Another Singles’ Day and another dizzying array of records: Almost $70 billion worth of goods sold just on China’s top two platforms including $38.4 billion on Alibaba and $29.2 billion over the 11-day sale on JD.com, a 27% rise across the board. On Alibaba alone, 299 brands surpassed ¥100 million ($14.3 million) in GMV. One million new products were launched and over 50% of Tmall merchants engaged in livestreaming. Delivery companies hired an extra 400,000 workers to handle the 2.8 billion packages expected to be delivered this week – two packages for every person in China!
Studying the behaviour of the 500 million shoppers on Alibaba platforms on Monday (100 million more than last year), delivered some interesting findings. According to research conducted when emotions were still raw from the NBA incident, 78% of Chinese consumers claimed they’d avoid buying US products on Singles’ Day. Like so many insights and data in China, this looks to have been a little far-fetched. On 11.11, the US was the second-most popular origin for imported goods after Japan and of the 15 brands whose sales blew past ¥1 billion ($143 million), more than half were American: Apple, Bose, Estée Lauder, Gap, Levi’s, Nike, The North Face and Under Armour.
The cheerful results for American brands comes off the back of more positive news for another country currently in the ‘dog box’. Last week, coinciding with the plethora of announcements at the China International Import Expo (CIIE) in Shanghai, Canada’s four-month ban of beef and pork exports to China was lifted. Although the Huawei arrest issues persist, the decision reflects the seriousness of the African Swine Flu on China’s favourite source of protein. The number of live pigs fell 41.1% year-on-year in October and pork prices surged 101.3%, including a 20.1% rise just in the last month.
Much like Canadian beef and pork, the outlook for imported food and beverage looks strong overall. Food safety continues to be the top societal concern amongst consumers in China. Food is just one area that continues to show promise for foreign brands based on Singles’ Day and last week’s CIIE. At the expo, global health care giants such as AstraZeneca, Boston Scientific, Eli Lilly and Thermo Fisher Scientific made it no secret that they are increasing their focus on China to capitalise on its soaring health needs.
All in all, Chinese consumers’ enthusiasm to spend continues, providing plenty of reasons to invest in China. Yet not everyone is feeling happy with their lot. 49.6% of Chinese residents feel either “satisfied” or “very satisfied” with their overall quality of life, 5% less than in 2017. For China’s younger demographics, top concerns are education, employment, housing, healthcare and entrepreneurship.
The good, bad and ugly are obviously all important for brands looking to understand, connect with and inspire Chinese consumers. Talk to China Skinny about how we can delve much deeper to provide you with that objective view.
In other news, China Skinny is seeking an intelligent and curious native English speaker based in Shanghai to join our star-studded team as a marketing executive / manager. If you are interested, or know someone who may be, please click/tap here for more information. We hope you enjoy this week’s Skinny.
Infographic: Alibaba’s 2019 Singles’ Day: Alibaba has done it again with another huge 11.11, 26% bigger than 2018. Find out the major milestones, exporting countries and others factoids. JD also had an enormous Singles’ Day with their 11-day long festival hitting $29.2 billion growing 28%, with 70% of new customers from lower tier cities.
Tmall Global Wants to Build an Ecosystem of Global Influencers: Kim Kardashian West sold out of her stock of her name-brand KKW perfume in just a few minutes during a livestream with China’s top livestreamer, Viya Huang, drawing 13 million viewers to mark her entry into China via Tmall Global. Tmall Global Influencer Ecosystem plans to train and support 2,000 ‘mega-popular’ influencers, building on the current 500 influencers from 10 countries, including China.
China’s Commercial 5G Rollout, Explained: 5G is now available in certain areas of 50 Chinese cities, including Beijing, Shanghai, Guangzhou, and Shenzhen, with nearly 20 5G-enabled smartphone models available, although just 787K of the 288 million phones shipped in the first three quarters of 2019 were 5G capable. In addition to downloading large files and opening webpages more quickly — 5G will also aid the development of cloud computing, artificial intelligence, and the internet of things.
National Livelihood Satisfaction Survey Released, Rural Professional Associations and Farmer Incomes: A survey of 51,606 people by the State Council’s Development Research Center found 49.6% of residents in urban and rural areas were “very satisfied” or “satisfied” with their overall quality of life, down from 52.8% in 2017, with the gap between urban and rural widening. Those “relatively dissatisfied” or “very dissatisfied” increased to 13.4%, up from 12% in 2017. 68.9% were “confident” or “very confident” about the future, with 10.2% not. 75% saw no increase or a decrease in income, while 70.8% saw expenditures increase as a portion of incomes. Food safety was the top societal concern (26.4%).
A Look Back at China’s Favourite Imports: 2:30 video explaining popular imported products and music, which were introduced to the Chinese mainland in the 70s, 80s and 90s.
Have Chinese Youth Gone Cold on the Climate?: A survey by Youth.cn found Chinese youth’s top concerns to be education (79.8%) and employment (77.1%), followed by housing, healthcare and entrepreneurship. The environment was sixth of the nine topics. Climate change wasn’t even specified. In 2018, carbon emissions worldwide rose 2.8%. In China the rise was 4.8%.
JD.com Opens its Largest Offline Store to Date, and in Western China: “JD E-SPACE,” a custom-built, 50,000-square-meter modern shopping destination in Chongqing, China. The new JD E-SPACE opens its doors in Chongqing on November 11, 2019 with Singles’ Day specials. The store features top-selling electronics, home appliances, digital accessories, health, fitness, beauty, office supplies and more, including brand-experience zones from Apple, Microsoft, GE and ninebot. The store promises shopping convenience with an immersive and interactive experience including robots which guide customers and introduce products.
Food & Beverage
King Of Beverages Zong Qinghou Aims To Revitalize Wahaha: It’s not just foreign brands who are struggling to keep up with China’s dynamic FMCG category, China’s largest privately held beverage company Hangzhou Wahaha Group has seen revenue slide from ¥78 billion ($11 billion) in 2013 to ¥47 billion last year as it hasn’t captured the trading-up trend as well as it could have. The company plans to change that, vowing to life sales by at least 50% next year.
China is Hungry for Australian Beef, but Every Second Kilo Shoppers Buy Could be Fake: Australian beef exports to China up 73% on last year, with Chinese consumers are prepared to pay hundreds of dollars a kilogram for the right cut of steak from a country they trust, but often don’t get what they think they’re buying. PwC estimates that every second kilogram of beef sold in China under the banner of being Australian isn’t Australian. The African Swine Flu-driven culling of pigs – China’s dominant source of protein – has seen more enthusiasm for beef imports from Beijing, with the government ending a 20-year ban on British beef in deal expected to be worth £230m ($296 million) and lifting a 4-month ban on Canadian beef and pork imports following the Huawei arrest.
