China has removed its animal testing requirements on imported general cosmetics from 1 May 2021, if certain requirements are met.
The new regulations from China’s NMPA (National Medical Products Administration) outline the requirements for exemption from mandatory animal testing. To be applicable to see cruelty-free cosmetics in standard trade in mainland China, a producer/product must:
– Provide relevant quality certifications from their country of origin;
– Provide sufficient safety and risk assessment materials confirming the safety of the products;
– Not be aimed at children or babies;
– Not contain any raw materials not included in China’s approved raw materials list; and
– The applicant, China representative and producer of the products have not been identified as requiring further supervision by authorities.
If a beauty product is produced by more than one producer, each entity must secure the official certification to sell in China.
The welcome changes create a fairer playing field for all cosmetics brands selling in China. Beauty products manufactured in China have been exempt from the mandatory animal testing since 2014, and French cosmetics, since January this year. This amendment is long overdue.
Brands like Jurlique, NARS, L’Occitane, Yves Rocher and Caudalie had backtracked on their cruelty-free stance in order to sell in China. We will be watching with interest if they alter any of their policies and return to not testing on our fury friends.
Based on insights from our Skincare and Beauty Trackers, consumers place very low importance on cosmetics not tested on animals. This is likely to change with more cruelty-free brands entering China and building awareness, and an increase in pet ownership leading to a wider affection for animals. Nevertheless, brands will need to lead their positioning and messaging with more than just a cruelty-free stance to sway Chinese consumers.
Cruelty-free brands will now be able to sell in physical stores in mainland China, and not just cross border ecommerce and from bonded warehouses in free trade zones. Although cosmetics is the category with one of the highest portions of products sold online – 50% by some measures – selling in bricks & mortar provides another persuasive touch point to build awareness, reinforce a brand and encourage trial. They will have a positive impact for cruelty-free brands who have a thoughtful strategy to integrate these touch points.
Contact China Skinny about developing an effective online and offline strategy, or to learn more about our Skincare and Beauty Trackers to enjoy deep, real-time insights about the category.
Further information including the new regulations are available in a downloadable Word document from the NMPA site (in Chinese).
Last time we looked, the end users in the bra category were almost always female. That’s why we were scratching our head, like many others, when we saw last week’s promotion from Chinese bra brand Ubras with the famous comedian Li Dan, a male.
Li called the Ubras “lifesaving garments” for women in the workplace. “This product allows working women to effortlessly have it all by just lying down,” said Li, implying that women rely on their sex appeal to boost their careers. It turned out that the offensive messaging wasn’t Li’s but rather part of a broader campaign orchestrated by Ubras, which has a track record of playing on women’s insecurities and using lowbrow taglines to get attention.
Although Ubras has only been around since 2016, pushing the limits appears to have worked for them to stand out in a crowded market. By last year it had already become the top-selling underwear brand on Tmall. But there is a fine line between being edgy and objectifying your target market.
The promotion follows a series of similarly sexist campaigns, curiously trying to appeal to the lucrative female target market. Just in January, Chinese makeup remover brand PurCotton’s ad showed a women using a cleansing towelette to remove her makeup and scare off a stalker with her bare face. Late last month, bubble tea brand Sexy Tea, was forced to apologise after its packaging promoted itself as an economical way to lure girls. It hasn’t just been local brands making gaffs with their ads in China, in 2017 an ad by Audi backfired after depicting women as livestock.
Fast-growing video platform Bilibili, has had a transformative few years, doubling its paid subscribers in 2020. In 2013, Bilibili was known as a hub for young ACG (Anime, Comic and Games) fans. Just 25% of users were women. The platform has since targeted a wider group and now counts 43% of users as female. Yet there are numerous reports of the platform becoming visibly more conservative, sexist and nationalistic, fuelled by the recent promotion of the objectionable anime series “Jobless Reincarnation.” This has caused tens of thousands of feminists to successfully pressure advertisers to end partnerships with the platform, as well as flooding social media to encourage a mass boycott of Bilibili.
Although China is still some way off using pronouns in email signatures, consumers are increasingly expecting and standing up for a more inclusive society. Like many trends that accelerated as a result of Covid, hundreds of thousands protested online against sexist treatment of female health workers during the height of the pandemic in China.
Females in China have long been confident and fiercely independent. Back when Chinese could travel abroad, females accounted for 58% of independent travellers, symbolizing their self assurance and adventurousness. More and more, that assertiveness is translating to a lack of tolerance for brands who are stuck in a sexist, old-fashioned mindset. There is a tug of war between societal expectations for traditional gender stereotypes, trying to pull against an open-minded generation (both females and males) who are increasingly pushing back, supported and amplified by their tribes on social media.
Companies developing branding and messaging would be wise to understand and speak to the less traditional stances that are sweeping the consumer classes. Brands can still be edgy and stand out, without being objectionable. Contact China Skinny to discuss how we can assist. In the meantime, don’t forget International Women’s Day this Monday!
Click/tap here to see this week’s most important China market and marketing news.
This week’s news and trends in China:
The Most Important Consumer Group in the World: Chinese Females: Female consumers account for three out of four purchases in China, but in many categories they are underserved by brands and marketing.
China’s Economy Could Grow 8-9% this Year From Low Base in 2020 – Central Bank Adviser: China’s GDP could expand 8-9% in 2021 as it continues to rebound from the COVID-19 pandemic, says Liu Shijin, a policy adviser to the People’s Bank of China. This speed of recovery would not mean China has returned to a “high-growth” period, as it would be from a low base in 2020, when China’s economy grew 2.3%. If 2020 and 2021’s average GDP growth is around 5%, this would be a “not bad” outcome says Liu. Last week, analysts from HSBC forecast that China would grow 8.5% this year, leading the global economic recovery from the pandemic.
China’s Culture Wars, Now Playing On Bilibili: The platform is visibly more conservative, sexist and nationalistic, fuelled by the recent promotion of the objectionable anime series “Jobless Reincarnation.” Women have had enough. The news comes as yet another consumer brand, Ubras, has become the target of a social media backlash after a marketing campaign that offended women.
Trademarking a Sound in China: In China, sound marks are a somewhat new concept, possible following China’s 2014 Trademark Law Amendment. The law provides that any signs, including words, graphs, letters, numbers, three-dimensional symbols, colour combinations, sound, or any combination thereof, that can distinguish the goods of an entity from those of others may be registered as trademarks. In practice, however, less than 10% of sound mark applications have been approved. Tencent’s QQ notification sound was initially rejected but after an appeal it was granted a trademark. KOL Austin Li is currently appealing his application’s rejection. On the subject of trademarking, New Balance has won ¥25 million ($3.9m) in damages from China logo copycats after first taking legal action in 2016.
Trust in Ads on Different Media is All Over the Map in APAC: 74% of Chinese believe ads on websites are untrustworthy versus 61% globally. 63% mistrust search engine ads in China and 61% believe ads on podcasts are not very trustworthy.
What Brands Can Learn From China’s Shopping Festivals: The innovation, brand focus and technology activation differentiates Chinese shopping festivals from sales and discount events in other countries according to a WPP study. Brands should plan early and let the long-term China strategy govern festival tactics. Rather than discounts, brands should focus on value such as new releases, limited editions, fresh collaborations and special packaging.
Bilibili Influencer Interviews Apple CEO, Revealing Which iPhone Features Were Inspired by Chinese Users and More: A 22-year-old content creator who managed to secure an interview with Tim Cook had 5.4 million views on Bilibili within 48 hours, with the Weibo hashtag receiving 220 million views. According to Cook, many features in Apple’s devices were inspired by feedback from Chinese consumers, including specific keyboard features, the QR code mode in camera, the night mode, and the junction view in maps.
Food & Beverage
The Next Phase of China’s Food Security Strategy: After suffering among the worst famines in human history during the Great Leap Forward, China is now one of the world’s largest food producers and consumers. The nation’s food prosperity is tied to multiple policy areas, ranging from agriculture and rural revitalization to environmental policy, putting it at the centre of Chinese domestic policy. China is investing heavily in its agricultural R&D in both the public and private sector, aiming to make more efficient use of the country’s farmland and produce higher yield crops through new agricultural technology and genetically modified crops. GM corn and soybean species passed domestic biosafety evaluations in January 2020, paving the way for commercialized GM crops. China is also purchasing land in foreign countries to make up for its own lack of arable land. By 2026, the average Chinese consumer will consume 55kg of meat per year, up 10% from 2017.
Nestle’s 2020 APAC Performance: Plant-Based Localisation, Sustainability and Affordability Key Focus Areas After China Pulls Down Growth: Following near flat-growth in the Asia Pacific region as a result of poor performance in China, Nestle has committed to focus on plant-based product localisation, sustainability and affordability as key focus areas. China’s poor results were pulled down by weaker demand for out-of-home products and consumers not stockpiling food supplies like many other markets.
