Since the 2008 melamine scandal, the domestic milk market in China has had a hard time gaining the trust of consumers. This scandal hurt all players, including Mengniu Dairy and Yili Group, which are the leaders of the Chinese dairy industry. The crisis has also influenced milk consumers in China to purchase milk and dairy products from foreign brands, putting domestic milk producers at a disadvantage.

Even though the evolving consumer perception of milk in China has facilitated the growth of import and consumption of foreign milk firms, domestic milk firms in China still have dominated the milk market in China. Moreover, according to MarketLine, regarding the overall performance, from 2015 to 2019, the milk market in China has seen steady growth. Thus the market is anticipated to grow in the future.

Analysis of China’s milk market

Size of China’s milk market is gradually expanding

Chinese consumers are turning on to the nutritional benefits of milk products. It is predicted that sales of milk in China will increase from 11.95 billion RMB  (2018) to 12.83 billion RMB (2022), with a 1.7% annual growth rate. Thus the market size of milk in China has been growing steadily.

Data source: MarketLine, China’s milk market value  

Consumption of milk in China has grown four-fold since 2012

Due to the influence of traditional dietary habits and limits of economic development, in 2012, each person consumed only about 6.39 kilograms of milk per year. That was only about 1/3 of the consumption of an average Indian consumer and 1/10 that of a western consumer. Moreover, the consumption of powder milk in China ranks at the top among all countries in the world.

In 2020, the consumption of milk in China has increased remarkably. The consumption of milk per capita is projected to reach 28 kilograms in 2020 and 41 kilograms in 2030.

Data source: Qianzhan, Sales volume of the milk market in China  

Data source: Qianzhan, Sales value of milk in China 

Domestic brands regain trust, imported milk in China faces fierce competition

According to IBISWorld, due to the preference of milk consumers in China and demand for middle and high-end milk, import volume has increased steadily. With rising import volume and average prices, the import value of milk in China reached $5.47 billion in 2019, with a YOY growth of 7.6%.

Since domestic Chinese milk brands have dedicate to enhancing the quality of milk they are replacing some import products, which has led to a declining proportion of imports in the domestic demand of milk market in China. As a result, in 2019, imported milk represented 7.5% of domestic demand for milk in China, which decreased from 10.1% in 2014.

Data source: IBISWorld, Import partners of milk market in China (2019)

The price of milk in China is gradually increasing

Overall, the price of milk in China has a rising trend. The increasing price attributes to the rapid growth of consumption of milk in China and the condition of upstream supply chains.

Data source: ruzhipincy & chyxx, Price evolution of milk in China  

UHT milk is the most popular milk among Chinese consumers

The product segmentation of milk in China is mainly categorized into liquid milk and powdered milk. They are similar in terms of nutrients while different in terms of taste, form and price. Powdered milk consists of the process of dehydration and evaporation, which helps preserve it. Even though it loses its flavor during the dehydration process, it perfectly matches with smoothies, tea and filtered coffee. On the other hand, fresh milk contains more nutrition than powdered milk does and has a better taste.

Liquid milk is the largest segment. According to MarketLine, UHT milk is more popular with milk consumers in China, in contrast to  western consumers who prefer fresh liquid milk. 

The milk powder segment in China targets both adults and infants. According to Nielsen China, online and offline milk powder sales reached 1.8 billion RMB and 1.5 billion respectively in 2018. Specifically, according to IBISWorld, the infant milk powder segment has been experiencing rapid growth and highly profitable. The market size reached 175.5 billion RMB in 2019 and is expected to reach 216.3 billion RMB by 2024. With the implementation of the two-child policy, demand for infant milk powder is increasing rapidly.

Consumption of milk powder for adults, especially for families, has been rising steadily. Online shopping has facilitated the growth of this segment. The milk powder for adults in China is in the early stage of the product lifecycle by considering its market scale and profitability. Hence the market size of this segment remains stable as milk consumers in China lack product awareness.  

The supermarket is the most important distribution channel in China’s milk market

According to IBISWorld, Supermarkets are the largest suppliers of milk and offer the most extensive product range. Regarding food wholesalers, the majority of milk brands in China sell their products in local regions. They often establish wholesalers in the target province and are in charge of recruiting and managing distributors in tier-two or three cities. Regarding food retailers convenience stores, the revenue generated from these channels has experienced continuous growth. Other markets, including online shopping, have been developing rapidly in recent years. Milk consumers in China purchase milk from online shops due to its convenience and low prices.

Data source: IBISWorld, Distribution Channels of Milk Market in China (2019)

‘Safety’ is the number one concern of Chinese milk consumers. Consumers from different regions and segment groups in China consume milk in different ways.

Regarding Chinese consumers’ attributes of milk, consumers from developed areas value “safety first” while consumers from less developed regions value quality and brand. In general, both of the groups value safety certification, shelf life, nutrition, taste, brand organic, etc.

Families are likely to purchase a large amount of milk on the weekends and prefer fresh milk; office workers and students prefer buying liquid milk with paperboard packaging in the morning.

Milk packaging in China

Regarding the packaging of milk in China, paperboard, plastic and glass are common materials. Domestic milk firms in China mainly outsource both paperboard and plastic packaging to foreign firms such as Tetra Pak, PrePack and SIG Combibloc. Paperboard packaging is normally used in preserving both UHT milk and fresh milk. It helps preserve the quality of the milk. Thus the quality is less likely to go bad easily and can preserve more than six months. Plastic and glass are used in preserving fresh milk. The size of the packaging is mainly standardized as 250 ml.

Photo source: Zhihu, Packaging of milk in China

Chinese prefer to purchase milk in smaller packaging than westerners do. Owing to the habit of some milk consumers in China, it is convenient for students and office workers to carry a single serving size of milk with them. Secondly, the established supply chain and logistics in China cannot support the transportation of fresh milk perfectly. Hence milk with paperboard packaging is more prevalent in the milk market in China as it can preserve for an extended period and does not require a sophisticated logistics system to preserve the quality.

Does being lactose intolerant stop Chinese from consuming milk?   

Even though research shows that Asians, including Chinese, are mostly lactose-intolerant, it does not affect the sales of milk in China significantly. According to Zhihu, their consistent milk consumption can be explained by:

1. Consumers perceive that a small amount of milk would not aggravate the discomfort of lactose-intolerance, and this might is another reason why packaging milk in small portions popular in China.
2. Some people do not even realize they suffer from lactose-intolerance since their symptoms are not obvious.
3. Some of them perceive that the ingredients of Chinese milk are adapted to eliminate the effect caused by lactose-intolerance, that is, ingredients such as water and chemicals are added to dilute the lactose.

Brand analysis of China’s milk market

Domestic Chinese milk brands are making a return after being tarnished by scandals

Among the top 10 dairy milk companies, 9 are local brands. Mengniu, Yili, Guangming, Wangzai, Wandashan, Weita Milk and Chenguang are the top seven Chinese domestic brands with two producers originating from Taiwan and Hong Kong. Founded in 1999, Mengniu is the largest dairy milk company in China. It possesses over 20 branches in 15 provinces and exports its products to the US, Canada, Mongolia and South-East Asia. Although it maintains a good reputation, not even Mengniu can escape from the melamine scandal. As a 2008 Olympic Games sponsor, Yili, the second-largest dairy company, has explored a new way to market its product and overcome the scandal.

In 2020, Mengniu and Yili have further consolidated their leading positions in China’s milk market, with more than 30% of market share. Both firms have developed differentiated milk products to capture market share aggressively.

Data source: Euromonitor, Company Shares of Milk in China (2019)

Yili has focused on high-end milk products   

Regarding milk products of Yili, even though the company has developed a variety of milk products, it aims to focus on its high-end segment. Its representative product, Yili and Satine, according to Euromonitor, earned the third (7.4%) and fourth (6.7%) place respectively, in the brand shares of milk product (2019). Satine is positioned as the high-end brand as Yili has significant investment across different business units. Shuhua is a lactose-free product and targets lactose-intolerant consumers. School milk targets students and solely sells to schools in China while QQ Star targets kids in China. Wei Ke Zi is the flavored milk product.   

Photo source: Yili, Milk Products of Yili

Mengniu has adhered to the product differentiation strategy

Likewise, Mengniu has developed various milk products to tailor to different competing with Yili. According to Euromonitor, Mengniu and Deluxe are the pure milk and earned the first (7.9%) and second (7.4%) place respectively, in the brand shares of milk product (2019). Deluxe is the high-end pure milk product. Future Star targets kid consumers in China while Xin Yang Dao targets lactose-intolerant consumers. Mengniu has also developed flavored milk such as Zhen Guo Li and Nai Te. Zhe Zhi Niu Lai (This cow) is the milk product that targets university students in China. Mengniu has also expanded its product lines to fresh milk (i.e. Shiny Meadow and Green House) which Yili has yet to focus on.

Photo source: Mengniu, Milk Products of Mengniu

Influence of COVID-19 and future trends

The outbreak of COVID-19 has affected lots of industries, including China’s milk market. The pandemic has affected each business unit of the milk’s value chain in China.

The value chain of China’s milk market goes through the process of feed manufacturing, milk production, delivery, processing, packaging, distribution, and lastly, retail. Regarding the upstream business, the pandemic has affected the production of

As the situation is gradually recovering in China, so does the milk market. The government in China has implemented particular policies and subsidized the business involved in the milk’s value chain. These actions have sped up the recovery of the milk market in China.

