“After 5,000 years of trials and tribulations, what kind of battle have the Chinese not been through?” asks the anchor on state broadcaster CCTV, referring to the escalating the trade war. The clip received more than 3.3 billion views. “Negotiate— we can! Fight— bring it on! Bully us— YOU WISH!” says the Chinese Communist Party’s official newspaper the People’s Daily.
Following the breakdown of trade negotiations between the US and China in Washington on Friday, and new tariffs on hundreds of billions of dollars of Chinese imports, Chinese propaganda has ramped up. Compared to other geopolitical disputes, China’s state run media had been relatively passive in the 310 days since the trade war began. Yet based on recent state media sentiment, China’s faith in forging an amicable deal appears to be thinning.
Wall Street bankers, American farmers and other US exporters will be deflated following Friday’s breakdown. In addition, many foreign brands in China are likely to feel some impact.
Chinese Brands Day – which coincidently also fell on Friday – was the catalyst for a number of reports highlighting Chinese consumers’ growing preference for homegrown brands. JD.com found the sales value of Chinese brands grew 8% faster than foreign brands last year with volume growing 14% faster. Categories that have traditionally been dominated by foreign brands, such as Mum & Baby, saw strong growth from domestic competitors.
Rising Chinese nationalism is not a new trend, we’ve being seeing signs of this over the past six-or-so years, but it is accelerating with every bit of news about trade wars and Huawei-exec arrests. As powerful and impressive as China is, consumers can still be hyper-sensitive to anything that looks to be putting their country and people in a bad light.
Rising nationalism is coupled with local brands producing better quality products and services, with more resonate marketing and sales strategies. It doesn’t mean foreign brands’ days are numbered in China – there remain plenty of cases of continued growth: purchases of imported fruit grew 36% last year, Nike’s sales in Greater China grew 24% last quarter, and Roger Dubuis announced their watches “resonate very well” with Chinese consumers last week. What it does mean is foreign brands have to work harder to find they place and point of difference that connects with consumers.
In a recent China Skinny fashion project, “国潮” – “China trend” often came up when speaking to consumers. It is something brands across many categories should consider incorporating into their mix to resonate with their target market. There have been many contrived attempts from foreign brands hoping to connect with Chinese culture, however we’ve found some of the most successful examples have been collaborations with local artists and cultural influencers. This could mean working with local fashion designers right through to well-known local chefs for product development and promotion.
Yet beyond trying to connect more with Chinese culture, countless foreign brands could align more with Chinese consumers by simply getting the basics right. Too many brands are still trying to force western sales channel strategies into China’s unique marketplace, others are using armies of Caucasian models to show Chinese how good something may look on them, they’re stocking the wrong sizes, shapes, packaging, formats or even flavours. Some are even developing China strategies based on talking to the ethnically Chinese who haven’t lived in China for some time, or are from a different region to their target market.
Trade war or no trade war, rising Chinese nationalism or not, there’s still countless opportunities for foreign brands to grow from delivering thoughtful strategies in China. China Skinny would welcome the chance to chat about how we can assist with that. We hope you enjoy this week’s Skinny.
Trade Dispute Between US and China Deepens as Beijing Retaliates: Hopeful expectations that the trade war would end soon have been quashed following the breakdown of talks in Washington last Friday. They were disputes over changing major Chinese principles. Tariffs of up to 25% will be added to an additional $300 billion of Chinese exports to the US following on top of the additional tariffs on $200 billion worth of goods last week. China has retaliated raising tariffs to 20-25% from 10% on $60 billion worth of US imports – 5,000 products including beer, wine, swimsuits, shirts and liquefied natural gas. $1 trillion was wiped off global stock values on Monday as a result of the trade war, before rebounding a little yesterday. Chinese propaganda has ramped up.
Staying Relevant to Chinese Consumers: 3 minute video: Mark Tanner shares some thoughts on marketing in China at the recent China Connect conference in Paris.
Heritage is Hip With Chinese Millennials: Post-90s Chinese are the most willing to spend on culture and the popularity of Chinese heritage items consumed by millennials is case in point. Examples include Forbidden City-branded items, the National Treasures TV show, arts and crafts collaborations by Pechoin, Chinese-style street fashion brand Mukzin revisiting historical fashions and Hey Tea’s twist on tea culture. Foreign strategies can better serve this by sharing their own heritage and know-how in a cool, modern way, by building a deeper knowledge of Chinese culture and history and reviving ancient Chinese arts and crafts with the help of local experts and designers.
China’s Population to Peak in 2023, Five Years Earlier than Official Estimates, New Research Shows: China’s birth rate fell to its lowest since 1961 last year, indicating that most, if not all, of those parents who wished to have a second child already had done so since the one-child policy was abandoned in 2015. The number of women of child-bearing age (15 and 49) is expected to decrease by 56 million between 2018 and 2033, with 27 million fewer children aged nine or younger by 2028 – 17% less than today.
Chinese Millennials are Rejecting Dull Factory Jobs — and Transforming the Economy: China’s 400-million-strong millennial generation want less boring work, with better pay and more free time to spend money. Millennials tend to be entrepreneurial; “happiness seekers”; and want fulfilment, not just financial stability, but also in their work. 97% of Chinese millennials would prefer to work for a company whose values were similar to their own. As China moves up the economic curve, many of the low-skilled jobs are moving to nations where labour is cheaper – between 2005-2016 manufacturing wages in China have increased five-fold in China. Manufacturing accounted for 47% of GDP in 2010 but only 40% in 2017 — when services accounted for more than 50%. In the first half of 2018, services contributed 60.5% of China’s economic growth and accounted for 45% of employment.
Mother Day’s Spending Shows Growth Potential: Chinese aged 25-40 are the driving force of gifting on special occasions, with gifts not restricted to flowers and food, but also “expensive” items such as electronics, jewellery, healthcare products and travel. A recent study from Ctrip from 60% of Chinese with senior parents have become more likely to spend money for their folks to travel.
Chinese Online Consumption of Domestic Brand Products Quickens in 2018: Report: The value of Chinese brands bought on JD.com grew 8% more than foreign brands last year, with volume growing 14%. Chinese brands also saw more online orders for products such as maternal and child products, whose markets were dominated by their foreign counterparts last year. Top-tier cities reported the strongest growth, with enthusiasm robust with millennials.
