Foreign brands scanning the news over the past week may have been sent on an emotional roller coaster. Although China Bears have been doom-talking about the economy for years, the World Bank’s latest update points to China’s GDP continuing to grow at a healthy 6.9% last year and 6.8% in Q1 this year. Consumption remains China’s growth driver, which is likely to continue given consumer confidence reached a 10-year high in the first quarter of 2018.
But on the flip-side, an FT article about increasingly wealthy Chinese consumers trading up referred to McKinsey research illustrating a pronounced consumer preference for local brands. Across 17 categories, infant formula and wine were the only two segments where foreign brands were preferred over domestic – and only by a whisker.
This is contrary to what China Skinny is seeing in the market. Consumers are often more familiar with domestic brands and their perceptions have become more positive – but we’re still seeing more favourable views for foreign products overall. Based on the feedback we’ve had from our extensive industry networks in China, we’re sure many foreign brands on the ground are seeing similar sentiment.
China Skinny has done deep, intimate and personal research and analysis with thousands of consumers across China. The numerous projects spanning many categories has found Chinese consumers virtually always still believe foreign brands are better – higher quality, more stylish, safer, healthier, etc.
In reality there is a disconnect. Whilst Chinese consumers usually favour foreign products, those brands aren’t servicing their needs well enough and aren’t where they want them to be. As Bain pointed out in the FMCG category, domestic brands grew 8% versus 1.5% for foreign brands in 2016. This result is not so much that they are seeking local products over foreign, but more reflective of nimbler Chinese brands who are reading the market better and acting more swiftly, coupled with stronger distribution networks and more resonant marketing.
As we highlighted in this infographic 18 months ago, dairy is a classic example of foreign brands not meeting needs. While the wounds of the 2008 melamine scandal may still cast a cloud over Chinese milk, domestic dairy commands a 38% premium per litre over imported. This is due to more appropriate format sizes, better-suited value-added products, more specific segmentation and more targeted marketing. China Skinny analysis has found similar results across many other categories.
Research by China’s Ministry of Commerce found 31% of surveyed consumers expect to spend more on imported products in the next six months and over 20% claim imported products account for at least 30% of their total consumption. Similarly, Chinese retailers plan to increase imports of over a third of 92 products surveyed. Although the results could be somewhat glossy due to current US-China trade negotiations and November’s massive China International Import Expo, they do reflect the general sentiment that Chinese consumers still relish imported products. It’s why Alibaba and JD with all of their data are busy opening up offices globally to source foreign products.
So with the good news from GDP growth to positive consumer sentiment, foreign brands are still well placed to tap into it if they ensure they interpret the market well and act quickly from it. Agencies like China Skinny can assist with the market interpretation stage, and help guide the resulting actions. Please contact us to find out more. Go to Page 2 to see this week’s China news and highlights.
The strategies and recommendations that China Skinny developed five years ago were quite different than those we do today. When we cited the best examples of marketing in China, we would typically look to foreign brands. Back then, most domestic companies’ marketing plans were focused on price promotions and discounts.
Things have changed in recent years. The allure of overseas origins remains attractive with many Chinese consumers and there are some great case studies of foreign brands backing that up with a smart marketing strategy, yet our recommendations are increasingly drawing on lessons from domestic brands. We only need to look to the dairy category where imported brands have a natural perceived advantage for health and safety, yet domestic players still manage a 38% premium per litre for online sales. This is due to slicker marketing and usually a better understanding of the market overall. Our recent survey of Australian businesses with Austcham confirmed that exporters are increasingly waking up to this, with domestic brands seen as more of a source of competition than foreign brands – 50.7% versus 49.1%.
Domestic brands are also much more likely to have stronger distribution networks and more of an appetite for lower tier cities, which are the fastest growing markets in China. Of the 50 million new households that are expected to enter China’s middle and upper classes between 2016-2020, half of them are likely to be located outside of China’s top-100 cities according to a BCG-Alibaba study. Although incomes in smaller cities are less than in larger cities, the lower cost of living means more cash is available for discretionary purchases. Further, rising property prices and increased indebtedness help fund consumption from consumers starved of the choice available in China’s high-tier cities.
Traditional domestic brands are not the only source of local competition for foreign brands in China. One of the newest competitors to the mix are the key opinion leaders – the same folk that foreign and local brands are paying hundreds of thousands of dollars to endorse their brands. Just as George Clooney built his billion dollar tequila brand and Gwyneth Paltrow with lifestyle brand GOOP, China’s influencers are realising their value not just as endorsers of other brands, but to launch their own brands such as Zhang Dayi’s own fashion label and Mi Zijun’s snack shop.
The most potent new string of competition isn’t going to come from celebs though, it is likely to come from the platforms who are selling your brands themselves – China’s online giants who are becoming increasingly powerful in both the online and offline world. Although China have been late adopters of private-label brands, it is another area the big ecommerce platforms are likely to lead. Netease is the latest platform to launch its own private label, Yanxuan, selling clothing, furniture, and appliances from the same Chinese suppliers who manufacture for international brands like Kering’s Gucci, Burberry, and Deckers’ UGG. It follows Taobao’s Xinxuan which launched last year, and JD’s Jingzao in January.
The ecommerce platforms have the data to evaluate the attractiveness of the private label products coupled with the ability to test them with little risk. Just look at the 80,000 smelly Thai durians Alibaba sold in a minute. While Alibaba may be best known for its multi-billion-dollar acquisitions such as RT Mart and food delivery Ele.me, it is making plenty of smaller purchases that could add to its arsenal of home brands such as NZ dairy company Theland. Some would say it could be a conflict of interest, particularly given Alibaba’s ability to dial brands on and off, but it is the inevitable reality of supplying dominant retailers much like supermarket chains in the West.
New sources of competition all cement China’s position as the most competitive marketplace on the planet. Even categories that have been out of reach of domestic players such as the auto industry are now starting to see more and more threats from hungry and smart domestic brands – both Alibaba and Tencent have made notable investments in car manufacturers. Brands should be aware of who their competition is in order to carve out their unique place in the market and not become too reliant on one channel. Agencies like China Skinny can assist with such market mapping, gap analysis and differentiated branding and positioning. Go to Page 2 to see this week’s China news and highlights.