Fresh liquid milk is the future trend

In 2019, the trend of “freshness” has emerged in the milk market. Key industry players such as Yili and Mengniu have started to invest in fresh milk significantly. The outbreak of Covid-19 may foster the growth of this trend since the National Health Commission of China recommends drinking milk. The government sector has suggested that drinking milk is an effective method to strengthen the immune system. Moreover, milk consumers in China have consistently perceived drinking milk as a means of calcium supplement and skincare. Thus it helps to cure osteoporosis and facilitates growing height. As more and more milk consumers in China value nutrition, taste and freshness, nutrition-added fresh liquid milk is likely to be the future trend in China’s milk market.

Photo source: Sohu, Nutritious and fresh liquid milk sold in small cartons in the Chinese market

Creative product packaging can draw consumers’ attention

In comparison with traditional promotion tools such as advertising and direct selling, creative product packaging is a cost-effective tool to promote products and is popular with young consumers. Hence more and more companies have gradually applied this tool.

Photo source: adquan, Creative product packaging of New Hope Group’s milk 

New Hope Group has applied the creative product packaging successfully on its flavored milk. With this co-creation strategy, New Hope Group has collected a list of mottos via social media in China and printed them on the packaging. Meanwhile, the company has designed cute images that are popular among Chinese consumers. These mottos reflect the current Chinese culture and humor of self-depreciating optimism, or passive acceptance of negativity. They are relatable and effectively tease young people’s lifestyles in a lighthearted way.  

In conclusion, China’s milk market is experiencing a steady growth in market size and revenue. Domestic milk brands have occupied the majority of the market share. Currently, the dominant milk product in this market is long-life liquid milk. Nonetheless, with the changing consumers’ perception and improving logistics, fresh liquid milk is projected to be the future trend in this market. Moreover, creative packaging is a useful promotional tool to appeal to milk consumers in China effectively.

Author: Amelia Han

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China is the largest tea producer in the world 

The total global tea output in 2018 was 5.9 million tons, China contributed 2.6 million tons of them (44.7%). China is the largest tea producer in the world, but it still has a huge market demand for tea leaves. Hence, the output of major tea producing countries will continue to grow. In particular, the increased awareness of Chinese consumers on health will drive the global tea market to further increase.

Data Source: iimedia, Tea market in China report by daxue consulting. China is the major tea leaf producer in the world

The tea industry chain in China includes tea planting, picking, use of fertilizers, processing, and packaging. Also, different kinds of tea are rolled, dried, and oxidized. The sales channels are supermarkets, tea shops, restaurants, and e-commerce platforms in China.

China’s tea production market

Green tea leaves make most of the China’s tea production. Considering China’s huge market demand, green tea will continue to maintain its output advantage for a considerable period. Besides, drinking tea is an important part of the Chinese culture and living customs.

Data Source: iimedia, Tea market in China report by daxue consulting. Green tea has the biggest output in the Chinese market

China’s tea sales will maintain an upward trend. With the increase of income of Chinese residents, quality will become an important factor in the sales of tea.

Data Source: Qianzhan, Tea market in China report by daxue consulting. The tea sales revenue in China

China’s demand for tea is rising steadily

China’s 1.4 billion people already drink nearly 40 percent of the world’s tea, and they are thirsty for more. Chinese consumers prefer higher quality tea products, they often rely certification for assurance the tea is organic and sustainably grown. Besides, they agree to pay much more per serving than Western tea consumers. The best tea in China can be up to US$1,000 for 500 grams.

Data Source: Chyxx, Tea market in China report by daxue consulting. Tea leaf prices in China

China exports green tea and imports black tea

Green tea accounts for 83% of the total tea exports. Exports of black tea, green tea, and flower tea all increased by more than 6%. Black tea accounts for 83.3% of tea imports. The rise of new tea drinks such as milk tea in China has further increased the demand for black tea.

Data Source: Chyxx, Proportion of tea exports/imports by tea type

Key characteristics of tea consumers

According to the survey of China Tea Industry Research, tea consumers are mainly enterprise employees with 50,000-120,000 RMB annual salary. They usually have decent spending power and pursue a high-quality life. Hence, office places are a common place to consume tea.

Data Source: China Tea Industry Economic Research, Tea market in China report by daxue consulting. Characteristics of tea consumers in China

Where do Chinese consumers buy tea

Chinese consumers still mainly rely on offline channels such as exclusive stores or large supermarkets in China. Tea enterprises should broaden their channels and combine online & offline to find new ways to attract customers. Quality assurance, convenient purchase, good experience and low price are the focus of consumers attention. Tea companies must consider them when doing channel construction.

Data Source: China Tea Industry Economic Research, Tea market in China report by daxue consulting. Purchasing channels of tea

Drinking milk tea is a daily habit for many Chinese people, and a huge driver of the market

According to the survey of 36Kr Research, milk tea is becoming a part of daily lives for many Chinese people. Around 93% consumers buy milk tea at least once every week. Milk tea consumers are usually repeat customers. That is why it is essential for milk tea brands to improve customers loyalty leading to repeat business.

Data Source: 36Kr research, Tea market in China report by daxue consulting. Milk tea consumption in China

New-style tea consumers are mostly young women in tier-1 cities

Women under 40 years old are the main consumer group. Urban white-collar women in China are particularly keen to milk tea and fruit tea. Only 30% of consumers are male. The male consumer market still has a large space to develop. More research on male flavor and aesthetic preferences of new-style tea may help to further penetrate the market. This is consistent with the fact that many stores are in first tier cities. Tier-1 cities are saturated markets, but second and third tier cities have a lot of room to grow.  However, lower tier city consumers are more concerned with price.

Data Source: 36Kr research, Tea market in China report by daxue consulting. Age distribution of new-style tea consumers

The leading brands in China’s new-style tea market

Most of the direct-sale shops are high-end brands. They are more concentrated in the first-tier cities with higher prices but less offline stores. It means franchises are helpful for expansion but not for a high-end image. There is little variation in store menus, which means there is a trend of product homogeneity in the market.

Case studies of tea brands in China: path to success

Lipton (立顿) – The most successful tea bag brand

Lipton is the largest foreign tea brand in China. It is a black tea brand from England. It mainly focuses on black tea, green tea, jasmine tea, and oolong tea. Its advertising slogan is: “Direct from tea garden to the tea pot”. In 1992, Lipton officially entered China and started to sell black tea and green tea.

Due to the high quality and clear target market, Lipton in China achieved very large sales and market share. Lipton’s owner Unilever invested 50 million USD in Anhui (安徽) province to build one of the biggest tea factories in the world at that time. In 2008, the total annual output value of Lipton was about 23 billion RMB, which was almost the 2/3 of the output value of the China’s tea bag industry. 

How Lipton built itself as a mainstream tea brand

Lipton brought its standardized design and production of tea products when the brand entered China. They helped Lipton reach every corner of the market while also building brand awareness among Chinese consumers. Many foreign tea brands sell tea products from abroad using Chinese distributors. However, Lipton invested in building a local factory and hiring local employees. With this strategy, Lipton greatly reduced the costs and localized the brand. It helped the brand to act quickly to meet the needs of Chinese consumers. In 2008, Lipton was one of the first international brands advertising on mobile Internet in China. The brand was also one of the first to use e-commerce in China.

Lipton targets Chinese white-collar workers and young adults with its tea bags

Tea is traditionally a leisure product. Therefore, many Chinese brands target middle age and elderly people, who have more leisure time. Most Chinese tea brands sell loose leaf tea, which can make people enjoy the process of brewing tea. Lipton mainly targets on white-collar workers in China and young adults in urban areas. The brand uses its tea bag as a competitive difference in China’s tea market, because it is convenient and safer. It also greatly simplified the steps of drinking tea in China.

Lipton is facing great challenges in China

According to the annual report of Unilever in 2019, Lipton’s profits decreased. The brand is facing many challenges in China. Lipton’s tea usually is very cheap, which means it must keep high sales to get enough revenue. Besides, most Chinese young adults (21-30 years old) crave creativity and novelty. Lipton is losing this huge consumer group.  Now, competition in China’s tea market is tighter and consumers preferences have changed. But Lipton has not innovated its package and products, it’s less exciting for Chinese consumers. More Chinese competitors are rising, they have better understanding of consumers, more creative package, and advanced marketing (such as KOLs in China).

Xiao Guan Tea (小罐茶)

Xiao Guan Tea is a high-end Chinese tea brand launched in 2014. It covers six categories: green tea, black tea, oolong tea, dark tea, white tea, and reprocessed tea. The brand targets young adults with strong consumption power and pursue the quality of life. By the end of November 2018, Xiao Guan Tea’s sales revenue reached 2 billion RMB in China’s market. It has around 650 offline shopsin the nation.

Data Source: Xiaoguantea.com, Sohu.com, Tea market in China report by daxue consulting. Online sales channels of Xiao Guan Tea

Positioning itself as a high-end brand

Xiao Guan Tea positions its products as high-end. The brand built its high-end image using well-designed packages and offline stores. It can create the distinct sense of modern luxury for consumers. Xiao Guan Tea uses aluminum cans and high-end gift box as packages, which make the tea healthy, and easy to conserve. Hence, Xiao Guan Tea products are now popular gifts during some Chinese holidays.

Xiao Guan Tea is upgrading its tea manufacturing by developing and using AI

In cooperation with IBM, they developed a robot that can scan and pick out the impurities of tea leaves. One robot can finish 50-60 human workers’ job every day. The technology can reduce labor expenses and improve processing efficiency. Xiao Guan Tea and Siemens launched a cooperation at the end of 2018 to build a new smart tea production facility in Huangshan (黄山). The factory will use AI technology in China to achieve the intelligence of the job-shop, optimizing the production process.