Chinese Ecommerce Giant JD.com Exits Australia: Chinese e-commerce giant JD.com has closed its office in Australia less than 15 months after opening with ambitious expansion plans. It is part of a company-wide response to widening losses. JD.com said there would be no change to its service and partnerships with Australian and New Zealand exporters, which would now be managed by JD.com staff in China. JD also rebuked rumours of a reducing staff in China, claiming its total headcount increased by 1,000 year-on-year last quarter. Alibaba opened an office in Australia in 2017 and says Australia is its fourth top country globally selling products into China.
Food & Beverage
Hema Fresh Launches New ‘Hema Market’ Brand Store in Shanghai: Hema has launched Hema Market in a strategy of locating near large residential communities, with reduced or removed in-store dining and prepared food areas, scaled-down fresh seafood and aquatic product offerings, and a focus on daily staple foods – effectively a New Retail version of a wet market. Future Hema Markets are expected to include service counters addressing other basic residential community needs for laundry, beauty and hair styling, health and fitness, home cleaning, and child care, among other services. While Hema Fresh targets younger, more affluent, less price-sensitive consumers, Hema Market focuses more on older, more price-sensitive, common consumers in nearby communities.
These Hot Pot Flavoured Toothpastes Have Already Sold Out in China: Chinese toothpaste brand Leng Suan Ling has launched a toothpaste supposedly flavoured like Sichuan peppercorns and boiled meat. Presales have reportedly sold out of the little spicy, medium spicy and hentai spicy ranges.
World Alcohol Consumption on the Rise as China’s Thirst Grows: Annually, Chinese men drink more than 11 litres of pure alcohol – mostly in the form of spirits and beer, while women consumed three litres. Average consumption has increased 70% since 1990 and Chinese are on track to surpass the US for per capita intake by 2030.
Penfolds ‘Copycat’ Ordered to Pay More than $800k AUD ($555k) for Trademark Infringement in China: A Melbourne federal court has fined Australian company Rush Rich Winery $400,000 ($278k) and ordered them to immediately cease production of wine with any mark “substantially identical with or deceptively similar to” Penfolds’ Chinese branding. A Shanghai court also ordered Rush Rich to pay $426,000 ($296k) in compensation. In China, Penfolds operates as “Ben Fu”, meaning “chasing prosperity” which has a similar meaning to “Rush Rich”.
One of China’s Most Influential Travel Show Hosts Right Now is a Fox Hand Puppet: A Basil Brushesque-Tibetan sand fox hand puppet is the star of 10 minute online episodes of travel show Hu Lai Decides to Go Travel. First launched on Bilibili, it has become a sensation in China.
How to Attract Self-Driving Chinese Tourists: Most Chinese self driving tourists are 30-49, with those aged over 41 travelling for 35 days on average, compared to just 18 days for under 24s. 40.3% of roadtrippers do it with family, 32.1% with a significant other, 11.9% with parents and 8.5% with friends/colleagues. USA, New Zealand and Australia are the top-3 countries. Ctrip now offers car rentals that specifically come with Chinese GPS. The most-viewed WeChat post by any national tourism board in Q3 2017 was Destination Canada’s article on seeing maple trees in Canada, with a recommended driving route for the best fall foliage. Visit Florida’s KOL campaign to encourage roadtripping in the state received over 57 million views.
The experience and knowledge that you’re likely to be getting from marketing to Chinese consumers – and from resources such as China Skinny – are hopefully helping you sell more in China. There’s also a good chance that they’re equipping you with expertise that spans far beyond the market. Chinese marketing campaigns are faster, cheaper, and often more effective than traditional Western ones, and in some ways they are better suited to today’s global marketplace, according to a study by US-based academic and former practitioner Kimberly Whitler.
Marketing in China hasn’t undergone the long evolution that many of us have grown up with in the West, and as a result, Chinese strategies are usually without the often-outdated and expensive approaches of traditional marketing. Instead, they’ve grown up with a mobile-first model, where everything is much faster and more data-driven.
As we find at the Skinny, effectively harnessing China’s unique digital ecosystems can garner much greater insights into consumers. This allows brands to build better products and services while improving engagement with consumers because they know a lot more about them.
Many who have marketed in the West tend to approach things from a channel-centric model, whereas successful marketers in China have to be much more consumer-centric, putting them ahead of individual sales and marketing channel-based strategies – online and offline – as much of these have become blurred.
Whitler’s extensive study highlighted the energy and excitement from Chinese-based companies. The size of the prize and growth in China has attracted the best from all over the world, and brought the money with it, creating an incredibly competitive marketplace where you have to innovate, and fast. This was summed up by the Head of Visa for Greater China: when working for companies such as PepsiCo and Unilever in the US, she would sit down with Walmart one or two years in advance to discuss a seasonal promotion far into the future. Whereas in China, she would think about creating seamless content across multiple platforms that is relevant right now, while building systems that are agile, adaptive and fast.
“When you look at China versus the Western mindset, the Western mindset has been really around scale and efficiency. Be slow, risk-averse, create systems, reduce from five plants to one plant, create one global product platform,” says Whitler. “And the China system is a growth mindset. How quickly can we grow our market share? These two contrasting approaches are colliding.”
Whitler noted BMW’s X1 campaign in China as a good example of straying from a traditional advertising-first, promotion-first type campaign to deliver content that consumers wanted to really engage with. BMW worked with WeChat to livestream a concert, amplified by key opinion leaders spanning different generations. Rather than the token ‘brought to you by BMW’ sponsorship, the brand wove its car into the fabric of the experience, offering gamification and allowing viewers to have a virtual test drive with KOLs, and even vote on the drivers. More than 10 million viewers participated.
Over the past few years, product and marketing innovation has shifted from Chinese companies looking to the West for ideas, to a more balanced dynamic where many companies, such as Apple, Amazon and Facebook are learning from and replicating what’s happening in China. There will always be initiatives that are specific to China’s unique consumer and ecosystem, but there is a sizable increase in innovations that the West can learn from China. We’ll aim to continue to keep you across these through our newsletter and client-specific projects. Go to Page 2 to see this week’s China news and highlights.