China’s Trip.com (formerly Ctrip) Ties Up With US Giant: A joint venture between Trip.com and TripAdvisor will see shared inventories in travel categories. TripAdvisor will also provide content for distribution across many of Trip.com’s foreign and China-focused brands including Trip.com, Skyscanner, Ctrip and Qunar. Ctrip will also have a person on Tripadvisor’s board and the right to purchase shares. Chinese outbound travel accounts for 20-25% of Ctrip’s revenue.
US, EU Health Care Giants Jump at Opportunities in China During Import Expo: Global health care giants such as AstraZeneca, Boston Scientific, Eli Lilly and Thermo Fisher Scientific unveiled massive floor displays this week to promote their products to Chinese buyers at last week’s CIIE. The primary contingent of American companies participating in the expo was concentrated in the medical and health care industries. Timed with CIIE, Britain’s AstraZeneca has launched a $1 billion China investment fund with CICC, and announced expansion of its Shanghai R&D centre and the establishment of new regional headquarters in Chengdu, Guangzhou and Hangzhou, in addition to Beijing as it doubles down in China.
Property & Investments
China Now Has An Answer To Its Housing Crisis – It’s Called Rent: Upwards of 30% of new home purchases in China were being carried out due to an impending marriage. In 1991, the average age for a couple to get married was 23.7 and have a child was 24.2 years. Last year, it was 27.8 for marriage and nearly 30 for a child. Although property prices in China have become some of the most expensive in the world, having more than quadrupled since 2000, rent is still very affordable. For example, as of June 2018, the average monthly cost of a mortgage in China’s top cities was ¥16,000 ($2,274) per month, while the average rent was less than half that at ¥7,000 ($995). Over 200 million people in China are now renting their homes, although the value of the rental market makes up just 2% of the housing market value, but the stage is now set for China to create a dynamic rental market.
60% of Chinese Household Debt Tied up in Home Loans, Existing Homeowners Dominate Lending: Residential property loans account for 55.6% of all household debt according to Ant Financial. Between 2017 to 2018, the share of residential loans made to existing homeowners rose from 62.9% to 65.9%, greatly exceeding the share of first home loans. In 2019, the Chinese loan participation rate was just 28.7%, compared to 78.0% in the US. The wealthiest 10% of Chinese households have 80% of the savings, while 40% save nothing. The average Chinese household controls ¥1.62 million ($230K) in assets, with real estate accounting for most of it, whereas only about a third of US household assets are property.
Western Luxury Brands Showcase China Love at CIIE: High-end luxury brands had their own dedicated section at the fair this year. LVMH’s 500 square meter exhibition showcased its 13 iconic brands, with Louis Vuitton presenting their latest flexible-screen handbag from LV and Fendi offering a special handbag inspired by the Chinese Forbidden City. Kering devoted its space to the sustainability effort, and L’Oréal brought its latest beauty-tech products, including an AI-aided consumer insight system, a one-stop skin detection app, and more. Even Dolce & Gabbana was there trying to crawl back into favour after last year’s clanger.
On those long, lonely evenings, what could be better than snuggling up to your smartphone and streaming video content? Out with friends at a hip restaurant – no better place to watch another set of streams. Waiting for the elevator or even in traffic on your electric bike, it would be a missed opportunity if you weren’t watching more on your screen.
Short videos and livestreams have ballooned over the past couple of years in China. No other online activity has grown as fast or takes up more of users’ time in China. 648 million Chinese watched short videos last year – 78.2% of the online population. Users spent a total of nearly 600 million hours per day watching them on mobile in April 2019. The top-rated platform Douyin saw an average of 72 minutes for each of its 320 million daily users. This has created ecommerce KOLs overnight, such as the student who sold ¥1.5 million ($213K) worth of an anti-acne product within 24 hours screening a short video of PowerPoint slides praising its benefits.
The other digital mega-trend that is sweeping Chinese screens is livestream ecommerce. Livestreaming hit China with a vengeance in 2016, died down a little, evolved with some wacky iterations such as the real-time quiz fad, then came back bigger than ever last year, and has continued to soar since. In 2018, Taobao alone sold over $15 billion worth of goods through its 4,000 livestream hosts, up over 400% from a year earlier.
Top livestreamer’s annual sales now surpass that of large brands on ecommerce. In the last month, livestreamer Viya sold ¥353 million ($49.7 million) of goods in a single day, and Jiaqi Li sold ¥100 million ($14.2 million) of products sold within 6 minutes, with as many as 31 million concurrent users watching his five-hour livestream as he encouraged shoppers with his famous catchphrase “OMG! All ladies, buy it, buy it, buy it!” A little over a week later, Beijing urged livestream platforms to tighten content controls following his ‘mindless endorsements’ without trialling products or fact-checking claims.
Although short videos and livestreaming are very relevant for brands targeting younger Chinese consumers, they have really come into their own with this Monday’s 11th 11.11 (Singles’ Day) Festival. Arguably the most noticeable difference with this year’s shopping festival is the use of influencers on Douyin and livestreaming to stand out from the other 200,000 brands hoping to sell their wares.
Alibaba is using hashtag promotions on Douyin luring customers to buy more goods with coupons of up to ¥100 ($14). Similarly, Alibaba is hosting over 2,000 key opinion leaders on its platforms via livestreaming, allowing brands to showcase products and boost engagement with consumers. Alibaba has a lot riding on the streaming videos – and Taylor Swift – as it hopes to stave off online festival fatigue and show that Singles’ Day growth is defying China’s slowdown, in its first Singles’ Day without the big personality of Jack Ma at the helm.
Even after the buzz of Singles’ Day falls away for another year, brands who aren’t already, should be looking to short video and livestreaming as powerful channels to both sell products and build their brand awareness and trial. Whilst ROI can be tight, if skilfully executed, they can be used to convert curious audiences into loyal customers and advocates. Talk to China Skinny about how best to do that. If you’re participating in 11.11, all the best on Monday! Go to Page 2 to see this week’s China news and highlights.
The ongoing Trade War, HK protests, NBA, Huawei and other geopolitical issues continue to accelerate the rise of nationalism in China and, as a result, growing consumer preference for domestic brands. We only need to look at Tmall as an indicator, where three-quarters of brands have incorporated the phrase “Made in China” on their product pages – up from less than half in 2017.
Yet, like much media about China, ‘fears of mass boycotts‘ of US and other foreign brands are fiercely overstated. Whilst many commentators cite the fall of Apple in China as a pin up example of nationalist-consumption, the reality is much more multi-faceted. For a start, Apple phones have become quite common in China, meaning its long-held appeal as a status symbol no longer resides. Budding status-seeking Chinese are much less likely to blindly buy the most expensive product on the shelf or screen, instead becoming more focused on value – the new status in China comes from being ‘in-the-know’. For many Chinese, Apple’s features are no longer considered innovative, often behind or inferior to local brands such as Huawei, and don’t justify their premium price. This has seen Apple’s market share in China halve over the past four years.