The impact of COVID-19

With the coronavirus outbreak in China, exporting became slower and more expensive. The epidemic also has complicated international logistics. Thus, China’s tea export progress is much slower and export costs increased. The main tea import countries strengthened their customs inspections and some countries reduced or stopped importing China’s tea. Offline retail channels had the biggest impact due to coronavirus in China. More than 60% of tea shops had no sales revenue during February 2020. Online orders for tea decreased and some products had delays in delivery because of the lack of employees in logistics. Therefore, online tea sales also declined.

Long-term impact

The economic impact of the coronavirus in China on tea distribution channels is temporary. The main impact on tea retails was mainly in February and March. The online and offline sales both will quickly recover when the epidemic is over.

Increased focus on health and social

After the COVID-19 outbreak, there is no doubt that everyone will pay more attention to personal health than before. Although tea leaves are not medicine, they are still health-related products, and have health benefits. The proper promotion of the knowledge about tea leaves will help facilitate everyone’s tea consumption. Chinese people’s enthusiasm for social networking is still growing, tea brands need put more emphasis on packaging and appearance design.

Because the COVID-19 outbreak, Chinese consumers have stronger health awareness. Many consumers choose to buy milk tea with little or no sugar. Fruit tea is also popular for due to having less added sugar and more health benefits. For milk tea brands, it’s essential to add the concept of health into their promotion and advertising.

Socializing is more and more important for today’s young people. Tea is not only a kind of drink, but also a sense of fashion and ceremony for them. Thus, milk tea shops now focus more on appearance. Therefore, if traditional tea brands want to increase sales, appearance is as important as quality and taste.

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High-end and Imported Wines in China Appearing More Frequently

Being regarded as the symbol of polite society or business elites, imported luxury wine such as Chivas Royal Salute(皇家礼炮), John Pope Hennessy(轩尼诗), Remy Martin(人头马) are gradually acquiring public acknowledgement, and we can frequently see them in business receptions or balls. Although the inflation in alcoholic drink in China was surprising 4.2% and the costs for imported alcoholic drinks in China rose greatly, it still sold well. Also these wine companies are trying to produce more varieties of products, which can well-satisfy the taste of Chinese people. French, in particular is doing well in alcohol market in China.

Enter the alcohol market in China through Strategic marketing

In the complex wine industry in China, wine producers are finding ways to win Chinese customers. Many companies use innovative strategies to focus on specific target markets.  Companies are using innovative marketing strategies to focus on specific target markets. For example, the Bonny Doon Company, which uses an unusual selection of wine varieties along with unconventional label, designs to attract new market segments including China. Innovation varies from packaging, branding and advertising.

Surging Sales of alcoholic drinks in China on the Internet

Online B2C purchasing has become more and more popular in China in recent years, and this trend remains the same specifically for the wine in China. There are more online shops and online professional websites doing business related to mid-end wines or high-end brands. Due to the relatively short development history of online wine retailing, the market of online wine purchasing still has great potential.

There are more ways to source wines in China. A British wine research corporation, Wine Intelligence, conducted a market research in March 2016 based on more than 1000 Chinese wine consumers whom were from upper middle class. According to the ‘China Wine Market Landscape Report’ Wine Intelligence published based on the market research, more than 48 million consumers from the middle class consumed wine at least twice a year. Back in 2014, it was only 38 million. Meanwhile, the research also shown 49% consumers have purchased wine online in the past 6 months upon the research conducted. JD.com and T-mall were the most popular platform to source wines compared to other e-commerce platforms, according to the book ‘the competitive strategy of China wine industry’

Domestic Companies Cooperate to Make Themselves More Important in China’s Alcohol Market

We can say without any exaggeration that fierce competition exists in every industry of China. Since the market is widely spread, competition in the alcohol drink industry is intensive and is still heating up. To increase their own market powers, some companies threw themselves in merging or acquisitions. On typical example is the merge of Beijing Dragon Seal Wine and Beijing Red Star into Capital Wine Group. By enlarging the scale of themselves in this way, they enjoy more information, more high-technology, and more capitals for production. This trend again strengthens the competition and speeds up survival of the fittest and quitting of the ones that are not good enough.

High-end domestic alcohol brand such as Mao Tai (茅台) was still leading the domestic alcohol market. The stock has been rising and reached historical high in June 2019. It reached 1163 yuan by 13 December 2019. As the lead in Chinese domestic alcohol market, the growth also promotes sales and growth of other alcohol brands in China. As of 16 December 2019, Mao Tai sales revenue reached 100.3 billion yuan.

Meanwhile in June 2019, Koya Brandy Winery has officially opened in Yantai City. The company Zhang Yu (张裕) has made the first Brandy in China back in 1896 and in the market for sale since 1914 as KOYA Brandy. Koya Brandy is the pioneer in Chinese Brandy alcohol market and expect to enter international alcohol market in the future.

Digital transformation of China’s alcohol industry

In July 2019, Huawei, ZTE and other mobile internet high-tech companies led teams to visit Luzhou Laojiao, Wuliangye, and Maotai, respectively, in digital transformation, smart wineries, cloud computing, etc. On the other hand, it has launched comprehensive cooperation with liquor companies. The development of 5G technology will further change the development of the future liquor industry. In this regard, the industry believes that the use of the new network platform and 5G technology in the communications industry will reduce the difficulty and cost of equipment access to the brewery, transform data resources into data assets, bring out the core advantages of the industry, and continue to optimize and upgrade smart brewing. Technology may be one of the effective ways to enhance the competitiveness of Chinese liquor.

A Grow in Sales of Alcoholic drink in China in 2020

Market for imported wine has been expanding and reached 65.3% by 2018, thanks to the zero tax policy for New Zealand wine in 2012 and Chile wine in 2015.

In 2018, 4.9% of wine produced in China and 10% consumed in China. According to International Wine Association, the average consumption of wine in China is only 1.6L per person while the world average is 3.3L per person, which is twice as much. In 2019, China mainland has consumed 1.79 billion liter and was ranked the fifth in the world. Therefore, there is still a significant potential for the wine market to grow in China.

Author: Fengyu Du

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Rolex, Omega, Patek Philippe, Cartier, Channel, Longines, Tissot, Rado, Blancpain and Piaget are the top ten luxury watch manufacturers ranked in the Chinese market in 2019. The luxury market in China has been soaring from 2017 to 2018 with a compound growth rate at 40%, which makes China a big potential market for luxury manufacturers to acquire and compete. The luxury watch market in China is estimated to be worth 19.4 billion RMB.

Men between the ages of 25 to 40 are the main consumers in the luxury watch market in ChinaLuxury watch consumers in China buy watches as to depict status and consider 5,000 RMB as an entry price for luxury watches. Consumers learn information online but tend to purchase luxury watches in physical stores. “Swiss Made” watches are the first choice for luxury watch consumers in China.

[Data source: Forward the iresearch ‘luxury watch consumers gender/age distribution in China (2019)’]

Celebrity Endorsement and Soft Marketing

According to the research result given by the market research company Synovate, wealthy Chinese people like to purchase luxury with distinct visual logos and high brand awareness. Therefore, brand awareness becomes a key factor of Chinese consumers’ purchasing decisions. As data provided by iresearch, the most efficient strategy to enter and occupy the luxury watch market in China is celebrity endorsement.

[Data source: Forward the iresearch ‘The marketing strategies of luxury watches in China that are popular among consumers (2019)’]

Chopard China marketing strategy

In May 2018, a Swiss luxury watch brand, Chopard in China declared Wang Yuan (Roy Wang), a pop star, as its ambassador. The declaration Weibo was reposted over one million times.

[Source: Weibo ‘Chopard declares Wang Yuan as its ambassador’]

However, the celebrity effect is not always long lasting. As of January 19^th, 2020, only 7 of Chopard’s Weibo that were related to Wang Yuan were reposted over 100,000 times. They were usually reposted  around 20,000 times. Chopard’s brand exposure grows when Wang Yuan has TV shows or films on and when Chopard in China has special campaigns with Wang Yuan, such as the Valentine’s Day event with Wang Yuan. If Chopard in China uses celebrity effect as its primary market strategy in the luxury watch market in China, it needs to adopt the most popular celebrity as its ambassadors and keep him active in the public eyes to maintain the brand exposure in luxury watch market in China.

Soft marketing of luxury watches

Some famous brands prefer to use soft marketing in the luxury watch market in China. Although they do not sign any celebrity to represent their brands specifically, they ask celebrities to be guests at their brand events, sponsor film festivals, or plant ads in films to enhance the brand publicity. In 2012’s Cannes Film Festival, two Chinese film stars Chen Kun and Qing Hao were wearing Dior wristwatches. What’s more, many other Chinese film stars were wearing luxury watches too: Zhou Xun with Channel, Gong Li with Louis Vuitton, and Liangchao Wei with Cartier. These are all parts of the soft marketing effort made by luxury watch brands. It is obvious to see soft marketing has become a sustainable marketing strategy widely used by luxury watch manufacturers to better compete in the luxury watch market in China.

Status and Rolex in China

Rolex watches are meant to represent the upper-class income group individuals who live a lavish life. Therefore, unlike Chopard, it uses undifferentiated niche strategy all over the world, including the luxury watch market in China.