To many readers, video gaming may seem like pastime reserved for a small tribe of socially-awkward folk with Vitamin D deficiencies. Yet any marketer in China should be paying attention. China’s $36 billion video gaming market is four times larger than its movie industry and a driving force behind the inclusion of eSports as a medal event in the 2022 Asian Games, and even a possible demonstration sport at the 2024 Paris Olympics as the IOC wrestles between tradition and appealing to vast new audiences.
Chinese gamers have long been stereotyped as young males spending their free time in dingy internet cafes; their gaming-contorted fingers covered in a thick film of greasy food and crumbs. The People’s Liberation Army has even attributed gaming as a major reason so many young men fail its physical tests.
Nevertheless, profiles are changing. Gender fluidity is one of the big trends happening in the China market. Just look to the runaway growth of men’s makeup, a spike in males buying lacy-style and see-through fashions on Taobao, while women are buying up suits and almost half of cars from brands typically purchased by men in other markets such as Maserati and Porsches. It seems now that gaming is no longer just the realm of males, with some estimates claiming females make up almost half of China’s 530 million gamers.
Chinese consumers’ obsession with gaming should give marketers clues into how their target markets – male and female – see the world. For many, gaming is a form of escapism from boredom during long commutes and the 9am-9pm-6 days a week work schedule in many Chinese firms. But it is also a pillar in many Chinese social lives; a convenient place to meet others with shared interests, and the closest thing many have to playing team sports, brother and sisterhood, and even a place to meet love interests.
When many marketers think of utilising games in their strategies, it revolves around gamification to connect and engage with Chinese consumers. Whilst there are some success stories, most attempts simply aren’t interesting, relevant or well-integrated into other marketing initiatives, with few gamification investments attracting more than a handful of genuinely engaged participants.
The sophistication of game developers is presenting increasingly diverse opportunities to connect with the target market during an emotional moment in their day. Female-focused mobile dating game Love and Producer saw an estimated $32 million of in-app purchases after one month of being launched. High-end cosmetics brand M.A.C. released five Honour of Kings limited-edition lipsticks targeting its 100 million+ female players – 14,000 were preordered and all five lipstick styles sold out across all sales channels within 24-hours of launching.
Combined with awareness-building initiatives through placements and partnerships, gaming is also looking to become a legitimate sales channel for goods and services. The industry has even created its own sect of KOLs who are supported by millions of live streamers, all potential endorsers of products and services.
With Beijing’s new gaming approvals freeze starting to thaw, games and their players will continue to evolve into more sophisticated marketing and sales platforms to connect with the lucrative male and female millennials, and Gen-Zs. Contact China Skinny for advice on how best to do that.
With the extended May Day Holiday (in hope of stimulating spending), there’ll be no Skinny next week, but we’ll be back the following Wednesday. Go to Page 2 to see this week’s China news and highlights.
It’s been a relatively lean few months for positive news about China’s economy, but things appear to be starting to thaw. Many of the world’s big hitters have recently made upbeat statements about China’s prospects including IMF, HSBC, Bank of America, Morgan Stanley, Goldman Sachs, Credit Suisse and Deloitte among others.
The bullish outlook has helped push up the price of Chinese shares and foreign stocks with high exposure to China. In markets like the US, share price changes directly impact consumer sentiment – not surprising given more than half of American households own stocks. In China, although stock price changes may indirectly effect consumer spending down the line, the average Zhou on the street is unlikely to change his/her behaviour as a result. We saw this during the 122% rise in share prices on the Shanghai Exchange in 2014, and the subsequent meltdown in 2015, with both barely altering consumer sentiment and retail sales. Back then, just 6% of Chinese households owned stocks.
There is one investment class, however, that directly impacts Chinese consumer sentiment: property. An estimated 90% of Chinese families are believed to own a home, 80% without a mortgage. Chinese love property: it is tangible, much easier to understand than other asset classes, historically stable and has proven to be a boon over the past generation. Although we hear about China’s enormous online funds such as Yu’e Bao, Chinese consumers’ property holdings pales all other investments.
Digging a little deeper, property ownership isn’t just the realm of baby boomers like in other markets. An HSBC study in 2017 found that 70% of Chinese millennials (aged 19-36 years) own a home. Mexico was second-ranked in the study with 46%, 31% in the UK, 28% in Australia and just over a third in the US & Canada. Given millennials are the driving force behind China’s consumption, it is little surprise that when house prices rise, they feel more inclined to spend. But like everything in China and many other countries, house prices aren’t evenly dispersed geographically, influencing purchase behaviour differently from city to city. Here’s an infographic we did in 2017 that illustrates how much more it costs to buy property in one city versus another.
Given property’s influence on Chinese spending, retailers will be happy to see some green shoots in China’s real estate. 30% more houses were sold in Tier 1 cities in the first quarter of 2019 than a year earlier. Also, after contracting in the first two months of 2019, project sales of nine major developers rose 20% in March from a year earlier indicating the consumers are feeling both more confident, and wealthier.
One of the powerful new drivers for property growth in China are females. In 2014, women accounted for just 30% of homebuyers; last year they were 48% as many young female homeowners seek security in real estate rather than marriage. About 47% of single women over the age of 30 have bought apartments. If you’re hoping to keep abreast of consumer sentiment, watching house prices and whose buying them will likely help.
In other news, to help tap into Chinese consumers’ amassed property wealth, China Skinny has partnered with the great team at ASX-listed eCargo to offer grounded and actionable workshops to refine China sales and marketing strategies. The workshops call on China Skinny’s unrivalled insights and holistic view of the market, with eCargo’s success delivering sales and marketing execution across multiple tiers of Chinese cities. We offer three types of workshops to meet your specific needs and budget. More info here. Go to Page 2 to see this week’s China news and highlights.
Acting on an identified gap in China market entry education offerings, ASX listed online to offline (O2O) solutions provider, eCargo Holdings Limited (ASX:ECG) (“ECG”) and China Skinny have partnered to create tailored insights and on the ground execution workshops for brands entering and operating in China.
