It wasn’t long ago that many Chinese consumers considered KFC’s greasy chicken drumsticks to be a good healthy meal. The assurance of safe Western preparation standards and quality control processes had diners confident that they were less likely to fall ill than eating at a local restaurant.
That perception took a dive in late-2012, when state media revealed that excessive amounts of antibiotics and hormones were being pumped into some KFC chicken products. Coupled with the bird flu outbreak in early 2013, KFC’s sales sunk 30% in the first quarter of that year. The ensuing advertising campaign centred around the “trust in every bite” messaging has struggled to restore consumers’ faith.
Chinese consumer’s trust in foreign fast food chains has just taken another hit with the KFC/McDonalds/Pizza Hutt/Starbucks scandal, which saw Shanghai-supplied meat being used from the floor and labelled as much as seven months fresher than it actually was. A Sina survey that followed shortly after, found more than two thirds of consumers claimed they would no longer dine at foreign chains.
The whole debacle should demonstrate just how significant food safety challenges remain in China.
Many Western food and beverage brands selling in China source ingredients from the Mainland. This is likely to be more cost effective and guarantee surety around supply chains, but companies should weigh up the true risks to their brands from this. Chinese consumers are waking up to the fact that even Western brands who source food supplies in China are no longer guaranteed to be safe.
As Chinese consumers are becoming more affluent and health conscious, they are increasingly prepared to pay a premium for safe food. Western brands trading on their healthiness and safety, will need to be ever more transparent about where their products are sourced. Chinese consumers do a lot of research before buying products, and are particularly vigilant about food and beverage. Just being a Western brand in China no longer cuts it, as KFC will tell you.
One of the most influential channels for research and purchase decisions in China is social media. For our readers braving the summer in Shanghai, tomorrow (Thursday) night China Skinny’s Sophie Lees will sharing some valuable insights about the importance of integrating social media. Click here for more information.
We hope you enjoy this week’s Skinny.
Chinese Consumers: Increasingly Optimistic But Also Realistic: 8% more middle and affluent classes in lower tier cities plan to spend more than a year ago, versus 3% in higher tier cities. 21% in smaller cities experience a great deal of stress in their lives, versus 32% in bigger cities. 78% of consumers in big cities value quality over quantity, with 46% planning to trade up on at least one good this year. Baby-related purchases are the highest priority followed by big-ticket purchases like cars and houses, then spending on fresh produce, and lifestyle spending according to BCG.
The New Retail Democracy: China Results Revealed: Oracle research released in May found 83% of Chinese consumers increase spend when interacting with a retail assistant. 97% believe retailers should adopt new technologies to improve their shopping experience.
China Has The World’s Best Consumer Story: China’s retail spending rose a healthy 10.8% in the first half of this year, on the back of real urban household spending rising 7.1%, up from 6.5% a year ago.
Half of Mainland Consumers No Longer Trust Western Fast-Food Companies After Scandal: A Sina survey found that half of Chinese consumers no longer trust Western fast food chains following the meat scandal. A second survey by Sina found that 77% believed the fast food chains affected such as McDonalds, KFC and Starbucks had been aware of their supplier’s faulty practices. 69% said they would no longer dine at the chains.
Chinese Confectionery Firms Failing to Rise in the New Business Age: Some Chinese confectionery firms such as Hsu Fu Chi, rely on the Spring Festival for more than 50% of annual sales. But the over-reliance on this seasonal demand, the Government clampdown on corruption and failure to adjust their product line up, has seen domestic firms lose a large share to foreign firms, which are dominating in the high end confectioneries and chocolates segments.
Zespri ‘Juicy Water Fight’ Revitalises Shanghai Summer: Kiwifruit brand Zespri created a carnival atmosphere in a Shanghai park with live music, water balloons and golden kiwifruit, creating some good buzz on social media. It is part of non-traditional advertising and sales channels employed by the company which includes greening out entire metro stations, TV advertising on buses, taxis and mobile phones, and TV sales programmes. Zespri’s online sales are rapidly growing in China, with around 500,000 trays sold online this year.
China Has More People Going Online With a Mobile Device Than a PC: China’s online population hit 632 million at the end of June this year. 527 million access through their smartphones – 83% of users. It’s not surprising that 30% of Baidu’s revenue now comes from mobile.
China’s Digital Transformation: Chinese consumers’ rampant online use has made the Internet’s contribution to China’s GDP greater than in the USA. However, businesses are still slow to catch on a McKinsey report has found. The typical Chinese company spends 2% of revenue on IT, half of the international average. The enterprise cloud adoption rate in China is 21% compared to 55%-63% in the U.S.
Information Key to Attracting Chinese Consumers: 66% of Shanghainese consumers seek information on a brand website before making a purchase versus 52% of New Yorkers. 42% rely on point of sale information in luxury stores in Shanghai compared to 46% in New York.
Can Tencent Win The Mobile Commerce Battle With Alibaba?: One of the most likely monetisation opportunities for WeChat is through local services. A good example of this is a Chinese hotel chain which sold ¥10 million ($1.61 million) worth of accommodation in the first quarter of this year, using geolocation services to offer discounts to travellers close by.
In China, Apple’s Focus Pays Off While Samsung Feels Squeeze: Last quarter, iPhone sales grew 50% in China, nearly twice the rate of analyst forecasts, following great premium positioning. Market leader Samsung isn’t faring so well, with earnings expected to drop 25% in the quarter following stiff competition from Chinese smartphones.
A Chinese Luxury e-Retailer Raises $100 Million for Global Expansion: Luxury e-Retailer Secoo.com, a small Chinese eCommerce player with $40 million of sales in 2013, has raised $100 million in funding to open physical stores in major Western cities to cater to the rising number of affluent Chinese travelling abroad.
Razer’s Nabu Smartband To Support WeChat, Will Hit US Soon For Less Than $100: The wristband will show notifications, measure and share health and fitness metrics with other WeChat users. It can also share information with other WeChat users merely by being within range of one another, with a handshake or a high five.
Tmall Goes Social with Brand-Tagging Mobile App: Tmall has created another social app that allows users to tag their brands, and added a simple link to eCommerce to the mix with the launch of ‘FUN’. 6,500 brands are on the app already.
China to Dominate 30% of Global Car Sales by 2020: China will account for 30% of car sales by 2020, up from 23% in 2012. By comparison, the US is expected to account for 15%, and Brazil and India around 5%-6% each. Half of luxury cars sold in the Mainland are made in China, with the portion expected to grow to 75% by 2025.
That wraps up this week’s Skinny! On the to-dos this week, why not contact China Skinny to discuss how we could help with your marketing, online initiatives or research to take advantage of China’s opportunities. Just email us at email@example.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
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