Chinese netizens responses to the Zhihu question  ‘what was the experience after purchasing your first Rolex in your life’. The response with the most upvotes said he had looked for a Rolex Yacht-Master watch for three years in many different countries and finally got it in a small Rolex exclusive store in London. He felt purchasing a Rolex watch was a turning point in his life. Whenever he had the urge and pressure to make a decision, the Rolex reminded him to calm down because people who wear Rolex watches have to be sophisticated. When he noticed other people were staring at his Rolex, he felt proud and extraordinarily satisfied. Rolex was the first luxury watch brand that entered the luxury watch market in China after the Chinese economic reform. Rolex in China has a special place in the hearts of luxury watch consumers in China. They do not only treat Rolex as a symbol of luxury and prestige as other luxury watches in China, but also a timeless masterpiece. Although, some of the luxury watch consumers in China do not buy Rolex in mainland China because of the limited supplies and relatively higher price.

[Source: sina.com.cn ‘Rolex with Li Na’]

Brand awareness without social media

Rolex in China does not focus on short-term brand exposure or social media marketing since its brand awareness is high in China and its target segment is concentrated. Rolex’s marketing strategy focuses more on advertising artistic and athletic activities. Rolex has continued sponsoring tennis tournaments for many years and aligns with excellence in tennis. In 2011, Rolex signed an endorsement contract with Li Na, a trailblazer for tennis in Asia. Li Na referred Rolex as a booster for the tennis development in China. Rolex is driving the technological advancement, state of design and positive brand image to be ahead in the luxury watch market in China.

Luxury Watch market in China Faces counterfeiting

[Source: xw.qq.com ‘Guangzhou Customs seized counterfeit watches’]

Switzerland and Guangzhou Customs made an alliance against counterfeit watches. They destroyed a large number of counterfeit watches at the end of year 2019, which were worth around 350 million dollars. Experts said those counterfeit watches bore a remarkable resemblance to the authentic watches. The counterfeit watches caught in Guangzhou were not sold in China, but exported to Europe.

[Source: xw.qq.com ‘foreigners buy counterfeit watches’]

Many people buy counterfeit goods at Xiushui Street in Beijing, which is famous for its fake but good quality products. Counterfeit luxury watches from Xiushui Street are one of the most popular goods among foreign visitors.

Luxury watch brands should put more efforts on content marketing about the value of authentic watches and encourage consumers to buy watches at authorized stores. On the other hand, brands should also ally with government organization to seize counterfeit watches and strength punishments against counterfeiters, authorized dealers and counterfeit buyers.

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Lancôme Paris, better known as Lancôme, is a cosmetics brand founded by Armand Petitjean in 1935. As a French luxury cosmetics house, Lancôme is part of the luxury products industry, which offers skin care, fragrances, and makeup at higher-end prices. Its brand has operated under L’Oreal since 1964. The beauty philosophy of Lancôme is simple: deliver the beauty and elegance of France to the rest of the world. The iconic golden rose of the Lancôme logo is inspired by the roses of Le Château de Lancôme. Lancôme in China has notched up 22 years of profit, which makes worthy of understanding as a successful cosmetics case study in China.

In 1997, Lancôme became the first high-end overseas brand entering the cosmetics market in China. In 2018, Lancôme China had 272 stores in 115 cities. Additionally, Lancôme has been the No. 1 best seller of high-end cosmetics market in China since 2005. “The sales revenue of Lancôme in China has increased 400 times in 22 years” according to Ma Xiaoyu, the GM of Lancôme China. The high growth revenue has proved the economic boom of China and Lancôme’s ability to keep pace with the times.

How Lancôme leverages celebrity endorsements in China

Lancôme is known for its use of very influential celebrities as endorsers, in the West this includes Kate Winslet, Anne Hathaway, Julia Roberts, Penelope Cruz, Emma Watson, Lily Collins, Lupita Nyong’o, and Zendaya. Clive Owen was the first male spokesperson for Lancôme’s Men’s skincare products and the fragrance Hypnôse Homme to explore the male market.

The cosmetics brand has localized their celebrity endorsement strategy to the Chinese market. Kris Wu, a Chinese singer and actor who is very popular among young women, has become the first Asia-Pacific Lancôme brand ambassador since 2019. This news was explored among millennials and received good responses. Up to January 16^th, 2020, the topic of “Kris Wu, the new face of Lancôme China (吴亦凡代言兰蔻)” has 400 million views and 71.6 thousand discussions on Weibo, one of the biggest microblogs in China.

[Source: Weibo ‘Kris Wu endorsing Lancôme in China’]

Lancôme China tests the E-commerce waters through Rosebeauty and Weibo

Although Lancôme remains a major player in China’s traditional media market, it has created China-specific sites of its own as well. Lancôme’s e-community site in China, Lancôme Rosebeauty, was one of China’s top online beauty forums in terms of website traffic, according to CIC, a company that tracks the social media impact and gives strategic advice. Lancôme’s e-commerce site was one of Lancôme’s biggest point-of-sale venues, reaching over 1,000 cities throughout China. From 2009 to 2010, online mentions of the Lancôme brand rose from 5,000 to 50,000 a month (a number almost directly related to the rose in popularity of the Rosebeauty e-community) and the Lancôme e-commerce site in China was one of the brand’s largest points-of-sale. However, Rosebeauty is no longer a popular platform, and rather platforms like Xiaohongshu and Weibo have taken its place.

Xiaohongshu Marketing

Xiaohongshu had 200 million users in 2019. The platform uses KOL marketing to create an interactive social-commerce experience which focuses on the fashion and cosmetics market in China. Both professional makeup artists and cosmetics consumers in China share their product evaluation and shopping tips on this platform. To satisfy consumers’ demand on import goods, Xiaohongshu has established strategic partnerships with many overseas brands, including Lancôme.

Weibo Marketing

Lancôme owes a significant success on Weibo as well. In 2019, Lancôme launched a campaign themed “May I Pink You” on Weibo for the “520 Festival”, the Chinese cyber Valentine’s Day. Lancôme reached over 140 million potential cosmetics consumers in China, and its media interaction hit a million landmark through this campaign. Lancôme did not only complete its sales goal for “520” limited pink boxes but also won good reputations within the Weibo platform.

L’Oreal officially authorized Jumei (聚美优品) Lafaso (乐蜂网), another step to E-commerce in China

In 2012, L’Oreal authorized jumei.com(聚美优品) and lafaso.com(乐蜂网) to sell its products on their website, which represented another step towards the increasing use of ‘e-commerce’ by the cosmetics industry. This meant brands under L’Oreal like Lancôme could be bought directly on these sites. Cosmetics consumers in China began favoring to go to shopping mall counters to try the products and then go on jumei.com(聚美优品), lafaso.com(乐蜂网) and Taobao.com(淘宝网) to screen the prices, sales promotions and peers reviews. More and more consumers are buying their products from these sites. However, these sites must ensure that there are no questions or concerns about the products they sell. Once one consumer claims that a product is not what it seems, consumers will choose not to buy that particular product from the site no matter how much cheaper it is than the ones sold in shopping malls.

Taobao (淘宝) and VIPSHOP(唯品会) start a new E-commerce era for Lancôme in China

Lancôme opened its Taobao flagship store in 2014 to extend its consumer segment to younger age and nurture more potential consumers. The online flagship store melts away the mistrust from consumers and guarantees product quality and service, which is another successful cosmetics case study in China of Lancôme. Taobao flagship store is more than a distribution channel for sales, but also a promotion channel. Lancôme has joined the “Double 11”, a Chinese shopping carnival since 2015 on Taobao. It opened shopping strategy and pre-sale subpages for the shopping spree, and also released “Double 11” limited gift boxes.

Lancôme’s 11.11.2019 Drone light show

On October 11^th, 2019, Lancôme warmed up the shopping carnival with a combination of light show and drone, flew over Paris and four Chinese cities with the countdown of November 11th. Lancôme reached ¥100,000,000 sales revenue in two hours after the “Double 11” started.

[Source: CBO News “Lancôme China recreates Double Eleven miracle: French romance flying from Paris”]

Jumei.com(聚美优品) is fading away from cosmetics consumers in China, and Lafaso.com(乐蜂网) was merged by VIPSHOP and closed down in September, 2019. VIPSHOP is a Chinese website specialized in discount sales online. Lancôme succeeds cooperating with VIPSHOP by selling the excess inventory at discounted prices.

Lancôme China emphasizes deep-level service mode

Meanwhile, Lancôme China is accelerating its offline development. It declared to open two more offline flagship stores in Beijing in 2020 to satisfy consumer demand. In the first China International Import Exhibition in 2018, Lancôme revealed a new technology, Le Teint Particulier color customization foundation. Consumers could customize their perfectly matched foundation on site by taking a simple skin tone test. Compared to online platforms and counters, offline flagship stores would create more value and provide better service, like customization for consumers.

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This article Lancôme in China: Case study is the first one to appear on Daxue Consulting - Market Research China.

Looking back to the early 2010’s, the top Chinese celebrity brand endorsers were mostly easily accepted by the general public. There was no big controversy over who is the most fit brand endorser as there was much less national celebrities back then. The celebrities that made their way into the list are those who are most familiar and liked by the general Chinese public. In 2020, Chinese celebrities have tremendous pressure to maintain a clean, positive image. In recent years, China has also experienced a rise in KOL marketing, which creates alternative opportunities for brands to leverage influence in marketing. However, celebrity brand endorsements are very much relevant in China, and practiced throughout many industries.