Despite constantly changing policies, market fluctuations and a multiple of ways to navigate online/offline sales and marketing efforts – the influx of international products and brands continues to grow. Utilising China Skinny’s unsurpassed consumer insights and recommendations, along with ECG’s sales and marketing executional capabilities, each tailor made program will benefit boards, senior management, trade organizations, agencies and brand owners.
Workshops will encompass the following key areas, utilising real world case studies and examples to offer the best possible advisory and strategic outcomes.
- Deep understanding of market and consumer trends driving China market.
- Detailed analysis of platforms, retailers, social selling and online to offline (O2O) strategies – how to leverage these for your business.
- Marketing channel engagement strategies and ongoing management.
- Focused market, positioning and brand promotion analysis.
- Focused sales and marketing structure, recommendations and execution strategies.
The workshops will be held as a short format, half day and full day packages.
The ongoing partnership will promote a holistic means of business engagement for both businesses. Utilising and building on the knowledge, analysis and knowhow of China Skinny, coupled with the executional broad online to offline capabilities of eCargo.
Direct enquiries to:
Nelson Gable – firstname.lastname@example.org Andrew Atkinson – email@example.com
About eCargo Holdings Limited
eCargo Holdings Limited is an ASX-listed company specialising in sales and marketing strategy, execution and distribution in China. With a broad range of capabilities across; logistics and fulfilment, eCommerce management and operations, Online to Offline (O2O) distribution and wholesale, as well as strategic advice.
In October 2015, China announced plans that it would be abolishing its one-child policy the following year, in hope of rebalancing its top-heavy population which is expected to see 500 million folk aged over 60 by 2050. The announcement, coupled with the earlier one-child policy changes, had brands selling everything from infant formula to educational toys readjusting their sales forecasts north. Even Disney invested an additional $800 million in the construction of the Shanghai Disney Resort to add extra capacity to account for the fertility spike.
On the surface things started off well, with birth rates jumping 7.9% between 2015 and 2016. But it was always likely to be just a blip. 2016 was the Year of the Monkey, which was a much more desirable zodiac for childbearing than 2015, which happened to be a Sheep Year. Superstitious Chinese don’t want their kids to be the docile followers associated with our woolly friends.
There was also some pent up demand from parents who had always longed for more than one child. Yet for most Chinese couples, the 37-year-old One Child Policy had reengineered the national psyche making it socially acceptable to have a single child. The competitiveness of China’s education system also sees parents invest significant sums into their child’s education and development, coupled with the premium paid for safe food and beverage and other extras to ensure their child gets the best start at life. Most couples consider it too expensive to have more than one child.
Since 2016, birth rates have fallen off a cliff, dropping by 12% in 2018. In another troublesome sign for China’s fertility planners, marriage rates hit record lows in 2018. Couples need to be married in China to legally have a child. Beijing will be banking on the country’s investment in robotics and Artificial Intelligence to help make up for the falling working population.
So should those infant formula brands, Lego, Disney and other companies hoping to sell their wares to Chinese youngins be revising their revenue forecasts down? Not at all. As Chinese families’ affluence rises, a disproportionate share of the increase goes to their child. As they only have one, few cut corners. A child born today will have parents earning 130% more than those born a decade ago. There have been countless surveys with Chinese consumers over the years about how they would spend additional wealth, and a large percentage always cite they’d spend it on their child’s education and development. Even extra budget directed at travel will often be to take the kids away, with families one of the fastest growing outbound tourist segments.
To get a real taste of how important the market for children’s goods and services is, take a trip to the town of Zhili in Zhejiang Province this November. The town famous for its child garment factories has a population of 100,000, which swells to around 350,000 around peak times such as Singles’ Day. The population boost comes from families relocating there in the hope that their kid will become China’s next top child model. Kids can earn up to ¥10,000 ($1,500) a day, with the most popular models reportedly earning a million ($150K) a year. The modelling rates highlight just how lucrative the children’s fashion category is, but also its competitiveness.
Although birth rates are falling, there were still 15.23 million children born in China last year – and a greater portion with affluent parents than ever. Citi Research, in their short video about the infant formula category, summed the situation up well: “having the right route-to-market, especially in the online channel, matters more than the underlying market”. That could be said for virtually every category in China, where there remain enormous target markets still willing to spend, regardless of slowing population or economic growth. China Skinny can assist with your route to market. Go to Page 2 to see this week’s China news and highlights.
Countries trading with China have seen their share of geopolitical tensions of late: the trade war with the US, Canada’s arrest of Huawei CFO Meng Wanzhou, foreign espionage claims in Australia, threats of Huawei bans across countries from New Zealand to Poland, European talk of China being a “systemic rival” and threatening tighter rules on its investments in the region, a host of ongoing tensions with ASEAN countries over the South China Sea, and so on.
The tensions are said to have been responsible for restrictions on Australian coal shipments, suspension of Canadian canola exports, the delayed launch of the 2019 China-New Zealand Year of Tourism festivities (which finally took place on Saturday), and Wall Street bankers’ claims that an informal boycott of US goods is the root of Apple’s woes in China.
There’s no question the results of tensions can be challenging for exporters, but they aren’t a scratch on what happened to Japanese brands in 2012 over an island territorial spat in the East China Sea. It was one of the most fearful displays we have seen when it comes to how powerful China’s state media can be in swaying public opinion. Anti-Japanese sentiment soared among consumers, driving protestors to wreak an estimated $126 million worth of damage to Japanese-branded goods, buildings and related sales. In two waves of protests, hundreds of Japanese-branded cars were smashed and overturned, rocks were thrown at Japanese restaurants, Japanese factories were set ablaze, Japanese buildings were broken into and ransacked, and stores selling Japanese goods were vandalised, causing many to shutter, including the $8.8 million destruction of an AEON supermarket.
The week between 15-21 September saw the Japanese car manufacturing industry suffer losses of $250 million due to the production of about 14,000 cars being suspended, with subsequent sales in September dropping by close to 50%. Tourists to Japan plummeted by nearly half in the month that followed.
