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Britain’s lively capital, London: Arguably the world’s most international city, its cultural capital, the city with the second-highest private wealth after New York, home to four Unesco World Heritage Sites, more five-star hotels than any other city, and based on measurable and objective data, simply ‘the capital of the world’. It also has similar house prices to China’s tier-3 city of Xiamen.

Half the world away, straddling the beautiful Puget Sound and Lake Washington, is Seattle. Workers in the HQs of Amazon, Microsoft and other large tech firms have been blamed for driving city’s house prices to ‘dysfunctional’ levels, with real estate costing so much Microsoft has pledged $500 million to help alleviate the crisis. Seattle has similar house prices to China’s second-tier city of Hangzhou.

Whilst incomes are a factor in Chinese consumers’ spending behaviour, it would be amiss not to understand the impact house prices have on how wealthy Chinese consumers’ feel. As we’ve noted before, an estimated 90% of Chinese families are believed to own a home, 80% without a ‘mortgage’. Whereas share prices can soar and dive without impacting consumer sentiment, a rise or fall of house prices directly correlates to Chinese consumer behaviour.

Many economists in the west look to Chinese incomes as the key metric for comparing Chinese consumers with those in other markets, without factoring in the rise in wealth from soaring property appreciation over the past generation. Most of us have heard the stories about consumers “spending a month’s salary on an iPhone” or “three month’s salary on a handbag,” but the decision to spend is often less related to incomes than the consumer’s – or their parent’s – property wealth.

Beijing has the difficult balancing act of keeping house prices ‘affordable’ while continuing to have the consumption-driven economy ticking along by supporting house price growth. Facing the challenge of a slowing economy, the government has been pulling levers to keep house prices buoyant. Beijing is also allocating ¥30 billion ($4.2 billion) to make the move to the city from the countryside more attractive to help drive the economic growth they are seeking.

Economies in lower tier cities, and subsequent housing prices, have been beneficiaries of Beijing’s focus on driving growth in China’s lower tier cities and narrowing the gap between them and China’s big cities. This has seen categories from cars to FMCG grow much faster in smaller cities, often with less competitors scooping up the share. Yet an announcement two weeks ago to focus domestic economic activities in central cities and central clusters may see some of the fastest growth returning to cities in Beijing-Tianjin-Hebei region, the Yangtze Economic Belt and the Guangdong-Hong Kong-Macao Greater Bay Area.

These clusters aren’t to be sneezed at. For example, the Jiangsu province in the Yangtze Economic Belt now has a GDP similar to Australia, becoming the first province to have a GDP greater than ¥9 trillion ($1.26 trillion). Guangdong’s GDP will be even greater when it is announced this month. Similarly, China now has 17 cities with GDP higher than ¥1 trillion ($140 billion). These cities are markets comparable to countries in some cases and should be treated like that, rather than trying to use the same generic strategy across diverse consumers in these geographies. Messaging, channels and even product formats should be localised due to differing emotional and functional preferences and behaviour between cities.

China Skinny has developed free tools to help you understand and compare China’s different tiered cities. Click/tap here for more information. We can also provide localised city-specific strategies and quick wins to ensure your brand is maximising the opportunity. Please be in touch to find out more. Go to Page 2 to see this week’s China news and highlights.

Arriving in China in 2030 may look quite different to how it does today, particularly if the last decade is anything to go by. For a start, expect to see less smokers, more walkers and less oily, salty and sugary food options, if Beijing has its way.

Whilst these things will hopefully happen in most places, they are likely to come about much quicker in China – particularly as a result of the Government’s Healthy China Action Plan for 2019-2030 released last month. The plan detailed 15 campaigns to promote healthy lifestyles and health at various stages of life, and to control major diseases. This included building health knowledge, balanced diets, national fitness, tobacco control, mental health and a healthy environment.

Most of us understand the impact that Government directives have on influencing behaviour and trends in China. They are enacted through Beijing’s powerful levers such as regulations, funding, support and its vast state media networks. They may even impact social credit scores positively or negatively. Private business investments tend to shadow government policies, and in most cases, consumers will inevitably follow.

It would be wise for brands to review the Action Plan’s objectives. The plan provides an indication of some of the issues Beijing will be focusing on over the next decade. One of the wide-reaching initiatives is educating the masses to improve their awareness of healthy living, with health literacy targeted to increase from 22% in 2022 to 30% in 2030. This aims to amend relatively poor health knowledge and unhealthy lifestyles, which include smoking, alcohol abuse, lack of exercise and an unbalanced diet. That is likely to impact the way consumers view products and services, and the marketing around them.

Many of the plan’s goals are on already on-trend, such as healthier eating and increased fitness, however it is likely that these will further accelerate now a strong plan is behind them. For example, the target is for consumers to eat 17% less sugar, 30-40% less oil and 50% less salt in 2030, using 2002 as a base. Whilst there is no new regulation around food processing yet, food and beverage brands should plan for this to be a possibility, and ideally incorporate it into new product development and messaging. The plan also aims to have each consumer eating at least 500 grams of vegetables and fruit daily, something which could be considered when determining ingredients for products.

