Logistics: One of the Most Important Pieces of the China Puzzle
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.
Here are this week's news and highlights for China:
Chinese Consumers
How Cainiao Plans to Digitalize China's Logistics Industry: Alibaba's logistics division Cianiao aims to connect 100 million smart devices to its IoT (Internet of Things) technologies in three years, offer 100,000 pick up stations and have consumers use their Cainiao Guoguo app more than 1 billion times per year.
Chinese App Manbang Handled $100 Billion Worth of Goods a Year by Matching Shippers with Truckers: Many truckers in China used to hang out for-hire signs and wait days to get hauling business, but the Manbang app now has 6.7 million truckers of China's estimated 8 million using the app, handling about ¥700 billion ($101 billion) worth of goods a year. More than 70% of truckers pick up orders within the first 20 minutes of posting. 95% of rig-drivers are either self-employed or working for a small firm, with just 1% of trucking companies employing more than 50 staff.
Where China's Biggest Consumption Growth is Happening: Consumers in tier-3 cities and lower are less worried about spending than their peers in higher-tier markets, not least because lower housing costs bolster their savings, but due to greater consumers' confidence. Shoppers are still prepared to search for a good deal, with price being one of their top three factors when making a buying decision, while trendiness and novelty are the least important considerations. Quality is still number one, similar to top-tier cities. More than 70% of Alibaba's 102 million newly acquired annual active consumers came from such areas according to its latest quarterly results. About 64% of lower-tier city consumers have made a cross-border purchase.
Chinese Gamers Threaten Keyboard Maker Cherry with Boycott After Storm Over Giveaway Aimed at ‘Men Only’: A German company best known for keyboards popular with online gamers faces a boycott in China after it fired back with graphic language at social media users who complained about a giveaway aimed at male customers only. Han Bohan, Cherry China’s chief executive, stepped into the Weibo storm on Saturday by posting: “How is a gaming giveaway aimed at men different from beauty bloggers launching lipstick giveaways every day for women?” Clearly Cherry doesn't know the Chinese gamer demographic, with some estimates claiming females make up almost half of China's 630 million gamers.
5 Chinese Internet Slang Phrases You Should Know, Illustrated: Common Chinese internet slang explained with the deeper meaning behind the literal phrases including 'get shot lying down', 'poop-scoop official', 'straight man cancer', 'cherry freedom' and 'drama spirit'.
Digital China
Let 100 Apps Blossom: WeChat, Pinduoduo Transform China’s Rural Life: Cheap smartphones and a government push to bring affordable internet access to poor areas are changing how rural residents spend their time and money, and creating new opportunities that are drawing some transplanted city dwellers home. More than 580 million Chinese live in rural areas, of whom 222 million regularly access the Internet - up 25% from 2014.Paying Subscribers for Online Videos in China Reach 347 Million in 2018: 612 million Chinese watch online videos - 73.9% of the total Internet population - with the market tripling in size in the last three years to ¥187 billion ($27 billion). Chinese consumers no longer just source entertainment for free from pirated sources, with 347 million paying subscriptions to online video, accounting for 34.5% of revenue of online video platforms.
Food & Beverage
4 Trends Driving Foodtech Innovation In China: While China's VC investment dropped 3.4% last year and the number of deals fell 10.8%, China’s agri-food startup industry grew 222% to $5.8 billion. Four key trends driving China's food innovation are: 1. A fragmented consumer market; 2. The data grab; 3. Hyper-connected consumers expecting hyper-convenience; and 4. Demand for safe supply chain.
What Brands Get Wrong About China - and How to Put it Right: NongFu Spring's 17.5° oranges sell for twice the price of similar brands of oranges that originate from the same region, driven by 1. Creating a benchmark that consumers can use - in this case the subjective topic of sweetness; 2. Using tech-enabled transparency to build trust and loyalty; and 3. Consumers are willing to pay more for guaranteed quality from the rigorous selection process.
The Price of Apples is Soaring in China, and Beijing is Showing Concern: The price of apples has surged nearly 30%, prompting deliveries to slump 5.7% on Dada-JD Daojia from the same period a year ago. Fruit growers have been hit by bad weather pushing prices up 26.7% from a year ago. China’s production of apples is expected to drop 25% this year - its lowest in 9 years. Imported apples are expected to be supplied by New Zealand and Europe with US apples facing a 50% retaliatory tariff from Beijing.
White Rabbit Milk Tea Sells at 2,000% Premium as Chinese Consumers Show Support for Local Brands Amid Trade War: Shanghai residents have queued for hours or paid as much as ¥500 ($72) for nostalgic brand White Rabbit milk tea that normally sells for ¥19-23 ($2.70-$3.30). The drink is part of an attempt to launch more crossover products to rejuvenate the White Rabbit name. “It is not about the taste,” said one shopper at the White Rabbit pop up store. “We just want to show our support for local brands at a time when the US government is plotting to undermine China’s economic development.”
Chinese Tourists
Post-Gaokao Travel Up 500% as China’s Students Relieve Exam Stress: More than 10 million students sat the infamous Gaokao (national college entrance) exams earlier this month, and many of them are seeking a holiday after it all, with in-app searches and bookings for graduation-related travel up by a whopping 500% this year. Most will stay within China - with the beaches of Sanya and Xiamen most popular - and just 41% will spend over ¥2,900 ($419). Nevertheless, these figures illustrate how travel is increasingly viewed as a stress release by young Chinese.
Hilton: 200th Hotel Opening in the China Market: Hilton is trying to evolve with China's new lifestyle-driven appeal for travel, with 83% preferring to explore diverse customs and cultural characteristics; 82% preferring to spend more on rewarding themselves; 77% preferring to deeply immerse themselves in the local region and make local acquaintances; and 77% refusing conventional travel styles and pursuing unique experiences.
Sport
Athleisure Can’t Stop Winning in China: Over 104 million Chinese consumers have at least one fitness app on their phones and 15 million consumers have a gym membership in China. The sportswear market in China grew 12% to $31.4 billion in 2017. Adidas saw 16% growth in Q1 this year - its 20th consecutive quarter of double-digit growth in Greater China, with other brands such as Lululemon, Uniqlo's street-sporting apparel and local players Particle Fever and Maia Active experiencing strong growth.
Cars
American Cars Lose Shine in China as Trade Tensions Simmer: US car brand's share of China's market fell to 9.6% in the first five months of 2019 from 10.9% a year earlier, while German and Japanese brands gained share. Mercedes-Benz, BMW, Honda and Toyota were among brands who boosted sales. China's car sales overall dropped to 1.913 million last month - a 16.4% drop year-on-year. Excluding minivans, passenger car sales rose 4.8%, helped by car dealers rush to clear stocks before new emission standards are introduced in July in some regions.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