Yet if Japan is anything to go by, exporters losing sleep over their current geopolitical tensions should be heartened. Japan has good stuff, and most Chinese consumers couldn’t stay away, no matter how deep-rooted their Anti-Japanese feelings were. Chinese tourists to Japan grew more than five-fold from 1.4 million in 2012 to 7.4 million in 2017. Since then, visiting Chinese spending in Japan was so lavish that a new term — “buying explosion” — emerged to describe the way Chinese tourists descend on particular Japanese retailers, buying everything from Japanese rice, to toilet seats, to condoms. Even Japanese car sales have soared, with China expected to overtake Japan on volume last year.
However, probably the most astonishing indicator of Japanese love by Chinese consumers is restaurant data released by the Japanese External Trade Organization. The number of Japanese restaurants in China grew from about 10,600 in the beginning of 2017 to 40,800 at the end of the year. Even by Chinese standards, that is phenomenal growth!
The key takeaways from our Japanese friends is that the impact of geopolitical tensions – as undesirable as they are – are generally short term blips, if they have any impact at all. If you make quality products and services that connect with Chinese tastes and preferences and are marketed well, the shoppers are likely to stay loyal, or soon come back wanting more. Here’s to that.
On the subject of Chinese restaurant and food preferences – Japanese and the others, China Skinny’s Mark Tanner will be sharing valuable insights at the Foodomics Conference in Auckland, New Zealand on 10 April. It would be great to hear from you if you will be there. More info here. Go to Page 2 to see this week’s China news and highlights.
Since Australia established formal diplomatic ties with the People’s Republic of China in 1972, the country’s fortunes have become increasingly linked to the Middle Kingdom. No Western country’s economy has benefitted more from China’s rise than Australia. Much of China’s unprecedented economic growth has been built with Australian iron ore and powered by Aussie coal and liquified natural gas. In a way, Australia’s resource traders blazed a trail for Australian exporters, teaching cultural lessons about doing business in China, and raising China’s profile as a destination for exports.
Since Chinese consumers have started entering the middle class, Australian brands have been relatively quick to make their goods and services available to them. Over the past couple of Singles’ Days, Australian products have been the third and fourth highest ranking country for product origin, even though Australia isn’t even in the top-50 countries by population.
Australia’s success in exporting to China always had pretty good odds. Australia’s relatively close proximity to China, in both flight time and time zones, makes it easier to get up to the market to do business. And unlike other major western economies, Australia doesn’t have a large domestic base or similar countries close by to send their wares, so it has always had to be a little more adventurous when prospecting for export markets. It is also the often-unthanked Chinese residents in Australia and visiting tourists who have helped promote many Australian things to their friends and family back in the Mainland. No country outside of Asia has more people of Chinese heritage per capita than Australia, on top of the 1.4 million Chinese who visited Australia last year.
In 2017-2018 Australia’s exports to China were $123.3 billion, or 30.6% of total exports. This dwarfs Australia’s number two destination of Japan where exports were $51.3 billion. Over the past five years, exports to China have surged 56%, whereas Japan grew by just 6%. Yet it’s not all Kumbaya and shrimp and steak barbecues, Sino-Australian relations have deteriorated lately, particularly over the past-12 months.
Australia’s position as one of the pioneering, best practice and reliant exporters to China – balanced with its increasingly precarious stance on geopolitics – makes it one of the most important and interesting relationships to monitor in today’s globalised world. That’s why China Skinny was honoured to be back again this year working with Austcham Shanghai on the second annual Westpac Australia-China Business Sentiment Survey which launched yesterday in Sydney. The survey provides a platform to really understand how Australian businesses on the ground in China are faring in light of the geopolitical tensions and slowing economic growth.
To Australian businesses’ credit, we had 211 complete the survey this year – 33% more than last year. Overall, sentiment was down 6.7% from last year but remained largely optimistic – with 71.6% either optimistic or slightly optimistic about the next 12-months; 81.5% in their five-year outlook. The results also pleasingly demonstrated an increase in Australian businesses’ forecasting profitability in 2019 – a strong 78.9%, from 62.5% in 2018.
One of the promising findings from the survey was that Australian businesses appear to be maturing and realising that China is a market that requires tailored initiatives. 61.1% of businesses surveyed will offer unique products and services for the China market this year – and are 32% more profitable as a result.
Domestic consumption was again considered the most important opportunity for Australian businesses and is also being supported by 26.6% investing in market research and development – 10.7% more than last year. 74.9% have a digital strategy in place or in development, with 59.7% having one that incorporated ecommerce. For those businesses already selling online, they are selling on an average of 2.5 platforms, versus 2 last year. Almost a quarter of businesses surveyed are early adopters of New Retail, with 66.0% of these businesses experiencing a 10% rise in revenue and 55.4% benefitting from increased brand and market insights.
There’s many, many more interesting insights throughout the report. The results aren’t just a barometer for other Australian businesses exporting to China; they provide any company working in China with a great benchmark to understand the common challenges and opportunities. We’d recommend you download the report and see for yourself. You can get it by clicking/tapping here.
A special acknowledgement to our own Alexander Kelso and Austcham Shanghai’s Stephanie Smith, who have worked tirelessly behind the scenes to bring the survey to life. Go to Page 2 to see this week’s China news and highlights.
Fancy a tonic favoured by Chinese emperors that cures painful joints, frail kidneys, and weakness and anemia in women? Or how about a milk beverage that will enlarge your breasts from an A-cup to a D? Perhaps a coconut drink that whitens your skin and will make you more buxom?
Believe it or not, these are all advertising claims in China, and not by small fly-by-night operations. The cure-all tonic was a top-seller from Hongmao Pharmaceutical, who outspent P&G in 2016 to become China’s largest advertiser. The breast-enlarging milk drink was the product of China’s largest beverage group Wahaha, and the magical coconut juice comes from the producers of China’s most popular coconut milk.
Reports of such advertising and other headline-grabbing news such as hordes of Chinese tourists lured to Sydney University believing it was a setting in Harry Potter movies may have some believe that Chinese consumers are a gullible posse. Don’t be misled. Whilst some consumers in lower tier cities are making discretionary purchases for the first time and lack some confidence, most middle-affluent class Chinese are incredibly sophisticated. While we’re seeing a rise in impulsive purchases, Chinese consumers typically don’t take things at face value and do significantly more research before purchasing products and services than their Western peers.
