How Digital is Reshaping Chinese Consumer Habits
If you were to take a straw poll asking how the Internet is changing the way Chinese consumers buy products and services, the majority of people would likely make reference to online shopping. And rightfully so, eCommerce is booming in China. These days, most Chinese workplaces get more visits from kuaidi (couriers) delivering online purchases, than legitimate business visitors. Alibaba, whose Taobao and Tmall sites account for more than 90% of online shopping in China, saw their revenue grow almost 60% in the second quarter of the year to $1.73 billion, with close to half of that being straight profit.
Yet with all the hype, online accounts for less than 8% of total retail sales. But it is early days. Over the next eight years, ¥100 billion ($16 billion) is planned to be invested into improving one of China's biggest eCommerce challenges: logistics. The project is being spearheaded by Alibaba's founder Jack Ma, with a target of parcel delivery to any Chinese city within 24-hours by 2020. That will open up eCommerce to China's 'smaller' cities, the current growth engine of China, more than ever before. eCommerce is forecast to account for 20% of China's total retail consumption by 2020, with the bullish Alibaba picking it could be as high as 50%. The reality is likely to be somewhere in between.
Forecasts aside, the other 92% of China's retail consumption that is currently offline, has also become heavily influenced by China's digital sphere. Information on websites and social media are some of the biggest influences for brand awareness, purchase intent and loyalty. There are few bricks & mortar stores that aren't touched by the Internet in China.
We only need look to the basic necessity of food to see how the Internet is reshaping things. Right from the noodle sellers on the street taking orders through WeChat and Weibo, to the 7,533 restaurants just in Beijing's Haidian District, which allow diners to scan QR codes on their mobiles to assess the safety of their food. Consumers in 2,300 Chinese cities can check a restaurant review on Dianping.com, influencing where they go for dinner. Smartphone users with WeChat can scan the barcode on a food packet, and with a few clicks, have it delivered the next day. The digital world is redefining the way Chinese consume both online and offline, and those businesses who keep up have the best chance of winning the biggest share.
On the subject of selling online in China, if you're in or close to Shanghai next Thursday, 7 November, Austcham is hosting a great event, Selling Online to China. China Skinny joins the good-looking line up in what should provide some invaluable insights and tips into reaching Chinese customers online. More info at austchamshanghai.com.
We hope that you enjoy this week's Skinny.
See below highlights of the news this week:
Chinese Consumers
Why International Brands Can’t Ignore Culture In China: 74% of Chinese Millennials say they have more in common with their age group globally than older Chinese. Nevertheless, 90% believe family traditions are important, and 88% are proud of their national traditions and customs.
Affluent Chinese Likely to Spend More: "Affluent Chinese are looking for custom-made or exclusive products or services to reflect their affluence, and they tend to favor enjoying life with friends and family over materialistic pleasures such as latest designer handbags or flashy watches," says Jeff Liao, General Manager of Visa China. Nights out, family holidays and fine dining are the three most common ways affluent Chinese consumers are spending their money.
China May Be in Much Better Shape Than it Looks : Three factors that are contributing to China's reported consumption rate being lower than it really is: 1) Housing doesn't account for how much Chinese would have to pay if they were renting (home ownership rates are 90%); 2) A lot of private consumption often shows up as a corporate expense; and 3) High income earners don't generally report their expenses. It's estimated that these knock 10-12 percentage points off consumption as a percentage of GDP.
Baidu 'Worry Ranking' Exposes Netizen Anxieties: Chinese in big cities most likely to be anxious about love and relationships.
Why Are Chinese Media Outlets Brooding Over What Starbucks Is Brewing?: Starbucks is in a bit of a pickle in China. The Government aren't happy that their consumers are paying a lot more for Starbucks than in other markets. Starbucks wants to keep the Government onside, however if their coffee was cheaper, would consumers still consider it a cool place to be seen in? Not sure where this article get's its 30,000 cafes number from, maybe outlets selling product, as Starbucks is only hoping to open its 1,000th cafe in China this year.
Samsung Apologises After 'Dodgy Hardware' Criticism from China State TV: It's not just Starbucks, now the Government is going after Samsung, reporting on CCTV that their devices crash several times a day - a problem that could be fixed with a chip upgrade that isn't covered under the current warranty. Samsung was quick to react, offering free repairs and extended warranties on seven models. After Apple, KFC & Co's experience with bad press in China, Samsung is well aware that it wants to make things right as quickly as they could after being exposed.