Food and Hotel China (FHC), is one of the biggest trade shows in China and China Skinny was on the floor to scope out the latest trends, newest product entrants and to hear from attendees on their China experience. This year had less of the X-factor of editions past, but there were still main takeaways that hint towards new developments and indicate how ongoing trends are taking shape. Below are China Skinny’s top three takeaways from the 2017 show.
The land of pizza and cheese
Everywhere one looked there was pizza and cheese at this year’s FHC show. While there is typically a good showing it seemed as if this year there was enough cheese to feed China’s 1.4 billion people. There were parmesan rings, mozzarella sticks and flavoured cheese as well as bulk cheese. Much of the cheese was topping the pizzas that were being slung left and right. To indicate the range of pizzas there was even something called “Cake Pizza”.
The vast number of cheese and pizza offerings bodes well for the growing out-of-home dining market. According to the 2017 China shopper report, the value of dining out grew 10% from 2013-2016 compared to in-home meal prep at 3% and food delivery a robust 44% over the same period. The fact that products such as cheese and pizza were ubiquitous signifies that consumers are becoming more adventurous and increasingly have a taste for Western style products when out and about. This is a good sign for direct-to-consumer food sales too. As ingredients and dishes become more common outside the home, it’s more likely the Chinese consumer will try, become familiar with, and eventually buy for in-home consumption.
Western-style offerings are typically far fewer outside of Tier 1 cities (Shanghai, Beijing, Guangzhou, and Shenzhen). But with improving cold chain logistics and increased familiarity, lower tier cities are quickly following suit. But the offerings must be tailored to each specific area. China Skinny research across Tier 1-3 cities has found distinctly different styles and offerings between restaurants which reflect consumer preferences and their choices while buying for in-home. For example, restaurants in Shenzhen tended to a lighter fare and more subdued restaurant design. Chongqing proved to be adventurous in fare and lively in atmosphere, compared to a more sophisticated experience and food in Shanghai. These are representative differences to take into account when selling nearly any consumer product in China.
Differentiation between health claims is far and few between
Despite the clamouring over pizza and cheese the health trend is still going strong in China. It is estimated that China’s health food market will grow from ¥260 billion ($39 billion) in 2016 to ¥400 billion ($60 billion) in 2021.
More brands are positioning themselves as the healthy choice. Brands pushing the ‘healthy’ claim left much to be desired: many were too general in just saying they are the ‘healthiest’ or ‘the best’ which will be caught up by regulators who don’t allow superlatives. The relevant and differentiated positioning of a brand is vital as health foods are becoming less of a treat and more integrated into everyday diets.
While there are many brands trying to capture health-conscious consumers with general marketing, a few savvy brands were getting down to the core. Punchy, short claims are preferred among Chinese consumers. This is especially relevant for new-to-China brands, who are competing in an already crowded market.
Products lauding extra protein were among the most common targeted health products. The success of targeted products depends on a well-considered entry plan. Concepts like added protein may resonate with a specific target market, such as health and fitness aficionados. Other products used such claims as “gluten free”, something which is still early days in China.
In terms of other food products, the offerings were fairly standard. There were not as many inventive products or eye-catching packages as in years past. Additionally, a large majority of exhibition booth staff failed to spur excitement. If they engaged, they would meekly suggest to scan a QR code linking to uninspiring Official Accounts. Including a call to action, a personalized message or special offer to encourage engagement is likely to have gone over better.
In years past the number of inventive beverages have been impressive. This year there were only a small number of beverage innovations. A line of soy milk attracted a number of interested tasters and distributors while beautifully packaged Italian water is already selling in China and hoping to expand its presence to smaller tier cities.
China has become the largest bottled water market in the world, overtaking the United States in 2013, and it is projected to expand 58% by 2019. Coca-Cola, who sought to sell a $9 water in China earlier this year, is an example that just because a category is hot, doesn’t mean anything will sell. As Coca-Cola learned, price point isn’t everything, but it is a crucial part of the puzzle. Consumption habits vary by region, with domestic companies tailoring to meet the needs of local consumers.
The presence of foreign wines at FHC’s ProWine hall was notable. Australia, Italy, Chile, the U.S. and Canada all had a strong showing. The different offerings and regions were more expansive in years past. Exhibitors stated that interest was strong and knowledge among the passersby was stronger but still much education was needed.
Country of origin (COO) is vital in marketing wine and countries did well in presenting a strong front. But beneath the COO brands must remember Chinese consumers are still relatively new to wine culture. This can get tricky as Chinese consumers value a wine’s brand over its COO, grape variety or quality level. Zeroing in on consumers’ detailed perceptions of a brand’s qualities, including its COO, will help position wine brands to stand out among consumers. The wine sector in China continues to progress quickly and wine brands must keep pace to remain relevant.
The FHC show this year was as popular as in years past, but the lack of innovative products, packaging and marketing was notable. Staying inventive in your offerings and top of mind among Chinese consumers is an ever-evolving task. Get in touch to learn how China Skinny can help you enter or expand in China and for imaginative and resourceful marketing tactics.
A little over five years ago a fledgling Shanghai-based marketing agency was unable to find relevant and reliable marketing information about China. Hopeful of filling that gap, that agency started the Weekly Skinny. Our goal was to aid busy marketers with concise, transparent and timely insights to assist them in making decisions, as well as demonstrate China Skinny’s understanding and expertise in the China market.
Since then, around 250 newsletters have been sent, equating to over 300,000 words – the equivalent of 25 Master’s theses – covering the latest news, trends and advice that is consumed weekly by readers from thousands of brands, public organisations and journalists.
Over that same period China Skinny has worked with over 100 brands on research, trend analysis, market entry and market growth strategies. The projects, together with authoring the Weekly Skinny has helped us intimately understand Chinese consumers and the China market. Marketing in China is barely recognisable from five years ago, with changes and trends that would happen over decades or generations in other markets transpiring over the past five years.
To mark half a decade of the Skinny, we thought it would be fitting to list five key observations we’ve noted over that period:
1. Digital China
China was late to the Internet game, but it has made up for it over the past five years. At the turn of the decade, Chinese consumers started coming online in droves. They were finally given a voice through social media such as Weibo, bulletin boards, forums and review sites, and they took advantage of it. Users started to leave the confines of Internet cafes with connected smartphones costing less than $100 a pop.
