The Most Untapped Channel for Foreign Brands in China: Convenience Stores
It wasn't long ago when doing any daily task in China was a chore. Queues at banks rivalled wait times of popular Disneyland rides, supermarket checkout staff seemed to work in slow motion, and buying a train ticket felt longer than the journey itself. Then, almost overnight, day-to-day activities in China became some of the most convenient on the planet.
Consumers can now pull out a smartphone in the middle of the night and have fresh food and coffee, meds and adult toys, delivered in under an hour. Arranging a massage or dog grooming is just a few taps on WeChat. People can watch a livestream of their favourite influencer and simply click to buy the lipstick they're wearing. Getting around cities has become a breeze on shared bicycles and expanding subway systems, with the number of Chinese cities with metros tripling in the last decade, and existing networks setting world records for growth (check out this animation illustrating Shanghai's network expansion since 1993), where commuters can increasingly just walk on and pay with their faces.
The rapid transition has moulded consumers to expect things to be convenient. Retail, products and services that aren't simple to research, buy and use are unlikely to get any traction in China's hyper-competitive market. That is, unless they provide a unique experience, benefit or bring status/selfie opportunities - it wasn't long ago people would queue for hours for cream cheese-topped tea.
Whilst most of the examples we hear about convenience in China are relatively recent innovations such as New Retail, ecommerce, personalisation and payments; good old-fashioned convenience stores shouldn't be overlooked. China's network of convenience stores is growing almost as fast as Shanghai's subway system.
In any tier 1 city in China - and increasingly lower tier cities - you are never far from a convenience store. Many blocks have two, or even three stores. The market value for convenient stores is forecast to reach ¥246 billion ($35 billion) by 2024, from ¥140 billion ($20 billion) in 2018. The number of stores will grow from 75,000 stores to 117,000 over that time.
The most popular purchases in convenience stores are dairy, soft drinks and snacks - all products which are well-aligned with the imported products - but interestingly, foreign brands are yet to gain a stronghold in the channel. Reading the tea leaves would indicate that smart brand strategies and relationships with the Japanese chains that dominate the landscape, could lead to a lucrative new channel for foreign brands. Convenience stores' cold chains can accommodate a wider range of premium foreign products, and increasingly affluent consumers are more prepared to pay for them. If we look online - often a barometer for changing Chinese consumer tastes - imported FMCG products grew 35% in the first nine-months of the year. Something to keep in mind when devising a channel strategy that plays to the need for convenience.
On the subject of speeding up processes, one of the last bastions of seemingly-unnecessarily long queues and admin in China, is on track to be streamlined. Plans have been rubber-stamped to cut work permit red tape for foreigners in the Yangtze River Delta, including Shanghai, as authorities recognise the value foreigners bring to the local economy. A positive move in all respects! Go to Page 2 to see this week's China news and highlights.
Here are this week's news and highlights for China:
Food & Beverage
Billion-Dollar Market: Soft drinks, Dairy and Snacks are Most Purchased Products in Chinese Convenience Stores: Dairy products like milk and yoghurt are gaining popularity among consumers with high personal incomes in tier 1 cities according to Mintel. As consumers seek fresher products, convenience stores' cold chain transportation and high turnover are clear advantages for bringing in more dairy products with a shorter shelf life.
Imported Products Dominate Growth in FMCG Sales: FMCG saw a steady 4.9% growth in Jan-Sep this year. Personal care and home care product sales grew at 11% and 7.8% respectively, while food and beverage categories grew just 2.3%. In the first six months, imports accounted for 18% of all FMCG sales and jumped 10% to ¥88 billion ($12.5 billion) - almost double the pace of overall sector growth - driven by online sales which surged 35%. Geopolitical issues don't appear to be impacting Chinese demand for imported products, with American makeup products growing 54% in the 12-months ending in June. The average selling price grew 3.7% this year, slower than last year's 4.6% last year.
China's Mutant Pigs Could Help Save Nation From Pork Apocalypse: Experimental pigs with a gene for regulating heat in northern China's formidable winters is an example of dozens of genetic engineering projects underway in China to create super pigs. China's gene-editing focus has shifted from trying to create better-tasting, stronger, faster-growing swine to safeguarding food security and keeping hogs alive. It's part of a larger program to develop better food and fibre crops and even, controversially, editing the human genome, in a biotechnology arms race happening against the backdrop of the trade war. “The powerhouse these days is China,” says scientist Simon Lillico from the University of Edinburgh’s Roslin Institute, where Dolly the sheep was cloned. “They are spending so much money and throwing so much resource at science that we can’t even come close to competing ... so we need to be smart about what we do.” By 2017, China held 259 Crispr (DNA-editing) patents in the agricultural space, versus second-placed America's 61.
Chinese Consumers
China Hopes to Cut Work Permit Red Tape for Foreigners as Part of Plan to Boost Yangtze River Delta: New plans aim to streamline work permit applications, permanent residency and employment for overseas workers in places such as Shanghai, Hangzhou, Nanjing, Suzhou and Anhui Province. While the number of high-earning expatriates from developed countries has peaked in China, students, low-skilled labour and marriage migration is on the rise. Shanghai hosts 25% of China's overall foreign working population, but still has a long way to go to match truly global cities.