Apple’s sinking share is in contrast to the fortunes of many other foreign brands in China. Chinese consumers still appear to embrace good quality and thoughtfully-marketed western products. Several US and European luxury brands, including giants Kering, Louis Vuitton, Hermès and others have reported strong growth for their goods in China. Although there are a few local luxury brands rising in China, the majority still value foreign brands for their craftsmanship, design and heritage.
At the other end of the affordability-spectrum, fast food remains dominated by American (but quite localised) brands KFC, McDonalds and Burger King, who only entered the market in 2005, but had opened over 1,000 restaurant in China by 2018. Although domestic brands are growing fast, the three US brands remain the most popular in the category which grew 9.4% in the first half of this year.
Even more interesting is the NBA, which has been villainised by many Chinese nationalists. Nevertheless, 25 million Chinese were simultaneously glued to their devices for Tencent’s stream of the Los Angeles Lakers opening match against the Clippers, despite the full force of state media urging consumers to boycott.
While university campuses in China ban cuddling, dying hair and access to dorms during the day, young Chinese are unlikely to blindly consider everything better in China. Foreign brands that have localised their strategies such as brand purpose, and remember that origin – whether domestic or foreign – continues to be just one piece of the puzzle for brands, can still be well-placed to win in China. There remains plenty of other moving parts needed to create strategies that will win the hearts of Chinese consumers – something China Skinny would love to chat to you about.
On the subject of building the optimal strategy for China, our British readers looking to learn from the best practice case studies about how to win in China should sign up to join China Skinny’s Andrew Atkinson sharing his nuggets of wisdom. The interactive and insightful event is on 25 November in London in association with CBBC. More info here. Go to Page 2 to see this week’s China news and highlights.
For decades, bedrooms and playrooms across the western hemisphere have been filled with Star Wars duvets, figurines, themed lego and other paraphernalia. Dress-up parties spanning all occasions have been embraced by people wearing Darth Vader and storm trooper masks, and more than 500,000 people have officially identified their religion as Jedi Knights. Since the first movie in 1977, the Star Wars franchise has amassed an estimated $65 billion in sales – more than any other media franchise that isn’t a cartoon.
Yet the galaxy far, far away seems even further in China. Despite attempts to lure Chinese fans using live orchestra concerts, themed runs and selfie opportunities with storm troopers on the Great Wall, Star Wars has failed to captivate Chinese audiences in the way it has elsewhere. Ronnie Den, who starred in Rogue One: A Star Wars Story believes the franchise hasn’t made money in China because Chinese haven’t grown up with Star Wars and don’t understand its unique rules and quirks.
Disney is hoping to change that. The company is adopting a less-common approach to build grass-roots enthusiasm for the franchise. Through its partnership with Tencent’s China Literature, it will make 40 “Star Wars” novels available in Chinese for the first time on the digital reading platform, at no cost for a week.
In the fast-paced, instant-gratification, short video-obsessed world of modern China, a lot of people still read books. China boasts a mouth-watering 454 million readers of online literature, with 217 million monthly active users and nearly 8 million authors on China Literature’s various platforms.
As part of the initiative, Disney has commissioned popular Internet novelist His Majesty the King to write a new “authentic Star Wars story with Chinese characteristics.” We will be watching with interest: the new edition promises to “bring in Chinese elements and unique Chinese storytelling methods.” Given the underlying theme of Star Wars is a rebel alliance battling the empire, localising for China could be interesting. Will the bad guys’ lightsabers still be red? Censors are likely to be paying closer attention than ever given the sensitivities around the Hong Kong protests, particularly when protestors are hanging banners and referencing a catch phrase from the similarly-themed movie The Hunger Games.
If any foreign company can make Darth Vader masks the go-to costume for Halloween in China, it is Disney. Between its Marvel, Pixar and other movie franchises, resort, merchandise and other assets, the company has a strong infrastructure and experience in market to help push the cause. We applaud them for trying the old-fashioned but less-traditional approach of books to grow Star Wars fans.
In other news, China Skinny is honoured to again be working with Austcham Shanghai to deliver the third Westpac Australian Business Sentiment Survey. The 2017 and 2018 survey gave rich insights and trends into the health, opportunities and challenges in the Australia-China economic relationship, provided a valuable benchmarking tool for all organisations working with China and strengthened the Chamber’s advocacy efforts to advance Australia-China business relations. If you’re an Australian or working for an Australian business who engages with China, we’re hoping you can share your Yoda-wisdom and generously spend around 15 minutes to do the online survey – we’ll all be better for it! Take the survey here.
We hope you enjoy this week’s Skinny. May the Force be with you. Go to Page 2 to see this week’s China news and highlights.
With the curtain already up for this year’s Singles’ Day (the first without Jack Ma), expect to hear more about Alibaba over the next month. Done well, the Singles’ Day/Double-11 extravaganza can be a powerful event to raise awareness and trial of your hero products, and shift some large volumes.
Alibaba as a whole can be a great ally to your China aspirations. Tmall and Taobao don’t just account for a majority of ecommerce sales in China but they are also an important touchpoint in the customer journey for researching products and brands. Then there’s Alipay, Weibo, Youku, Kaola, Little Red Book, Fliggy, AliHealth, Focus Media, SenseTime facial recognition and many others which can assist with your China marketing and sales. There are also the all-important brick & mortar stores: RT-Mart, Auchan, Suning, Carrefour, InTime and Hema of course, all which Alibaba owns a stake in. Then add the more than a million independent mom-and-pop stores that Alibaba reaches and influences through its LST system. The list goes on…
Whilst China’s retail market remains highly fragmented, Alibaba is doing a remarkable job consolidating many of China’s largest and smallest retailers online and offline, while slowly integrating its technologies into them.
The allure of Alibaba’s retail footprint, and cute pussy-cat and hippo logos may feel like El Dorado for many, yet brands would be wise not to just blindly drink the Alibaba Kool-Aid. Even some of the most famous brands that Alibaba has ‘built’ are moving focus away from Alibaba due to lower margins, increasing customer acquisition costs and limited scope for product diversification.
Brands with all of their eggs in the Alibaba basket also face a lesser-known risk: competition from Alibaba itself. In 2017, Alibaba launched its own label retail site Taobao Xinxuan. Although it didn’t make much of an impact, it hints that Alibaba is motivated to slowly creep more of its private label brands onto its platforms and retail stores. One example is the fresh milk category, where Alibaba’s own dairy brand TheLand has grown its market share and now accounts for almost half of the value of all fresh milk sold on Tmall.
