in 2015, China announced it would build 650 skating rinks and 800 ski resorts (complete with fake snow) by 2022. It hopes to attract 300 million people into winter sports by then. There are reports of highly paid foreign coaches combing cities, towns and villages for the most promising kids – Cool Runnings-type stuff.
Yet the success of hosting its second Olympic games won’t just be built on medals – the buzz and support of the hosting city and country is equally important. For that reason, Beijing may also be concerned about the 200,000 Chinese visitors that Korea was aiming to visit the Pyeongchang Olympics, only 20,000 came. The Korean tour group ban and negative propaganda over their THAAD defence installation won’t have helped, but China will be wanting a little more enthusiasm for winter sports by 2022. Rent-a-crowd has got a lot more expensive than it was in 2008 in China.
So for the next four years, expect Beijing to be pulling a lot of levers so they can showcase China’s brilliance in the 2022 Olympics. Expect there to be a major uptick in airtime and interest for anything related to exercising in the cold stuff. There’ll be a lot more presence for ice skating gear, snow boarding exhibitions, skiing KOLs, and winter tourism promotion. Alibaba has already jumped on the wagon, but expect most of China’s other big companies to follow suit. If nothing else, it will be a fascinating four years to observe! Go to Page 2 to see this week’s China news and highlights.
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.
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.
Here’s some further encouraging news for China’s consumer market: in the first eight months of this year more babies were born into families with multiple children than those without – some 52% versus 45% in 2016. That will hearten the folk in Beijing who are seeking solutions to support its top-heavy population demographics, and should be music to the ears of brands peddling everything from infant formula to shared accommodation. During last weekend’s enormous Singles’ Day festival, baby products were among the top-selling categories.
Despite the increases, Chinese mothers continue to have one of the highest workplace participation rates globally, with 63% of females in the workforce versus 56% in the US and 50% globally. This is the result of a generation of the one-child policy, differing family structures which see grandparents caring for young ones and an admirable cultural belief that “women hold up half the sky.”
Even with the spike in those procreating, many Chinese remain uninformed on the subject. For example, more than 80% of adults in China have misunderstandings about contraception. This is the result of limited sex education and ‘birds and bees’ chats between parents and their kids. Sexual references are taboo in mainstream media and other channels. It was in 2015 when the big budget empress TV soap was taken off air to have Fanbingbing chest shots photoshopped out. Homosexual references are completely banned and even leggy models were even banned from car shows as Beijing does what it can to keep its population pure and innocent. This is reflected in consumer tastes and confirmed in numerous China Skinny research projects which has found an aversion to certain images deemed too sexy, with distinct preferences for the cutesy.
Yet behind the Hello Kitty knits and gaming youth, sexual innuendos are becoming more commonplace in China. Any visit to the local convenience store is a testament with battery operated devices, lubes and contraceptives taking prime real estate in point of sale displays by the counter. In a movement that represents greater self-confidence towards previously frowned upon areas, lingerie has become one of the fastest-growing fashion categories in China growing 20% annually for almost a decade.
There are much less subtle indicators of a trend towards an increased liberalness. Durex is leading the revolution by tiptoeing around the sensitive subjects to create engaging and timely communications that resonate with consumers online and get shared en masse. And while Durex and other foreign brands lead the category, a host of local condom makers are coming up with new innovative products to break into the fast-growing category.
Like everything in China, what appeals and is acceptable to consumers is constantly shifting. Hit the mark, and a brand can attain a cult-like following. Miss it, and there can be an anti-following. Agencies such as China Skinny can assure you are on the mark. Go to Page 2 to see this week’s China news and highlights.
Health has been one of the core themes in China’s consumer landscape over the past few years. Anyone who understands Chinese consumers’ approach to health will appreciate the unity based on the opposing and complementary relations of the yin and yang. A pillar of Traditional Chinese Medicine (TCM) beliefs, the yin and yang need to be in harmony – when one aspect is deficient, the other is in excess.
Many consumers’ health, food and lifestyle decisions are based on maintaining this balance – this ensures a normal flow of qi so their body functions well and they can recover from illness more easily. Whilst people are increasingly living longer in China, partially due to advancements in modern medicine, the ancient TCM beliefs still hold significant importance for consumers. Many factors disrupting that harmony have only become an issue over the past generation.
We only need to look at the scary growth in breast cancer rates in Chinese women to understand how the yin and yang have been knocked off balance. Breast cancer has become the most common cancer among women in China with rates climbing 3.5% annually between 2000 and 2013, versus a 0.4% annual drop in the US. Much of the growth can be attributed to a generation of changes in Chinese lifestyles, such as urbanisation and an increase in professional work. This has led to lower childbearing rates and older mothers at birth, with a subsequent aversion to breastfeeding. Higher stress, less exercise, more unhealthy diets and increased alcohol consumption are also contributing. Each of these factors are common in many countries, but the rate and extremity of change has been much more dramatic in China.
Common household salt has been another factor disrupting the qi flow. On average Chinese eat more than double the recommended intake of salt. This is also a problem in many countries, the difference is 80% of consumption is attributable to Chinese consumers’ own cooking, whereas in the West it mainly comes from processed foods. The list of contributors goes on, as do their differences from other countries.
To help find balance, Chinese are increasingly making conscious decisions to consume healthy food and vitamins, in addition to doing more activities based on healthiness. The most popular of those is jogging. Interestingly, numerous studies have found the negative effects of exercising in pollution outweigh the benefits. This has done little to temper the enthusiasm of joggers in Chinese cities and their paraphernalia.
Many of the factors affecting consumers’ yin and yang balance are attributable to their lifestyle and dietary choices, however a number remain out of control of the average urban dweller. Air pollution may be the most visible, yet the water and soil pollution are often much more damaging to the balance and harder to restore. According to a national soil survey, one-fifth of farmland in China is contaminated by organic and inorganic chemical pollutants and by metals such as lead, cadmium and arsenic, with the most polluted areas concentrated around the wealthy cities where a large share of their food is grown. Unfortunately a paddock growing rice in soil oozing with cadmium seepage and irrigated with toxic water still often looks like a normal green rice paddy, making it harder to manage and resolve. Even the remarkable rise of meal delivery in China is contributing to waste that is affecting the food supply chain and consequent balance.
These influences have been a boon for foreign brands who are often perceived as healthier. Yet every brand trading on health and purity would be wise to understand how the yin and yang, and hot and cold fit into many consumers’ consideration set. Agencies such as China Skinny can assist with your new product development, your brand and positioning to ensure this is considered and relevant to Chinese consumers. 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.