Tim Hortons China Raises Fresh Cash, Plans to Add 200 Shops in 2021: Tim Hortons China has completed a new fundraising round from big players Sequoia, Tencent and Eastern Bell Capital, and plans to add more than 200 shops to its network this year. It currently has 150 shops in 10 cities. The coffee chain has sought to appeal to local tastebuds with drink options such as lemon peach oolong tea and hot sandwiches, alongside its usual offerings such as donuts. It’s been two years since first receiving investment from Tencent, which has seen it open an esports-themed café with Tencent, and attract more than three million members to its WeChat mini program.
2021 to Mark Return of Travel Growth in China, New Trends to Follow: China is forecast to see an increase of more than 200% in international departures in 2021, to reach circa 30 million international departures. Pre-Covid levels are expected to return by 2023, when outbound traffic is forecast to reach 88 million following 108% growth in 2022 and 44% in 2023. Traveller behavioural trends have changed considerably in China since the outbreak of the pandemic, and Chinese travellers are now paying significantly greater attention to health and safety measures, and practicing greater hygiene when travelling.
Sports Retailer Fanatics Enters China Via Venture With Hillhouse Capital: Fanatics Inc, the world’s biggest licensed sports merchandise retailer, is expanding into China. The ecommerce platform is betting on what it sees as untapped demand in China for sports equipment and clothing – helped by growing interest in European football and American sports. It aims to localise operations including product design, sourcing and licensing to serve what Fanatics expects will be a multi-billion dollar market. The company believes the Chinese market was “grossly underserved” and could be worth $3 billion-$5 billion a year.
Banking & Investments
Citi Executive Pulls James Bond Stunts to Woo China’s Rich: Buckley, Darren Buckley, head of consumer banking for Citigroup China and his wife are stars of the bank’s James Bond-inspired marketing campaign on Douyin. The first video had more than 2 million views. Fund managers and research analysts from numerous firms have launched live streams, banks and brokerages have been slashing fees and offering free gifts, all in an effort to stand out in a crowded marketplace.
China Mulls Allowing Investment in Overseas Stocks, Insurance, Says Foreign Exchange Official: China is studying the feasibility of allowing individual investors to buy overseas financial assets, according to an official from the foreign exchange regulator. Individuals can spend up to US$50,000 per year on foreign currency purchases under current rules, but there are restrictions on buying overseas securities.
Happy Niu Year! For our readers who had a break, we hope it was great.
Digital platforms have long been more advanced and deeply entrenched in Chinese lives than anywhere. Back in 2017, for every dollar that American consumers spent on mobile payments, Chinese consumers shelled out $250. China’s ecommerce market is the largest and most dynamic in the world. 22% of consumers globally are likely to buy groceries online, whereas 59% of Chinese do. While livestreaming is barely visible in most markets, 388 million Chinese viewed it in December, with more than two-thirds making a purchase.
Like in most countries, Chinese consumers’ attraction to online platforms has accelerated as a result of Covid. In our 2021 China Trends white paper, there was a digital slant for the majority of opportunities identified by industry leaders. Similarly, McKinsey noted that “Chinese consumers will be more digital than ever before” in their 2021 outlook.
Although some demographics and geographies have resisted going online for years, the pandemic drew in many new users, particularly those under 20 and over 50. This is being further driven by new government initiatives to make websites and apps more accessible for the aging and the disabled. Together, these have helped China hit the milestone of one billion internet users.
With digital platforms now so embedded in Chinese consumers’ purchase journeys, almost all brands are online trying to reach Chinese consumers one way or another. Yet much of it has been in vain. China Skinny has audited and assessed countless foreign brands’ online initiatives spanning most industries. Unfortunately many do little to stand out among the sea of other WeChat accounts or ecommerce stores, giving little to no relevant reasons for their target market to connect with their brand and products.
Online marketing in China isn’t cheap. Many brands dedicate a large share of their precious marketing budget to digital initiatives, but don’t see much, if any, return. Whilst virtually every online consumer uses WeChat, it doesn’t mean they will engage meaningfully with your brand on the platform. The average user follows just a handful of Official Accounts, and engagement has been decreasing for years. There are smart ways to tap into WeChat opportunities, but in many cases, brands would be wise to consider other platforms as well. For the past few years, consumers’ share of screen time has shifted to short video platforms such as Douyin, and Kuaishou, now used by 88% of Chinese online. But these too are rarely a silver bullet for marketers.
In addition to the big, well-known platforms like WeChat and Douyin, it is often worth considering a number of smaller platforms which can be more targeted and better aligned with your category or consumer. They are generally less crowded, more cost effective and more engaging for specific interest groups.
To make sense of it all, China Skinny has launched a free online tool, the China Digital Platform Debunker. The simple-to-use tool helps you understand China’s myriad of category-specific platforms, which can help you identify and evaluate other possible digital channels to reach and engage with your Chinese target market. Have a go here, which should help direct a more effective China digital strategy to start off the Year of the Ox well!
Click/tap here to see this week’s most important China market and marketing news.
Foreign Brands’ Chinese New Year Advertising That Went Viral: Comparisons of some of the big-hitting foreign brands’ takes on China’s most important festival.
What do Chinese New Year Marketing Trends Look Like During a Pandemic: Compared to previous years where campaign messaging centred around family reunions, prosperity and luck for the new year, this year is focused on understanding the current context and relating to consumers on an increasingly emotional level. More brands are focused on celebrating in your ‘resident city’ as opposed to traditionally travelling back to everyone’s hometowns.
Chinese Consumers Focus More on Health, Safety When Buying Holiday Goods: Survey: 62.8% of consumers will focus more on the health and safety of goods for purchases during this year’s Spring Festival shopping spree according to a China Youth Daily survey. 60% will try to reduce close contact with others, and 36% will check the quarantine certificate and trace information of imported goods.
Chinese Cities Offer Cash Rewards, Points for School Admission and Other Perks to Stop Spring Festival Travel: Amid fears of COVID-19 spread, a growing number of Chinese cities are offering financial incentives and other perks to persuade residents, especially migrant workers, not to travel home for family reunions ahead of the upcoming Lunar New Year holiday. In cities like Suzhou, Ningbo, and Taizhou, those who avoid returning to their rural places of origin are entitled to earn extra points when applying for permanent household registrations, the hukou. In addition, their children will be granted an advantage when choosing local schools to attend. Migrant workers in Hangzhou and Tianjin are given cash rewards up to ¥1,000 ($154) to remain where they are during the holiday. Shanghai is handing out 3,000 “entertainment packages” and 5,000 “snack baskets” for free to migrant workers who stay behind.
The Human Side to Another Lost Spring Festival: People from across China share how they’re celebrating the Lunar New Year holidays, dampened for the second straight year by COVID-19 outbreaks.
China’s Flight Prices Plummet After Holiday Travel Discouraged: Whilst air tickets normally go sky-high for the Chinese New Year holiday, in late January the average price for airline tickets fell to ¥651.4 ($100), the lowest pre-booking price for Spring Festival flights in at least five years, with flights as low as half of last years’ prices.
China Prepares for Smallest Lunar New Year Travel Rush on Record: The world’s largest human migration is expected to be its least-busy in 18 years, with just 1.15 billion trips, 20% down on even last year’s Covid-disrupted festival.
Online Sales of Holiday-Related Goods Surge Ahead of Chinese New Year: From January 20-29, online sales of holiday goods reached ¥344 billion ($53 billion) in an online sales event organised by China’s Ministry of Commerce (MOFCOM) and others. Food sales surged 49.6% from last year, with partly-prepared food up 376%. Fitness equipment also grew strongly, with skipping ropes up 351%.
The Party is Over at Clubhouse, the App that Had China Talking: Not even the most taboo of subjects were off-limits in the rambunctious, unfiltered chatrooms of Clubhouse, before China’s censors silenced the conversation following a session hosted by Elon Musk which went viral.
Food & Beverage
Beijing Faces High Food Prices Ahead of Lunar New Year Due to Lockdowns Nearby: The pressure on food prices is especially sensitive in the run-up to the country’s most important holiday as families gather around the dinner table. Already high because of exceptionally low temperatures since December, vegetable prices in Beijing, have jumped after many cities in Hebei province locked down following a jump in coronavirus infections. Large cabbages, celery, eggplant and daikon radish, for example, are double the price of last year.
Luckin Coffee Files Bankruptcy in US, Will Keep Shops Open: Founded in 2017, Luckin operated 3,898 outlets as of November 30 with another 894 “partnership” stores. The chain pulled in customers by offering massive discounts and sought to reach 10,000 locations by the end of 2021. Sales still grew 35.8% in the quarter ended September compared to a year ago.