Another core focus on the health plan is physical activity. The goal is for 40% of people to exercise regularly by 2030, up from 37% in 2022 –  a mere 40 million extra people. That’s suggested to be 6,000-10,000 steps a day, 150 minutes of moderately intense exercise and 75 minutes of high intensity a week. 60% of students should score “good” physical health, up from 50% in 2022. The plan also aims to have the exercising adult populace supported by 7-8 hours sleep. Ultimately as a result, men should have a sub-85cm waistline, and women sub-80cm.

Brands as broad as tourism, fashion, vitamins and health providers should account for an increasingly healthy and health-conscience Chinese consumer. For example, hotel restaurants are likely to be more scrupulously evaluated for healthy food, and tourism operators can count on fitter visitors who are more open to physical activity. Like most things in China, political direction should be considered for any China-related planning, no matter how irrelevant it may seem in your home market. Go to Page 2 to see this week’s China news and highlights.

Marketers, sales managers, product developers and strategists the world over are increasingly using data to help form decisions. Fortunately in China, we have a greater depth and breadth of data than anywhere else. Not only do Chinese use their smartphones (and faces) more frequently, across a broader array of online and offline occasions, they are also among the least concerned about data privacy globally. China Skinny uses our own in-house tools to tap into China’s vast banks of data to provide macro and granular views of consumers’ preferences and trends. These can impact everything from communications, branding and product development, to the channels and influencers you use.

However, just blindly using data to drive decisions can be reckless and is often misleading. For a start, data can miss the emotional drivers that influence decisions – these are becoming increasingly relevant as branding and premiumisation gains importance. More importantly, data can be misleading due to the likelihood of your data being skewed by fakes.

Nearly a third of China’s internet traffic last year was rated “abnormal” according to a report by third-party advertising data monitor Miaozhen Systems. The resulting loss to advertisers alone reached more than ¥26 billion ($3.75 billion). Virtually every corner of China’s internet that boasts massive user numbers has developed a shadow ecosystem of fake engagement. They are trading money for clicks, followers, commenters and buyers. Late last year Alibaba estimated there were at least 2,800 organizations in China specialising in faking ecommerce activity alone.

Zombie Weibo followers usually go for ¥10 ($1.44) per 10,000 followers, although for a higher fee, brands can engage “advanced zombies” with avatars and content expressing fake opinions. Of real concern is that it isn’t just your fly-by-night operations buying fake engagement in China; many of the best-known brands have engaged with fake social media likes, forwards and comments to bolster their impression of popularity. This taps into the tribalistic follower tendencies of consumers.

Arguably China’s most in-demand KOL, pop star Cai Xukun, clearly creates millions of fake engagements to fuel his popularity. He isn’t alone. Around 70% online celebrity peers are estimated to forge their fanbase. Last year, Chinese state media CCTV reported that 90% of views generated by many popular shows on video sites are fake. On ecommerce, the long-used method of “brushing” remains common where brands ship empty parcels to bolster their sales numbers and positive reviews on ecommerce platforms.

In addition to the ill-gotten gains for brands and KOLs, China’s big tech platforms themselves often see opportunities in the fake economy. It is well known that ecommerce platforms engage fake sales – or do little to stop them – to artificially inflate sales numbers, drive buzz and attract investment. In the build-up to its IPO, popular ‘user-generated’ travel site Mafengwo has been tacitly allowing registered merchants to place fake orders in order to beef up their onsite rankings and attract more views. 30% of all orders on Mafengwo are estimated to be fake.

Data is a powerful tool to provide clues and clarity into China’s complex marketplace, yet brands should caution from using that data as gospel. In most projects we do, China Skinny cross references data with other sources of insights to ensure its robust and reliable. We’d suggest you do the same.

On a more wholesome note, if you’re in the food and beverage space, book yourself a flight to Melbourne on September 3-6 for the prestigious Global Table event, focusing on solving our biggest food challenges and creating tomorrow’s breakthroughs. China Skinny’s Mark Tanner will be giving the opening presentation for the China section, discussing China beyond 2020. More information here. Please let us know if you’ll be there, it would be great to have a chat. Go to Page 2 to see this week’s China news and highlights.

As protests in Hong Kong enter their 10th week, the violence continues to intensify, leading to Monday’s closure and yesterday’s mass cancellations at the eighth busiest airport in the world. Many miles away, some of the world’s most aspirational brands are having their own set of issues recognising the Special Administrative Region.

On Sunday, following an uproar on Chinese social media, Italian luxury brand Versace officially apologised on Chinese and Western social media for selling a Versace t-shirt that suggested Hong Kong and Macau were independent countries. The following morning, images of a 2018 t-shirt from the Coach and Disney collection labelling Hong Kong, Macau and Taiwan as independent countries was circulated on Weibo, with similar designations on Coach’s website. Coach was forced to apologise. Next came Givenchy, Calvin Klein, Fresh skincare and Japanese sportswear brand Asics, who all apologised after being embroiled in similar gaffes.

