Barely a Weekly Skinny passes by without a mention of some food scandal in China. With each toxin-infused grain of rice or vermin masquerading as mutton, Chinese consumers are constantly reminded that their food supply is simply, ratty. It’s helped countless Western food and beverage suppliers charge substantial premiums, while enjoying never-ending growth rates.
Some pundits believe China’s food scandals are just a passing fad – the Chinese Government will soon succeed in their quest to stamp out corruption and make food supply chains safe. They have to. Yet in practice, it is a far greater undertaking than laying 1,300 kilometres of high-speed train tracks in less than seven months, or even relocating 1.2 million residents to build a dam. The problem is intangible. That makes it a lot more difficult to weed out and fix.
The unfortunate reality is that China’s food problems cut much deeper than corruption. Even if every conniving gangster in the pig supply chain and every evil peach bottler suddenly strode back onto the virtuous path, China would still have a significant problem with the safety of its food supply. The findings that 70% of the dirt in China is polluted is more disturbing than a few malicious farmers looking to make a quick buck at the expense of their Chinese brothers’ health. That’s the dirt that the rice grows in, the fruit and veges, the grass and grain that the animals eat, even the dirt that runs off into the already severely polluted rivers. When the average dairy farmer in China owns just three cows, it’s pretty difficult to educate the lot of them not to overdo the penicillin they pump or fertiliser they spray.
In short, China’s food issues won’t be fixed for some time. And in the meantime, as the increasingly aware and wealthy upper-middle class in China’s cities grows from 100 million today to 500 million by 2022, we would expect future demand for good, safe and premium food and beverages from the West to be strong. It won’t just be a fad, but a fast-growing segment that will stretch supplies in most corners of the world, and a boon for those marketed well in China. As usual, there’s a few news and pointers to help you do just that this week. Happy reading!
China’s New Consumption Trends: Who Wins?: China’s Ministry of Commerce’s 2013 China Consumer Market Development Report has picked the winners and losers for the year. The Good: Furniture & home decorations are forecast to grow 20% with high levels of home purchasing & construction in Tier 2-3 cities; F&B, helped by growing wages in lower-middle income brackets; and fashion, driven by eCommerce. The Bad: Auto & appliances, hit by lowering Government stimulus; luxury goods and dining, hurt by the crackdown on corruption.
China’s Middle Class Emerges, To Spend More: China is expected to account for almost a quarter of additional global consumption, or $6.2 trillion, by 2025. India, $2.5t, Brazil $1.4t and Russia $0.8t. The portion of Chinese earning $17,000 – $35,000 a year was 6% in 2010. By 2020, it will be 51%.
Chinese Consumers Less Likely To Up Spending This Year: Even with the huge growth in affluent Chinese consumers, individually they are less likely to up their spending this year. Middle income-affluent consumers outside the big cities are likely to hold back on additional purchases to save for property & car purchases.
Why Mid-Tier Brands In China Will Be Hit: 3 min vid: Chinese consumers are optimistic overall, however the middle class earning $6-15K/year are the least upbeat, especially men 35-45, concerned about how reduced FDI and SOE investment will effect their jobs. This is having a negative impact on demand for mid-tier brands. Lower income Chinese, those earning $490/month present the greatest growth opportunities for businesses in China.
Is Your Brand Ready To Enter China?: Some questions you may want to consider before launching your retail brand in China: (1) Do you have existing brand awareness in China? (2) Are any retailers already selling notable volumes of your brand in China? (3) Do you have the range to support a single-brand store; (4) Are you ready to invest significant time & resources into the China market?
China Offers A New Environmental Report, Filled With State Secrets: It’s little wonder Chinese consumers are prepared to pay such a premium for Western-originated food. 70% of Chinese soil is polluted and 65% of fertilizer is used improperly in China – is anyone surprised that 44% of Guangzhou’s rice was recently found to be contaminated?
More Affluent Chinese Consumers Eating Beef: China’s beef imports increased 10 times in Jan-Apr this year compared to the same 4 months in 2012, as more Chinese become wealthier and crave protein and trust the local supply less.
Preserved Egg Companies Shut In Toxic Chemical Scandal: The old favourite, and almost sacred, thousand-year eggs are the latest food to be hit with a food scandal in China. 30 producers in Jiangxi province had been caught adding industrial copper sulphate to halve the curing period to a month. The process is likely to leave traces of toxic heavy metals including arsenic, lead and cadmium in the eggs. Up to 300,000 tonnes of the preserved eggs produced in the region are possibly toxic, about 15% of China’s total production.
Luxury Restaurants Adapt To Hard Times: The slowest growth in China’s catering industry since 1991 has seen some restaurants give discounts for the first time ever. Even high-end restaurants are introducing new dishes at lower price points, with 60% of new dishes at 136-year-old chain Quanjude, priced under ¥45 ($7.30). The growth rate of China’s top-100 restaurants in China was 16.8% in 2012, versus 28.3% in 2011. This year, it will be even lower.
Optimising China Websites A No-Brainer, But Many Businesses Still Don’t Do It: Over 2/3rds of Chinese use the internet to research brands, and although the luxury segment has taken a hit lately, most luxury firms aren’t accommodating them well. One study found that luxury websites take four times as long to load in China as elsewhere and few are optimised for mobile?!?