Intime’s 2020 Success Demonstrates Brick-and-Mortar Relevance in New Retail Strategy: Alibaba-owned department store Intime was the world’s top-performing retailer for 13 of its international beauty and cosmetics tenants in 2020. In light of Covid-related changes, the retailer upgraded its omnichannel strategy and adapted to new trends such as spiking at-home consumption, counter-to-home delivery and in-store pickups. Demand for skincare and eye makeup soared as people focused on self-care and beautification. China became the largest market for French beauty products for the first time in 2020, ahead of Germany and the US.
Tonic Snacks Trending as Chinese New Year Gifts: JD’s data shows that remote orders of tonic products grew more than 35% from last month. Many people living in first-tier cities have started to send tonic gift boxes to their families in third or fourth-tier cities since this January. Top tonic choices include bird nests, health tea, cordyceps sinensis, fish maw and ginseng. Female consumers account for more than 70% of sales for bird nests and fish maw, consumers under 30 years old fancy health tea, and those above 45 years old prefer cordyceps sinensis and ginseng. People from the Yangtze River Delta and the Pearl River Delta spend more on raw ingredients and prefer to cook them in the traditional ways for fine nourishment, whereas northern China and northeast China are more likely to buy ready-to-eat offerings.
Throwaway Economy: Chinese Consumers Are Ditching Luxury Goods Within 1-3 Years, Says New Study: A global study by luxury giant Kering found China to be the most prominent throwaway culture market, where the majority of respondents reported keeping their items for only one to three years. Only 6% of Chinese shoppers kept their luxury goods for more than 10 years, compared to 31% and 33% of consumers in the US and Japan respectively.
This week’s China market and marketing news:
China Digital Platform Debunker: China Skinny’s online tool allowing you to understand the intricacies and statistics behind China’s unique online ecosystem. Easy to use, and clearly divided into 19 categories to help you navigate the most relevant and important digital platforms for your business in China.
China’s Internet User Population Reaches 1 Billion, One-Fifth of Global Figure: China has hit the billion mark for its internet users – over 70% of the population. 31% are from rural areas. The proportion of users who are under 20 or above 50 years of age have increased significantly. By December 2020, 346 million people had worked remotely, up 147 million from June 2020. 88% of online Chinese now use short video, up 100 million between March and December 2020.
China’s Big Tech Goes For the Big Grey: In December, Beijing announced a year-long campaign to make nearly 160 websites and apps more accessible for the aging and the disabled. By late January, search engine Baidu pushed out an app with enlarged text and a streamlined interface for the older population. Similarly, rideshare giant Didi rolled out Didi Care, allowing older users to hail taxis more easily. In June 2020, 22.8% of China’s internet users were aged 50 or older, up from 16.9% just three months prior and from 13.6% one year before.
Why China’s Spring Festival Gala is a Major Promotions Vehicle for Big Tech firms: The annual CCTV Spring Festival Gala drew more than 1.2 billion last year and is considered China’s Super Bowl for advertisers. ByteDance-owned short video app operator Douyin gave away $186 million worth of red packets during this year’s show.
85% of Users Paid by Scanning QR Codes in 2020: 98% of Chinese surveyed consider mobile payment as the most commonly used payment method, up 5 percentage points from a year earlier. The proportion of people who paid by scanning QR codes reached 85%, up 6 percentage points from 2019. Chinese people used mobile payment three times a day on average.
What Can We Expect in China in 2021?: China enters 2021 economically stronger relative to major economies than anytime since 2009. McKinsey’s take on what lies ahead this year.
Chinese New Year Consumption Soars as COVID Eases Up: Total retail and catering sales over the seven-day holiday, hit ¥821 billion ($128 billion), a 29% jump from last year’s pandemic-disrupted holiday, and a 4.9% increase from the same period in 2019. Across China’s 10 biggest cities, consumer foot traffic at shopping malls was triple last year’s levels. Online sellers took 15% of all consumer spending during the period, with online catering sales jumping over 130%. Airlines, railways and other tourist transit companies were the areas that took the biggest hit, down 43% on 2020 and 76% on 2019 as the Government called to hold off travel. High-end hotel bookings bucked the trend, growing 160% from last year.
China Overtakes US as EU’s Biggest Goods Trading Partner: China bucked a wider trend, as trade with most of Europe’s major partners dipped due to the Covid-19 pandemic. Goods trade between China and the EU was worth $709 billion last year, compared with $671 billion worth of imports and exports from the US, helped by China’s demand for luxury cars and goods and Europe’s import of medical equipment and electronics.
Chinese Sent 365 Million Parcels During Spring Festival Holiday: China’s courier firms delivered 365 million parcels in the first five days of the week-long Spring Festival holiday, up by 224% over the same period last year. Much of the deliveries were gift parcels as many couldn’t be delivered in person.
Food & Beverage
Video: Fast Food Products Only Sold in China: 4 min video: Kerr (from China) and Andy (from America) discuss some of the more unique products only available at fast food chains in China.
Chinese-Western Breakfast Sets Proving to be a Hit Among Locals: To cater to growing demand for breakfast sets that combine elements from the East and the West, food companies have been rolling out a host of new offerings. Shanghai Qiao Coffee offers traditional dim sum fare, but also sells various types of coffee such as cold brew, flat white and even sweet fermented-rice latte. Many independent cafes are offering sets such as sandwiches with soybean milk and drip bag coffee with baked barbecued pork puff.
Groceries Help Meituan Grow Into One of China’s Biggest Tech Companies: Forget deep learning, recommendation engines or extreme ultraviolet lithography: The hottest thing in Chinese tech might be bulk-bought cabbages. Shares in order and delivery app Meituan have quadrupled in the past 12-months valuing the company at $312 billion, to become China’s third-most valuable internet company behind Tencent and Alibaba. Meituan is one of the big players in community group buying—a fast-growing ecommerce niche in China where people band together to buy food and household goods at better prices. Community buying accounted for around 5% of China’s online grocery market in 2020, but is forecast to grow to 38% by 2025. [paywall]
‘No limit to the growth potential of China’: L’Oréal’s Next CEO Eyes Major Opportunities for Skin Care and Hair Care: L’Oréal’s sales in China grew 27% for the fiscal year, with every division seeing double-digit growth. The group believes skincare will continue to be growth driver, with active cosmetics and sun care showing strong potential.
China Birthrate Slumps as Experts Blame Changing Attitudes: Fallout from decades of its one-child policy and changing social attitudes about family and marriage are driving plummeting birthrates in China, after preliminary figures this week showed a drop of about 15% to 10.035 million babies born in 2020. The high costs of housing and education, and growing rejection of marriage among young women are believed to be large contributors.
Chinese Box Office Breaks Record Despite Pandemic Shadow: Chinese box office sales broke records during the Lunar New Year holiday, raking in ¥6 billion ($930 million) as of February 15. Last year’s cinema closures saw takings of just ¥18 million ($2.79 million). On Lunar New Year’s Day, box office sales totalled ¥1.74 billion ($264 million), breaking the ¥1.45 billion ($226 million) single-day record set during 2019. Most Chinese movie theatres are currently operating at 75% capacity, and 50% in higher-risk areas, pushing up ticket prices from an average of ¥35 ($5.42) to ¥51 ($7.9). Some ticket prices were higher than ¥150 ($23). Online, more than 2.3 billion films were watched over the holiday, 20% up on 2020.
Health & Fitness
Lululemon Bets on China After Revenue from Mainland More than Doubles During Coronavirus Pandemic: The coronavirus pandemic has led to a boom in yoga and other wellness activities in various parts of the world, but more so in China, which got a total well-being score of 79 out of 100, higher than the 65 global average. In the third quarter, Lululemon’s revenue from China more than doubled, outpacing the 45% growth in overall international market.
Nothing spoils a good trip home quite like a pandemic. In the lead-up to the Chinese New Year holiday, things were looking promising as recently as a month ago with China having had only a handful of contained outbreaks for the second half of 2020. Then an outbreak in northern China – tiny relative to most countries, but still taken very seriously in China – peaked in late January, putting a dampener on this special time of year.
With the cost of travel skyrocketing every Spring Festival, many Chinese had booked their holidays early. But the outbreaks gave the government no choice but to strongly discourage travel, allowing refunds on tickets already purchased. It even incentivised domestic migrants not to return home. For many, it was to be their only trip of the year, and often the one opportunity to see their kids who live with their grandparents. Yet train stations, bus stations and airports absolutely crammed with people are a wonderland for a highly contagious bug, so it was another Lunar New Year of staying put.