The power of influence of older Chinese celebrities are gradually decreasing

The list of Chinese celebrity brand endorsers has completely overturned, as younger celebrities have debuted into and older celebrities gradually quitting from the Chinese entertainment industry. Many Chinese celebrities mentioned below possess high power of influence in 2012, but are no longer as relevant nowadays.

Most top Chinese celebrity brand endorsers in 2020 assert niche influence

One thing to note is that the top Chinese celebrity brand endorsers can no longer assert influence across the general Chinese public. Their influence, in fact, are becoming much more niche. However, although their power of influence among general Chinese audiences is decreasing, their influence over one or more particular consumer segments is increasing. Nowadays, brands are required to measure its product’s fit with a particular celebrity’s influence circle first in order to successfully implement a marketing campaign and send appropriate marketing message to their rightful target audience.

[Source: BrandZ & CelebrityZ Top Chinese celebrity brand endorsers in 2019 with most commercial value]

The following are the top 10 Chinese celebrity brand endorsers with the most commercial value in 2019

Zanilia Zhao (赵丽颖)

Zanilia Zhao is a famous Chinese actress who had won many local Chinese TV awards, known as the TV drama queen of China. Despite that she has not been very active due to marriage and pregnancy last year, she remained as the celebrity endorser in China with most commercial value. She has endorsed over 27 brands, which include: Pizzahut, Hsufuchi, Meituan, Longines, Dior, etc.

[Source:Weibo Celebrity endorser in China – Zanilia Zhao]

Dilraba Cherry Dilmurat (迪丽热巴)

Dilraba is a young generation Chinese actress of Uyghur descent that has risen up quickly. She has appeared in many famous TV dramas that achieved high ratings. The brands she has endorsed include: Nikon, Mikimoto, L’Oréal, Estée Lauder, Adidas neo, Oppo, etc. She has recently received many endorsements from top luxury brands due to her image.

[Source: Weibo Celebrity endorser in China – Dilraba Cherry Dilmurat]

Yang Mi (杨幂)

Yang Mi is a Chinese actress, singer and model. She was ranked 3^rd in 2017 Forbes China celebrity list with ¥200 million rmb revenue. She is preferred by many cosmetics and fashion brands as she is known as the Queen of influencer marketing. The brands she has endorsed include: Michael Kors, Versace, Stuart Weitzman, Estée Lauder, etc.

[Source: Weibo Celebrity endorser in China – Yang Mi]

Hugh Hu (胡歌)

Hugh Hu is a Chinese actor and singer. He is famous for his solid acting skills and high-rating TV dramas. The brands he had endorsed countless brands, which include: Hyundai, PizzaHut, Minute Maid, Togocareer, Pingan, etc. Many brands collaborated with Hugh in order to build a trustworthy and professional image within target consumers’ minds.

[Source: Weibo Celebrity endorser in China – Hugh Hu]

Dongyu Zhou (周冬雨)

Dongyu Zhou is a famous Chinese actress. She won best actress Golden Horse Awards in 2016 and has been fairly active recently, appearing in movies, TV dramas and reality TV shows. Previously, she has represented Pepsi, KFC, Rio, Wong Lo Kat, etc.

[Source:Weibo Celebrity endorser in China – Dongyu Zhou]

Karry Wang (王俊凯)

Karry Wang is a Chinese singer and actor, and a member of famous Chinese boy group TFboys. He was ranked among wealthiest young people born after 1990’s with a net worth of ¥ 248million rmb. Karry was one of the celebrities with most endorsed brands including: Snickers, Stride, Lancome, iReader, KFC, dior, Chunyue, Anessa on Tmall super brand day, etc. Notably, his endorsement for Anessa on Tmall super brand day in 2019 reached over ten million sales in 13 seconds.

[Source: Weibo Celebrity endorser in China – Karry Wang]

Tamia Liu (刘涛)

Tamia Liu is a popular Chinese actress who had won various best actress awards in China. She had been a spokesperson for: Porsche, Lancôme, Chopard, BEAST, VIPKID, etc. Tamia Liu’s brand endorsements are often luxury or child care products as she adopts a good mother and a professional actor image.

[Source: Weibo Celebrity endorser in China – Tamia Liu]

Louis Koo (古天乐)

Louis Koo is a famous Hong Kong actor and singer. He is the president of Hong Kong performing artistes’ guild currently. Louis Koo became popular among Chinese Neitzens once again due to his donations across rural regions in China. He has represented: Fiyta, Cadillac, Outes, Tanwan Lanyue, etc.

[Source:Weibo Celebrity endorser in China – Louis Koo]

Chinese celebrities that have had consistently high influence over the last decade

Some older Chinese celebrities still have influence power among general Chinese public. Many of which either still appears frequently on big screen or have recently climbed back into the ranking with more working schedule.

Faye Wong (王菲)

Faye Wong is a highly successful and influential Chinese singer, songwriter and actress. She has been a spokesperson for many global brands, such as LV, CELINE, Motorola, J-phone(Japan), Baleno attitude, Pepsi, Jovell, Head-Shoulders (海飞丝) in the early part of the decade.

Although Faye Wong was ranked first in 2012, her power of influence had weakened a lot as she gradually appeared much less in front of the screen in the recent years. However, she is still ranked in the top 100 Chinese celebrity brand endorsers in 2019.

[Source: Jolintsaidownloads Chinese Celebrity Endorser – Faye Wong]

Jolin Tsai (蔡依林)

Jolin Tsai was the second top earner among Taiwanese singers in 2010 behind Jay Chou (周杰伦). She gained US$14.51 million 2010. In 2012, she had endorsed Koobee, YAMAHA CUXI, Chinalife, Lay’s, Bixiutang, Tropicana, Whisper, Pepsi, Haichang contact lens, etc. Jolin Tsai have returned into the ranking this year as she released a new album.

[Source: yahoo.com Chinese Celebrity Endorser – Jolin Tsai]

Eason Chan (陈奕迅)

Eason Chan was praised by Time magazine as a front runner in the next generation of Cantopop. In 2012, he was a spokesperson for Adidas Originals, Le Paco Clothing, One2Free, McDonalds, Netvigator, Minute Maid, Coca-Cola, Ribena, etc. Eason Chan and Jay Chou are the only two celebrities that remained high on the ranking from 2012 until 2019. Both were ranked in top 10 within CelebrityZ’s ranking in 2019.

Brands’ preferences of these two celebrities over others may be due to their sustainable traffic and ability to generate long-term sales growth. In most cases, older celebrities that general public are more familiar with, can generate more positive association then ‘liuliang star. Budweiser signed Eason Chance as their brand endorser in 2016, and since then consumers have felt closer to the brand. This suggests that Eason Chan’s ‘spontaneous’ and ‘friendly’ personality shares a very similar brand value with Budweiser.

[Source:music.douban.com Chinese Celebrity Endorser – Eason Chan]

[Source: BrandZ & CelebrityZ Eason Chan improved Budweiser’s brand image after he endorsed the brand]

Jay Chou (周杰伦)

Jay Chou is a famous Taiwanese musician, singer-songwriter, music and film producer, actor and director. He shot many TV commercials and print ads over the years. In 2012, he represented LEVI’S, MOTOROLA, CITYCHAIN Watch, Honda Yaris, Sprite, Kaspersky, Yili(伊利) Yogurt, Panasonic cellphone, DHC cosmetics, Colgate, Meters/bonwe, etc.

Despite that many Chinese celebrity brand endorsers had inevitably lost commercial value as years past by, Jay Chou was an exception. He was ranked at third place in the 2019 CelebrityZ commercial influence list. After been quiet for the past few years, Jay Chou’s new music video ‘Won’t Cry’ (说好不哭) featuring Mayday’s Ashin went viral among Chinese Neitzens in 2019. Moreover, his appearance in different TV shows and frequent concerts around the world had helped him build social buzz volume and online exposure. All are the reasons to him climbing up 15 places on the list compared to 2017.

[Source: QQmusic – Jay Chou is one of the most influential celebrities of the 21st century]

Chinese celebrity brand endorsers with declining influence

Leehom Wang (王力宏)

Leehom Wang is one of the most famous celebrities in Asia as a singer-songwriter, director, actor, and producer. He has worked for Coca-Cola, McDonald’s, Sony Ericsson, Bausch & Lomb, Bosideng MAN, Garnier, Lay’s Chips, Nikon, Brand’s, Hyundai.

Although ranked high in 2012, Leehom Wang was only placed at 38^th on 2019’s ranking. Like many other older celebrities, Leehom Wang is not favored by most Chinese brands as they find those endorsers who can attract high volume of social buzz, digital traffic and short-term sales more appealing. ‘Liuliang Star’ is a new word that refers to such kind of Chinese celebrities. Recently, CEO of Hongsheng Group that owns Wahaha (娃哈哈) mentioned in a TV program that Leehom Wang is no longer suitable as a brand ambassador for her brand as consumers are feeling tired and bored looking at him for over 20 years.

[Source: Sohu.com Celebrity endorser in China – Leehom Wang]

Sherry (张惠妹)

Sherry is a Taiwanese pop singer and occasional songwriter. She has been a celebrity endorser for Neo SkyDome Real Estate, Go To Taiwan Taiwan.net, Taiwan Beer, Kuang-Chuan Cold Tea, and Shiatzy Chen. Given that Sherry Zhang has not released any new albums in the recent years, it is reasonable that her influence power has dropped.