Yet much of what was online in China was a rudimentary rip-off of popular Western apps. Weixin (which had just been rebranded WeChat for international markets) was one of the more innovative startups with a few features that weren’t available on WhatsApp or Kik. It had well under a tenth of the active users it does today, who used it for a fraction of the time. Even ecommerce was primitive, with almost all shopping happening on C2C platform Taobao and the majority of sales being cash on delivery.
Oh how things have changed. Ubiquitous smartphone ownership with mobile payments at 50 times the rate of in the US has enabled applications to easily monetize almost anything, creating sustainable innovations that are now leading the world. WeChat’s popularisation of the QR Code has helped heave the offline world into the digital sphere cementing O2O, the sharing economy and the Internet’s place at the heart of marketing in China. More advertising yuan is now spent on digital than any other channel. Online sales of goods and services is now double that of China’s top-100 physical retailers.
The maturing Chinese consumer is placing much more emphasis on experiences, whereas in 2012 it was all about accumulating nice things to show off status. Accessible experiences such as frothy frappuccinos at Starbucks, gaming or going to the cinema, to more aspirational travel have become a hot ticket for many consumers. The number of overseas tourists has doubled over the past five years and a much larger portion travel beyond Hong Kong, Macau and Taiwan. Group travel has been superseded by free independent travel, placing less focus on shopping while there, although it remains the top activity. Chinese also look for experiences in their homes, which have become larger, more modern and less of a place for functional habitation, but for enjoying the finer things in life such as nicer furniture, higher quality food and beverages and even activities such as baking.
3. Local players
All that time ago when the Weekly Skinny began, most Chinese consumers wouldn’t be seen dead with Chinese branded products. Around 70% of smartphone sales were Nokia, Samsung and Apple for example. Now over 80% of smartphones are local brands which provide owners plenty of street cred. The popularity of Japanese rice cookers and toilet seats in China was a catalyst for Beijing to introduce their Supply Side Reform to improve the standard of Chinese products.
Local movies have edged their way into bigger market shares which has a halo effect for many categories. The film industry has been helped through Government regulation and opening cinema chains in more nationalistic smaller cities, yet a lot of it is a result of Chinese movie makers upping their game. The same could be said across most sectors, where local manufacturers have learnt the trade making things for international brands, and investing in marketing, research & development and evolved to true contender status. Local brands often understand the market better than foreign competitors, and have wider-reaching distribution networks across China, which has seen them outdo foreign competitors across many categories.
4. Health & Environment
In early 2013, much of China experienced unprecedented air pollution. In Beijing for example, the air quality in January was 17% worse than smoking lounges in American airports. The Airpocalypse prompted the Government to take a more transparent stance to acknowledging pollution and helped locals realise that ‘fog’ was different to ‘smog’. China Skinny had done research in 2012 into why Chinese migrate, with a child’s education being the top reason, by far. The same research in 2013 saw pollution become the primary motivation. Living among air pollution, water and soil pollution, constant food scandals and more sedentary and stressed lives in the city than the countryside caused consumers to become a lot more health conscious overnight. Products like Oreo cookies went from doubling sales every couple of years to virtually no growth by the end of 2013 as consumers opted for healthy, and safe, food and beverages. This drove demand for good, clean imported products. The focus touched everything to an explosion of sports and fitness, with around 5 million new gym memberships signed up every year since.
5. Premiumization & Substance
In a few short years, Xiaomi became the pinup brand for smartphones, bringing fully featured smartphones to the masses for a low cost, coupled with glitzy flash sales and Apple-esque ads. Sales soared and in 2014 it became the market leader, and then growth suddenly halted. An increasingly affluent consumer class no longer just wanted something because it was cheap, they wanted value and quality. In 2015 sales of smartphones costing over $500 grew at 45% versus 2% for the market overall. The same premiumization applied to almost everything – even rice which saw 25% trade up versus 3% trade down over four years to 2015. High- and mid-end products on Alibaba’s platforms grew from 26.2% in 2012 to 34.4% in 2016. Even humble instant noodles saw sales drop by billions of tubs as consumers of all demographics opt for better quality fare.
Yet unlike a few years ago where a foreign brand with a high price tag would likely see double-digit growth, Chinese are increasingly shrewd in their evaluation of brands, both local and imported. Brands need to have substance, backed up by values that align with consumers’ own. Although Chinese consumers still love a deal, they are prepared to pay more if it is backed up by quality and value.
And that’s five. Our apologies that this week’s intro was longer than usual – we’ll try and keep it short until we’re celebrating 10 years! Go to Page 2 to see this week’s China news and highlights.
“Fresh Food” has become the main theme on Chinese tables as consumers are increasingly attracted to a healthy lifestyle.
Newly released insights from Alibaba’s 2017 China Household Table Consumption Trends Report outline Chinese consumers’ preferences and considerations when buying fresh products online. 60.5% of all fresh food available in China is sold online, increasing 26% from 2014-2016.
With quality, diversity, nutrition and convenience being important criteria, foreign brands that cater to busy urban lifestyles and customers’ needs are preferred. Fruit, meat and seafood from Australasia, South-East Asia and South America are among the most popular goods with categories like beef and shrimp rising 6-fold.
These trends show great opportunities for quality food brands, but it is crucial to be aware of the differences in customer segments and regions, and knowing how to cater to them in a discerning market like Mainland China.
Connecting with Chinese Consumers
Gaining exposure in China can be challenging – not just for new brands, but also for brands who already have an established presence in the market. The most successful companies are those who are aware of the latest marketing channels and opportunities, and embrace them in a way that is relevant to their target markets.
Adopting the right marketing channels soon after they launch is often much more cost effective than waiting until every other brand is having a go. This enables brands to establish a foothold before the channel becomes too competitive, and also capture consumers while the method is still novel and new – something Chinese consumers love.
Alibaba’s Tmall Live Marketing Platform
Alibaba recently launched Tmall Live, a modern take on China’s popular TV Shopping networks. Viewers watch live streaming videos from brands official store on the Tmall Smartphone app to learn about the brand and products, with the ability to purchase products at promotional rates and win prizes. The platform takes advantage of the interactivity that only the Internet allows: allowing viewers to engage with the live stream hosts, the brand and each other, asking questions, comments and liking.