The ‘world’s biggest annual human migration‘ will be just a trickle on previous festivals this year, with just 1.15 billion trips forecasted, compared to 2.9 billion in the pre-Covid times of 2019. That has kept the price of air tickets as low as half their usual price for the period, with the average fare just ¥651.4 ($100).
This time of the year, screens are normally awash with emotional ads of people travelling back to hometowns. Not in 2021. More brands are focused on celebrating in a consumer’s ‘resident city’. Among the most effective campaigns are those connecting at a new emotional level, acknowledging feelings of homesickness, missing parents and extended families, while welcoming the Year of the Ox with a smaller circle of friends or immediate family. Here are some of the big foreign brands’ CNY ads that went viral – which were of a more traditional mould. Going forward, we can expect many brands that have logos or connections to cattle, to milk them over the next 12-months – from dairy brands to Lamborghini, Red Bull and even travel site Tuniu, restrictions aside.
In addition to ads, consumer behaviour has also been impacted by this year’s unique circumstances. Gifting and food are the two big purchases leading up to the festival, and habits for both have been affected. Much of the gifting will now be bought online and delivered remotely, missing that face-to-face touch that builds the magic during the Spring Festival.
Food, which is usually stocked up to serve visiting relatives, has obviously seen changing purchase behaviour. There have been videos circulating on social channels of massive crowds of consumers stocking up at Sam’s Club, Costco and other hypermarkets for CNY supplies – resembling the usual train station footage at this time of the year. But for many other consumers stuck in their city of residence, more and more are without the usual family rituals of preparing dumplings, spring rolls, rice cakes and other fare, leaving it to others. Sales of partly-prepared food surged 375.6% from 2020 during a massive online sale of holiday goods. Similarly, holiday meal offers on delivery platform Ele.me grew 164% from last year, with a 260% rise in the number of stores serving up festive meals for delivery to meet demand.
Food overall has been a sore point leading into this Chinese New Year. Propaganda about foreign food ‘infected with Covid’ has reduced demand from importers, in addition to stockpiles of food held up at the ports due to nucleic acid testing for Covid. Domestic producers have been unable to fill the gap, particularly with the freezing conditions in the north, meaning food prices have shot up. Certain vegetable prices in Beijing and other cities have almost doubled on last year, and pork is close to its 2019-peak.
Overall, although the CNY restrictions and food prices will impact spending and lower GDP during this traditionally explosive time for spending, Chinese consumers continue to feel more confident than most. The outbreaks which hampered new year travel have had a little over 2,000 local infections in total, with no new local cases on Sunday. Consumers have faith that their system quickly stamps out any massive outbreaks like it saw in Wuhan a year ago, which has been foundational to their relatively positive outlooks.
The team at China Skinny wishes you a Happy and Prosperous Year of the Ox, and looks forward to sharing more insights and assisting with your China strategy, branding, research, trends, new product development and other things in the year ahead. 春节快乐！
Click/tap here to see this week’s most important China market and marketing news.
When most people think of short video apps, Douyin – or its sister-app TikTok – is likely to come to mind. TikTok is the first Chinese app to have truly made it outside of the mainland, having brought the short video-craze to the global masses. Yet the craze was pioneered by another platform, Kuaishou, which had more short video users than anyone, until it was overtaken by Douyin in mid-2018.
Although it doesn’t get the airtime of Douyin, Kuaishou’s credentials are not too be sneezed at. More than 262 million Chinese check the app an average of 10 times a day. Viewers spend an average of almost 90 minutes on Kuaishou every day, and about a quarter of monthly users churn out content as well.
Kuaishou has also done a much better job at converting viewers to shoppers. In the first 11 months of 2020, ¥333 billion ($51.5 billion) worth of goods were sold through livestreams on the app, not far behind market leader Alibaba’s ¥500 billion ($77.4 billion). Douyin sales were estimated to reach just ¥200 billion ($30.1 billion).
Kuaishou also has more paying users than any other app in the world. Much of this is attributable to users who ‘tip’ content creators who they like, showering them with virtual gifts such as ¥1.5 (23c) beer stickers, to ¥500 ($77) rockets, and even ¥1,400 ($217) golden dragons. Such generosity from fans accounts for almost two thirds of its revenue and provides opportunities to further monetise from viewers who already have their wallet out.
Yet for many foreign brands, Kuaishou is unlikely to be on the radar as a marketing and sales channel. This is largely due to majority of users being ‘small’ city or rural residents, who are typically a lot more price-sensitive and conservative, and as a result, less inclined to buy premium foreign brands. Nevertheless, retail sales growth in rural areas grew 25% faster than in cities in the final three months of 2020, clocking 5.6% growth, building further promise as a future market. Just like massive ecommerce platform Pinduoduo, Kuaishou is focused on moving up the food chain and appealing to the big spenders in China’s higher tier cities. It has been competing with Douyin tit-for-tat, such as when Douyin announced ¥2 billion ($310 million) of gifts for the Chinese New Year, Kuaishou upped the anti with ¥2.1 billion ($325 million).
While Kuaishou may not yet be overly relevant for most foreign brands, it’s likely you’ll be hearing about it a little more this week. On Friday, the app will list on the Hong Kong Stock Exchange in what will be the world’s biggest IPO in two years. There’s a good chance stock will jump once listed, given Kuaishou trades are already twice the IPO price in the gray market – 50% more than the ill-fated Ant was pre-IPO.
As promising as the Kuaishou IPO is turning out to be, it hasn’t been without controversy. In December, Xinba, the most popular KOL on Kuaishou, was caught selling fake Bird’s Nest supplements which turned out to only be sugar water on his livestream. Given KOLs account for two-thirds of Kuaishou’s revenue it does have some exposure to their credibility, but as we saw after Austin Li’s selling poor quality ‘non-stick’ frying pans in 2019, selling the odd dodgy product appears to have little-to-no impact on the big KOLs’ pulling power.
Similarly, just days before the IPO, the Chinese copyright association said that it had discovered around 155 million videos on Kuaishou that used unlicensed songs as background music, requesting the removal of 10,000 videos it said infringes intellectual property rules.
Also this week, China’s internet watchdog announced a crackdown on user generated content accounts, which will impact platforms like Kuaishou. It follows recent regulations about sales of food over livestreams that don’t meet safety standards, affecting one of its big ecommerce categories and the hundreds of thousands of other farmers peddling their wares on the app.
Controversies aside, Kuaishou will get a sizeable cash injection from its listing, which will help it in its quest to become more relevant with big spending Chinese consumers who buy foreign products. Stay tuned.
Click/tap here to see this week’s most important China market and marketing news.
This week’s China market and marketing news:
Chinese Consumer Spending is Set to Double by 2030, Morgan Stanley Predicts: Three years ago, Morgan Stanley forecast China’s private consumption would rise to $9.7 trillion by 2030. It has now raised its forecasts to $12.7 trillion, about the same amount that American consumers currently spend. Spurring this expected growth are: greater government emphasis on policies to support the domestic Chinese economy, increases in household income, further growth of urban areas and changes in technology and demographic shifts. Material shifts in consumption patterns are likely to take place, from young consumer focused to household demand driven, which will incrementally require a higher proportion of services in consumption.
WeChat’s Value Surpasses Ferrari as Covid-19 Pandemic Upends Businesses and Buoys Technology Brands From Apple to Tesla: China’s share of the world’s top 500 most valuable brands grew to 77, from 70, valued at a combined $1.42 trillion, an increase of 20%. The US remains top of the list with 197 brands valued at $3.28 trillion according to Brand Finance.
Apple Had a Record Quarter in China With the Highest Ever Number of iPhone Upgrades: Apple had a record number of iPhone “upgraders” during the quarter, with 2020 Q4 revenue for Greater China up 57% from last year, buoyed by attractive, 5G iPhone 12 models and the weakness of Chinese smartphone giant Huawei. Fellow American brand Starbucks saw China as its fastest growing overseas market, with same-store sales up 5% in Q4, bucking the broader decline of 3% in international store sales. Tesla posted its first full-year profit on record China sales, although the country’s adoption rate of Tesla’s autopilot feature is the lowest of any market. Nike saw Greater China revenue grow 24% year-on-year.
China’s Internet Watchdog Intensifies Campaign Against Independent Content Creators, Says Regulators Must Have ‘Teeth’: China’s internet watchdog announced a crackdown on user generated content which make up most of the material on platforms such as WeChat, Douyin and Kuaishou.
ByteDance’s Douyin Becomes Exclusive Red Envelope Interactive Partner of 2021 Spring Festival Gala: Douyin will allocate ¥1.2 billion ($186 million) in the form of red envelopes on the very popular CCTV Spring Festival Gala broadcast. The short video platform will also run a series of activities such as collecting virtual lanterns and taking family portraits with parents, with “lucky koi” red envelopes worth ¥8,888 ($1,375). Last year, Kuaishou spent as much as ¥1 billion on the gala, following Baidu’s ¥900 million in 2019. Alibaba’s Alipay and Taobao, and WeChat have all had similar partnerships.