[Source: Chinapress.com Celebrity endorser in China – Sherry Zhang]

Fish Leong(梁静茹)

Fish Leong is a Malaysian Chinese singer in the Mandarin pop scene who has had much success in Taiwan, Mainland China, Hong Kong, Malaysia, Singapore and Japan. Known as “the Queen of Love Songs”, Fish Leong has worked for IMPACT, Intimate, Redbox&Greenbox KTV (Malaysia), Shiseido, YAHOO, OLAY aqua hydration, BIOTHERM, KISS GOLD, Cenosis, HITACHI, etc.

Fish Leong, Stefanie Sun, David Tao and René Zhang are all examples of those celebrities that returned back to their family and gradually appeared less on the big screen. However, many of them are making comebacks to the screen recently, which means their future influence power may be expected to increase once again.

[Source: Pinprestige Celebrity endorser in China – Fish Leong]

Stefanie Sun(孙燕姿)

Stefanie Sun is a Singaporean singer and songwriter. In 2012, she had shot over 50 commercial ads for global brands such as RichLife ZHI, SK Jewellery, FOSSIL watch, Lexmark printer, Motorola, YAMAHA, Lux, Louis Vuitton, Converse, Lay’s, XS-EXES, etc.

[Source: Duitang elebrity endorser in China – Stefanie Sun]

David Tao(陶喆)

David Tao is well known for creating a crossover genre of R&B and hard rock tunes, and has been a spokesperson for Hennessy VSOP, Big John, Volkswagen EOS, Honda, Rejoice Shampoo, Sony Ericsson W810C cellphone, Sprite,etc. Due to his scandals, he had not been active in recent years and is no longer preferred as a brand endorser by many brands as his image does not attract a positive association in consumers’ minds.

[Source: Pinprestige Chinese Celebrity brand Endorser – David Tao]

René Liu(刘若英)

René Liu is the first to win Best Actress awards at the Asia Pacific Movie Festival in both television and film productions. She has worked for SHISEIDO, Lux, Garnier, Sharp cellphone and Sharp AQUOS, Rado, Daphne D28, Whisper, SODA, etc. She is among the Chinese celebrity brand endorsers who are declining in popularity.

[Source: Pinprestige Celebrity endorser in China – René Liu]

This article Marketing research: Chinese celebrity brand endorsers is the first one to appear on Daxue Consulting - Market Research China.

Since 2011, the cosmetics market in China has seen sustainable growth. In 2018, the market size of cosmetics industry in China reached 3.69 billion RMB. From 2010 to 2018, the average growth rate of the market size had maintained at 7.87%. It is expected that the average growth rate will maintain at 5.4% in the following years. For those selling cosmetics in China, the market growth has slowed but there is no shortage of opportunity.

[Data source: chyxx, ‘Size of cosmetics market in China’]

Regarding the import trading pattern of the cosmetics market in China, since 2013, the volume and dollar value of import have both been rising. In 2018, China imported more than 200,000 tons of cosmetics products with the value of 92 million USD, which was approximately 160,000 tons more than 2013. Such a figure indicates that foreign cosmetics firms have a large business opportunity if they want to enter China’s cosmetics market. 

Cosmetics market in China: Distribution channel analysis

Finding the right distribution channel is important for selling cosmetics in China. Supermarkets and hypermarkets are the main winners in the battle for distribution share of beauty and personal care goods in China.

The increase in sales of beauty and personal care products through supermarkets and hypermarkets comes mostly at the expense of small independent stores, which dominate sales in rural areas. As the population shifts into the cities they are losing distribution share.

The share of direct sellers diminished since 2008 because of the regulation affecting multi-level direct selling. Internet sales have doubled from 0.4% of all beauty and personal care sales in 2011 as penetration of computers is on the rise in China.

With the development of Internet, online sales has become the major distribution channel in China’s cosmetics market. From 2012 to 2017, the market size of online shopping had a significant increase. The sales volume of online shopping accounted for more than 50% of the total sales volume. In 2012, the market size of online shopping was 62.2 trillion RMB. In 4 years’ time, it had surged to 154.4 trillion RMB. It is expected that the market size of online shopping will grow continuously.

[Data source: qianzhan, ‘Size of e-commerce cosmetics market in China’]

China cosmetics market case study: Sephora in China

While many foreign personal care manufacturers have not done as well as expected when entering the Chinese market, premium French beauty retailer Sephora has enjoyed a great degree of success selling cosmetics in China. After initial success in big cities such as Beijing and Shanghai, Sephora in China is speeding up growth and is now focusing on second-tier cities. The French beauty retailer pulled out of the Japanese market in 2000s. Its crucial mistake there was too much emphasis on stocking fragrances, a category of minor importance in Japan compared to skin care. Sephora in China has learned from this and is focusing its product range more on skin care and color cosmetics. This makes far more sense given that these categories are currently far bigger than the fragrances sector in China.

Analysis of cosmetics market in China

Cosmetics products in China

Cosmetics products segmentation is influenced by culture and focused on skin care According to research by IBISWorld, skincare products are the largest segment among cosmetic products in China, accounting for 55.2% of industry revenue in 2018. Skincare products are used to clean and protect the skin, and keep skin healthy. Most women use skincare products, underpinning skincare’s dominance of the industry.

Hair care products are ranked second with a proportion of 18.8% in China’s cosmetics market. Moreover, in the skin care and hair care segments, male grooming products have been growing in popularity.

Cosmetics include makeup for the skin, eye makeup, lipsticks and nail care products. In 2018, less than 20% of Chinese people use cosmetics, while over 95%  of Western women use them daily. However, the number of cosmetics users is expected to increase remarkably in the following five years.

Fragrances include perfumes, colognes and floral water. This segment has experienced steady growth in recent years as more Chinese women have started using perfumes. Relatively few Chinese people use fragrances, as market research shows they do not prefer strong smells. Nevertheless, this segment is anticipated to grow in the future with the influence of globalization and cultural integration, and would grow further with the development of lighter scented perfume products that fit Chinese consumer preferences.

Other products include deodorants, depilatory (hair removal) products, and pilatory (hair growth) products, accounting for an estimated 5.3% of industry revenue in 2018.

[Data source: IBISWorld, ‘Products of the personal care market in China’]

Key players in China’s cosmetics market: Foreign brands in China’s cosmetics market are successful

Foreign brands dominate the cosmetics market in China while domestic brands are catching up quickly.  The competition of brands selling cosmetics in China is tightening as more domestic brands gain market share.

In 2018, foreign brands such as Procter & Gamble and L’Oréal accounted for approximately 50% of the market share in cosmetics industry in China. Although domestic firms in China Chicmax, Pechoin and JALA Group) occupied 17.97% of market share, with the development of quality and innovation of products made nationally, it is expected that the market share of domestic cosmetics-manufacturing firms will increase steadily in the future. Previously, their performances have proven that this statement is real. From 2014 to 2017, the market share of Pechoin increased from 1.4% to 2.3% while Chando increase from 1.3% to 1.7% and ranked at the fifth place in the China’s cosmetics industry.  

[Data source: qianzhan, ‘Market share of major players in China’s cosmetics industry’]

Consumer analysis of China’s cosmetics market

Consumer profile: Female-dominated, concentrated in eastern and southern China.

To some extent, consumers of cosmetics and personal care market in China are distinct from others. In terms of genders, Chinese female consumers have contributed most of the sales volume of the cosmetics market in China. According to Institute of Sina WRD Big Data, 64.35% of the users that follow the topic of cosmetics and personal care are female. More specifically, females aged 20-29 accounted for most of the sales transactions with the proportion of 36%, followed by the segment of females aged 30-39 with the proportion of 26%. As the segment of females aged 20-29 consumed the most in China’s cosmetics market, this can be explained by the fact of the rising anxiety of beauty and aging among them and their increasing affordability. In 2028, it is expected that the contribution of females aged 30-39 will outweigh that of females aged 20-29 and the sum of their contributions will be more than 50%.

[Data source: qianzhan & Research Institute of Orient Securities, ‘Age distribution of female cosmetics consumers in China’]

On the other hand, with the influence of K-Pop and J-pop, Chinese males are becoming aware of their appearance, which lead to rising consumption on male personal care products. From 2019 onwards, in the following 3 years, the sales growth rate of cosmetics products regarding male segment in China will reach 13.5% in comparison with 5.8% of the global rate.

In terms of geographic locations, the sales volume of the cosmetics and personal care market in China is mainly concentrated in the area of Pearl River Delta (Guangdong) and Yangtze River Delta (Jiangsu, Zhejiang, Shanghai). According to Institute of Sina WRD Big Data, users from these areas are most likely to follow and post relevant information regarding cosmetics and personal care on social media platform. Moreover, it is found that the cosmetics market in  provinces that are in northern east (i.e. Heilongjiang and Liaoning) and middle (i.e. Sichuan and Anhui) China has a potential business opportunity.

Consumer preferences: Craving for different functions of products, natural ingredients and top-grade brands

As consumers of cosmetics market in China become more familiar with the variety of products available, the consumer demand grows stronger for more specific items. Take skincare as an example, whitening, freckle removal, moisture and antioxidant are segments becoming more prevalent in Chinese consumers’ mind. When selling cosmetics in China, foreign brands often need to alter their product to match the unique beauty needs of Chinese consumers.

Apart from the function, consumers in China’s cosmetics market desire for cosmetics made from natural ingredients. Due to the frequent safety issue of items in China, consumers are more aware of safety of cosmetics. Products made from natural or herbal ingredients become popular with consumers in China. This has been proven by the rising performance of companies that focus on producing cosmetics with herbal ingredients. In 2018, the sales volume in this segment was 5.3 times than that of 5 years ago while the consumer base was 4.2 times than that of previous years. In the future, cosmetics with natural ingredients are projected to occupy more market share.