Alibaba is increasingly edging into new product development – encouraged by Beijing – using its data with its “New Manufacturing” tools. The most recent example is the fashion industry, where Alibaba is providing trends to fashion brands, and creating new materials based on their data. Although Alibaba usually does this in partnership with brands, it is likely to only be a matter of time before they play a larger part in creating brands and products on their own. They have the data insights, customer relationship, and are learning the approaches to manufacturing through its partners. Most important of all, Alibaba have the sales channels – much like the way supermarkets provide optimal placements for their private label brands, but on steroids.
Diversifying customer touch points beyond the Alibaba ecosystem can decrease a brand’s exposure should they be pushed down the Ali rankings. Fortunately, China’s digital channels are diversifying. While share of screen time spent on Alibaba’s platforms stayed at around 10% in the 12 months ending June 2019, the share of ‘other’ apps – those not owned by Alibaba, Tencent, ByteDance and Baidu – increased from 26.3% to 29.7%. This signals the increasing ‘niche’ apps that provide more targeted platforms to reach specific demographics and interest groups, often with a much better ROI. China Skinny can assist you to ensure you have a holistic marketing and sales strategy for China, while reducing your exposure.
On a related note, China Skinny’s Mark Tanner will be joining a quorum of China experts at the TEC Community in partnership with Asia Turnaround & Transformation Association next Tuesday morning, 22 October in Shanghai. He will share how brands can succeed in China with an in-depth cultural and structural branding strategy. For more information, click/tap here. Go to Page 2 to see this week’s China news and highlights.
This week, as Hong Kong’s protests enter their 18th week, the NBA was the most recent organisation to give a “grovelling apology” following a more intentional Hong Kong-related incident – Friday’s tweet from Houston Rockets General Manager Daryl Morey: “Fight for Freedom. Stand with Hong Kong.” Initially the NBA and the Rockets was quick to distance itself from Morey; there was even talk of firing him, although this was refuted by NBA Commissioner Adam Silver who supported his ability to exercise freedom of expression.
Whilst sport is said to transcend politics, politics touches everything in China, and China is very, very important to the league. 500 million Chinese watched at least one NBA game last season, and an estimated 300 million play basketball in the country. In July, Tencent and the NBA announced a five-year extension of their partnership through the 2024-25 season for a reported $1.5 billion, contributing to the NBA’s estimated $4 billion business in China.
Before Friday, the Houston Rockets were second-most popular NBA team in China, largely due to China’s 8-time NBA All-Star starter Yao Ming who played for the Rockets between 2002 and 2011. Since the tweet, Yao Ming, now president of the Chinese Basketball Association, suspended its relationship with his old team. Chinese brands SPD bank and Li Ning have pulled their sponsorship from the Rockets and Alibaba and JD have removed all Rockets merchandise from their platforms. CCTV and Tencent have now both said they will “immediately suspend” plans to broadcast a pair of NBA pre-season exhibition games being staged in China. Luckin Coffee, Vivo smartphones and sportswear brand Anta have also pulled sponsorship with the NBA as a whole.
Of course, there has been the inevitable berating of the Rockets on Chinese social media. Interestingly though, online discussions on Western platforms have seen much more unfavourable posts about China than usual. Many have mocked brands who “sell out to Chinese values and support a totalitarian government in the name of money and the endless quest for growth.” NBA fans suggested filling stadiums wearing t-shirts in support of HK, ‘Free HK’ chants and bringing signs to games, much like the French football fans in Lyon who formed a massive Tibetan flag in protest of the game being rescheduled early so it could be broadcast live in China. It appears that NBA has listened to its home country fans, releasing a new statement that the NBA is not bowing to China, instead reinforcing that “values of equality, respect and freedom of expression have long defined the NBA – and will continue to do so.”
Expect to see more of this. Just as we see Chinese consumers pushing back on brands that are insensitive or ignorant about Chinese culture, we may see more of this type of kickback from consumers against brands whose behaviour in China doesn’t align with their value sets. With consumers in most Western countries holding increasingly unfavourable views of China, consumers in the west are likely to scrutinise more over behaviour in China.
Brands who make geopolitical gaffes will increasingly have to wrestle with cultural sensitivities in China while ensuring consumers in their home markets don’t see them as sell-outs. We’ve seen parallels of this with cosmetics brands in 2017 when Nars joined brands such as Jurlique, L’Occitane, Yves Rocher and Caudalie who were slammed by consumers in their home markets for renouncing their stance on no animal testing to sell in China’s bricks & mortar stores. NBA is in an enviable position that they are greatest basketball league globally, by a long way. Unlike cosmetics, fashion, food, hotels and airlines, there are no real substitutes for basketball-obsessed Chinese fans. It will be interesting to see how this pans out.
As sentiment towards China becomes more polarised in many countries, organisations don’t need to just factor Chinese cultural sensitivities into their branding, but increasingly the multi-dimensional considerations of other markets too. There never is a dull day in the land of branding. Go to Page 2 to see this week’s China news and highlights.
Last Thursday, China’s State Council Information Office (SCIO) published a white paper: Equality, Development and Sharing: Progress of Women’s Cause in 70 Years Since New China’s Founding. “The founding of the PRC in 1949 ushered in a new era for women in China, changing their social status from an oppressed and enslaved group in the past thousands of years to masters of their own fate…” the paper began.
The report praised female workers’ participation in China. Its female labour force now numbers 340 million – twice as many as when China opened up in 1979, counting a much larger share working in the industry and service sectors. Participation in education was also celebrated, with females making up 52.5% of Chinese in higher education. Similarly, a women’s average life expectancy – standing at 79.4 years in 2015 – has grown 10.1 years since 1981 and a whopping 42.7 years since 1949.
Nevertheless, not everyone is applauding China’s progress for gender equality. A similar report released by the World Economic Forum (WEF) noted China’s Global Gender Gap rank fell sharply from 63rd out of 115 countries in 2006, to 103rd out of 149 countries based on 2018 data. One of the contributors was China’s female-to-male ratio of 87:100 at birth, ranking China last out of 149 countries surveyed.
Contradictory to the SCIO’s study, the WEF noted female participation in the labour force had dropped from around 80% in the 1980s, to 68.6% last year. Although this was slightly higher than the US and similar to Japan, it was contrary to other major ‘developing’ countries such as Brazil and South Africa. 19% of China’s national civic service jobs posted in 2018 included requirements such as “men only,” “men preferred,” or “suitable for men.”
The income gap between urban male and female workers increased from 15% in 1990 to 25% in 2000. This disparity has persisted over the last two decades. A 2018 poll reported that Chinese women on average earn 22% less than their male co-workers, ranking China 74th globally in wage equality. Women account for just 17% of senior managers, officials, and legislators – although Japan is even worse at 13%.