Food & Beverage
Winter Warmth – Spicy Sundae Part of McDonald’s One-Day Only Menu for Members: In response to Chinese consumer preferences for exclusive access to new experiences, McDonald’s has rolled out a Member’s Day Menu – a once-per-month event that features a limited-edition menu item exclusively crafted for Chinese consumers, reinventing their favourite flavours. This month’s menu sees traditional Chinese chilli sauce on a McDonald’s ice cream sundae.
The New Wellness Trend In China Is Beauty Snacks: The newest darlings of the China beauty influencer set are delicious snacks with a good-for-your-skin appeal, such as bird’s nest jelly desserts, anti-sugar gummy candies, and collagen energy bars. China’s edible beauty market has been forecast to become a $3.7 billion (Y23.8 billion) industry by 2022. Over 70% of China’s beauty snack consumers are under 25, with the main objective being preventing early aging rather than fixing issues.
China’s Guangzhou Airport Crowns Itself the World’s Busiest for 2020: Guangzhou’s Baiyun International Airport was the world’s busiest airport last year, up from 11th in 2019, as China is one of the few countries to mark a recovery in domestic air travel. Neighbouring Shenzhen may have also landed a spot in the top-3. Guangzhou’s traffic dropped 40% from a year earlier, with Shenzhen falling 28%. The busiest airport for two decades, Atlanta, saw flights drop 61%. Los Angeles was down 67%, Dubai fell almost 80%, and Guangzhou’s neighbour Hong Kong plummeted 87%.
China’s Resort Island Opens Two More Duty-Free Shops: Two new offshore duty-free shops opened on Sunday in Haikou, capital of south China’s island province of Hainan, raising the number of duty-free shops in the province to nine. One of the shops offers nearly 500 international brands in a shopping area of 20,000 square meters, the other, located in a large shopping centre, is the first of three phases opening this year. Some are picking Hainan’s duty-free shopping industry to become a ¥100-billion ($15.5 billion) industry in the next few years after duty-free sales doubled in 2020.
Chinese Watchdog Opens Probe After Pet Food From Canada Suspected in Cat Deaths: More than 100 pet owners in Ningbo said their cats had diarrhoea, vomiting, blood in their stools and kidney damage, with some even dying after eating Go!-branded cat food from Canada.
China Wants to Mitigate Male ‘Feminization’ With More Gym Class: A top political advisory body, had suggested that Chinese schoolboys are “weak, self-effacing, and timid,” and may be unduly influenced by so-called “little fresh meats”. The feminization of Chinese boys is “a threat to the development and survival of our nation.” More physical education is considered an antidote to the supposed “feminization” of young men. Last September, the country’s top sports and education authorities announced that physical fitness would soon carry greater weight on the national high school entrance exam.
Ford Gets Hammered for Culturally Confused Ad Campaign Putting the Horse in Front of the Ox: Ford announced its first pure electric SUV, the Mustang Mach-E, would be manufactured in China, with “2021 – China: Year of the Horse.” The seemingly intentional muddle of zodiacs created a lot of noise online, but didn’t sit well with most commentators online with common themes such as “I might not be able to tell my Year of the Ox from my Year of the Horse, but I know I want to make money from the Chinese.”
86% of Chinese Car Shoppers Actively Consider EVs: 86% of car buyers surveyed in China said they would imagine buying an EV, versus 28% in France and 35% in Germany. Just 20% in China see high EV prices as a deterrent to purchase, as opposed to 46% in France and 55% in Germany. The main pain points in China are low availability of charging stations and short driving ranges, cited by 63% and 59% respectively. Two thirds of Chinese consumers have said they will switch to other car brands and products if these provide a better digital experience. Around 60% of Chinese consumers surveyed have been shunning public transportation and using carpools less in the wake of the coronavirus outbreak.
How Cartier Kept its Sparkle in China Amid Covid-19: Cartier was the top-selling brand on the Tmall Luxury Pavilion last year. Cartier doesn’t look at physical and digital as one replacing the other, rather integrating all kinds of experiences in a way that makes sense for the consumers. While it is hard to reproduce the sensation of physically seeing and trying on a luxury product, digital technologies can heighten and open new pathways to that experience. Online, Cartier offers custom engraving, embossing, gift-wrapping and white-glove delivery in the fine jewellery and watch category. Cartier’s Chinese customers are the youngest in any of its markets, with Millennials representing roughly 65%, and Gen Z 25% of its base. Industry-wide, luxury shoppers made 70-75% of their purchases inside mainland China, up from just 32% in the previous year.
Despite increasing geopolitical tensions, rising nationalism and Covid fears, imports of consumer goods grew 8.2% in China last year. Sales of domestic goods contracted 3.9%. Chinese consumers’ historic pursuit for beauty helped see imported cosmetics as one of the biggest drivers of this growth, with their value rising over 30% according to China’s Ministry of Commerce (MOFCOM) figures published last week.
The strong growth in cosmetics imports further reinforces the attractiveness of foreign skincare brands, and is well timed to coincide with the launch of the China Skinny Skincare Tracker. The Tracker is an interactive dashboard providing up-to-date, actionable intelligence for China skincare categories, overlaying ecommerce data with a quarterly consumer survey. It is like an online Disneyland for China cosmetics aficionados, providing granular insights to assist with game-changing decisions that will allow you to spot trends and keep up in the dynamic category.
Diving a little deeper, it is unsurprising that demand for imported beauty products has soared over the past 12-months. With a typical basket of cosmetics costing as much as 60% more in China than in other countries, Chinese beauty buyers have historically bought a sizeable share of their skincare and makeup when they or friends are travelling abroad, or through daigou agents. Much like in the luxury industry, consumers’ inability to travel or source reliable daigou services, has seen many repatriate their purchases of foreign cosmetics to China.
In short, the stunning 30% rise of imported cosmetics hides the reality that savvy domestic brands are increasingly eroding foreign brands’ market share. Western, Japanese and Korean beauty brands still hold an aspirational mantle among most Chinese consumers. Given many domestic brands go as far as dialling up ‘French’ and other foreign characteristics, it’s fair to say that ‘C-Beauty’ (China Beauty) still has some way to go before they truly command an authentic preference. Nevertheless, insights from our Skincare Tracker have identified how domestic brands’ growth is largely due to marketing strategies that are more in-line with Chinese consumers’ wants and needs.
One of the interesting insights from the Skincare Tracker was how much foreign cosmetics brands dominated sales on Singles’ Day, but account for just a third of top selling brands on Tmall during the rest of the year. Kudos to the alluring campaigns and promotions during the shopping festival, but for categories such as cosmetics where habits are formed through regular rituals, foreign brands should be doing more to ensure their products are purchased year-round.
Another concern for foreign brands is how much less personal their claims and positioning are relative to their domestic competitors. Similarly, foreign skincare products are less tailored to specific target markets. We’ve elaborated these findings and included some other interesting insights such as surprising perceptions about sustainability and cruelty-free cosmetics here. Many of the findings are also relevant for brands beyond the beauty category.
In addition, we’ve published a white paper which unfolds case studies showing how beauty brands are best adapting their marketing to consumer needs identified using the Skincare Tracker’s insights. You can download it here.
For more information about the China Skinny Skincare Tracker and our other tools such as the Dairy Tracker, click/tap here. Contact us to learn more about how the Trackers may assist your brand.
Click/tap here to see this week’s most important China market and marketing news.
This week’s China market and marketing news:
Introducing the China Skinny Skincare Tracker: Screenshots and information about the stunning new interactive dashboard that beauty brands will have wished they had earlier!
Actions Foreign Skincare Brands Can Take to Sell More in China: A comprehensive list of actions skincare brands can take improve their performance in China.
China Skincare White Paper: Download the valuable white paper containing skincare category data, trends and best practice from brands in China.
Beauty On-Demand: One-Hour Delivery Services for Cosmetics the New ‘Habit’ in China: JD’s on-demand retail and delivery firm Dada Group is expanding its beauty category to keep up with consumer need for speedy delivery services. Demand tripled in 2020’s Singles’ Day versus 2019. Innisfree will integrate its 230 brick & mortar stores with the service to allow for one-hour delivery within 3 kilometres each shop.
Alibaba, JD.com Use Foreign Brands to Attract More Chinese Consumers, as Borders Remain Closed Amid Covid-19 Pandemic: China’s Ministry of Commerce figures showed strong demand for imported consumer goods which rose 8.2% from 2019 to $242.1 billion, with cosmetics and luxury products particularly strong. In contrast, sales of domestic consumer goods contracted 3.9%.