Much of this research comes down to an inherent lack of trust. This is confirmed in virtually every project China Skinny works on, in which Chinese consumers’ purchase journey involve an extensive series of touch points across online and offline channels before a purchase is made.
Most readers will be aware of the fake vaccines, fake condoms and even fake zoo animals. Yet Chinese consumers can’t even rely on cross border ecommerce, which is held up as the beacon of trust – supposedly straight from the source from a more dependable origin. In reality this isn’t true; 40% of cosmetics sold through cross border on Singles’ Day ’17 were fake for example.
Although China updated its advertising laws in 2015 to be much more punitive, many false promises continue to slip though. China has the most fragmented bricks & mortar retail landscape of any major economy, and an online sector containing tens of millions of stores that even Alibaba and Tencent struggle to control in light of their advanced data mining and AI. The regular scams have been one of the drivers behind China’s $9 billion key opinion leader (KOL) industry, who are often more trusted than brands even though close to 70% of KOLs have fake fans and engagement. Regardless, over 60% of Chinese consumers are receptive to online influencers compared with 49% in the US and 38% in Japan.
Although China’s marketing landscape is littered with fakes, foreign brands shouldn’t take Chinese consumers to be fools – they are anything but. It is good to be aware of the misleading claims out there, but don’t dare to try it yourself. It will be found out and shared on social media en masse. Chinese consumers are unforgiving to those who disrespect their intelligence, particularly foreign brands. China Skinny can assist to ensure you can still succeed by keeping everything above board.
On another note, we’re hiring! If you’re a native English speaker based in Shanghai who is curious, intelligent and personable and happy working across diverse and fascinating projects, go ahead and apply. More information here. Go to Page 2 to see this week’s China news and highlights.
Many brands are aware of how China’s innovations around New Retail, digital and mobile payments are fundamentally changing the way consumers research and buy products. Yet, what is often overlooked is how they are altering the format and even the type of product they buy.
Research was recently published claiming that Chinese mothers are moving away from traditional frozen ready meals, like dumplings and buns, and instead opting for frozen full meal sets such as beef noodles. Whilst this isn’t untrue, our research has found a much bigger trend pointing to a shift away from frozen foods altogether.
On numerous research projects, China Skinny has visited many homes across different China cities. In the kitchens, small freezers are stuffed with once-popular products like bags of dumplings coated with freezer-burn, seemingly untouched for many a moon. The ageing packs are representative of frozen formats falling out of favour with Chinese consumers as alternatives perceived as healthier become more convenient and accessible.
With healthy and natural having become key criteria for purchasing food, frozen options sit many rungs below fresh on the hierarchy of healthiness. That’s nothing new, but what has changed is the accessibility of fresh food, particularly for busy mothers. With stores like Hema/Fresh Hippo, 7Fresh and even the massive RT-Mart now delivering orders within 30-minutes, the incentive to have quick access to frozen products has diminished. There are currently 355 million users of delivery apps in China – a quarter of all Chinese are regularly having food brought to their homes and offices.
While the booming restaurant meal delivery service is cannibalising many food categories and changing countless restaurants and cafés’ strategies, China’s ever-discerning mothers still want an element of food preparation. They wish to have more control over their cooking, ensuring it is fresh when served – not soggy or luke-warm – while still deriving the emotional self-satisfaction of feeling they having played a part in cooking the meal. These factors, coupled with being time-short, have contributed to a stark rise in the demand for ready-to-cook fresh/chilled meals in China.
As brands define the appeal of their products, ingredients, packaging and sizes for the Chinese market, they should also consider the format. Frozen, tinned or other forms of preservation has provided a way for food to make the long trip to China and still be good for sale. While there is likely to long be demand for such food, brands should consider product development for alternative formats that will meet the growing demand for fresh, natural and convenient food.
Food is just one category that is being turned upside down by New Retail, and brands across almost every category should be cognisant of the changes to ensure that they aren’t left behind.
On a not-entirely unrelated tangent, China Skinny will be in Australia later this month with Austcham and Westpac to launch the 2019 Australia-China Business Sentiment Survey results. We’ll share the differences we found from last year’s survey, and how Australian businesses are tracking in this interesting geopolitical and economic climate. The events are in Sydney on 26 March, Brisbane 27 March, Melbourne 28 March, Perth 29 March and Shanghai 18 April. Let us know if you can make any of the events, it would be great to catch up there. Go to Page 2 to see this week’s China news and highlights.
As China’s urban millennials have become the most sought-after consumers on the planet, marketers have been seeking less contested consumer groups to target their wares. The next growth areas that we often hear about are the rural consumers and those with silver hair.
For the rural folk, many expect their latent demand to step up and fill the gap from the city dwellers – those who already have everything from cars to appliances to smartphones. 577 million Chinese lived in rural areas in 2017, and the big tech companies have been all over it. Alibaba and JD are investing in rural fulfilment centres, marketing and even drone delivery. Interestingly, the latest Internet growth data points to a rural population that may not be as enthused about spending up a storm as many had hoped.
China’s heaving Internet population stood at a whopping 829 million at the end of 2018 – 57 million or 7.3% more than the year before. The segment that has the most room for growth – Chinese living in rural areas, grew just 6.2% to 222 million, indicating a widening digital divide between China’s urban dwellers and those in the countryside. That’s not a great sign for consumption in these areas. The Internet represents the most promising channel for rural consumers to buy things – they can’t just pop down to the local IKEA to purchase a new sofa. Another barrier for sales is that rural consumers make less than a third of what urban-dwellers make and are much less likely to spend it on aspirational foreign brands.
The other well-cited growth opportunity – China’s seniors – by sheer numbers along should be one of the greatest opportunities marketers have ever seen. Last year, the number of Chinese over 60 reached 249.5 million to outnumber those under 16 for the first time in history. Since 2010, the demographic has seen an average annual growth of 2.08 million. At the same time, the under-15 brood has been dropping at 2.25 million a year.