In China, Victory for Wildlife Conservation as Citizens Persuaded to Give Up Shark Fin Soup: Who said old Chinese ways couldn't be changed? Thanks to Yao Ming, businessmen, celebs, students and some investigative journalism, with a hand from the anti-corruption drive, the 1,000-year-old tradition of shark fin soup has lost its lustre with most Chinese, with consumption down 50-70% in the last two years. Nice work!
Internet, eCommerce, Mobile & Social Media
Alibaba to Transform China's 'e-conomy' with $500 Billion Marketplace: ¥100 billion ($16 billion) investment into China's logistics will see hundreds of millions of new customers become much easier to reach with eCommerce by 2020. In the meantime, Haier's e-commerce revenue jumped almost six-fold to ¥633 million ($103.4 million) in the first half of this year, while Suning Commerce Group's e-commerce business doubled to ¥10.6 billion ($1.7 billion) over the same period. GOME's online revenue now accounts for 5-6 percent of its total first half revenue of ¥27 billion ($4.4 billion).
Alibaba Nears Facebook Sales With Double the Profit: On the subject, Alibaba’s revenue soared 60% to $1.73 billion in the second quarter on 2013, with net income more than doubling to $707 million from $273 million a year earlier. Alibaba accounted for 70% of packages delivered in China last year.
Food and Beverage
Chinese Restaurants Embrace QR Codes: 7,533 restaurants in Beijing's Haidian District have adopted QR codes making food safety information available to consumers.
Shuanghui Accused of Using Chicken in Ham to Save Cost: On the subject of food safety and scandals, chicken meat was found in nearly 40 difference kinds of hams and sausages made by 15 Chinese meat processors including Jinluo and Shuanghui, the company who purchased Smithfield last month for $4.7 billion in the largest Chinese purchase of a US company.
Dianping Sees IPO Larger Than Yelp as Users Tap China Reviews: Dianping now has 28 million food and entertainment reviews covering 2,300 Chinese cities. 70% of page views from the site's 75 million monthly active users come through mobile.
After Wine, Chinese Consumers Want a Slice of Cheese: China's yearly consumption of cheese is just 200 grams a year, versus 26kg in France, although it is growing at 20% a year. Old World cheeses aren't too popular; 40% of imports come from New Zealand, and another 40% from Australia and the USA.
NZ Told Not to be Complacent: The clean, green New Zealand brand took a hammering in Chinese newspapers over the poisoned milk false alarm, and many businesses far beyond Fonterra are baring the brunt of it. Bad press aside, things are looking good for dairy exporters, with Euromonitor predicting that the Chinese market for infant formula will double over the next four years to $25bn. China bought 27% more milk in the second quarter of 2013 than in the previous 12 months, according to a report by Rabobank.
Travel
Have Yuan, Will Travel Far and Wide: China's outbound travel market will rise by 17% to 106 million for the year ended June 2014, helped along by the fact that it is often cheaper to travel abroad than to domestic destinations.
Asia's Travel Business: Last year only 12% of vacations were booked online - it's expected to be 26% by 2015. Leisure travel is the fastest-growing online category, rising 55% to $3.4 billion in transactions in 2012.
Fashion
Under Armour's Aggressive Plan To Expand Overseas: Under Armour hopes to drive sales in China with initiatives such as opening the Experience Store in the new luxury Shanghai mall, Jing'An Kerry Centre, complete with an immersive wrap-around video experience to tell their story and having the man who won eight golds at the Beijing Olympics, Michael Phelps, as a 'virtual' host.
Cars
How General Motors Wins The Minds And Wallets Of Chinese Consumers: GM is one of the foreign success stories in China, leading China's auto market with VW. What some attribute to their success: 1) They got in early; 2) Joint Ventures with well connected local companies; 3) Localisation; and 4) Innovation.
Weird & Wonderful
Cockroach Farms Multiplying in China: Delightful: Some Chinese farmers are pinning their hopes on cockroach livestock, growing to more than 4cm long and selling for as much as $44/kg (up 1,000% since 2010). The roaches are used in medicine and cosmetics. China has about 100 cockroach farms, including one from which a million escaped in August.
That's The Skinny for the week! China Skinny would love to discuss how we could help with your marketing, online iniwechtiatives or research to take advantage of China's opportunities. Just email us at info@chinaskinny.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
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