Comvita’s Tmall Live Campaign
Comvita is the best-known Manuka honey brand in China and globally. Having been in the China market for more than 20 years, it is an established leader in the fast-growing natural health category.
China Skinny worked with Comvita and their Chinese distributor to build on this brand leadership through a Tmall Live stream to increase awareness of Comvita and its products and what makes its honey products so special.
One of Comvita’s key brand pillars is the pure, GM free source of its New Zealand honey and its stringent, hi-tech product development and production facilities. To reinforce this positioning, we broadcasted the 90-minute show live from Comvita’s headquarters in New Zealand.
Viewers got the inside scoop into Comvita’s New Zealand stunning visitor centre and technical, production and warehousing facilities, going beyond sites that are normally available to the public. All this happened through the convenience of a smartphone in China.
Selling the Comvita Dream
The live stream focused on Comvita’s compelling brand story, with its founder living almost 103 years thanks to his healthy lifestyle. Comvita experts such as charismatic co-founder Alan Bougen, humorous Technology GM Tony Wright and charming product manager Charlotte Jones all provided useful facts translated on the fly by the exemplary hosts Monica Mu and Stef Qi.
The Comvita employees gave their personal experiences from using Comvita products, allowing viewers to learn more about the products and educating them about how best to consume them.
China Skinny took the time to understand the target markets’ needs and wants, and ensured content made a direct connection between the benefits of Comvita products and how they assisted in viewers achieving health, beauty, career, family and lifestyle goals.
Users’ comments and questions came in fast and wide, with 79,000 comments and 263,000 likes during the 120-minute live stream. Popular subjects were prompted by the direction of the script, covering UMF and other grading systems to determine the quality of Manuka honey, and perceptions of the use of Manuka honey. The session also provided some valuable consumer insights into areas for future education, with shoppers asking questions even before the live feed started.
The Tmall Live stream was tied in with Comvita’s official Tmall store and included quizzes, vouchers and animations, creating an alluring environment with the thrill of being part of a special event that was taking place in New Zealand. The engagement from viewers indicated that the informative, educational and fun live stream appealed to the affluent urban women target market throughout China.
Tmall Live provides your brand and products another great and measurable opportunity to build awareness and ultimately sales. It can be even more effective when tied in with other marketing initiatives.
Get in touch today to find out more about creating relevant and engaging content and how China Skinny can assist you with successful marketing to Chinese consumers.
“It’s not that I don’t love my country. I just don’t want my baby to get hurt,” said a woman discovered by Chinese port authorities for smuggling Japanese diapers into China. Those words sum up the sentiment among many Chinese parents.
The woman is like millions of other Chinese mums who don’t want to take any risks with their baby’s welfare. Many of those mothers are responsible for buying half of the infant formula sold in Australian retail stores through Daigou channels. There are even parents in China who will not buy a single local product for their precious child. Even with Beijing’s propaganda constantly advising consumers how safe local products are, wounds from previous scandals are still raw.
In many ways, Chinese mothers personify well known Chinese consumer traits – they just take them to the extreme. For a start, Chinese mothers have an inherent lack of trust in Chinese products. This cynicism sees them research like PhD students, building a level of product knowledge unrivalled by any other major consumer group globally.
Much of the research they do is online. As many Chinese mothers are housebound for at least 30 days after giving birth, they usually have a lot of time to check and evaluate products on their smartphone. This further cements their attachment to WeChat accounts and groups, forums, websites and apps that they established during their pregnancy.
When re-entering the workforce, more and more mothers are turning to the Internet to aid them in juggling a job, household duties and caring for a baby. For example, online shopping for maternity and baby products doubled in value last year to $54 billion. Parents’ impact on cross border shopping is even more pronounced. Just 5% of domestic online shoppers buy baby care products compared with 17% of cross border shoppers, according to Tmall Global.
Chinese mothers’ long focus on quality is now being reflected across almost all Chinese consumer groups who are trading up. Yet where mothers differ is their loyalty. Although Chinese are among the most promiscuous shoppers anywhere, products such as infant formula have the highest rates of loyalty across categories and brands in China.
If your brand scores well in that research and you can sway loyal Chinese parents to buy your products, it can be lucrative – they pay some of the highest prices in the world to ensure the safety and wellbeing of their children. Go to Page 2 to see this week’s China news and highlights.
Many have pondered what would happen if everyone in China jumped at the same time. There’s been talk of the earth being thrown from its axis, mass earthquakes, volcanic eruptions and other catastrophic events.
Although China’s 1.4 billion people are unlikely to ever synchronise the world’s greatest leap, many of them are stamping their feet and making businesses take notice.
Until recently, Chinese consumers had very few channels of recourse. Then the Internet became mainstream. Chinese consumers finally had a channel to make a public stand when things weren’t up to scratch. In 2011, after Weibo had reached a critical mass, a businessman in Qingdao was so disappointed with the service he received with his Lamborghini, he hired nine men wearing blue suits and hard hats to destroy the $650,000 supercar with sledgehammers. He captured the spectacle on film and it went viral. The stunt spurned countless copycats in China, who resorted to equally dramatic social media posts to share their poor experiences – to the horror of many poorly-prepared brands.
Another high profile example of Chinese consumers’ displeasure has arisen again, this time with Ikea, writing off much of the goodwill that the furniture giant had earned by providing public sleeping, dating and dining facilities. Following Ikea’s decision not to recall furniture in China as it did in the US and Canada following the death of at least six children in North America, the predictable PR-nightmare ensued. Consumers in Ikea’s fastest growing market expressed their anger on WeChat, Weibo and other online forums about China’s exclusion from recall. 69% of respondents accused Ikea of prejudice against Chinese consumers according to one survey. After the damage was done, Ikea backpedalled, offering refunds or assistance to anchor the deadly dressers and chests.
Where practical, keeping Chinese consumers happy is vital to success in the market. They are the world’s most avid social media contributors and a poor product experience, particularly from a foreign brand, will often spread like wildfire. They write more online reviews than any other country in the world – just look at the average ecommerce storefront. Chinese tourists write 42% of luxury travel reviews globally. China’s inherent lack of trust and research habits means other consumers read and take notice of those reviews more than their peers in any other country.