New Zealand Signs Upgraded Free Trade Agreement With China: New Zealand has signed an upgrade to the China free trade agreement, offering some New Zealand goods faster access to Chinese markets and a reduction in tariffs for paper and wood products. At the Chinese border, there will be an expedited six hour “clearance time” for perishable goods, such as seafood. Exporters will have key staff they can contact at Chinese ports to iron out any issues. More visas for Chinese tour guides will be provided, and fewer visas will be provided to traditional medicine practitioners. Environmental considerations have entered the free trade agreement with the upgrade.
Shanghai People Had Most Disposable Income in China Last Year at $11,182 USD Each: Shanghai residents had the most purchasing power in China last year at an average of ¥72,232 ($11,182). They were also the biggest spenders, averaging ¥42,536 ($6,582), more than double the national average of ¥21,210 ($3,232). Beijing had the next highest disposable income at ¥69,434 ($10,744), Zhejiang province at ¥52,397 and Tianjin at ¥43,854. China’s largest provincial economy Guangdong, ranked sixth at ¥41,029. China’s overall per capita disposable income grew 4.7% in 2020 to ¥32,189 ($4,980), or 2.1% adjusting for inflation. Spending decreased 4%, or 1.6% factoring inflation.
China’s 2020 FDI Hits Record High Amid Recovering Economy: Capital flowing into China increased 4.5% year on year to $144.37 billion (¥999.98 billion). The record high came from a total of 38,570 new overseas-funded enterprises established last year, meaning an average of more than 100 firms set up every day. The Netherlands and Britain were among the biggest investors, growing 47.6% and 30.7% respectively.
Tencent Super App WeChat Celebrates a Decade of Influence in China’s Online World, But Are Its Best Years Behind It?: Happy Birthday WeChat! Hard to believe how one app has touched almost every part of Chinese peoples’ life and work since entering app stores in 2011. What lies ahead for the next ten years?
WeChat Advances Ecommerce Goals with $250 Billion in Transactions: WeChat Mini Programs doubled transactions in 2020 to ¥1.6 trillion ($248 billion) as users bought clothes, ordered food, hailed taxis and more through the app. A big proportion of WeChat’s mini programs are games, which the app said exceeded 500 million monthly users thanks to a boost in female and middle-aged users, as well as players residing in China’s Tier 3 cities.
Jack Ma Makes His First Public Appearance in Months: Exactly 88 days since his last public appearance, Jack is back, well kind of, participating in an online ceremony for 100 rural teachers. “My colleagues and I have been studying and thinking, and we have become more determined to devote ourselves to education and public welfare,” Ma said in the video.
China’s Central Bank Defines Monopoly Amid Antitrust Curb of Fintech Market: For the first time, the People’s Bank of China (PBOC) has outlined how it will define monopoly among third-party online payments, as it moves ahead with a plan to curb market concentration in the world’s largest fintech market. Any non-bank service provider with half of the market for online transactions, or two entities with a combined two-thirds share, could be subject to antitrust investigations. That would impact Alipay which has a 54%, and with TenPay account for 93% of China’s mobile market by value. Well timed for China’s Tiktok, Douyin, who has just launched Douyin Pay.
Food & Beverage
McCafé Wants a Slice of Starbucks’ China Pie: Fast food chain McDonalds is investing $380 million to open 2,500 new McCafé locations in mainland China over the next three years, adding to its existing 1,500 McCafé locations. The ‘premium coffees at less-than-premium prices’ hope to fill a void left by disgraced Luckin Coffee. Starbucks currently has 4,700 cafes across China and hopes to add 600 new locations for fiscal year 2021.
COVID-19 Panic to Destroy Chinese Consumers’ Hard-Earned ‘Cherry Freedom’: Importer: Merchants of imported cherries say demand has plummeted over mounting consumer worries after samples of imported cherries were reportedly found to be COVID-19 positive. The price for retail has sunk to a historical low of ¥20 ($3.09) per half kilogram. However, this still hasn’t brought many sales, with at least 6,000 containers of unsold imported cherries estimated in China. It is not clear what the source country is. Most of China’s imported cherries come from Chile and Australia and it is typically a popular purchase around Chinese New Year.
China’s Oil Giant Sinopec Launches Unexpected Crossover Product: ‘Smelly’ River Snail Rice Noodles: China’s lucrative food category has attracted another unexpected courter as China’s oil refining giant Sinopec launches Yi Jiejie, a Chinese street rice noodle originally from Liuzhou. A 50-person team spent six-months developing the product, keeping the flavour authentic and ensuring the quality of its side dishes such as pickled sour bamboo shots and the noodle’s soul, river snail broth. The soup noodles come in two varieties instant and slow boil, selling at ¥9 ($1.39), cheaper than most popular noodle brands on the market.
Why Sports Collaborations Could Be A Goldmine For Luxury: Chinese consumers are seeking sportswear collabs to succeed in fashion and functionality, but they have fewer expectations about functionality. The Gucci x The North Face collection hashtag has attracted 76 million impressions on Weibo since launching in December 2020, while the brand’s videos on Douyin have been played 10 million times.
We used data from the China Skinny Skincare Tracker to analyse foreign and domestic cosmetics brands’ performance. The data identified trends and characteristics from the category since China has bounced back from Covid in the second half of 2020.
Origin data indicates that foreign brands still hold gravitas, but many of these brands need to tweak their marketing strategies to convert this gravity to sales. Foreign cosmetics brands can increase their share through locally-resonant claims and messaging, bolstered promotional calendars to establish habit, and by developing more tailored products. There are also misconceptions around sustainability and cruelty-free claims. More below.
Pandemic Background and Outlook: China’s Beauty Category Was Hit Hard by the Lockdown, but Has Bounced Back Strongly Since
– Like many categories, beauty product sales were hit hard by Covid. Looking one’s best was less of a priority for people stuck in their apartments and not seeing anyone in person outside of their home
– When the lockdown ended, beauty products and services were among the first categories to see a bump as people wanted to look good back in public and feel good about themselves again – online sales for dental and cosmetic medical services rocketed 3,000% from March 18 to 27 compared to the previous 10 days according to Alipay data
– Some subcategories, such as lipstick, were slow to bounce back due to mask wearing. Eye makeup sales have remained particularly strong throughout, with foreign-branded eyeliners and eyeshadows growing 40% on Tmall in Q1 2020. New beauty products such as lotion to mimimise the impact of mask indents rose quickly
– Beauty product sales dropped 30% on Alibaba’s platform during China’s lockdown, however well-marketed brands continued robust sales. Between Jan-Mar 2020, L’Oreal’s China revenue grew 6.4% year-on-year, with skin and haircare products doing well during the confinement period
– The outlook for the beauty category is strong. Euromonitor forecasts the skincare category will grow 9.8% CAGR from 2019-2024, following 10.1% CAGR between 2014-2019
– China Skinny has done numerous studies into youth spending over numerous years and it is consistently the second-top spending priority overall for youth after socialising
Here are some key China Skinny Skincare Tracker insights from H2 2020 tracking sales since things have returned to normal:
Foreign Skincare Brands are Being Lapped by Local Brands Most of the Year, But Dominate During the Big Festivals
Domestic beauty brands are fast eroding foreign brands’ market share as they claim to be tailored to Chinese skin, and are much more nimble than their foreign competitors, being run like lean startups who produce many SKUs and aren’t afraid to try something new. During a recent project, China Skinny spoke to a Chinese brand who had a new beauty product selling on the shelves and screens just three days from the original ideation. On the same project we spoke to a foreign brand who had taken three years to develop and launch a beauty product.
– Domestic brands now dominate sales revenue from the top selling brands on Tmall
– Outside of October and November when sales are skewed by the enormous Double-11 festival, domestic brands account for 66% of revenue of the top-selling brands on Tmall
– Interestingly, during the Double-11 festival, market share flipped with domestic brands just managing 29% of revenue
Takeaway: Foreign brands need to work on entertaining their target markets and making them feel like they are getting a deal outside of the big festivals to win back habitual usage and market share.
Asian Origin Cosmetics are Most Desirable, But French Cosmetics Top Foreign Origin by Revenue
– China Skinny’s survey reaffirms that Chinese consumer sentiment is most positive towards Japanese and Korean skincare as they are considered high quality and formulated for Asian skin types
– However French and American skincare are top two foreign origins, buoyed by large brands such as Estée Lauder, Lancôme and L’Oréal
– France continues to have gravitas as an origin, as the third most-preferred origin, highest foreign revenue, and with many domestic brands trying to imitate French product names, products, ingredients, etc.