Chinese Consumers Have Unique Expectations Of Your Website: Another (paid) report on why Chinese websites need to be a lot more than just translated content. Chinese websites need to be (1) Useful and offering value; (2) Easy to access that value; and (3) Enjoyable and emotionally engaging.
After Alibaba, Sina Weibo Puts Daily Deals In Social Stream: Weibo introduces daily deals into the social stream. Discounted deals link directly to vendor’s eCommerce pages. If it’s a free or promotional deal, the user needs to follow the company and repost the offer. Almost 10K people reposted a travel deal.
Chinese Travelers Remain Biggest Overseas Spenders: Chinese tourists spend an average of $1,139 per overseas trip, the highest average spend of any country and 70% above the global average. France is the most desired international destination with wealthy Chinese travellers, followed by the USA, Singapore, Switzerland and the UK. Maldives comes in at number 10. China’s super-rich made 3.4 trips on average last year, down from 4.2 in 2011
Major Changes In The Consumer Profile Of Chinese Luxury Travelers: The Internet & magazines are the most important information source for wealthy Chinese seeking travel info. 60% will make travel decisions themselves. Location and brand are most important for hotel decisions. Shangri-La is the top brand, followed by Hilton, then The Peninsula. Hotel perception is influenced by brand presence & reputation in China, Chinese-friendliness and food – Authentic Chinese is preferred to Michelin Star. Bookings are generally made by individuals or family members, with logistics handled by an assistant going online. Business travel is mainly scheduled through local business partners. For choosing a destination, 83% are online every day and 91% read monthly magazines. China’s wealthy stagger their trips to avoid peak periods. Package holidays are 9.8 days on average and 53% are 3-10 travellers. Most visit 1-2 countries per trip. 13% fly first class, 16% business class. Their favourite sports are swimming, golf, mountaineering, yoga, badminton and 50% of them smoke!
Student abortion sale: “Painless abortion, 50% discount to students. You only pay ¥450 ($73) with a student ID card.” – an ad from a Chinese Medicine hospital in Wuhan, has received mixed responses on China’s social media.
China Property Buyers Head For London: Chinese real estate investment in Europe for the first 5 months of 2013 has already exceeded 2012’s total of €2 billion, making Europe the top region for Chinese investment so far this year. London is reaping the rewards, with 80% of Chinese property investment in Europe over the past 5-years going to the city.
Asian Endorsement Deals Still Key In Global Sports Market: Very few Chinese are on the list of the world’s highest-paid sports people. Worth noting is tennis star Li Na, who ranks 85th for total earnings, but is the 17th highest paid sportsperson in the world for endorsements, having signed seven multimillion dollar deals after winning the 2011 French Open. The Chinese market is dominated by very few stars, most of whom have multiple deals.
The Return Of The Red Flag: With 30% of China’s public servants driving foreign cars such as Audi, the Government has brought China’s own Hongqi (Red Flag) luxury wagon back to life, hoping to reclaim market share and boost national pride. Auto makers FAW are investing ¥1.98 billion ($323m) to produce 30,000 next year, with the top model selling for a cool ¥9.4 mill ($1.5m).
Volvo Tries To Overcome Late Start In China; Takes Aim At BMW, Audi: Volvo’s Chinese owners are looking to win a larger share of China’s market. This month, they have started manufacturing in China to reduce the 25% tax on imports. Volvo’s global sales dropped 6.1% last year, with the biggest drop in Sweden – anything to do with sentiment about the new owners? Sales in China dropped 11%, versus a 40% rise from Audi and 30% from BMW – sentiment about new owners? Although this year may see things turning around, with deliveries up 28% so far and April seeing sales in China surpass the US for the first time. Volvo’s understated image bodes quite well with the Government crackdown on luxury.
China’s Luxury Consumption Patterns Shift From Prestige To Quality: Chinese luxury consumers moving to lower-priced luxury items and away from established brands. Luxury consumption is now more about lifestyle than one-off celebrations, with focus on heritage, underlying quality & understatement. For wealthy Asians, average university costs grew 30%, more than any other category. High-priced wine was next at 16%.
Young Chinese Consumers Turn To Pawn Shops For Luxury Goods: No stats to back it up, but anecdotally China’s young luxury consumers are increasingly turning to pawn shops to buy watches, bags and diamonds. They’re much cheaper than new and more trustworthy than purchasing 2nd-hand online, where you get worse after-sales service. Luxury goods are becoming more of a symbol of the “quality of one’s life”.
China Is The New Test Market For Luxury: China’s young, ambitious and optimistic consumers have no fear of losing their jobs and get yearly raises of 10%-15% – the perfect launch pad for luxury goods, and it’s becoming just that. Chinese businesses are increasingly understanding the importance of branding, so Western businesses need to keep up with changes in the market and constantly innovate.
That’s The Skinny for the week!
If you’ve missed earlier news or need to learn more, there’s a stack of information about Chinese consumers in prior China Skinny Weekly’s right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed. If you have any feedback or suggestions for future articles, please let us know.