An online poll by fashion blogger Zoe which asked peoples’ attitudes towards brands that “insulted China”, swiftly attracted more than a million respondents, with 70% claiming they’d “never buy their products even if I have nothing to wear.” Actress Yang Mi ended her endorsement of Versace, “very indignant that Versace’s mistake blatantly defies the sovereignty and territorial integrality of China.” Coach’s brand’s ambassador in China, model Liu Wen, apologised on Monday for not being rigorous in her selection of brands to represent, ending her collaboration with Coach since its behaviour had “hurt the national feelings of the Chinese people” and must be “condemned seriously”. KOLs for the other brands were quick to follow suit.

Although China is becoming increasingly more powerful and confident, it remains sensitive to any brands that disrespect Beijing’s mandate, right through to Chinese individuals. Although this has increased in intensity with the trade war and the latest round of geopolitical challenges, it is nothing new. Many of us are likely to recall the firestorm when United Airlines unfairly treated a ‘Chinese looking’ passenger in the US in April 2017.

The implications of wrongly classifying Hong Kong as a country have been known for some time. Marriott Hotels discovered this with its PR-disaster in January 2018 following an online questionnaire which listed Hong Kong as a country (as well as Tibet, Taiwan and Macau). Zara and others made similarly high profile slip ups. Luxury brands such as Versace, Coach and Givenchy should be wiser as a result. Chinese consumers account for a third of all luxury purchases worldwide, and are expected to buy half by 2025. With so much at stake, it is surprising that these brands don’t have a better understanding of the basic cultural and politically-sensitive issues that have been rattling China for some years. Just having a Mainland Chinese exec, or someone who deeply understands China at the senior table would be a good place to start.

The good news is, as long as they aren’t as reckless as Dolce & Gabbana, Versace, Coach, Givenchy, Calvin Klein, Fresh and Asics’ fortunes in China aren’t lost forever. Although Chinese consumers can come across as virulent on social media, they typically move on relatively quickly from blunders such as Hong Kong territorial mis-classifications. The brands may see a dip in sales and some issues finding new KOLs in the short term, but as long they have a smart and sensitive strategy going forward, China should continue to be a strong market for them. We only need to look at Zara who have seen growth since their similar slamming in 2018; and Marriott Hotels who continue to be a strong brand in China and remain a core pillar in Alibaba’s 88 loyalty scheme, with barely a whisper of their misstep 18 months ago.

On a brighter note, if you’re in Shanghai next Wednesday evening, August 21, China Skinny’s Andrew Atkinson will join the Directors of Strategy for Treasury Wine Estates and eCargo on a panel organised by the Australia-China Young Professionals Initiative to discuss how to drive growth outside of the familiar Tier 1 cities. You can find more information and RSVP here. Go to Page 2 to see this week’s China news and highlights.

In 2012 in the city of Wuhu, Anhui, a former street vendor and motorcycle taxi operator named Liaoyuan Zhang, left his job selling nuts to start his own nut company. In just 65 days, the company – Three Squirrels – became the top selling nuts brand on Tmall and within a couple of years, was said to be the top-selling food brand online. On Singles’ Day last year, it took less than 10 minutes to sell ¥100 million ($14.2 million) worth of snacks. The recently-listed company now has a market cap of close to $3 billion.

Many brands can learn from Zhang’s success and his trio of squirrels. For a start, its DNA is imbedded with three super-cute mascots, tapping into Chinese consumers’ adoration of Japanese-inspired Meng culture, and its cute cartoons such as Pokemon. Their appeal stretches beyond just kids with many urban professionals hooked on all that is cute. This can be observed in some of China’s most aspirational mainstream brands such as Tmall’s cat and JD’s dog.

Yet while many Chinese brands plaster cute mascots over their packaging and promotions, Three Squirrels has always gone deeper incorporating the personalities into everything they do. Videos, stories, games and prizes showcase each squirrel’s personality, providing consumers the experience they so-often seek, and weaving them into a longer narrative. Thoughtful extras that add to the experience include a wet wipe, a bag for shells and often nut crackers with purchases. On its customer service line, consumers are addressed as pet ‘owners’ and purchases are called ‘adoptions. Everything Zhang does keeps his customers at the heart of his business, so much so, that he considers “fans” to be as much a part of Three Squirrels as his employees.

Three Squirrels’ D2C (Direct to Consumer) model bypasses retailers but still manages a notable premium over the sea of competitors that make up China’s massive snacking category. It also taps in to other digital channels such as asking and listening to its social media fanbase about the type of products they want, which has shortened its new product development cycles to a few months.

While the Three Squirrels brand was built on the back of Tmall sales, like many online retailers, lowering ecommerce margins and high customer acquisition costs have led it to focus on channel diversification. Whereas Tmall once accounted for 80% of its sales, now just half of its billion dollar-plus revenue comes from the platform. A nice chunk of this growth has come from the drive for offline ‘experience’ stores, where gross margins exceed 40%, versus sub-30% online.