Takeaway: Given many domestic brands dial up the ‘French’ or foreign characteristics, domestic brands still have some way to go before they command an authentic preference. Foreign brands can arrest some market share back by learning from domestic brands’ strategies to complement the perceived advantages of foreign beauty products.
Foreign Skincare Brands’ Claims are Less Personal than Domestic Brands
– Top selling foreign brands’ functional claims are typically more vague than the specific claims from domestic brands
– Among the most common claims from foreign brands are ‘lifting/tightening’, ‘soothing’ and ‘anti-aging’
– The most common claims from domestic brands are more specific such as ‘pore shrinking’, ‘anti-acne’ and ‘oil control’
Takeaway: Foreign brands’ broader claims typically trade on their stronger brand heritage, whereas combining this brand recognition with more specific claims related to Chinese skin would make them more attractive to local consumers.
Foreign Skincare Products are Less Tailored to Specific Target Markets than Domestic Products
– A megatrend in China’s beauty category are products and messaging personalized for consumer’s specific skin type and beauty needs
– There is increasing, often gimmicky, hardware available in malls, pop-ups, shows, and for use at home, plus smartphone apps which evaluate individual needs. However a diverse range of need-specific product SKUs still service most beauty consumer’s individual needs
– Chinese brands typically have a much greater array of products, generally tackling more specific functional needs than foreign brands
– Chinese brands are more likely to have season-specific products than foreign brands
– Chinese brands are more likely to target different geographies with more relevant offerings than foreign brands. E.g. A consumer in winterless, humid Shenzhen/Guangzhou is likely to have different skincare needs than in dry, freezing/hot Beijing
Takeaway: Domestic brands ‘personalized’ product lines are often just small tweaks to the same skincare product, but dressed up with different packaging, claims and marketing, helping Chinese consumers believe that it is more aligned to their specific needs.
Pricing and value remains important for most Chinese beauty consumers, with domestic brands typically 50-75% of the price of foreign brands.
Sustainability Most Resonant Outside of Tier 1 Cities
– There is a common misconception that China’s sophisticated tier 1 consumers respond best to sustainability messaging, particularly as these cities were generally more international and the first to have recycling and other policies implemented
– Eco-friendly packaging, production and practices all ranked higher on average in Hangzhou, Chongqing and Xi’an than tier 1 cities Shanghai, Beijing, Guangzhou and Shenzhen.
Cruelty-Free Still Not Registering as Important for Most Chinese Beauty Consumers
– Cruelty-free/No animal testing is not regarded as an important feature for most Chinese consumers, ranking the lowest of features China Skinny tested with consumers, below vegan and CBD / Cannabidiol skincare
– No animal testing resonates much more with Shanghainese consumers than in other cities
Takeaway: Awareness and preference for cruelty-free cosmetics is likely to increase following legislation allowing foreign cruelty-free cosmetics likely to be implemented this year, which will bring new education campaigns as cruelty-free foreign brands vie for a point of difference in the competitive market.
That’s a taste of some of the insights that can be gleaned from the China Skinny Skincare Tracker. We’ve expanded on the findings with examples of how brands are best executing them in our white paper here.
This week’s China market and marketing news:
China’s Growth Beats Estimates as Economy Powers Out of Covid: China’s economy roared back to pre-pandemic growth rates of 6.5% in the fourth quarter as its industrial engines fired up to meet surging demand for exports. GDP grew 2.3% for the full year. Demand for medical equipment and work-from-home devices drove exports that saw China ship 224 billion masks from March through December – almost 40 for every man, woman and child on the planet outside of China.
China’s Economy Surges, and So Does Its Currency: The US dollar is sitting at around 6.47 renminbi, compared with 7.16 renminbi in late May and close to its strongest level in two and half years. The stronger renminbi means Chinese consumers can more ably buy imported goods and Chinese exports become more expensive, however it has done little to dampen appetite for Chinese goods with China’s share of world exports growing to 14.3% in September.
Navigating China’s Advertising Regulations in 2021: All eyes may be on China’s regulation of the big tech companies over recent weeks, but it’s not just Alibaba and Tencent that are being pulled in line with China’s laws. Many companies have been hit with fines and tarnished reputations for advertising claims that are okay in most countries, but not in China.
Controversial Ad for Make-Up Wipe Pulled in China After Backlash Over Alleged Victim-Blaming: A controversial advertisement for Purcotton make-up removal wipes has been pulled from the internet in China, after it prompted widespread backlash on social media over claims it “demonised” victims of sexual assault.
Why China Faces Handicaps in Antitrust War With Tech Titans: Policymakers now face the test of seeking balance between protecting internet business growth and preventing anti-competitive practices. Alibaba and other internet giants have raced to hire retired judges and regulators, and China’s antitrust enforcement faces a major challenge in a lack of manpower, with the SAMR’s antitrust unit only having about 50 employees, compared to thousands at its EU and US counterparts.
Future Tech China: How Taobao Turned Product Listings Into Entertainment: Content formats range from regular product listings, livestreams, store recommendations, user-generated content (mostly short videos), professionally created content, and more. The content users see depends on age, purchasing power, geographic location, purchase history, category preferences, and other factors. Back in 2017, Alibaba noted a 20% higher conversion rate on personalised landing pages compared with non-personalized pages. Their data and personalisation has improved since then. Brands should think less of their product listing as informational and more of it as entertainment.
Why China Is A Decade Ahead In Social-Driven Sales: Social commerce makes up 11.6% of retail e-commerce sales, having totalled $186.04 billion (1.285 trillion RMB) in 2019 versus $19.42 billion in the US. Chinese millennials crave and demand entertaining experiences and immediate satisfaction. They prefer social-driven purchases because the platforms are more engaging than traditional shopping experiences.
IPO-Prospect Kuaishou Has a Big Issue – How to Bag a Profit From the 300 Million Who Use its Short Video App: One-in-three online Chinese use short-video and livestreaming service Kuaishou at least once a day. Yet ahead of its imminent IPO, the Kuaishou’s reputation has been marred by fake products sold by KOL Xinba who accounted for over a fifth of the total value of goods sold on the platform in 2019.
Food & Beverage
Its 53% Alcohol and Tastes Like Fire. Here’s How This Liquor Brand Took Over China: Valued at ¥2.7 trillion ($417 billion) Kweichow Moutai is the most valuable beverage brand on the planet, and worth more than China’s biggest banks, Toyota, Nike and Disney. Yet outside of China, the brand is barely known, with 97% of sales coming from China. Limited-edition bottles can sell for more than $40,000. Moutai has one unmistakable advantage: the drink is China’s national spirit, used by China’s leaders from Chairman Mao to Xi Jinping to welcome foreign leaders. At a state dinner in 1974, US Secretary of State Henry Kissinger told Deng Xiaoping, the future Chinese leader: “I think if we drink enough Moutai, we can solve anything.” During the Red Army’s “Long March” in China in the 1930s, soldiers used to pour Moutai on their feet to help disinfect wounds. Legend has it that members of the Red Army even used to turn to the drink to knock themselves out before surgery. Being part of so many major public events in China really set the brand in the national consciousness. The brand has found a way to be “approachable for a lot of regular consumers, at least for special occasions”
Chinese Police Probe Cream That Might Cause Babies to Have Huge Heads: Chinese police are investigating a baby cream containing an illegal hormone that has been accused of causing infants to develop overly large heads, authorities in southeastern Fujian province said today. A five-month-old baby developed a hairy forehead, facial swelling and suffered developmental setbacks after using an antibacterial cream produced by Fujian Ouai Baby Health Care Products.
Stock Up On Beauty Buys in Canada Rather than China If You Want to Save Money: British cosmetics comparison website Cosmetify has compared the cost of five iconic beauty products in 50 different countries worldwide. The price of a lipstick can vary – sometimes even double – depending on which country you buy it from. Canada was the cheapest country to purchase the bundle of cosmetics, with China being the most-expensive, costing 60% more.
Will China Become Hooked On CBD Beauty Products?: Touted for its anti-inflammatory and immunity-restorative properties, Cannabidiol is now a star ingredient of the broader wellness beauty movement. On social media, CBD product shopping hauls are becoming a content staple for beauty and fashion bloggers. Off social media, daigou have been actively sourcing favoured CBD beauty products to resell to homeland consumers who identify as sophisticated, international, and cosmopolitan. Although the psychoactive substance of marijuana, THC, remains strictly prohibited in China, after legalising the use of hemp leaf extract (containing CBD ingredients) in a 2015 cosmetics security law, the CBD beauty trend has come alive. In 2019, there were 433 requests submitted to the China Food and Drug Administration to use Cannabis Sativa leaf extract as a product ingredient. In 2020, that number rose to 880.