Lastly, influenced by the rising purchasing power, consumers of cosmetics market in China are switching to top-grade brands. This has been proven by the increasing market share of top-grade brands in China’s market.

[Data source: qianzhan & Research Institute of Orient Securities, ‘Example: market share of Lancôme and YSL in China’s cosmetics industry’]

Choosing the right E-commerce Platforms for selling cosmetics in China

Dominating e-commerce platforms: Tmall and JD

In 2016, Tmall and JD were the dominating channels with the market share of 60% and 33% respectively. Although other channels such as Suning and yhd.com had occupied certain market share, they were still pale in comparison with those of the main channels. Moreover, as for the types of online stores that were most popular with customers, online flagship stores listed on the platforms like Tmall and JD accounted for the largest market share with 45.4% of market share while proprietary sales of these platforms ranked at the second with 23.9% of market share. This reveals Chinese consumers preference for online shopping. That is, they are likely to shop at stores that are directly operated by cosmetics brands.

[Data source: chyxx, ‘Market share of online sales platforms in China’]

[Data source: chyxx, ‘Market share of types of online stores in China’s cosmetics market’]

Promotion platforms: TikTok and Xiaohongshu

With the development of online shopping channels, social media platforms have significant impact on the promotion channels and consumer behaviour. Xiaohongshu and TikTok become novel platforms for cosmetic firms to promote their products. For example, Proya, a domestic skincare firm released short videos on TikTok and invited influencers of Xiaohongshu to post their reviews after using the products. Posting related information on such platforms can reach target customers since most of the users are millennials. It turned out to be successful. The new product, Black Sea Salt Deep Purifying Bubble Spa Mask, has a remarkable performance with more than 1-million sale volumes every month.

[Photo source: NetEase, ‘Promoting on TikTok: Selling cosmetics in China’

[Photo source: jumeili, ‘Promotions of cosmetics on Xiaohongshu in China: Selling cosmetics in China’]

Promotions of China’s cosmetics products

Common marketing strategies: celebrity endorsements, crossover marketing and KOL marketing

Celebrity endorsement is a common strategy that cosmetics and personal care brands in China would utilize to promote their products. Companies in this sector are likely to hire KOLs or celebrities from China, especially males to endorse their products. In 2019, 24 cosmetics companies established collaboration with famous stars and hired them to be the brand ambassadors. There is couple of reasons to explain this trend. Firstly, the majority of fans are females and they are likely to make consumption on the products which are related to their idols. Secondly, male endorsement is able to create sensations, which can draw people’s attention.

 [Photo source: TOPMEN, ‘Junkai Wang, the male brand ambassador of Lancôme in China’]

Crossover marketing is a novel strategy in the cosmetics industry in China. Promoting multiple products from different industries is able to draw consumers’ attention and increase brand exposure among existing and potential consumers. Nowadays, since people are bombarded by novelties, it is necessary for a cosmetic firm to come up with sensational meanwhile effective promoting content in order to target consumers successfully, which will potentially lead to increase in revenues and profit. Quite a few cases have proven that this strategy is feasible. For example, in December 2018, the marketing campaign of “The Forbidden City & Cosmetics” was launched. It suddenly went viral among consumers. According to Weibo, the topic of “The Forbidden City & Cosmetics” reached 4,500,000 reads and discussed more than 4000 times.

[Photo source: iyiou, ‘The Fobidden City & Cosmetics’]

KOL marketing is also widely used by cosmetics and skincare brands in China. For example, Austin Li, a famous makeup influencer who is famous as “Brother Lipstick” on social media has successfully promoted multiple products. He has over 31 million followers on Tik Tok and has earned 100-million likes. On Xiaohongshu, there are 40-thousand articles related to him. Lots of cosmetics consumers refer to his comments on products as guideline prior to their shopping on cosmetics. Austin has proven to be an impressive KOL for brands selling cosmetics in China.

Photo source: Sina, Chinese influencer, Austin Li on social media platforms: Selling cosmetics in China

Regulations China’s cosmetics industry: Tax & hygiene supervision

For foreign cosmetics brands that want to enter China’s market, it is necessary to apply for safety certifications. Furthermore, taxes on imported goods are continuously adjusted and it is important for them to know the information of taxation as this can affect costs and revenue significantly.

In terms of import tax, according to the policy updated in 2018, for imported cosmetics, the Chinese government has decreased the taxation rate from 8.4% to 2.9% for the purpose of boosting international trade and satisfying domestic customers’ needs.

In terms of Chinese cosmetics industry’s safety standards, the regulations that strengthen hygiene supervision over cosmetics to safeguard consumers’ health are continuously updated. For example, according to IBISWorld, in 2012, the State Food and Drug Administration issued the Guideline for Rapid Detection Method of Health Food and Cosmetics to establish and complete the rapid detection method of health food and cosmetics. The security of cosmetics will be of increasing importance in the future. In July 2015, new regulations on technical specifications for safety of cosmetics were published, which are expected to reduce the occurrence of cosmetic safety incidents.

China cosmetics case study: L’Oreal in China

L’Oreal is an MNC based in France, that entered China’s cosmetics market in 1996. After 2 decades, the firm has become the major player with the largest market share in China’s cosmetics industry. Since 2016, their business in China has become the second largest income stream for the company. Owing to the dynamic strategy of L’Oreal which fits China’s market accordingly, it wins the heart of Chinese consumers.

A variety of products with different positioning

By acquiring brands specialized in different cosmetics areas, L’Oreal is able to diversify its business and gain profit from different streams. Meanwhile, L’Oreal is also able to position each of its brands in order to suit Chinese consumers’ needs. For example, shu uemura in China is positioned as luxury while 3CE and mg are positioned as mainstream consumer products. It is noticeable that shu uemura, 3CE and mg are brands based in East Asia and have already gained reputation among consumers in China prior to the acquisition. Many Chinese customers perceive that these brands are suitable for them as they tailor to Asian skin. Furthermore, after the acquisition, L’Oreal dedicates to amplify their advantages in order to maintain and expand its customers base. In addition to Asian brands, luxurious brands such as Lancôme, YSL and GIORGIO ARMANI have remarkable performances in China as the positioning and quality of products are in line with the expectation of customers in China. At the same time, by taking advantage of the current consumer’s preference in China, rising trend of purchasing with top-grade brands, it may enable L’Oreal to gain more profit.

Apart from the acquired brands, the home brand such as L’Oreal Paris has altered in order to tailor to China’s market. The company has established R&D centers in China and hired Chinese talents for the purpose of creating products which meet Chinese consumers’ needs.

[Photo source: L’Oreal, ‘Product segmentation of L’Oreal’]

Keep pace with the up-to-date sales channel and promotion strategy

E-commerce and KOL marketing are necessary promotion methods when selling cosmetics in China. L’Oreal, as a market leader, has always updated its distribution channel and promotions of cosmetics to keep up with the fast changing Chinese cosmetics market. For example, in 2016, the company officially set up its E-commerce department in China and standardized its online sales channel. This had proven to be effective. In 2017, the total sales volume of online selling achieved 2.1 billion Euros with the growth rate of 33.6%.

As for promotions, L’Oreal is notable for its Beauty Advisers (BA). Since the company has leveraged KOL marketing in China, in 2016, it launched the program which enabled BA to be influencers on social media platforms. The company collaborated with Tmall and trained 200 BAs to be influencers. Austin Li, who is mentioned in the previous section, is one of the trained BAs of L’Oreal. He has broadcasted 80 live shows on social media platforms for L’Oreal and potentially increased the revenues by 10 million RMB. What is more, L’Oreal is the pioneer of KOL marketing in the cosmetics and market in China.

[Photo source: Sohu, ‘E-commerce of L’Oreal in China’]

[Photo source: Sohu, Austin Li, the KOLs and beauty advisor of L’Oreal in China. KOLs are an important promotion channel when selling cosmetics in China]

Learn more about the cosmetics and personal care market in China

This article Selling Cosmetics in China: Analysis of the Cosmetics Market in China is the first one to appear on Daxue Consulting - Market Research China.

Walmart was founded in the United States by Sam Walton. It has now grown to be the largest retailer in the world with over 11,200 stores across 27 countries. Walmart entered China in 1996 with its first location in Shenzhen.

The company operates three retailing formats: Supercenters, Sam’s Club and Neighborhood Markets, all of which cater to different consumers’ needs. Supercenters mainly aim at saving consumers’ time and money. Walmart is known for “Every Day Low Prices”. Sam’s Club in China is a members-only warehouse. Walmart China has a similar business model as Costco in China, which provides low-cost, bulk products for both business and personal use. Neighborhood Market is located near residential areas, for consumers’ daily shopping needs. Walmart China currently operates more than 400 stores in over 180 Chinese cities. Of these, there are 26 Sam’s Clubs in China. It is planning to open 30 to 40 new stores every year.

[Source: linkshop.com.cn Sam’s Club in China owned by Walmart]

In 2007, Walmart spent US$1 billion and acquired 35% of the parent company of Trust-Mart, a Taiwan-based hypermarket chain plan. This major investment by Walmart accelerated its expansion across Chinese regions. As of 2012, Trust-Mart had over 100 outlets across China, including many stores in lower-tier cities.

Walmart China sold its Chinese E-commerce site (Yihaodian) to JD.com in 2016. JD.com now operates on behalf of Walmart China for its online platform, which it allows Walmart a more competitive position that taps into Chinese consumer needs.