Unlike it was in 2012, selling online is no longer novel in China. Whilst it remains a vitally important sales and marketing channel, one of the advantages of brick and mortar stores is that it is harder to compare products than simple searches online. In online stores, brands tend to use their best-selling products for promotional purposes and so must discount, resulting in even lower margins. Customers can see how many ratings, and often the number of purchases, which is likely to further distort sales as consumers regularly just go for the bestselling or most reviewed items. In an offline store, hero products are not nearly as obvious and so the distribution of sales is less likely to be skewed towards just a few popular items. This plays better to Three Squirrel’s strategy of product diversification which has seen cakes account for over 20% of its sales, and nuts just over half.

Brick and mortar stores also allow consumers to buy very little at a time, at a much higher frequency, and without added delivery costs. The fixed delivery costs online means each order needs to reach a certain dollar amount in order for it to be financially viable. Offline purchases have no such threshold.

Whereas no one should underestimate the importance of ecommerce in China, China Skinny is increasingly seeing brands focus more on traditional retail as the golden years of high growth and high margin sales through platforms like Tmall and JD appear to be over. Experience-focused physical stores such as New Retail has also given the channel a second wind. Brands are becoming increasingly concerned about being over-reliant on platforms such as Tmall for sales and are also cognisant of ecommerce platforms launching more private label brands, which are somewhat of a conflict of interest. Like many things in China, it is important to understand and assess sales and marketing channels beyond the hype and develop strategies that balance risk with opportunity, such as China Skinny does. Go to Page 2 to see this week’s China news and highlights.

In July 2017, Beijing set the target to make China “the world’s primary AI (Artificial Intelligence) innovation centre” by 2030. Whilst a detailed plan didn’t accompany the goal, it sent a message reinforcing how serious China is about AI. Such a signal is almost always accompanied by investment, policy and supporting regulations (or lack thereof) from Central Government. In early 2018, eagle-eyed Chinese spotted AI-related books on Xi Jinping’s bookshelf, highlighting that the mandate is being supported from the very top.

The vital ingredient for AI is the data that fuels the machines that learn from it. Unlike in the West where data is becoming more difficult to access as a result of heightened privacy legislation, China has very liberal rules. Chinese consumers are also among the least concerned about privacy and rate convenience as more important. On top of that, between some of the highest ecommerce, mobile payments, general smartphone and o2o (Online to Offline) usage rates in the world, coupled with the “datatization” of public spaces through facial recognition, the breadth of data-sourcing opportunities are second to none. China has so much data, it needs AI to make sense of it all.

There has been no shortage of news about how AI will touch most things we do including our education, whether or not we’re offered a job, romantic matches, bank loans, how we are entertained, self-driving cars, and even the scarier things such as military drones. In China, ‘keeping the population safe’ has become one of most commonly cited applications. Yet possibly the most underreported driver for why China needs AI is to address the lack of youngsters being born to fill the gap in the workforce, as the ballooning elderly population retires.

While AI has some way to go to being able to match humans for feelings and emotional intelligence, improvements are happening. This is where things are getting interesting.

The global race for AI supremacy has illustrated just how far values differ between China and the West, resulting in different prioritisation in AI algorithms. This was evident during an AI ethics seminar in London earlier this month which highlighted that there is no global ethical standard for this very important technology which will impact us all. Codes of principles written in the west tend to focus on fairness, transparency, individual rights, privacy and accountability. Chinese AI ethicists prioritise values that are open, inclusive and adaptive, adding up to “great compassion and deep harmony” – collective good rather than individual rights.

These values don’t just provide an interesting perspective on the cultural differences between the West and China, but how AI’s execution may differ in China and how it will shape marketing here. Most of China’s tech giants are already using AI to offer adaptive and personalised offerings that make life easier and more convenient for consumers. This is already impacting marketing and will increasingly do so beyond the smartphone, such as future evolutions of New Retail and when personalised Out of Home advertising comes to the fore.

Foreign brands don’t just need to understand how this is impacting their marketplace, channels and competitors, but also how differing principles will shape its development. China Skinny would be happy to assist. Go to Page 2 to see this week’s China news and highlights.

A little over seven years ago, our fledging little marketing agency wrote its first Weekly Skinny. The topics of the day were common myths about Chinese consumers, the importance of female consumers, food scandals, fakes and 300 million+ users on Weibo. On the surface, the subject matters weren’t too different from those today. Yet open the hood and you see a Chinese consumer, national swagger and marketing landscape that is almost unrecognisable from 2012.

The level of consumer sophistication has changed dramatically. In those days, you could just put a foreign product on the shelf and many shoppers would think it was incredible. No self-respecting consumer would be seen dead with a Chinese smartphone (they now account for almost 90% of smartphones sold) or Chinese brands across a slew of categories. KFC was the pin up kid for foreign brands, managing to balance its ‘aspirational’ foreignness with thoughtful localisation. If Chinese wanted to do the pilgrimage to the source in Kentucky, getting a visa for travel to Western countries was very difficult for travellers outside of tier 1 cities, and many within. Over the seven years, the number of outbound trips has almost doubled.