If we look to the Baby Boomers in the West – the empty nesters riding on the back of a lifetime of savings and equity gains on their house and other investments – they have been spoiling themselves while their joints still allow it. Yet most of the seniors in China aren’t such free spenders. They have grown up in austere times, and have an inherent necessity to save for a rainy day and be frugal, even more-so than those who were around during The Great Depression in the West. The rising consumer debt in China can almost be solely attributed to the consumption-crazed youth; people between the ages of 24 and 35 account for more than 70% of consumer borrowers in China.
While there will inevitably be increasing opportunities by targeting China’s silver surfers – there will be a half a billion of them by 2050 – they will remain much less likely to pay a premium for better products and services than their younger peers. They also won’t be as easily wooed by foreign lifestyles, products and services.
In short, millennials and the younger post-95s/Gen-Zs remain the most lucrative consumer group in China. Yet the rules to reach and resonate with them are constantly changing. Companies need to dive much deeper in understanding their emotional and functional needs, what influences them, where they research and buy, and how to make advocates out of them. If a brand can understand and serve those needs, there’s still plenty of legs in the contested younger demographics in the city – particularly the lower-tier cities. China Skinny can work with you to ensure you’re there. Go to Page 2 to see this week’s China news and highlights.
Many people in the West still believe that China’s tech giants are built on thieving IP, not creating it. Those folk will probably be startled to learn that the US-based magazine Fast Company ranked a Chinese firm as the world’s most innovative company in 2019.
Perhaps even more surprising is that the Chinese company is not the well-known Tencent of WeChat fame, or even Alibaba (they were 15th on the list), but a mere $43 billion company, Meituan Dianping, which most people outside of China have never heard of, and probably can’t pronounce.
Meituan is best known for food delivery, restaurant reviews, hotel booking, movie tickets and acquiring bike share giant Mobike. The company topped the table for “pioneering transactional super apps” making the most profound impact on both industry and culture while showcasing a variety of ways to thrive in today’s volatile world. In the first half of last year, the company facilitated 27.7 billion transactions (worth $33.8 billion) for more than 350 million people in 2,800 cities. That’s 1,783 services every second of every day, with each customer using it an average of three times a week. The company leverages user consumption data, including price sensitivity, to recommend other services they’ll like, taking advantage of its consolidation of service offerings, much like China’s other all-serving tech giants.
One of Meituan’s core services, food delivery, is representative of one of the most exciting consumer developments that has been happening in China over the past few years. We’re not talking the meandering Postman Pat or the daily milk round, these are on-demand delivery services that can have everything from noodles and coffee, to meds and adult toys, delivered around the clock in less than 60 minutes, often in half that time. It is a service that plays to a Chinese consumer who craves convenience and possesses little patience.
Delivery in China takes advantage of its densely-populated cities, allowing a concentration of delivery people. In addition, the broadening of products being delivered that are core to the New Retail explosion means delivery is no longer just at meal times, or located around ecommerce logistic hubs. Instead, this revolution is creating economies of scale across wider geographies, spreading the costs of delivery workers throughout the day.
One of the most powerful innovations in delivery is what happens behind the scenes. Like many things in China, companies are utilising their enormous pools of data, and making sense of it with Artificial Intelligence. Meituan’s Smart Dispatch system, for example, calculates 2.9 billion route plans every hour to optimise the delivery for its 600,000 electric bike riders to pick up and drop off up to 10 orders at once in the shortest time and distance. Since Smart Dispatch launched in 2015, it has reduced average delivery time by more than 30%, and riders complete 30 orders a day, up from 20, increasing their income.
Whilst economies of scale and tech systems are increasing efficiencies in the delivery space, this is accompanied by challenges forcing companies to continue to innovate. Labour costs of delivery folk seem to be increasing every few months and new laws are being rolled out to protect the workers. In answer to this, JD has been making deliveries by drone and is testing unmanned vehicles. Mckinsey estimates that autonomous vehicles and drones will deliver 80% of all products within 10 years.
For brands selling in China, the penetration of delivery is another example of the unique way that Chinese consumers shop and their expectations. This and other distinct purchase behaviour in China should be factored into development of marketing strategies. China Skinny can assist with this. Go to Page 2 to see this week’s China news and highlights.
Chinese buyers have been the top foreign buyers of US residential property for six years straight. Similarly, no other overseas vendees buy more in Australia, New Zealand and a host of other countries. One common characteristic purchasers share is a preference for the shiny and new over the battered old character home.
In China, you won’t find locals spending their weekends combing garage sales for deals, and even the ecommerce-mad populous buy a much smaller share of second-hand goods than the eBay-Craig’s List-Gumtree-Trademe-type shoppers of the West.
Chinese consumers’ reputed love of all that is new comes down to a number of factors. We don’t need to look back far in history – during the reign of Mao – when new goods were in scant supply, creating a sense of prestige when buying something brand new. This has been passed over a generation, and its legacy has contributed to the all-important status that comes with buying new versus the stigma attached with goods that have been loved by someone else.
Another contributor is Chinese consumers’ inherent lack of trust. In China it is far more common to fake a second-hand good, and more difficult to trace, than a new product that can be bought directly from the source or a trusted vendor. There are also more reliable courses of action if something goes wrong. Couple that with the seemingly-infinite supply of cheap, new things, and all roads appear to lead to brand spanking new.
Nevertheless, the single-minded view that everything must be shiny and new is starting to waver. One of the most notable signs is the car industry. Half a decade ago, five in every six cars purchased smelt new (although not the new car smell as we know it in the West). Last year, as new car sales contracted 2.8%, there were 11.5% more secondhand cars bought. Although the ratio is still far behind America, where pre-loved outnumber new by more than double, China’s split is growing fast, from 43.0% in 2017 to 49.1% last year. The rise in the desirability for second-hand cars is followed by other segments from luxury goods to clothing swaps.
The trend is being driven by millennials who don’t have the same historic hang-ups as earlier generations and seek value. They’re familiar with consuming things used by others with the explosion of the sharing economy, covering everything from fashion to bicycles.
What does that mean for brands? In many product categories, the competitor set will increasingly span beyond the other new things for sale online and in stores to include second-hand goods. Consumers may also look to resale value, service and even sell-back options when making decisions around purchasing.