The WEF report did highlight some areas that China deserves due praise. Much like the SCIO noted, since 2008, women have been more likely than men to continue onto higher education, ranking it number 1 in gender balance for tertiary education. Unfortunately the top universities are still skewed towards males. In 2018, the share of female students at top-ranking Tsinghua was 34% and third-ranked Zhejiang was 21%, with Fudan being the only university in the top-6 with more females (51:49).
Entrepreneurship stands as one area where Chinese women take a leading role. A 2017 WEF study found that women set up 55% of new internet companies in China, and women accounted for more than a quarter of all entrepreneurs overall. The 2018 Mastercard Index of Women Entrepreneurs also ranked China 29th out of more than 60 countries surveyed, just behind countries like Germany (23rd) and France (24th).
Whilst much the data isn’t great, beyond the reports, China’s educated, entrepreneurial and adventurous female consumers are very much a force to be reckoned with. In most cases, they are more open to international lifestyles and products than their male peers.
Females accounted for two-thirds of cross border commerce spending, and those who drink beer consume a proportionately higher amount of foreign brands than their male counterparts. Whereas men buy virtually all of the expensive sports cars in most markets, Chinese women purchase almost half of exotic luxury cars such as Maserati and Porsches. They account for the majority of Chinese athletes performing on a global level, even in traditionally-male sports such as football, rugby and the UFC. In 2018, 58% of females travelled independently – 16% more than their male counterparts. They also spent 14% more than males while travelling. Chinese female students are also more likely to study abroad than their male peers. In 2014, women accounted for 51% of Chinese students studying in the US and 63% of those in the UK.
In short, Chinese females are a very important customer for most foreign brands and worth understanding and connecting with. We noted last week about how well Nike connects with confident and assertive Chinese females. Another well-cited example is SK-II’s Leftover Women campaign which resonated with the valuable demographic, and had a halo effect with others too. We could go on… but the moral of the story is understanding Chinese females beyond the headline numbers of white papers is imperative to connecting with them and winning their favour. China Skinny can help you do just that.
China Skinny’s office will be closed next week for the Golden Week holiday, but we’ll be back in the second week of October. For our Shanghai-based readers in town after the holiday, China Skinny’s Mark Tanner is sharing insights about engaging consumers at the maXcomm Shanghai 2019 on Thursday 17 October, organised by the German Chamber – we hope to see you there. More info here. Go to Page 2 to see this week’s China news and highlights.
History was made earlier this month in China when homegrown animated movie Ne Zha became just the sixth film to break $700 million at the box office in a single territory. It also became the second-highest grossing film ever in China behind the nationalistic Rambo-esque Wolf Warrior II.
Whilst there is no disputing that Chinese consumers love cartoons, animated films make up just 6-10% of the box office, versus around 40% in Japan and 10-15% in the US. In addition, the hero isn’t exactly your typical cutesy cartoon that resonates in China, rather a demon with a disturbingly-close resemblance to Chucky the killer doll. The success behind the movie is much deeper than the spectacular animation, and provides insight into what is connecting with Chinese consumers right now.
For a start, the plot is loosely based on Ming Dynasty-era legends and lore, playing to Chinese consumers’ increasing embrace of their heritage and culture, particularly when it is expressed creatively. Yet it is the overarching message that hits a home run with modern Chinese consumers.
Ne Zha is born with the unfortunate destiny that he will wreak destruction on humanity. His father, a lord, refuses to have him killed at birth, and in the end Ne Zha manages to train his inner-demon and saves the very village that despises him. Many parents connect with the theme of providing unconditional support and love to their child, even if they are a little demon. And almost every Chinese person will relate to Ne Zha’s situation: if fate isn’t fear, fight it till the end.
This underlying theme couldn’t be more timely, as China is in the throes of some of its biggest challenges in a generation due to geopolitical issues, the trade war and a slowing economy. Modern China was built on the premise of ‘fighting for the dream’, reflected in milestones such as The Long March. In recent months, there has been a rise in subtle language about the fight China must take on, with increasing usage of the word dòuzhēng (struggle) by Xi Jinping and official state dialogue.
The stoic nature of China’s people fighting their destiny is reflected in some of its most revered heroes. Jack Ma, who officially retired from Alibaba last week on the 20th anniversary of the company, is admired not just for his success, but for making it without inherited wealth, good looks or a high education – fates that many Chinese believe are crucial to succeeding. Similarly, Naomi Wang, a freckled, tanned and “chunky” pop star challenged traditional Chinese beauty standards and is now Fendy Cosmetics KOL. More recently, Zhang Weili, once earning a meagre wage as a cleaner became the first Chinese/Asian champion in UFC history, winning the admiration of large swathes of the Chinese public.
Brands that effectively tap into this theme of challenging your destiny are likely to connect with Chinese consumers at a deep and emotional level. Nike is a textbook example, with their “Don’t look down upon women, women can do as well as men” campaign, showing the attitude of five outstanding female athletes to encourage brave women not to care what others say, and not to pay attention to the judgment from a society, but to pursue their own goals or dreams. Large consumer segments are increasingly challenging expectations of China’s traditional society, and brands who thoughtfully and sensitively play to this are likely to have an edge.
As China’s market becomes ever-more crowded, nimble competitors are increasingly becoming fast and efficient at mimicking your products and services. The brands that hit a nerve with Chinese consumers and connect at an emotional level are most likely to succeed. Talk to China Skinny about how your brand can be best placed to strike that chord.
On a related note for our readers in Shanghai this week, we’d suggest signing up for the CHina CHat conference September 19-20. China Skinny’s Mark Tanner joins the esteemed lineup on Friday to discuss what brands need to do to win in China. If you’re at the conference, please come and say hello. More information here. Go to Page 2 to see this week’s China news and highlights.
Britain’s lively capital, London: Arguably the world’s most international city, its cultural capital, the city with the second-highest private wealth after New York, home to four Unesco World Heritage Sites, more five-star hotels than any other city, and based on measurable and objective data, simply ‘the capital of the world’. It also has similar house prices to China’s tier-3 city of Xiamen.
Half the world away, straddling the beautiful Puget Sound and Lake Washington, is Seattle. Workers in the HQs of Amazon, Microsoft and other large tech firms have been blamed for driving city’s house prices to ‘dysfunctional’ levels, with real estate costing so much Microsoft has pledged $500 million to help alleviate the crisis. Seattle has similar house prices to China’s second-tier city of Hangzhou.
Whilst incomes are a factor in Chinese consumers’ spending behaviour, it would be amiss not to understand the impact house prices have on how wealthy Chinese consumers’ feel. As we’ve noted before, an estimated 90% of Chinese families are believed to own a home, 80% without a ‘mortgage’. Whereas share prices can soar and dive without impacting consumer sentiment, a rise or fall of house prices directly correlates to Chinese consumer behaviour.