Over seven years, 130 million people – more than Japan’s total population – have moved from the countryside to cities, although a third of cities are shrinking. The average wage has grown almost 75%, and with it, a willingness to make discretionary purchases. There are around 150 million new passenger cars on the road and 125% more kilometres (29,000km in total) of fast train tracks. The Beijing-Shanghai connection has carried over 100 million passengers/year on average over that time.

One of the most obvious changes on the street is the ever-present smartphone. In 2012, just 288 million Chinese sported a smartphone. By the end of 2018, it was around 785 million. Online shoppers have increased from 242 million to 610 million last year, with their share of total retail growing from 5.3% to 25%. Gone are the wads of 100 kuai notes stuffed under the mattress, with mobile payments, and increasingly facial payments seeing the endangerment of legal tender. Mobile payments in China are now estimated to be over 100 times the size of the US.

That’s China speed for you. They say China years are like dog years – what happens in seven years in some countries, takes a year in China. Based on that, we should be celebrating 50 years of the Skinny sometime in September.

Writing the Skinny every week has forced us to keep up with the macro and micro trends in China. It’s enabled us to see through the hype and often-dubious data and understand the constant changes in this market, something which is incorporated into every project we do. To mark seven years of the Skinny, we thought it would be fitting to share 7 Trends that are impacting Chinese Consumers today. Here they are.

One last note, any recent history of marketing in China would be amiss without including WeChat, which had around 150 million users when the Weekly Skinny was first published. It has now become a big part Chinese consumers’ lives. There’s no better way to learn about marketing on the super app than the China Chat conference in Shanghai this September. China Skinny’s Mark Tanner will be joining the esteemed lineup of speakers. More information here. Go to Page 2 to see this week’s China news and highlights.

If you were peddling your products in Los Angeles and Chicago, there’s a good chance that you’d need to tweak the marketing strategy to account for differing lifestyles, varying tastes, disparate climates, different sales channels and varied cultural and emotional needs. In China, variations between cities are typically even greater. Many Chinese cities’ characteristics have been evolving since long before Columbus was leading expeditions to the Americas. These historic differences have helped shape regionalised consumer behaviour. More recent Beijing policies have further moulded differing consumer profiles. For example, residents in first tier cities have been able to travel abroad with more flexibility for longer than their lower tier peers, impacting their sophistication and maturity when travelling abroad, and their exposure to foreign lifestyles and products.

There’s no city that better illustrates the diversity of China’s megalopolis’ than the boomtown of Chengdu in China’s southwest. On the surface, it could be any Mainland city; thousands of grey apartment blocks sprawled across a flat grid of streets, dotted with adventurous modern commercial towers and restored ancient constructions, dissected by a winding river and heaving highways, obscured by a soupy smog more days that it isn’t. But filling those towers are a population arguably more independently-minded than consumers in other parts of China – with personalities as spirited as the peppers that are such as big part of the local Sichuan cuisine.

Chengdu is located some distance from Beijing’s policy makers. The mountains that encircle the city have provided a natural barrier for traders, invaders and legislators for centuries, isolating the city from the outside influences that have impacted other Chinese cities. Chengdu’s fertile soil and natural resources have seen it stay isolated for much of its history, allowing it to stay largely self-sufficient, with an attitude that’s both “mind your own business” and “anything goes.”

With the wealthy, sophisticated city of 16 million people increasingly on brand’s radars, China Skinny has delivered a number of research projects that include the Chengdu market. Their tastes and preferences are often the most disparate from other consumers in other cities we have investigated. One of our recent studies into the customer journeys of consumers in six mainland cities found the research and sales channels used in Chendgu were by far the most distinct.

Chengdu’s relatively lower rents have lured young, independently-minded migrants from across China, cultivating a hip, progressive culture that’s spawned San Francisco-style cafes filled with millennials. The many miles and mountains between Chengdu and Beijing has seen regressive policies about homosexuality hold less clout in the city, which has become a haven for the LGBT community, whose members are drawn to the relaxed, open vibe. Chengdu was voted the gay capital of China in a recent poll by gay dating app Blued.

Beyond sexual liberation, Chengdu also leads China for many genres of music, its underground scene and youth culture. Much of China’s Hiphop and Trap has spawned from the city, with many of China’s biggest hiphop hits dispersed with the Sichuan dialect.

For brands hoping to connect with independently-minded consumers in the city, you’d by wise to ensure that your product, messaging, channels, KOLs and most importantly, your brand’s purpose, are resonant with the target market in the city because just transposing a successful strategy from Shanghai or Beijing won’t always work.

For most brands in China, it can be impractical to have an independent marketing strategy for each target city, however there can be consistent elements by city tier and/or regional city clusters which can be incorporated to make marketing more targeted and resonant. We’ve found that understanding the consumers in a specific city usually highlights some quick wins that can make your brand and product connect with local consumers and break through the clutter. China Skinny has a lot of knowledge and experience to help you with that. Go to Page 2 to see this week’s China news and highlights.