Providing effective customer service, and relevant responses to crises are often overlooked when developing marketing strategies for China, but one misstep can undo all of the other good work a brand has done. Understanding the Chinese consumer and how they respond to such events should be an important part of planning. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
The more than 16 billion ecommerce purchases sent in China last year took an average of 2.6 days to be delivered. It was even faster for online shoppers living in densely populated areas, such as the 1.7 days in Shanghai. Almost nine out of ten times, consumers didn’t pay a mao for the delivery.
Platforms such as JD promote their speedy and reliable company-run delivery infrastructure as a point of difference. Yet even on Taobao and Tmall, shipping times and service are good too, given that delivery is one of the three main categories rated by shoppers. If delivery isn’t outstanding, it will be punished with poor feedback – that’s not a good look for potential customers who religiously check other shoppers’ ratings. A low ranking also worsens a product’s placement in search results.
Waiting times for cross border packages are also improving, falling by a third last year. International delivery infrastructure to China is improving all the time, making initiatives possible such as the cherry promotions from America’s Northwest, which can arrive in Chinese consumers’ homes as quickly as 72 hours after they are picked – faster than many Americans get them. While many Chinese are expecting quicker turnaround times, it can be a balancing act for cross border sellers. If it is too quick, some shoppers may actually question the product’s authenticity and whether it came from the promised country of origin.
Great customer service for ecommerce begins long before a product is bought and shipped. With more than 8 million vendors just on Taobao all vying for mind-share, customers will simply switch to the next store if they get anything but great service. More than 80% of shoppers ask a question before buying, and they expect a helpful and immediate response.
It’s little wonder why Chinese consumers are more loyal to the ecommerce platforms such as Alibaba and JD than any other brand in China, online or offline. That loyalty is contributing to the continued popularity of online commerce, which will see China account for more than half of the global retail e-commerce market by 2018, and 83% of online shopping in Asia. It’s also a big factor why ecommerce continues to grow more than three times faster than traditional retail in China.
Compare customer service online to physical retail stores in China – the average mall or high street store isn’t exactly renowned for providing great service. There are a lack of measurable incentives to make customers feel loved, few avenues for recourse if you have a bad experience, and limited training due to high staff churn rates in the retail sector. The service gap online couldn’t be more pronounced. However, it should highlight the pressing need for physical retailers to look at ways to provide better service to stay relevant. They have the natural advantage of face-to-face interaction and most could be doing a lot more to capitalise on it. China Skinny can assist you to develop a strategy for this. Go to Page 2 to see this week’s China news and highlights.
Last week, Peking University released a report announcing that one-third of Communist China’s wealth is owned by the top 1% of households, while the poorest 25% account for just 1%. The study also found that China’s income inequality is now among the worst in the world. China’s inequality spans beyond consumers’ incomes, to their health, environment and access to education, travel and culture.
There is also inequality between brands trying to sell to those consumers – a widening gap between the companies who understand and adapt to Chinese consumers’ changing needs, and those who get left behind. As China’s growth slows and its consumers become more sophisticated, marketers need smarter, insight-based strategies to continue to win consumers.
The inequities span even the largest brands in China. In the auto industry, Mercedes’ sales grew 33% last year, whereas Audi dropped 1.5%. Burberry’s sales are growing in Mainland China, while other luxury brands’ sales drop. Apple continues to fly as Samsung’s market share sinks.
Arguably the most interesting brand inequality is the once-cool-kid KFC – who is unable to recover its mojo, while the fortunes of fellow American hospitality giant Starbucks just keep improving. The chain plans to open 500 stores a year in China for the next five years – more than doubling its current 2,000. “People are looking for reasons not to believe. I’m on the ground and I see firsthand. I am bullish,” so says Starbucks CEO Howard Schultz.
Starbucks is an inspiration to foreign brands; it has helped pioneer a category that was almost nonexistent in China before 2000. Convincing consumers to choose coffee over tea was no easy feat. It is also bringing tangible ‘Western culture’ to consumers in the 100 cities it is already in, influencing mindsets and making Chinese consumers more open to foreign brands and culture overall.
Whether or not we’re fans of their coffee, we can be thankful for brands like Starbucks. We can learn from their approach to China – taking the time to understand the market, constantly adapting to it, placing a strong focus on digital and being prepared to try new things. China Skinny can assist with that. See page 2 for this week’s news and updates.
As recently as 2012, most Chinese consumers considered international labels categorically better than local alternatives. KFC was a good example: although consumers knew deep-fried drumsticks weren’t a super-food, they were from an American company so must be safer, and therefore healthier, than Chinese options that could be cooked in gutter oil, with additives like melamine. That perception helped fuel more than two new KFC restaurant openings a day in China that year.
Things took a turn in late 2012 when state media accused a KFC supplier of pumping toxic chemicals into chicken. Subsequent scandals such as meat on the floor and altered expiry dates have shown Chinese consumers that even foreign brands with local supply chains can’t be completely trusted.
This has seen the monumental rise of unadulterated imported food into China. It’s why Carrefour just opened their biggest supermarket in Asia in Beijing, with a strong focus on imported food. It’s why the big ecommerce platforms are putting so much effort behind promoting imported food and cross border commerce, and a large reason why Alibaba just opened offices in France and Germany.
Yet, just as Chinese consumers won’t blindly purchase a foreign brand with supply chains in China, they won’t indiscriminately purchase products just because they appear to be imported. In 2013, a CCTV journalist travelled to New Zealand to find the source of a so-called New Zealand baby formula brand. The address on the can turned out to be a panel beater’s yard in Auckland whose staff had never heard of the dairy company. The exposé further fuelled Chinese consumers’ lack of trust and reinforced their need to do extensive research before making a purchase.
In a related event on Single’s Day this year, Weidendorf milk made headlines for selling out of 250,000 cases within 24 hours. The celebrations were short lived when local media and social networks were ablaze with reports that Weidendorf was not a German brand, and unavailable in German shops. The brand was in fact, owned by a Shanghai company. It turned out that the local company sourced the raw material, manufactured and packaged in Germany, apparently to EU standards, yet many Chinese consumers were still enraged about being misled and didn’t consider it truly German milk.