Chinese Authorities Ask People to Cut Down on Travel as Covid Rises Again: China reported the highest daily tally of Covid-19 cases in 10 months – 144 – last Thursday, as authorities appealed to citizens to cut down on non-essential travel during the upcoming Chinese New Year holidays when hundreds of millions visit their home towns. Pre-sale of railway tickets before the Spring Festival has dropped by nearly 60% compared with the same period in the previous year.
Houston Rockets Return to China Screens, 15 Months After Hong Kong Tweet Ignited NBA Controversy: 15 months after the controversial tweet by Houston Rocket’s then GM Daryl Morey supporting Hong Kong’s protesters, the team has been broadcast on Tencent, losing to the NBA champion Los Angeles Lakers. Philadelphia 76ers, who hired Morey in November, remain on streaming blacklist.
Jordan Slam Dunks on Copycat Chinese Sportswear Brand Forcing Them to Change Their Name: Having used Michael Jordan’s Chinese name and 23 jersey number for more than two decades, Chinese sportswear maker Qiaodan Sports has finally lost its 8+ year court battle against the basketball legend. The company has had 78 trademarks revoked, paid Jordan a fine of ¥300,000 ($46,400) for emotional damage and issued a public apology. Last week, it officially changed its name to Zhongqiao Sports.
Alvin Zhou leaves early for work in the morning. Although traffic has improved in his hometown of Hangzhou, getting on the road before 8am cuts his commute by 30 minutes. He parks his beloved burgundy 2020 SAIC in a lot close to his office, before popping in for the obligatory steamed bun breakfast and soy milk at the convenience store one door down. Not to interfere with the series he is watching on Youku, he glances up to the cashier who scans his face to pay for his food.
As Alvin is the first to the office, he reads and shares his views about cat breeds on Weibo, which reminds him that it is his Burmese’s birthday tomorrow. He jumps on Taobao and sees a recommendation for an educational cat toy that he recalls from a livestream and taps ‘buy’ so it will be delivered before he gets home in the evening. With no one else still in the office, he uses the opportunity to check his investments online. It’s been a prosperous 6-months, so Alvin decides to splash out and spoil his girlfriend with a trip to tropical Sanya. Although he is feeling flush with cash, his credit status means he gets a super deal on a deferred payment on the holiday booking, in addition to the ‘his&hers’ beach towels which popped up when he locked in the beachfront hotel. As his colleagues start to roll in he gets to work, before feeling a little peckish so he orders an early lunch delivery.
It’s been a productive and satisfying morning for Alvin Zhou, and not unlike the morning of many other Chinese consumers. What makes it all interesting is everything that Alvin did was tracked by a single company 8 kilometres down the road, Alibaba. The SUV he drives is fitted with Alibaba’s helpful smart-car operating system, Banma. The purchases in the physical store and online store, the facial scan, online video, social media, the investments, the travel booking, the loan, the food and pet toy delivery – all fed into Alibaba’s enormous vault of data to be analysed by sophisticated AI-based algorithms. Even his movements around the streets of Hangzhou are tracked by CityBrain, another Alibaba innovation deployed across many of China’s biggest cities.
There isn’t another country in the world that has companies with the same reach over almost every part of consumers’ lives as Alibaba and Tencent have in China. In most countries, corporates are broken up before they become all-encompassing giants. In China, a combination of relatively relaxed perceptions and laws around privacy, coupled with huge government ambition to build world-leading tech companies, has led them grow this way. Throw in the pivot towards digital resulting from Covid, and things had never looked better for China’s tech giants. Then something interesting happened.
In early November last year, one of the pin-ups of a world-leading-tech-from-China, Alibaba’s Ant Group, was scheduled for the largest IPO ever – not in New York, but proudly in Shanghai and Hong Kong – when it was postponed by the government less than two days before going live. Jack Ma, the face of the new ambitious, achieving China, who was Teflon-coated before then, hasn’t been seen since. That same month, Beijing unveiled draft regulations aimed at curbing anti-competitive behaviour. Legislation revisions also saw internet companies come under Anti-Monopoly Law for the first time.
Whilst China’s tech giants had had the odd inconsequential ruling against them, they had effectively been untouchable during their stratospheric rise over the past decade. After Beijing announced their antitrust probe in late-December, Alibaba stock went into free fall, contributing to $240 billion of value wiped from Alibaba’s late-October peak – the equivalent of more than the GDP of 4/5s of the world’s countries.
The Government, courts, consumer associations and consumers themselves all seem to have gathered momentum in their quest against the tech gorillas. Alibaba and JD have both received fines for irregular pricing, VIP has received two fines in two weeks. The China Consumers Association (CCA) has released 14-point document outlining how the tech giants algorithms ‘bully’ and impinge the rights of consumers. Also this month, short video giant Douyin was fined for ‘vulgar content’ further reinforcing that tech companies need to take more responsibility about monitoring third-party generated content on their platforms.
China’s big tech companies will still be across many touch points of Chinese consumers’ everyday life, but their growth and behaviour is likely to change.
A fairer, less monopolistic playing field is good news for everyone except the tech giants and will have implications for brands selling in China. The tactic of platforms forcing brands to choose their platform exclusively has been outlawed. Brands will still have the opportunity to develop exclusive products for specific platforms or their festivals, but it will be more on the brand’s terms.
Tech giants are no longer able to collude on sharing sensitive consumer data, or stamp out smaller competitors through alliances or loss-making subsidies. Consumers are likely to miss the ridiculously cheap deals from the platforms, but they should have more choice overall. New, innovative platforms will likely grow China’s digital ecosystem to increase competition, and creating hungrier platforms, giving better deals for brands. Brands will need to develop more fragmented channel strategies, which will allow them to be more targeted, resulting in a greater ROI in most cases. The overall impact of the increased pushback against China’s tech giants will show in time, but brands are a likely winner as a result. We’ll keep a close handle on how it all unfolds.
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Happy 2021. With China being the only major country to grow its GDP in 2020, economists the world over have been dialling up their forecasts of China’s relative might in the years ahead. The Chinese economy is now expected to be larger than the US by 2028, presenting enormous opportunities for everything from milk to Maseratis.
Through epidemics and global financial crises, China’s growth story over the past 20 years has been at a speed and scale never seen before, and unlikely to ever be seen again on this planet. China’s share of the world economy has risen from just 3.6% in 2000 to 17.8% now, and the country will become a “high-income economy” by 2023. In the four decades since opening up, China has lifted 850 million people out of extreme poverty. There are now more billionaires in China than any other country and more Fortune 500 companies.
Yet as enormous as the numbers are, spread across 1.4 billion people the averages aren’t quite so impressive. China’s GDP per capita is less than a sixth of the US. China’s disposable income per capita fares even worse at around one tenth of their American cousins.
Even with the relatively low averages, there are three main reasons why China is by far the largest luxury market in the world, the biggest buyer of cars, and will again be the biggest spenders on international tourism after Covid is brought under control. For a start, disposable income doesn’t capture most Chinese main source of wealth. The mouthwatering growth of property values – such as the 335% increase in Shenzhen over the past decade – has seen China’s median urban household net worth grow to more than the US. And unlike countries such as the US, where less than two thirds own residential property, 96% of urban Chinese own at least one, seeing most ride the wave.
The second factor that China’s average salaries hide is the disparity between cities. In Shanghai, a senior exec for an FMCG company can make more than the equivalent job in New York. Whereas people in Gansu province share income per capita similar to Guatemala, Shanghai residents have purchasing power parity on par with Switzerland. With 25 million people in Shanghai, spending alongside many other affluent mega-cities, there only needs to be a small portion of China’s population to change the fortunes of any brand in the world.
The third factor is spending priorities. Chinese spend a much larger share of wallet on food than other countries. Whilst they are consuming more calories than ever, much of that expenditure has been directed to trading up as health-conscious, scandal-shy consumers take little risks with what they ingest.
Chinese as a whole, spend a much larger share of their income on their children. In many households, education accounts for over a third of expenditure to ensure that their precious only child has the best shot of success in China’s hyper-competitive environment. Child-focused spending spills over to anything from toys that will build their creativity, to the safest, healthiest food they can buy. With lowering fertility rates, couples are substituting children for pets, although maintaining many similar spending characteristics.
China’s face-status culture, although less overt than it once was, also drives global beauty and luxury sales where not-so-wealthy consumers are prepared to spend the equivalent of three-months’ salary on an expensive handbag or go without other things to have cosmetics which fulfil their needs.
These are just a few of the categories in China which continue to defy China’s low average incomes. They will continue to grow on that back on China’s expanding GDP this year. Although Covid and geopolitical issues will present some challenges, the opportunities will far outweigh those for brands will well planned and executed strategies. Get in touch with China Skinny to learn how we can assist your brand.
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