It doesn’t have the sexiness of livestreaming, or the sizzle of Singles’ Day, but one of the most important components of China’s ecommerce and New Retail boom is the thankless task of making it all happen behind the scenes. China’s logistics infrastructure is experiencing some of the biggest, yet behind-the-scenes, changes in the country’s retail industry. Chinese logistics are evolving from fragmented and rudimentary systems, to consolidated ones driven by the internet-connected smart devices, robots and real-time end-to-end tracking and traceability.

Chinese consumer expectations around delivery have become some of the highest in the world. Many purchases are expected to be delivered in less than 30 minutes. And for other goods, if they don’t arrive within 1-2 days, most consumers will go somewhere else, with the exception of some customized products and goods coming from afar. Yet even expectations for delivery times for cross border products are increasingly short, with bonded warehouses bringing them closer to the consumer.

1.88 billion parcels were delivered just in the 10 days starting on Double-11 (Singles’ Day) last year. This gives China the scale to invest in technology and systems. The increase in New Retail and social commerce is driving both shopping and delivery to become a 24/7 business. Investment is also being propelled by lower tier cities, whose logistics infrastructure is behind high tier cities. Tier-3 cities and lower accounted for more than 70% of the growth of Alibaba’s 102 million new customers over the last 12-months, in addition to apps such as Pinduoduo and WeChat which are driving online shopping in the hinterland. The focus is also being driven by fast growth ecommerce categories like food and beverage delivery, which requires improvements in areas such as cold chain.

Logistics is big business in China. In 2017, SF Express IPOed to become the Shenzhen Stock Exchange’s most valuable company, while pushing founder Wang Wei’s net worth up to $16 billion. Alibaba’s partner logistics company Cainiao – which accounts for one in every 10 packages sold on Taobao and Tmall – was valued at ¥100 billion ($14.5 billion) a year ago, and like all of China’s logistics giants, is investing in exciting advancements.

Cainiao is evolving from just digitally managing the flow of parcels through e-shipping labels, to digitalising all components of the logistics value chain. This will see 100 million smart devices connected to its IoT (Internet of Things) technologies in three years, including partners such as warehouses, warehouse pickers, equipment, transportation vehicles, robots and management systems. It will also connect the anticipated 100,000 pick up stations such as schools and residential complexes, convenience stores and China’s ubiquitous fruit shops to cut down last-mile delivery costs. To complement this, Ciaoniao will enhance and leverage its Guoguo app which it hopes to serve consumers more than a billion times a year by 2022.

A digitalised end-to-end supply chain enables much more transparency and accountability, which is ever-important for China’s untrusting consumers. Such transparency is a key selling point allowing 17.5° oranges to sell for twice the price of similar brands of oranges that originate from the same region for example.

We expect domestic players’ investment, connections and local know-how will continue to see the Chinese logistics brands dominate the China market, and likely expand beyond its borders utilising the developing systems and technology. Foreign players won’t be helped by the recent trade war-related scandal which saw Huawei packages ‘misrouted’ in China by Fedex, whether proven to be intentional or not.

For brands selling in China, ensure you are dialled into the optimal logistics providers and their systems to guarantee customers will have the best possible experience. It will be difficult to compete otherwise. Go to Page 2 to see this week’s China news and highlights.

WeChat now boasts 1.1 billion active users, with most being in China. That’s great news for Tencent who have prodigious insights into the online, offline and commerce behaviour of a large swath of Chinese consumers. Yet its almost-100% saturation of China’s online population also presents challenges to Tencent, who is having to shift its strategy from growth by acquisition to extending the utility of WeChat and its data. To make things tougher, AI-driven competitors such as Douyin are cannibalising the screen time users spend on WeChat through services that are easier to use and more entertaining.

Tencent isn’t sitting still. It’s made some structural shifts in its strategy such as seeking to entrench itself in more industry-related applications from health services to public transport, and this month announced it joined the race for auto intelligence, aiming to provide car makers networking services, algorithms for autonomous vehicles, and location-based services.

Nevertheless, WeChat remains committed to its bread-and-butter (or rice-and-soy) consumer base, evolving with services such as authentic story telling, Official Account live streaming and new Little Red Bookesque-social commerce features – all enriching the consumer experience and presenting exciting opportunities for brands.

For many brands, finding success with WeChat isn’t just about strapping on new services as they are launched, but changing the structural approach to how they view WeChat – much like Tencent has done. The good old approach of pushing out content week in-week out on WeChat rarely works these days. More than half of WeChat Official Accounts are losing followers and the open rate of WeChat articles dropped from 17% to 6% between November 2015 and August 2018 according to social media management platform KAWO.

To increase engagement on WeChat, more brands would be wise to view the platform less as a one-to-many broadcast tool and more as a personalised and targeted interface to connect with and understand the target market. CRM capabilities on WeChat allow brands to gather information about their fanbase far beyond the standard name, avatar, gender and location that come by default. WeChat’s expanding suite of services and subsequent touch points allow brands to track individual’s preferences, behaviour and propensity to engage with different things. This data can be complementary to other insights that can be tracked such as how the user followed the WeChat account, whether through a specific article, promotion, at an offline event, store or scanning a QR code on packaging.