With more than 600 million Chinese now armed with a smartphone at all times, it is easy for them to do a background check on a brand, and most do. There are typically more than ten online and offline touch points on a Chinese consumer’s journey before they make a purchase, so deception doesn’t go unnoticed for long, and will spread like wildfire on social media. Consumers need more than just a foreign flag or pretty foreign scene on packaging to be convinced of its authenticity. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
While all of us have enjoyed the results of Chinese inventions from paper, printing, tea and porcelain, to the less-cited toilet paper, pasta, ice cream and football, it’s likely we’re going to benefit from many more in our lifetimes, particularly in the technology category.
China’s modern transformation has been led by engineers. A late-90s study found that more than 80% of the mayors of China’s large cities, Party leaders and Central Committee members held degrees in engineering or the sciences. Many of those engineers are steering all-important Government policies such as the “Internet Plus” strategy, which will see increased focus on developing world-leading innovations related to the Internet.
Market-raised cash injections are also fostering tech innovations in China. There are now more than a dozen Chinese tech businesses worth over $1 billion, with venture capital growing more than 300% last year to $15.5 billion. On the surface, most Chinese tech companies look similar to Western companies. Yet dig a little deeper and you’ll see Chinese firms pioneering mobile, ecommerce, finance, microtransactions, social commerce and O2O features that are making the West’s tech companies take notice – and even copy.
China is a fine breeding ground for innovation. Decades of state capitalism has led to some very inefficient ways of doing things, creating the perfect environment for disruptive technologies that meet the needs of increasingly sophisticated and demanding Chinese customers. China’s massive population of tech-savvy consumers, who together account for 59% of the world’s smartphone app downloads, have the scale to tempt many aspiring engineers. More than 10,000 new companies are registered each day in China.
Building efficiency, isn’t just about creating shorter queues in hospitals, making paying for things easier, or more efficient ride sharing. It’s also servicing those softer, but still important needs such as customer service.
China’s phenomenal rise of ecommerce can be attributed to competitive pricing, convenience and range, but also for providing consumers with a level of service that most haven’t experienced before. Service isn’t always great in China’s brick and mortar stores, but if you drop the ball on ecommerce, your store, brands and products will be slated with negative online reviews. This effects both consumers’ perception of your brand during their research, in addition to search result positions on ecommerce platforms. With so much at stake, online vendors bend over backwards to please their customers, which has seen ecommerce platforms such as Taobao, Tmall and Jingdong have the highest satisfaction and consumer loyalty of any brand in China.
In short, Chinese consumers are receiving technology-assisted service and convenience. This has helped build an ecosystem of innovations that are increasingly moving beyond Chinese borders, and it is also a reason Chinese have growing expectations when buying a product or service, which need to be met or exceeded. China Skinny can help with that. We hope you enjoy this week’s Skinny.
The Wild, Wild East: China’s urban consumption will almost double from $3.2 trillion today to $5.6 trillion in 2020 according to BCG. Whilst many are talking up inland China as the biggest untapped opportunities, there are still many up-and-coming cities in eastern China such as Suqian, Xuzhou and Wuhu, and still lucrative niches in the crowded Tier 1 markets of Shanghai, Beijing, Guangzhou and Shenzhen.
Chinese Trade Data Latest Indicator of Sluggish Growth: While food imports to China in August increased 25% year-on-year, overall imports decreased 13.8%, with demand for commodities such as iron ore and aluminium drying up.
Three Reasons Why Chinese Consumers Love the Queen – and Why Britain Should Too: When Chinese consumers were asked which words they associate with Britain, top of the list was the Queen. 27% of Chinese shoppers said they get their inspiration for fashion and home style from the Queen and the royal family, with the royal warrant important for increasing desirability of British lifestyle and brands from more than half of those surveyed, according to Qing Wang from the University of Warwick Business School.
Best CRT Post Today? Not in China: China’s advertising laws have been overhauled this month, imposing fines of up to ¥1 million ($157,350) for brands that use superlatives such as the “highest”, “best” or “national level”. Brands are also banned from using child stars under the age of ten to promote their products.
Internet, Mobiles & Ecommerce
Buzzwords: Ecommerce and Digital Payment in China: Ecommerce is the talk of the town in China, and here are a few buzzwords that are good to know.
It’s All Go: Venture-capital investment in China reached a record $15.5 billion in 2014, more than triple 2013’s level. China has more than a dozen tech businesses with a valuation of over a billion dollars. “Chinese consumers are now so demanding and globally minded…you need to be world-class to serve China,” says Gary Rieschel of venture-capital firm Qiming Ventures.
China is Buying About One-Fifth of the World’s Apple Watches: Just over one million Apple watches are estimated to have been sold in China since they launched in May – about 22% of global sales. That’s lower than the 26% that China contributes to Apple’s revenue overall. 40% of Apple watch sales are estimated to come from Apple stores, 28% from Apple’s online store and the remainder from third party stores and overseas vendors. Apple is hoping the new rose-gold coloured iPhone 6S will hold special appeal to Chinese consumers. The brand looks to be out of favour with state media again: the iPhone along with the Samsung Galaxy were the focus of a poor quality report on CCTV, whereas top local players Xiaomi and Huawei weren’t even mentioned.
How to Buy a Xiaomi in Two Short Months: Xiaomi may be the world’s second most valuable startup after Uber, and China’s top selling smartphone brand, but it still isn’t straight forward to buy one of their devices. How long will the flash sale marketing tactic work for them with brands like Huawei nipping at their heels?
A Day in the Life of a Chinese App Addict: Last year, Chinese smartphone users downloaded 185 billion apps, 59% of all downloads worldwide. Gaming apps were the most popular category in China but shopping, video-streaming, and image-and-video apps for social media are catching up quickly.
Food & Beverage
Finding Yin Yang Balance In Your Food Choices: Duck is cooling, chicken is heating: some of the fascinating yin yang traits Chinese associate with food.
Intellectual Property in China’s Food & Beverage Industry: Trademarks, including 3-D marks such as packaging or containers, and trade secrets are all vastly important in China’s food and beverage market where reputation is everything.