Strategies of Walmart China

Walmart maintains the same strategy in China as it does globally, which is centered around quality service and low prices. Walmart and Sam’s Club in China use advanced retailing technologies methods. While inspiring competition, it raises the level of overall service of the local retailing industry.

Local sourcing keeps prices low

Walmart China sources locally. Local products comprise about 95% of the goods that are sold in China’s Walmart locations. Additionally, it has cooperated with about 20 thousand suppliers, and directly exports about 9 billion USD worth of Chinese products annually. In 2006, Walmart China was named the enterprise with highest customer satisfaction according to a survey held by an authority in Shanghai.

Sustainable development lowers operation costs

Sustainable development is another important strategy of Walmart China. It opened its first environmentally-friendly flagship store in Beijing in 2018 with 40% less energy usage. The store incorporated efficient cold chain system, energy saving light bulbs, and longer lifespan long-term assets etc.

Walmart began developing its online retailing services in China in 2012. Since Walmart’s Chinese stores are mainly distributed in first and second tier cities, great market potential hence lies in third tier cities and smaller cities through online retail. The development of an online purchasing system greatly increased Walmart’s awareness and popularity.

[Source: wal-martchina.com Walmart introduced its official App to encourage consumers to purchase via their App]

Walmart: secret to success

Walmart three core company principles are: Respect individuals; serve the customers; chase for excellence.

Walmart also has ten rules of operation for its employees: control the cost; make good plans to share the profits; inspire your co-workers; learn from anybody possible; thank your colleagues for their contribution to the firm; allow for failures; listen to the advice of everyone in the company; do better than what customers had expected and they will come again; make administration costs lower than your competitors; do not follow the tradition.

New moves by Walmart in China

Recently, Walmart announced its plan to open 500 new stores and warehouses in China over the next five to seven years. This movement by the company is considered to be one of its biggest footprint in China despite that the overall Chinese economy is cooling. Although that Chinese GDP growth dropped to its lowest level in nearly three decades last quarter due to trade was with the United States, the sales of Walmart in China grew by 6.3%. Notably, its growth in the Chinese market doubled more than its worldwide growth of 2.5%.

Besides, Walmart announced that it is going to invest approximately 1 billion dollars in its Chinese region to compete with local rivals and other online retailers. James Ku, senior vice president of Walmart China mentions that the company seeks to deliver freshness, value and convenience to its customer by leveraging multiple format strategies, in which remodeling of stores, and improving store features such as self-checkout machines incorporating facial recognition, as well as online platform stores will be the key to the success of the company’s expansion project. Cooperating with JD.com will also allow Walmart the chance to gain deeper Chinese consumer insights.

[Source: asia.nikkei.com Facial recognition check-out machines adopted by other retail chains]

Reaching low tier consumers

Walmart China is also planning to put more weight on its neighborhood stores and to increase the sales area of fresh groceries. Walmart will continue to expand especially in the second- and third-tier cities, with a plan to open 40-50 new outlets a year focusing on third-tier cities.

Overall, the future of Walmart China seems to be fairly optimistic as the company continues to experience revenue growth. However, the future growth will depend largely upon its expansion of local brick-mortar-stores, improvement of online platforms and relative digitized features.

Daxue Consultant China

Sources:

• 沃尔玛官网 
• 沃尔玛网上商城
• 沃尔玛新闻 

This article Walmart in China: Market entry case study is the first one to appear on Daxue Consulting - Market Research China.

Air Conditioner Market in China. Until recently, Chinese people bought cheap fans in the summer. After the beginning of the 21st century, a growing number of Chinese people could afford air conditioners to keep rooms cool and comfortable. In recent years, international air conditioner brands gradually lost their market share in China. However, they make more profits through converter technique as well as selling core components and parts. This big potential market gives more places for Chinese domestic brands to grow and expand.

Contact us for any question on the Chinese market

Chinese top 4 air conditioner brands：Midea(美的), Haier(海尔), Gree(格力) and Chigo(志高)

Midea(美的), Haier(海尔), Gree(格力) and Chigo(志高) are the top 4 Chinese domestic air conditioner producers. Among them, only Gree and Chigo are air conditioner companies, while Haier and Midea have a larger product offering. Gree(格力), founded in 1991 in Zhuhai(珠海), is now the biggest air conditioner producer in the world. It controls its own research development, production, sales and CRM(Customer Relationship Management). Gree air-conditioning is the only “World famous brand” in the air conditioner market in China. In 2013, Gree achieved 88.517 billion RMB as their annual income and generated 37.35% year-on-year growth. As a listed company, Gree appeared on American 《Fortune》 magazine for 8 years, as “Chinese Big 100 listed companies”. At the same time, its brand value is worth $13.708 billion, ranked No.51 in China. 2008 was a unique year for Gree as they gained more than 8.8 million users all over the world and was awarded in the list of “Chinese most competitive brands” for its brand image and brand vitality.

Distribution of Chinese domestic air conditioner brands

Midea drives their retail business through wholesale sales. Its wholesalers are responsible for the distribution in China. There might be several wholesalers in one area and Midea supplies products to them and they distribute the products to retailers. The price that retailers fix is determined by the manufacturer. The manufacturers take charge of sales promotion and asked their wholesalers for the list of their retailers. Retailers are responsible for installation and after-sale service. As a result, Midea’s method of distribution saves its marketing costs and utilize wholesalers’ capital. On the other hand, it may cause confusion of their unsteady distributions.

Famous international central air conditioner: Daikin(大金) and York international(约克)

Chinese companies have gained an advantage in home air conditioners. However, in the market for central air conditioners, a Japanese brand, Daikin, which was founded in Osaka in 1924 and the US brand, York International, which was founded in 1902 own a large market share not only in China but globally. Dakin is the best seller of central air conditioners in China and York International is the world’s largest air conditioner manufacturer.

The revenue for the air conditioner market in China in 2015 has reached a total of 89 billion dollars up to 5.7 compared to the previous year. 232 companies are actually running within this industry and during the past five years, the market has been developed steadily with revenue growing at an annualized rate of 9.6%. Therefore the investment from domestic and foreign enterprises hasn’t stopped increasing in recent years, the worldwide major manufacturers that have been settled in China are Fujitsu, LG, Samsung, Panasonic, and Fedders. The Guangdong province has a huge concentration of domestic and worldwide companies from this industry, generating 60.5% of the total industry revenue.

While the increase in mercury made pPurring air conditioners, the increase in access to the air conditioner in developing countries constitutes a bomb ticking for the planet. According to some scenarios, freshness warming–backed race could multiply by ten by the end of the century energy needs and an increase of 23 billion tons annual global emissions of greenhouse gasses.

Daxue Consulting China Market Research

Sources:

• China Daily
• Market Research
• Midea
• Picture Source: Air Conditioning

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This article Market Research: Air Conditioner in China is the first one to appear on Daxue Consulting - Market Research China.

More about coffee market in China

Starbucks in China. Business Week and Interbrand have listed the top 100 global brands (market study in China) and Starbucks Coffee ranked in at 91st overall thanks to its $3 billion brand value. The company has spread its business to many countries over the past 30-years. Starbucks entered China’s market through franchising and joint ventures. With an increase in profits in the Chinese market, the company realized that it could gain more control over its partners in China. Therefore, Starbucks gradually changed its business model in China. 

Tea Shops in China 

Tea and coffee compete directly in the Chinese drinks market. With a reputation as a coffee brand, Starbucks faced a serious crisis. Thus, the company decided to open some tea shops in addition to its regular coffee shops. The company realized that drinking tea was part of the Chinese culture and saw it as an opportunity to expand its business rather than simply looking at it as direct competition for its existing products.

Festival foods in China

In order to enter the festival market in China and satisfy the taste and demanding of Chinese consumers, Starbucks released Starbucks mooncakes and Starbucks zongzi in recent years. In the first year of its existence, the mooncake did not sell very well. But from the second year onward, Starbucks combined the mid-autumn festival theme with its coffee culture, creating a new kind of mooncake called the coffee mooncake.

Cups in coffee shops in China

Starbucks not only sells coffee, tea, coffee beans, and mooncakes but also sells cups. Its tumbler cups and coffee mugs are very popular in China, which is often sold out in couple weeks. All throughout China, cups with the Starbucks logo are everywhere. The market for Starbucks’ cups has already spread from white-collar workers to students. Cups of Starbucks are broadly classified into two categories, tumblers, and mugs. It can also be classified by themes, which are charm-logo cups, city cups, thematic mugs, etc. In 2004, Starbucks released a type of city cup with designs based on Chinese cities. Many big cities like Shanghai, Hong Kong, and Beijing designed their own mugs and mini cups.

Starbucks entered the Chinese market in 1999. The company targeted young consumers in China and it predicted that the changing lifestyle of young people in the country would increase their demand for coffee. Wang Jinlong, CEO of Starbucks in China said they aimed to reach two targets. The first was to create a new kind of place and bring a unique environment to the Chinese lifestyle. The second was to combine Chinese tastes with products from Starbucks to give Chinese consumers something new while maintaining a level of familiarity.

In summary, Starbucks in China employed a very successful marketing strategy when entering the country. It was creative and innovative enough to successfully integrate a foreign brand into Chinese culture.

Daxue Consultant China

Sources:

• Starbucks
• Euromonitor International

This article Marketing Research: Starbucks in China is the first one to appear on Daxue Consulting - Market Research China.