WeChat also lends itself to engaging initiatives such as chatbots, which offer brands a form of simple AI allowing them to connect with their customers’ personal needs and have related dialogue – over and above the usual WeChat messaging quotas – directing them to relevant content and services. Data from these interactions can feed into the CRM system to provide a view into consumer needs that can be coupled with other insights to build truly meaningful consumer-led propositions.

Richer CRM data allows brands to have more targeted, localised and personalised communications over WeChat. Interactions with consumers can be much more resonant based on whether the consumer has a family or is single, lives in Shanghai or Shenyang, if they like lace or leather or the time of the day they are most responsive. In a market as competitive and cluttered as China, particularly with more brands engaging with AI for targeted and personalised interactions, it is fast becoming a minimum requirement to continue to grow engagement. China Skinny can assist to develop your strategy for this.

For our Shanghai-based readers, China Skinny’s Andrew Atkinson will be presenting the Heath Ingredients & Food Ingredients Asia event next Wednesday 19 June discussing headline trends influencing consumer needs across China’s health food categories. More information here. Please let us know if you’ll be there. Go to Page 2 to see this week’s China news and highlights.

Remember when you’d see the big tricycles stacked metres high with polystyrene, rubbish and furniture cruising the streets? Or the vividly-coloured Facekinis poolside or on the beach? Or how about the infants with split pants on a cold Beijing day? They were all China novelties that have largely disappeared from the bigger cities. Yet with each disappearing quirk, a new curiosity has arisen to ensure that there is never a dull day in China.

One area that has recently taken on a life of its own is beauty. Fashion, haircuts and even hair colours are becoming more varied and diverse daily. It is not uncommon to see young Chinese spending 40 minutes on a photo editing app polishing their latest selfie, or a young man in a public place diligently applying mascara – not just representing the exponential rise of male makeup, but also that younger Chinese are confidently challenging traditional social norms to be what they want to be, unfazed by state media’s direction on how to behave.

The pursuit of beauty has been important since ancient times in China. In the Tang Dynasty, makeup became a part of everyday culture, with women applying foundation powder, blusher and a dusting of light yellow powder. Bluish black eyebrows, lipstick, painted on dimples and ornamental forehead flourishes were also added. Whilst beauty is a little less novel than it was 11-14 hundred years ago, it is as relevant as ever for Chinese consumers and something that many of us should take note.

China Skinny has compiled numerous pieces of research asking consumers how they would spend extra money if they received it. Beauty always scores highly, often the top way young millennials would spend the windfall. Many Chinese will directly correlate the way they look with their chances of success – in both their personal and professional life.

One of the most poignant illustrations of the importance of beauty in China is the soaring segment of cosmetic surgery. Unlike in the West where patients are older when looking to have work done – more than 75% are over 35 in the US – 54% of Chinese going under the knife are under 28. This is fuelling an industry expected to be worth ¥360 billion ($52 billion) by 2023. Last month’s IPO of plastic surgery app So-Young soared 44% on its first day of trading and has settled to a value of around $1.5 billion. Almost 2 million users are on the app monthly, 79% more than a year ago.

In addition to the obvious beneficiaries of plastic surgery, cosmetics and fashion, many other categories are touched by China’s beauty obsession. For example, health supplement purchasers are often motivated by beauty benefits – even with target markets you may not expect like the 20-year olds buying anti-aging pills. Categories such as food and beverage are heavily influenced by the quest for beauty, with an increase in healthy food demand resulting from how they can improve appearances such as skin and hair. The fast-growing fitness industry is also heavily swayed by the aesthetic outcomes. The good news is that it isn’t just the Pechoins, L’Oreals and J&Js of the world who stand to benefit, with the majority of Chinese consumers showing interest in niche beauty brands.

The free-spending young Chinese in particular often strive to stand out amongst the masses, and looking good is considered a key component of this. When brands are communicating to their target markets, they should bear this in mind wherever plausible. China Skinny can help determine if and how this all fits for your products or services.

In other news, China Skinny has moved its Shanghai HQ to a bigger and better office. We’re still in central Jing’An District, a block from our our office on Jiangning Road. We love visitors, so pop by any time for a coffee, tea or just to say ni hao. You’ll find our address here. Go to Page 2 to see this week’s China news and highlights.

One of the giveaways of a newbie to China is the bafflement about being unable to access Google, Facebook, Youtube, Instagram and Twitter – unless they’re chewing through their data roaming quotas or have planned ahead with a VPN. It quickly becomes apparent that China’s digital ecosystem is unlike anywhere else in the world.

Those same newbies are likely to try and make sense of it all by making direct comparisons of Amazon with Alibaba, Facebook with WeChat and Twitter with Weibo. Yet the Chinese platforms aren’t just different by appearance and namesake; their features and, more importantly, the purpose they serve in the consumer journey are often quite disparate from platforms in the West. In many cases, they are functionally more advanced (often by years) than overseas apps, which has seen companies like Apple, Amazon and Facebook replicating features from Chinese apps.