China Plows Big Money Into Australian Agriculture: Chinese consumers perceived Australian-grown food to be three times as safe as food grown in China, and 50% healthier than food grown in the U.S., Brazil or France according a Reputation Institute survey in 2013.
Ambient Drinking Yoghurt to Achieve $5.6 Billion in Sales by 2017: Since its launch in 2010, sales of drinking yoghurt have soared, accounting for 13% of China’s yoghurt category in 2014. Convenience, taste and nutritional benefits have contributed to its popularity.
Robust Growth Forecast for China’s Outbound Tourism: 42% of Chinese tourists surveyed said they were willing to spend as much as 20% of their living expenses on travel according to World Tourism Cities research. While outbound tourism numbers grew 11% last year, their spending increased 28%.
Dutch Villages, Small Cities Look to Attract More Chinese Visitors: Dutch villages such as Giethoorn are seeing two thirds of their hotel guests coming from China. They’re catering for the visitors with initiatives such as Chinese language travel cards, smaller bicycles, firmer beds and noodle cookers. Chinese visitors to the Netherlands grew 15% last year and are expect to grow 18% this year, spending almost twice as much per person on average.
Toads Skin, Herbs Feed China’s $2.7 Billion Cancer Fight: Sales of traditional cancer treatments, with ingredients such as toad skin and turtle shell, surged 35% to almost ¥17 billion ($2.7 billion) last year in China. That’s twice as fast as the 17% growth for the overall ¥65 billion ($10.2 billion) cancer drug market. A new cancer case occurs every 10 seconds in China.
The impact of the spectacular rise and fall of China’s stocks is anyone’s guess. It would appear that China is imploding if you read some news reports – stories of a weaking China attracts readers in some countries. Discuss it with Chinese consumers buying food for their kids in high end supermarkets, and they will shrug it off, unphased; China has made it through bigger economic challenges.
Of course some consumers will be feeling less confident, but it is unlikely to have the same impact on consumer spending as a crash would in markets like America. In January this year, following a 122% rise in the Shanghai Composite Index over 12-months, retail sales grew at their slowest rate in five years. At the time, just 6% of Chinese households owned stocks versus 55% of Americans. The latest spike would have drawn a few more in with Beijing’s encouragement, but as a whole, fewer Chinese consumers gamble on stocks – China’s reputation for being conservative with their high savings is well deserved. Although consumer investors make up a large portion of the owners of China’s stocks, their share of the overall market value is estimated to be 5% or less.
China needs healthy capital markets to finance the ongoing development of its economy, and will need a different approach to what we have seen recently. Nevertheless, the biggest impact on consumption growth in both the US and China is wage growth, which has been rising faster than GDP in China. IMF is keeping its pre-crash China GDP forecasts from April, as it believes China’s stock exchanges are so disconnected to the wider economy, and are small relative to the overall economy.
The rate of growth across many categories is slowing in China, but that was happening before the market meltdown. We expect Chinese consumers, particularly those born post-80s and 90s, will carry on in the consumer groove. Consumption will continue increasing in areas such as premium food and beverage, tourism and experiences, health and wellbeing, affordable and some niche fashion, overseas investments and anything to do with the precious only child – food, clothing and education – just look at the 50% growth that Lego has experienced in China over the past two years, despite counterfeits costing a quarter of the price.
China’s affluent and middle class base will continue to grow -an extra million USD millionaires came on board in China last year, despite the reports of doom and gloom. One loser will be state media who have been cheerleading the stock market, further eroding trust in traditional media and driving even more consumers to objective digital channels. Go to Page 2 to see this week’s China news and highlights.
China’s smog gets a lot of airtime around the world, with footage like masked runners navigating the soupy air in the Beijing marathon, hordes of Zhengzhou residents lining up for bags of ‘fresh mountain air’, and kids playing at school under multi-million dollar domes. Given 99% of urban Chinese breathe air considered unsafe by EU standards, there’s plenty of opportunities for coverage.
China’s less visible soil pollution is equally concerning, with 19.4% of soil dangerously polluted according to a 5-year Chinese government study released last year.
However, possibly the most under-reported environmental issue facing China is its water pollution. Nearly two-thirds of China’s underground water and a third of its surface water has been rated unfit for human contact by China’s Ministry of Environment. Just 3.4% of China’s water supply is classified as ‘Grade 1’. Initiatives such as Jack Ma’s water monitoring app have helped raise awareness of the problem, but unlike air pollution, which marginally improved in China last year, China’s water continues to become more poisonous.
Toxic water isn’t ideal for taking a shower or family camping trips by the river, but of grave concern is its influence on China’s food and beverage industry. As a consumer in China, how comfortable would you be eating food irrigated with, processed by machines cleaned with, and in packaged products made with water that could be dangerous to touch? Would you be comfortable feeding it to your precious only child, or even your prized pooch? Add that to a lack of trust in the supply chain and it’s no surprise that imported food is growing almost three times faster than FMCG overall.
China Skinny’s research across China has found spending on food and beverage is growing fastest amongst affluent segments. This indicates that those who can afford it, are prepared to spend more on safe, quality, often imported food. The growing demand is contributing to the soaring rise of cross border ecommerce, and is why companies like McKinsey are predicting that imported fresh produce is ‘about to get really big’. We hope you enjoy this week’s Skinny
China’s Top-100 Brands: Campaign Asia and Nielsen asked Chinese consumers to rate their top brands. Interestingly Samsung came out on top, ahead of Apple in fourth place; whereas sales, particularly for smartphones, reflect quite a different picture in China. Chinese Traditional Medicine company Tongrentang was the top brand from Mainland China in 8th place.
Chinese Brands Lead China’s Top FMCG Brands: China’s top three FMCG brands – Master Kong, Yili and Mengniu – were chosen by Chinese shoppers more than 1 billion times last year according to Kantar brand rankings. Danone’s Mizone was the top riser.
It’s A Dog’s Life: How Affluent Chinese Are Falling In Love With Pampering Their Pets: Spending on pet care in China is expected to grow by more than 50% in the next four years according to Euromonitor. Foreign companies Mars and Nestle currently account for more than 80% of China’s pet food market. Pets were banned during Chairman Mao’s reign, as they were seen as a bourgeois pastime. Meanwhile, Chinese social pet network SmellMe reportedly has five million furry users – ten times more than a year ago.