How to Survive as a Woman at a Chinese Banquet: General rules of engagement at a Chinese banquet. For the ladies, "always know when you’re “the girl.” In addition to understanding their own customs, Chinese - primarily young and middle-aged women - are also attending Western etiquette classes ranging from daily deportment to high-society dining customs. Prices from just under ¥4,000 ($570) for a daylong course to up to ¥100,000 ($14,210) for a full 12-day program.
60% of Americans View China Unfavourably While 71% of Russians are Pro, Poll Shows: Across 34 countries surveyed by Pew, a median of 41% of respondents held negative views on China, while 40% viewed the country positively. Most concerning was the downward trend of views with Indonesia, Canada, and Sweden seeing favourable opinions of China falling 17 percentage points. The US and Australia both expressed 12 percentage point decreases in pro-China views. The biggest opinion shifts in China's favour were Israel and Poland, where favourable responses increased by 11 percentage points from 2018 to 2019. Negative opinions were most widespread in Japan (85%), Sweden (70%) and France (62%)
Digital China
China’s Influencers—Moms, Farmers and Even Dogs—Hawk Their Wares on Live Streams: Livestreaming marketing revenue has grown from 5.3% to 6.2% as a share of total marketing revenue over the past year. 68% of Chinese consumers' online purchases are influenced by social media, versus 45% in Japan, 38% in the US and 32% in the UK. Top-trending online influencers can make over ¥10 million ($1.42 million) a year. Although the $4 billion of goods sold on livestreaming accounted for a fraction of the $1.33 trillion online retail sales last year, companies such as Alibaba are all over it, broadcasting 100,000 hosts a day. There were an estimated 21 million 'influencers' in China last year. [WSJ paywall]
Want to Tune in to the Chinese Consumer?- Maybe Live Streaming is the Answer: So how did a company from South Wales, selling a relatively niche set of products, succeed in capturing the attention of China’s buyers?
China Airs Tighter Content Rules to Rein in Live Streaming, Rap and Comedy Shows: The runaway popularity of livestreaming in China may lead to its downfall, with draft regulations recommending at least a three minute delay and in-house sensors for content and comments. This would materially impact the interactively of livestreaming which makes it so appealing to consumers.
The Year In “Little Fresh Meat”: Young Chinese Male Stars Who Killed It In 2019: Over the past few years, these young male stars have drawn disdain largely for dancing around traditional beauty standards. At odds with the standard ideal — patriarchal and patriotic — little fresh meat (or xiaoxianrou) are typically characterized by their perfectly coiffed hair, delicate features and androgynous fashion choices. According to state-run media, these boys promote a “sissy” and “decadent” culture that has thrown the country into a masculinity crisis. Despite the pushback, little fresh meat remain China’s most valuable celebrities.
Chinese Tourists
What Brands Need to Know About Chinese Airport Travellers: Chinese shoppers are splurging on luxury goods in airports more than any other group, accounting for 13.2% of the 2018 global duty-free sales market (we're surprised it's not higher). In addition to the stunning interactive scenery at Singapore's Changi Airport, the mall also collaborates with brands on individualized offerings that are only available at the airport. The mall’s YSL beauty pop-up station, for instance, includes both a gaming program and beauty “refuel” machine, and even invites bands to perform on weekends.
Education
China is No. 1 on PISA — but Here’s Why its Test Scores are Hard to Believe: The OECD-sponsored Program for International Student Assessment (PISA) tests 600,000 15-year-old students from 79 countries in maths, reading and science every three years. Four provinces in China - Beijing and the Yangtze River Delta's Shanghai, Jiangsu and Zhejiang - were collectively ranked top in all three subjects. According to education veteran Tom Loveless, the scores for countries were generally within an expected range, except for the Chinese regions, which were dramatically higher - so large that they should raise eyebrows.
Beijing Ranks as Having the Most Expensive International Schools in the World: Beijing has the most expensive international schools in the world at a median average of around ¥219,000-plus ($31,100) per year. Shanghai is a close second at ¥210,000 ($29,830) per year, and Shenzhen third with ¥173,000 ($24,580).
Staying
Healthy
Fear for Young Death Grips Netizens After Basketball Star Dies at 33: Former captain of the Beijing Ducks basketball team, Ji Zhe, died of lung cancer at the age of 33, just days after actor Godfrey Gao died from a heart attack at 35. Amid the mourning for the loss of young, fit and talented lives, many more found themselves increasingly gripped by the fear that they could die a young death too. "Cherish every day we have. One can never know which will come first: accident or tomorrow," wrote many. A recent survey by China Youth Daily found 63.6% aged 18-35 said they do not want to look at their physical checkup for fear of seeing something troubling. 62.6% admitted that they are under constant pressure and 60.9% said they are aware of their unhealthy lifestyle.
Cars
Western, Chinese Consumers Divided on Electric, Self-Driving Cars - Survey: 90% of Chinese residents said they would consider an electric car for their next purchase, versus 64-77% in Europe and about half in the US. Car buyers in the US, Germany, France and the UK also largely want to retain private ownership of their vehicle - as an important status symbol offering convenience and reliability, while more than 90% of Chinese consumers are open to fully-shared mobility options. Overall, around a third of Western consumers in the OC&C survey said they were distrustful of self-driving cars, versus just 4% of the Chinese respondents.That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