Many brands understand these differences and focus on localising tactical campaigns to take advantage of Chinese platforms’ rich and engaging features online and offline. Yet a number still miss the bigger picture of how China’s tech giants differ from the West: their touch points with consumers are far deeper, wider reaching and offline than those overseas.

One of the important growth strategies executed by China’s tech companies has been to expand beyond their core industries, even if links seem tenuous to outsiders. We saw this in 2014 when Alibaba began purchasing brick & mortar stores and then again in 2018 with their investment in screen advertising.

There are a number of reasons why this type of expansion has happened much more in China than other countries: 1. In most countries when companies get too large and dominant, they are usually forced to split. In China there is barely a whiff of this; 2. Most of China’s bigger companies with real money to invest are tech firms and State Owned Enterprises (SOEs). As SOEs are comparatively more conservative, there is less competition for big tech companies when making major acquisitions; 3. Traditional channels are less mature and more fragmented in China, enabling lower acquisition costs for market leaders and much more scope for disrupting tech giants to break in; 4. Accumulation of user data is far more liberal in China, providing significant scope for tech companies who already have the data. This enables them to utilise data synergies across new acquisitions, which can help justify paying a higher price for them; and 5. Consumers are much more open the commercial use of their data and appreciate the convenience it brings.

The approach hasn’t just been adopted by China’s famous tech giants though. We’ve also seen lesser-known tech companies utilising their presence, channels and data from their category. For example, mid-sized travel portal Tuniu has tapped into the nuptials industry, launching a marketplace just for wedding photography.

What does this mean for brands? Brands should understand just where Alibaba, Tencent, ByteDance, Meituan and other niche platforms are playing, even if they don’t appear to have an obvious connection with their industry. Awareness of their reach and subsequent opportunities can help determine how best to partner with and leverage them. Even the biggest brands in China rarely attempt to approach the market alone and will buddy up with one or more of the tech giants. Similar to the many brands who have co-located marketing staff close to Walmart or Carrefour in the West, close proximity to China’s tech leaders is likely to be an increasingly common strategy in China. Contact China Skinny to assist you in identifying these opportunities and recommending how best to leverage them. Go to Page 2 to see this week’s China news and highlights.

Food exports to China have been growing for some years now. Chinese consumers are known to pay a premium for foreign food and beverage as it is perceived to be safer and healthier, more prestigious and having interesting, unique varieties to feed their inherent curiosity. Yet one of the big drivers for shipping food from afar is that in many cases, they are actually cheaper and meet a demand that local produce can’t serve.

Although China has long been known for low wages and exporting cheaply produced food, for many food categories, China finds itself unable to supply enough food at a quality and price acceptable to Chinese consumers. The well-cited stat that China has to feed over 20% of the world’s population with just 7% of its farmland means this shortage will be around for some time yet.

With China’s population becoming wealthier and eating more as a result (calorie intakes have more than doubled in the last 50 years on average) and arable land eroding due to urbanisation, natural disasters and pollution, China is having a hard time keeping up with supplies. In addition, much of China’s working population have left rural areas for the bright lights of the city, and all of its drones, robots and AI have been unable to fill the farm worker gap. The majority of China’s farms are tiny and lack the ability to produce as cheaply and efficiently as in other countries, and even many of its larger scale operations cost more than abroad. For example, the US produces pigs 20% cheaper per kilo than even China’s new, factory-scale hog farms.  Filling a bottle of wine in Ningxia Province can be as much as three times more expensive as South Australia, with the need to bury vines during the harsh winter and high costs of bringing experts into the Chinese hinterland.

Food production costs continue to soar in China, contributing to food prices growing 6.1% in the past year according to the Government’s official consumer price index. To note a few, prices for fresh vegetables jumped 17.4% and pork prices grew 14.4% – the most since mid-2016.

The domestic price increases are making imported alternatives more alluring and giving some rosy trade figures – imported fruit purchases grew by 36% last year and beef imports have more than doubled since 2016 for example. Unfortunately the lion’s share of those imports are commodities, which are much more vulnerable to price variations.

The benefits of well branded food and beverages is nothing new – they can command a higher premium and are less susceptible to fluctuations in commodity prices and new lower-cost producing markets coming on board such as Latin America, Southern Asia and Africa. But having well-branded food products has become increasingly important as producers face mysterious delays and inexplicable rejections for food imports into China due to geopolitical tensions, and of course, increasing tariffs or lowering tariffs for competing exporters. In most cases, the hold ups at the border are commodities rather than branded products. With tariffs, well-branded products will always fare better as consumers are much less price sensitive to a brand they like than a no-name product.

Food producers don’t have to be one or the other. Selling commodities often provides cashflow that can be used to invest in building a brand. But to reduce exposure in these increasingly uncertain times, the advantages of branded products have never been more pronounced. Even if you already have branded products, it’s likely you could make them more resonant with consumers from optimised branding, messaging and other communications, being in the right channels and integrating those channels, having more appropriate packaging and formats and even loyalty programmes. China Skinny can assist you with these. Go to Page 2 to see this week’s China news and highlights.

“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. 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.