The trend spans beyond goods too, contributing to preferences in the service industry such as tourism. More Chinese travellers are finding allure in the edgy, hipster interiors for hotels, restaurants, attractions and stores, when in the past, it would have been considered dirty and rundown. It is another sign of maturing Chinese consumers, driven by the youth – one which will hopefully giving the environment a small reprieve.
On the subject of Chinese tastes and preferences, if you’re looking to learn more while taking in a few memorable spring days, China Skinny’s Mark Tanner will be speaking at China Connect in Paris on March 12-13. It is one of the most-established and thoughtful China-focused conferences outside of China – we hope to see you there! More information here. Go to Page 2 to see this week’s China news and highlights.
Happy Year of the Pig – welcome back to those who had a break over the Spring Festival. Visiting virtually any western retailer in China over the Lunar New Year period, it has been pretty clear that the swine zodiac is upon us. No price point has been immune, from Gucci’s 35 items of New Year paraphernalia featuring Disney’s three little pigs to the 120 pieces in H&M’s Lunar New Year Collection.
Even retailers abroad have not been shy to capitalise on the spike in spending over CNY. Sydney’s Westfield Chatswood mall has been adorned with 88 golden pigs and prosperity trees and California’s largest shopping mall, South Coast Plaza, saw double the amount of stores offering New Year promotions or products compared to last year, to name a few.
Yet whilst the Chinese New Year festival remains steeped in tradition, more and more consumers are sidestepping long-held customs. The most important tradition of returning home to the family for the festival – the theme of seemingly every emotional Spring Festival TV commercial – has had its share of snubbers. There are the single women and men who don’t want to face their family without a partner (note the rent-a-boyfriend craze that has been common over the past few years), and the basis of many opting to travel abroad instead. Even families themselves are leaving the frosty weather to spend the break overseas. Overall, there was an 11% increase of people travelling in and out of China this CNY period.
Yet even those who don’t have the affluence to travel abroad are forgoing the crammed journey back to the village. Thousands of delivery folk have been lured to stay in the cities so consumers can still have their goods delivered within the remarkable 30 minutes. Convenience-seeking consumers don’t want to spend days preparing the family feast, or pay the inflated prices in crowded restaurants, so many are opting to have the festive dinner sent to their homes with the tap of a smartphone, even if delivery fees are 2-3 times their normal rate.
The CNY food delivery is another sign of technology creeping into the national festival. In 2014, WeChat digitalised much of the traditional red envelope gifting which has grown every year since. Even some of the traditional gifts are being superseded by tech-goods such as robotic dogs and drones. Technology aside, the good old staples of CNY remain in demand, just evolving to tastes like everything in China. The ever-popular fruit gifting has seen a rise of smaller gifts packs offering more diversity from the traditional apples and pears of previous years.
Although Chinese consumers are increasingly breaking from traditions – like consumers anywhere in the world – long-held customs and superstitions are unlikely to go away any time soon. Brands should be aware of these cultural aspects, and sensitively incorporate them into marketing strategies to make the most of the Pig Year ahead. We hope you enjoy this week’s Skinny. Go to Page 2 to see this week’s China news and highlights.
What caught our eye in the build-up to this Chinese New Year is not the nearly-3 billion trips to be made via China’s transport system, not the thousands of ways to make pigs cuter including carving one into a watermelon, but the NBA’s pick for its Chinese New Year ambassador: 20 year old boy band member Cai Xukun from the group Nine Percent.
In a land where there has been much public debate and negative state media over the influence of ‘sissy boy’ role models, the decision caused the expected uproar online. On popular sports platform Hupu, known for its masculine user base, 82% – 39,363 voters – checked the option “I’d rather die” in a poll about Cai’s NBA mission.
On the surface the choice seems like an outrageous misalignment with the esteemed NBA brand. The NBA has some of the most athletically-impressive beings of the sporting world – poles apart from the effeminate 65kg pop idol. Yet the expensive decision is likely to bear fruit.
For a start, although the NBA already has an epic following in China including the largest social media fanbase of any sports league with 150 million followers, that only accounts for a small portion of China’s population. Like any business, they will be wanting to grow that base.
In choosing a target market, they will look to the Gen-Zs (those born in the mid-90s to early 2000s) as having a high propensity to support and spend on the game. Gen-Zs are an open-minded generation in a society that has never been so enthusiastic about sport, causing them to explore and embrace sports more than the generations before them. They’re also big spenders. Although most haven’t yet banked a single pay cheque, they account for 15% of household expenditure, versus just 4% in the USA and UK. As the only child/grandchild of six doting adults, and having never lived through tough times, they are free spending with seemingly few worries in the world.
You’ve probably guessed that many of Cai’s fans are Gen-Zs, and particularly females – another lucrative yet untapped sector by the NBA. Last year’s NBA All-Star Celebrity Game featured Chinese-Canadian singer Kris Wu, which reportedly increased female viewers by 30%.
There are plenty of examples where endorsements of effeminate pop-idols have bolstered sales for brands in China, albeit most are more closely-aligned to each other’s core values than the NBA and Cai. Yet the NBA’s China fans are so deeply rooted in the game, they are unlikely to stop supporting the game en masse due to a Chinese New Year endorser who doesn’t fit the league’s image. Most brands in China would struggle to pull that off.
There have never been more options for consumers to spend their money. Sport – like everything – has to find ways to boost the entertainment factor to stay relevant. Whilst there would be better ways to entertain their loyal fan base, they are likely to entertain a segment who may have never considered the NBA before. Although many of the NBA’s execs are unlikely to get down to Cai Xukun’s music, they are putting their own opinions aside to attract a new and wider pool of fans. Hats off to the league for embracing China’s countercultures – those who dare to rebel from entrenched traditional values – something brands are increasingly having to do to reach the younger, freer-thinking generations.
On that note, we’ll leave you to celebrate the coming of the Pig. Happy Chinese New Year, wishing you a prosperous and productive Zhūnián. We’ll be back after the break – enjoy this week’s Skinny. Go to Page 2 to see this week’s China news and highlights.