Many economists in the west look to Chinese incomes as the key metric for comparing Chinese consumers with those in other markets, without factoring in the rise in wealth from soaring property appreciation over the past generation. Most of us have heard the stories about consumers “spending a month’s salary on an iPhone” or “three month’s salary on a handbag,” but the decision to spend is often less related to incomes than the consumer’s – or their parent’s – property wealth.
Beijing has the difficult balancing act of keeping house prices ‘affordable’ while continuing to have the consumption-driven economy ticking along by supporting house price growth. Facing the challenge of a slowing economy, the government has been pulling levers to keep house prices buoyant. Beijing is also allocating ¥30 billion ($4.2 billion) to make the move to the city from the countryside more attractive to help drive the economic growth they are seeking.
Economies in lower tier cities, and subsequent housing prices, have been beneficiaries of Beijing’s focus on driving growth in China’s lower tier cities and narrowing the gap between them and China’s big cities. This has seen categories from cars to FMCG grow much faster in smaller cities, often with less competitors scooping up the share. Yet an announcement two weeks ago to focus domestic economic activities in central cities and central clusters may see some of the fastest growth returning to cities in Beijing-Tianjin-Hebei region, the Yangtze Economic Belt and the Guangdong-Hong Kong-Macao Greater Bay Area.
These clusters aren’t to be sneezed at. For example, the Jiangsu province in the Yangtze Economic Belt now has a GDP similar to Australia, becoming the first province to have a GDP greater than ¥9 trillion ($1.26 trillion). Guangdong’s GDP will be even greater when it is announced this month. Similarly, China now has 17 cities with GDP higher than ¥1 trillion ($140 billion). These cities are markets comparable to countries in some cases and should be treated like that, rather than trying to use the same generic strategy across diverse consumers in these geographies. Messaging, channels and even product formats should be localised due to differing emotional and functional preferences and behaviour between cities.
China Skinny has developed free tools to help you understand and compare China’s different tiered cities. Click/tap here for more information. We can also provide localised city-specific strategies and quick wins to ensure your brand is maximising the opportunity. Please be in touch to find out more. Go to Page 2 to see this week’s China news and highlights.
If you think your workload is a bit rough, spare a thought for the 3-15 year-old kids in China. If school wasn’t tough enough already, they spend an average of one-and-a-half hours a day doing homework. On top of that, they spend almost 3.5 hours daily in extracurricular classes. Around six in every ten Chinese parents sign their children up for extracurricular classes, spending almost 13% of their household income on after-school education on average.
Whilst parents in the West may be enrolling their kids into swimming, soccer or gym class; sports rank behind tutorial classes and art in China, highlighting the emphasis parents place on their kids academic success in China’s fiercely-competitive schooling system and the growing desire for kids to excel in their creative endeavours. Although close to half of courses are motivated by improving grades, there is also a growing array of niche subject interests covering areas often underserved by the public school system such as sexual education.
These courses provide further views into priorities that the rising segment of liberally-spending millennial parents place on their kids, which has seen child-related categories among the fastest growing in China’s retail sector. They also give some clues into possible interests these kids may have when they grow up, such as art.
Between the homework and after-school courses, Chinese kids are still managing to find time for other activities: spending 50 minutes on entertaining themselves, 49 minutes in public venues, 38 minutes on electronic devices and 37 minutes reading. Some of these activities are driven by a sense of escapism from the stresses of studying, with school-aged kids contributing a sizeable share of the astonishing 630 million Chinese who play video games.
The importance of education in the Chinese psyche has implications for many categories beyond learning. Toys, vitamins, food and beverage, and even other products that are beneficial to a child’s brain development will connect with consumers if marketed correctly. Pampers are a good example: they sold poorly at first as Chinese parents didn’t see any real benefits over kaidangku (split pants). P&G re-launched them with their “Golden Sleep” campaign, which claimed babies in diapers sleep better, helping them develop faster and achieve more at school. The rest is history.
Given 58% of children registered for extracurricular classes during the summer holidays, and over a third during October’s National Day Holiday, even tourism operators could be wise to consider exploring child development add-ons to appeal to the lucrative family traveller.
Toys, nappies, nutrition, trips away and other categories: China Skinny can investigate and qualify the education and child development opportunities to incorporate into your China proposition. Go to Page 2 to see this week’s China news and highlights.
Arriving in China in 2030 may look quite different to how it does today, particularly if the last decade is anything to go by. For a start, expect to see less smokers, more walkers and less oily, salty and sugary food options, if Beijing has its way.
Whilst these things will hopefully happen in most places, they are likely to come about much quicker in China – particularly as a result of the Government’s Healthy China Action Plan for 2019-2030 released last month. The plan detailed 15 campaigns to promote healthy lifestyles and health at various stages of life, and to control major diseases. This included building health knowledge, balanced diets, national fitness, tobacco control, mental health and a healthy environment.
Most of us understand the impact that Government directives have on influencing behaviour and trends in China. They are enacted through Beijing’s powerful levers such as regulations, funding, support and its vast state media networks. They may even impact social credit scores positively or negatively. Private business investments tend to shadow government policies, and in most cases, consumers will inevitably follow.
It would be wise for brands to review the Action Plan’s objectives. The plan provides an indication of some of the issues Beijing will be focusing on over the next decade. One of the wide-reaching initiatives is educating the masses to improve their awareness of healthy living, with health literacy targeted to increase from 22% in 2022 to 30% in 2030. This aims to amend relatively poor health knowledge and unhealthy lifestyles, which include smoking, alcohol abuse, lack of exercise and an unbalanced diet. That is likely to impact the way consumers view products and services, and the marketing around them.
Many of the plan’s goals are on already on-trend, such as healthier eating and increased fitness, however it is likely that these will further accelerate now a strong plan is behind them. For example, the target is for consumers to eat 17% less sugar, 30-40% less oil and 50% less salt in 2030, using 2002 as a base. Whilst there is no new regulation around food processing yet, food and beverage brands should plan for this to be a possibility, and ideally incorporate it into new product development and messaging. The plan also aims to have each consumer eating at least 500 grams of vegetables and fruit daily, something which could be considered when determining ingredients for products.
Another core focus on the health plan is physical activity. The goal is for 40% of people to exercise regularly by 2030, up from 37% in 2022 – a mere 40 million extra people. That’s suggested to be 6,000-10,000 steps a day, 150 minutes of moderately intense exercise and 75 minutes of high intensity a week. 60% of students should score “good” physical health, up from 50% in 2022. The plan also aims to have the exercising adult populace supported by 7-8 hours sleep. Ultimately as a result, men should have a sub-85cm waistline, and women sub-80cm.
Brands as broad as tourism, fashion, vitamins and health providers should account for an increasingly healthy and health-conscience Chinese consumer. For example, hotel restaurants are likely to be more scrupulously evaluated for healthy food, and tourism operators can count on fitter visitors who are more open to physical activity. Like most things in China, political direction should be considered for any China-related planning, no matter how irrelevant it may seem in your home market. Go to Page 2 to see this week’s China news and highlights.