Uber Is Logging 1 Million Daily Rides In China: 11 cities in China are said to be logging as many Uber rides as the rest of the world combined, although their claim of one million rides a day is quite different to recently reported numbers. Chengdu is logging 479 times as many trips as New York City did at the nine-month mark, and Hangzhou is logging 422 times as many trips. The company says it is creating 100,000 “new equivalent full time jobs” a month.
More Than 60% of China’s Underground Water ‘Not Fit For Human Contact’: Nearly two-thirds of China’s underground water, and a third of its surface water, are rated as unsuitable for direct human contact in 2014 according to the Environment Ministry, with rates worsening from 2013. Anyone for a swim in the river?
Chinese Stick With Cars Despite Pollution Concerns: 55% of Chinese consumers were worried about environmental pollution and traffic jams caused by cars in 2014, up from 48% in 2010. Nevertheless, the portion travelling by private car at least once a week grew from 8% in 2010 to 33% last year. In related news, just 1% of Chinese don’t want an international agreement addressing climate change, versus 17% in the U.S. and 7% in the UK according to a YouGov survey.
Food & Beverage
China’s Cross-Border eCommerce To Rise Ten-Fold In 5 Years As Taste For Imported Food Grows: China’s ecommerce imports and exports are expected to hit $245 billion by 2020 according to a report by Alibaba and Accenture.
Exports of Fresh Produce to China Are About to Get Really Big: McKinsey sums it up well, ‘Imports = Safe’. Buying fresh produce directly from the country of origin makes consumers more comfortable.
Starbucks in China: A Matcha Latte and Mooncakes, Please: Starbucks doesn’t just localise with green tea lattes and red bean scones, but has its own versions of traditional festival treats such as mooncakes and zongzi. It also invests heavily in staff and making them feel loved. Starbucks has over 1,600 stores in 90 cities and accounts for around 60% of China’s coffee chain market, versus McDonalds McCafe’s 14% and Costa’s 11%. Starbucks’s same store sales have grown 12% in the China-AsiaPacific region this quarter, versus 7% in the U.S.
Internet & eCommerce
Alibaba Invites U.S. Small Businesses to Enter Chinese Market: “Our U.S. strategy is quite simple and clear: We want to help U.S. entrepreneurs, small business owners, and brands and companies of all sizes sell their goods to the growing Chinese consumer class,” said Jack Ma prior to a three day trip to the U.S. More than 200,000 companies are running cross-border e-commerce businesses in China on more than 5,000 online shopping platforms.
Q&A: How Tencent Plans to Get Chinese Consumers to Pay for Music: Tencent has a difficult task ahead to convince Chinese consumers to pay for music. It is teaming up with global music companies such as Warner Music Group and Sony Music to create innovative value adds through its QQ and WeChat platforms.
Investment & Migration
Overseas Real Estate Investment Hits Record $7.5b in Q1: Chinese companies invested a record $7.5 billion in the overseas commercial and residential real estate market in the first quarter of this year, with reported transactions expected to hit $20 billion this year according to JLL. With the domestic market slowing, overseas investment by Chinese companies reached 52% of all real estate transactions last year.
Can “Made in China” Become a Luxury Label?: In less than a decade, China has positioned itself as the world’s biggest producer of caviar. 44% of Chinese consumers are willing to try an emerging luxury fashion brand in the next three years according to Bain. Cosmetics and wine are other areas to watch.
What Luxury Brands Can Learn From Alibaba About China: While less than a quarter of luxury brands have online shops, Chinese consumers flock to ecommerce platforms to buy and research products. Foreign luxury brands in China can learn from Alibaba by: 1) Localising; 2) Pricing competitively; 3) Developing authentic brand advocates; and 4) Embracing mobile ecommerce.
Over 60% of Chinese Purchase Luxury Items Abroad: 64% of Chinese consumers choose to purchase luxury products overseas instead of in China. 88.9% cite lower prices and 83.5% claim guaranteed authenticity as the reason according to a Fortune survey. Chinese account for 46% of global luxury spending overall, with 76% of it happening abroad.
Women power is nothing new in China. From Empress Cixi, ruler of the Qing Dynasty to Chairman Mao proclaiming that “women hold up half the sky,” females have long contributed to all aspects of life in the Middle Kingdom. In modern day China, their influence is ever-increasing. Supporting the growth of female power, Alibaba is currently hosting their inaugural Global Conference on Women and Entrepreneurship in Hangzhou. And rightly so, unlike many male-dominated tech companies globally, 40% of Alibaba’s employees are female.
As China’s women receive more equal employment and education opportunities, the playing field is flattening. Today’s ladies have come to expect more than their predecessors. Their influence is being felt on all levels including the consumer market.
Women’s average contribution to household income jumped from 20% in 1980 to 50% in 2013. 86% of Chinese mothers believe the future holds new opportunities and financial stability for their daughters, according to Nielsen. With this blooming confidence, women now have a louder voice in financial decisions. Women have become the CFO’s of the household, handling the purchasing decisions for everyday goods like family groceries and to big ticket items such as finances, electronics and even automobiles.
Of China’s huge population, 640 million are women consumers. Not only are they shopping, but also creating change and driving China’s economy. Whether it be dancing grandmas or online entrepreneurs the “She-era” is the backbone of the China century. Capturing these women is going to take more than just being a foreign brand or feminine branding – slapping a pink label on a product doesn’t mean it will resonate with Chinese women.
Marketing to the modern woman in China is communicating with someone who is balancing work and family – which often consists of their parents and children. Women in China, as elsewhere, are looking to streamline their lives and online shopping is one example of how they’re doing this. 86% of China’s internet users access through mobiles with women browsing and buying on their way to and from work and picking up the kids.
Consumers are not the same from province to province and of course vary even more between gender. Whether you are targeting consumers from tier-1 cities or specific demographics such as young urban females, without understanding and speaking to consumer needs and desires, there is little chance of standing out in China’s fiercely competitive market.
Kudos to Alibaba for bringing women into the spotlight and raising the profile of women in China and abroad. A stronger and more confident female market in China is good for the country, and for Alibaba.
If China Skinny can assist you in understanding or reaching a specific China market whether females, or another consumer segment, be in touch today.