What’s Driving Coca-Cola’s Growth in China?: Coca Cola came from nowhere to take out the fastest growing FMCG brand in China in Consumer Reach Points this year according to Kantar. Coca Cola picked up significantly more consumers who were allured by sugar-free cokes and newly launched Coke Fibre Plus products. Smaller packages of conventional Coke generated enough growth to offset the decline of bigger packages.
In Depth: The Fake Engagement Powering China’s Internet: Nearly a third of China’s internet traffic in 2018 was rated “abnormal,” resulting in losses to advertisers of more than ¥26 billion ($3.75 billion).
Why was Little Red Book Pulled from China’s App Stores?: Popular app Little Red Book (Xiaohongshu) was pulled from Android app stores due to Government intervention resulting from complaints about the platform facilitating the sale of restricted, forbidden, and fake products. These products include tobacco, e-cigarette products, and medicinal products such as skin-injection kits from third-party sellers on the platform. Little Red Book has struggled to monitor its three billion pieces of content, 70% of which is user-generated.
China’s Top Live Streamer Viya Sells NZ$30 Million ($19 Million) Worth of New Zealand Product in Hours: KOL Viya livestreamed from Auckland to almost 10 million Chinese viewers on Taobao, who collectively spent ¥134 million ($19 million) in four and a half hours. The livestream featured an alpaca, haka and more than 40 New Zealand and Australian honey, dairy, skin care, duvets and cereal brands. Last year Viya generated sales of $2.7 billion from her live streams on Taobao.
Is WeChat’s Growth Over?: Although Tencent’s WeChat users grew 3.2% between December 2018 to June 2019, it wasn’t enough to compensate for the 8.4% drop in usage over the six months – from 35.4 to 32.4 hours/month. The bright spot was time spent on WeChat Mini Programs, which grew 23.3% to 64 minutes a month. Mini Programs had 746 million monthly active users. Tencent still dominates time spend online in China, however it total share of time spent dropped 3.6 percentage points to 42.3% for the year ending June 2019, mainly due to competition from ByteDance’s Douyin and Toutiao which grew from 10.3% to 11.7% and the rise of diverse apps, which grew from 26.3% to 29.7%. Baidu dropped from 7.5% to 6.3% and Alibaba held firm on 10.1%.
Alibaba to Buy Kaola Unit From NetEase for $2 Billion: Widespread reports claim Alibaba is paying $2 billion for NetEase’s cross border ecommerce platform Kaola to merge with the Tmall Global platform, although a Tencent news article (in Chinese) yesterday afternoon claimed NetEase CEO Ding Lei vetoed the transaction. In 2018, Kaola accounted for 27.5% of China’s cross border market, ahead of Tmall Global on 25%. The comes off the back of Alibaba’s 42% increase in revenue for Q2 suggesting Chinese consumers are still spending. 674 million annual active customers now use its retail marketplaces, 20 million more than a year ago. JD also had a strong quarter with revenue up 22% and annual active customers growing almost 11 million to 321.3 million.
Marketers, sales managers, product developers and strategists the world over are increasingly using data to help form decisions. Fortunately in China, we have a greater depth and breadth of data than anywhere else. Not only do Chinese use their smartphones (and faces) more frequently, across a broader array of online and offline occasions, they are also among the least concerned about data privacy globally. China Skinny uses our own in-house tools to tap into China’s vast banks of data to provide macro and granular views of consumers’ preferences and trends. These can impact everything from communications, branding and product development, to the channels and influencers you use.
However, just blindly using data to drive decisions can be reckless and is often misleading. For a start, data can miss the emotional drivers that influence decisions – these are becoming increasingly relevant as branding and premiumisation gains importance. More importantly, data can be misleading due to the likelihood of your data being skewed by fakes.
Nearly a third of China’s internet traffic last year was rated “abnormal” according to a report by third-party advertising data monitor Miaozhen Systems. The resulting loss to advertisers alone reached more than ¥26 billion ($3.75 billion). Virtually every corner of China’s internet that boasts massive user numbers has developed a shadow ecosystem of fake engagement. They are trading money for clicks, followers, commenters and buyers. Late last year Alibaba estimated there were at least 2,800 organizations in China specialising in faking ecommerce activity alone.
Zombie Weibo followers usually go for ¥10 ($1.44) per 10,000 followers, although for a higher fee, brands can engage “advanced zombies” with avatars and content expressing fake opinions. Of real concern is that it isn’t just your fly-by-night operations buying fake engagement in China; many of the best-known brands have engaged with fake social media likes, forwards and comments to bolster their impression of popularity. This taps into the tribalistic follower tendencies of consumers.
Arguably China’s most in-demand KOL, pop star Cai Xukun, clearly creates millions of fake engagements to fuel his popularity. He isn’t alone. Around 70% online celebrity peers are estimated to forge their fanbase. Last year, Chinese state media CCTV reported that 90% of views generated by many popular shows on video sites are fake. On ecommerce, the long-used method of “brushing” remains common where brands ship empty parcels to bolster their sales numbers and positive reviews on ecommerce platforms.
In addition to the ill-gotten gains for brands and KOLs, China’s big tech platforms themselves often see opportunities in the fake economy. It is well known that ecommerce platforms engage fake sales – or do little to stop them – to artificially inflate sales numbers, drive buzz and attract investment. In the build-up to its IPO, popular ‘user-generated’ travel site Mafengwo has been tacitly allowing registered merchants to place fake orders in order to beef up their onsite rankings and attract more views. 30% of all orders on Mafengwo are estimated to be fake.
Data is a powerful tool to provide clues and clarity into China’s complex marketplace, yet brands should caution from using that data as gospel. In most projects we do, China Skinny cross references data with other sources of insights to ensure its robust and reliable. We’d suggest you do the same.
On a more wholesome note, if you’re in the food and beverage space, book yourself a flight to Melbourne on September 3-6 for the prestigious Global Table event, focusing on solving our biggest food challenges and creating tomorrow’s breakthroughs. China Skinny’s Mark Tanner will be giving the opening presentation for the China section, discussing China beyond 2020. More information here. Please let us know if you’ll be there, it would be great to have a chat. Go to Page 2 to see this week’s China news and highlights.
As protests in Hong Kong enter their 10th week, the violence continues to intensify, leading to Monday’s closure and yesterday’s mass cancellations at the eighth busiest airport in the world. Many miles away, some of the world’s most aspirational brands are having their own set of issues recognising the Special Administrative Region.
On Sunday, following an uproar on Chinese social media, Italian luxury brand Versace officially apologised on Chinese and Western social media for selling a Versace t-shirt that suggested Hong Kong and Macau were independent countries. The following morning, images of a 2018 t-shirt from the Coach and Disney collection labelling Hong Kong, Macau and Taiwan as independent countries was circulated on Weibo, with similar designations on Coach’s website. Coach was forced to apologise. Next came Givenchy, Calvin Klein, Fresh skincare and Japanese sportswear brand Asics, who all apologised after being embroiled in similar gaffes.
An online poll by fashion blogger Zoe which asked peoples’ attitudes towards brands that “insulted China”, swiftly attracted more than a million respondents, with 70% claiming they’d “never buy their products even if I have nothing to wear.” Actress Yang Mi ended her endorsement of Versace, “very indignant that Versace’s mistake blatantly defies the sovereignty and territorial integrality of China.” Coach’s brand’s ambassador in China, model Liu Wen, apologised on Monday for not being rigorous in her selection of brands to represent, ending her collaboration with Coach since its behaviour had “hurt the national feelings of the Chinese people” and must be “condemned seriously”. KOLs for the other brands were quick to follow suit.
Although China is becoming increasingly more powerful and confident, it remains sensitive to any brands that disrespect Beijing’s mandate, right through to Chinese individuals. Although this has increased in intensity with the trade war and the latest round of geopolitical challenges, it is nothing new. Many of us are likely to recall the firestorm when United Airlines unfairly treated a ‘Chinese looking’ passenger in the US in April 2017.
The implications of wrongly classifying Hong Kong as a country have been known for some time. Marriott Hotels discovered this with its PR-disaster in January 2018 following an online questionnaire which listed Hong Kong as a country (as well as Tibet, Taiwan and Macau). Zara and others made similarly high profile slip ups. Luxury brands such as Versace, Coach and Givenchy should be wiser as a result. Chinese consumers account for a third of all luxury purchases worldwide, and are expected to buy half by 2025. With so much at stake, it is surprising that these brands don’t have a better understanding of the basic cultural and politically-sensitive issues that have been rattling China for some years. Just having a Mainland Chinese exec, or someone who deeply understands China at the senior table would be a good place to start.
The good news is, as long as they aren’t as reckless as Dolce & Gabbana, Versace, Coach, Givenchy, Calvin Klein, Fresh and Asics’ fortunes in China aren’t lost forever. Although Chinese consumers can come across as virulent on social media, they typically move on relatively quickly from blunders such as Hong Kong territorial mis-classifications. The brands may see a dip in sales and some issues finding new KOLs in the short term, but as long they have a smart and sensitive strategy going forward, China should continue to be a strong market for them. We only need to look at Zara who have seen growth since their similar slamming in 2018; and Marriott Hotels who continue to be a strong brand in China and remain a core pillar in Alibaba’s 88 loyalty scheme, with barely a whisper of their misstep 18 months ago.
On a brighter note, if you’re in Shanghai next Wednesday evening, August 21, China Skinny’s Andrew Atkinson will join the Directors of Strategy for Treasury Wine Estates and eCargo on a panel organised by the Australia-China Young Professionals Initiative to discuss how to drive growth outside of the familiar Tier 1 cities. You can find more information and RSVP here. Go to Page 2 to see this week’s China news and highlights.
In 2012 in the city of Wuhu, Anhui, a former street vendor and motorcycle taxi operator named Liaoyuan Zhang, left his job selling nuts to start his own nut company. In just 65 days, the company – Three Squirrels – became the top selling nuts brand on Tmall and within a couple of years, was said to be the top-selling food brand online. On Singles’ Day last year, it took less than 10 minutes to sell ¥100 million ($14.2 million) worth of snacks. The recently-listed company now has a market cap of close to $3 billion.
Many brands can learn from Zhang’s success and his trio of squirrels. For a start, its DNA is imbedded with three super-cute mascots, tapping into Chinese consumers’ adoration of Japanese-inspired Meng culture, and its cute cartoons such as Pokemon. Their appeal stretches beyond just kids with many urban professionals hooked on all that is cute. This can be observed in some of China’s most aspirational mainstream brands such as Tmall’s cat and JD’s dog.
Yet while many Chinese brands plaster cute mascots over their packaging and promotions, Three Squirrels has always gone deeper incorporating the personalities into everything they do. Videos, stories, games and prizes showcase each squirrel’s personality, providing consumers the experience they so-often seek, and weaving them into a longer narrative. Thoughtful extras that add to the experience include a wet wipe, a bag for shells and often nut crackers with purchases. On its customer service line, consumers are addressed as pet ‘owners’ and purchases are called ‘adoptions. Everything Zhang does keeps his customers at the heart of his business, so much so, that he considers “fans” to be as much a part of Three Squirrels as his employees.
Three Squirrels’ D2C (Direct to Consumer) model bypasses retailers but still manages a notable premium over the sea of competitors that make up China’s massive snacking category. It also taps in to other digital channels such as asking and listening to its social media fanbase about the type of products they want, which has shortened its new product development cycles to a few months.
While the Three Squirrels brand was built on the back of Tmall sales, like many online retailers, lowering ecommerce margins and high customer acquisition costs have led it to focus on channel diversification. Whereas Tmall once accounted for 80% of its sales, now just half of its billion dollar-plus revenue comes from the platform. A nice chunk of this growth has come from the drive for offline ‘experience’ stores, where gross margins exceed 40%, versus sub-30% online.
Unlike it was in 2012, selling online is no longer novel in China. Whilst it remains a vitally important sales and marketing channel, one of the advantages of brick and mortar stores is that it is harder to compare products than simple searches online. In online stores, brands tend to use their best-selling products for promotional purposes and so must discount, resulting in even lower margins. Customers can see how many ratings, and often the number of purchases, which is likely to further distort sales as consumers regularly just go for the bestselling or most reviewed items. In an offline store, hero products are not nearly as obvious and so the distribution of sales is less likely to be skewed towards just a few popular items. This plays better to Three Squirrel’s strategy of product diversification which has seen cakes account for over 20% of its sales, and nuts just over half.
Brick and mortar stores also allow consumers to buy very little at a time, at a much higher frequency, and without added delivery costs. The fixed delivery costs online means each order needs to reach a certain dollar amount in order for it to be financially viable. Offline purchases have no such threshold.
Whereas no one should underestimate the importance of ecommerce in China, China Skinny is increasingly seeing brands focus more on traditional retail as the golden years of high growth and high margin sales through platforms like Tmall and JD appear to be over. Experience-focused physical stores such as New Retail has also given the channel a second wind. Brands are becoming increasingly concerned about being over-reliant on platforms such as Tmall for sales and are also cognisant of ecommerce platforms launching more private label brands, which are somewhat of a conflict of interest. Like many things in China, it is important to understand and assess sales and marketing channels beyond the hype and develop strategies that balance risk with opportunity, such as China Skinny does. Go to Page 2 to see this week’s China news and highlights.