Matthieu David interviews Carole Gabay, Analytics Manager & Market analytics consultant. Insightful market analysis is really important in order to accurately determine consumer behavior and make solid market strategies. Carole Gabay has been doing market analysis for 25 years and her skills in this field have been honed and perfected based on a strong professional experience. Her latest project is called covidminute.com What exactly does this project shed light on and how did it come to be? How is the approach to market analysis different for China compared to the rest of the world? Find out the answers to these questions and more in this new China Paradigm interview.

• 0:00 Guest introduction
• 2:21 What projects is Carole Gabay working on currently and how does she describe the term “market analytics capabilities”?
• 7:23 What insightful tool does Carole Gabay use for market analysis?
• 10:51 How is market analysis different for China compared to the rest of the world?
• 14:04 The China drug market – worth tracking of healthcare insurance agencies come to the market
• 16:15 How did covidminute.com came to be?
• 20:14 How did Carole Gabay approach the COVID-19 impact analysis?
• 23:34 The COVID-19 epidemic – quantitative analysis vs qualitative analysis
• 29:13 Testing – an important variable to take into account when analyzing the COVID-19 epidemic on a global scale
• 31:55 How does weather impact the coronavirus spread?
• 36:05 Lockdown policy – easier to enforce in some countries and harder in others
• 39:47 COVID-19 spread in Israel – a brief case study
• 41:33 covidminute.com – choosing the everyday topic
• 43:18 Learning from mistakes – refining collected data on the coronavirus is crucial for research institutes
• 44:43 What books gave inspired Carole Gabay in her professional journey?
• 46:35 What does Carole Gabay read to stay up to date on China?
• 47:41 What book about China would Carole Gabay recommend?
• 51:45 What success or failure has Carole Gabay witnessed in China that could have an impact on Chinese society?
• 55:50 Outro

The relevant episodes

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 111: Using analytics to make data relevant in China is the first one to appear on Daxue Consulting - Market Research China.

[Data Source: China Chain Store & franchise “Annual Sales Revenue of the Convenience Store in China”]

Blooming convenience store market in China

In 1992, Seven-Eleven opened its first convenience store in Shenzhen, marking the beginning of the foreign chain convenience stores’ China market entry. Later, China’s domestic convenience stores started to become popular and established chain brands. The combination between convenience stores and online life platforms is also thriving and brings more convenience to customers.

The government issued supportive policies to contribute to the development of convenience store market in China as well. In 2018, Beijing has unveiled new policies to encourage the establishment of neighborhood convenience stores to ensure that there is at least one convenience store in every neighborhood. According to the policies, Beijing is encouraging the establishment of chain-supermarkets and convenience stores in residential neighborhoods. Enterprises will be given 30% of total investment in governmental fixed asset investment subsidies for each convenience store or supermarket successfully set up in residential neighborhoods.

After initial expansion in China, Japan’s convenience stores face an evolution.

Japanese convenience stores expanded aggressively, where they see vast new markets being created by China’s rapid urbanization. However, they face the challenges of a retail culture of poor customer service and shoppers who value price over convenience. Seven-Eleven is the largest convenience store in Japan, but did not adapt to the Chinese market as well as Family Mart and Lawsons. It sells cold food like sandwiches which do not suit Chinese appetite, and the prices are a bit high. Family Mart takes more measures to adapt to the Chinese market. Now, Family Mart is the largest Japanese convenience store operator, with 2,571 stores in China. Family Mart provides customers with their preferred goods based on the research of customer preferences. Their sites selection is also sensible, people can find their stores in subways and other transportation junctions.

[Source: Family Mart “Food designed for Chinese appetite”]

Wal-Mart reopens its Chinese convenience stores after the first failure

The world’s top retailer, had launched a pilot program to open convenience stores in China. Wal-Mart China opened three convenience stores named Hui Xuan in 2009, in the South China city of Shenzhen in a low-key initiative. Unfortunately, these stores closed in 2012. Wal-Mart claimed that they closed these stores due to the end of the test. However, the stores’ operational staff revealed that the competitive market environment and the upstream production also caused the closure. Meanwhile, Brand Hui Xuan started to appear in tier 3 and 4 cities.

In 2018, Hui Xuan re-entered Shenzhen with its technology evolution. Now, Hui Xuan takes an omni-channel retailing model, allowing customers to buy products in multiple ways. Customers can purchase products in retail stores and pay by traditional methods like cash, Alipay, and other payment platforms. Additionally, they can utilize the WeChat’s Mini Program, Sao Ma Gou, to scan products’ bar code to pay without waiting in line. Hui Xuan also cooperates with JD Daojia. Customers can make orders in JD Daojia application and get their goods in 29 minutes within 2 kilometers. Beside product sales, Hui Xuan offers many convenient services including free hot water, and shoe repair.

The rise of domestic convenience store brands in China

During the 1970s, the usual convenience stores were stores in gas stations. After the reform and the opening up, convenience stores gradually appeared in residential areas. In 1993, Shenzhen had had mature local convenience stores brand named Polison with 300 stores. With the support of government policies and the boom of the economy, China’s domestic convenience store chains are flourishing.

Currently, local chains occupy 8 out of the top 10 convenience stores brands in China. These domestic brands present the characteristics of the region that they are from. For example, Hi-24 concentrates on the Beijing market. Hi-24 researched the Chinese characteristics to improve their sales. Rather than cold sandwiches, they sell hot food like pies, Douhua and other food with Beijing features to satisfy Chinese appetites. Domestic convenience stores also have irreplaceable advantages. Alldays, a state-owned convenience store brand, has the license to sell cigarettes while foreign enterprises are forbidden from selling cigarettes in China.

Convenience stores plus O2O is becoming popular in China.

As technology develops, numerous convenience stores gradually combine their sales with O2O platforms in China. Some convenience stores choose to use popular online sales platforms. Sina Finance reported that Seven-Eleven in Beijing did not want to join online sales at the beginning. However, as its competitors joined Meituan, Elema and JD Daojia, Seven-Eleven decided to make their products available on these platforms. In January 2016, the sales of Seven-Eleven in JD Daojia surged 400% over the same period last year. There are also many convenience stores that establish their own O2O platforms, like WeChat miniprograms.

[Source: Meituan “Seven-Eleven Online Store in Meituan”]

Convenience stores in China under Coronavirus Outbreak

Due to the impact of China’s Coronavirus outbreak, all shopping sites were shut down. Only convenience stores, supermarkets and pharmacies remained open. Thus, it triggered the boom of convenience stores sales. Meanwhile, the post-pandemic economic recession may also influence the convenience store market in China, which is a recession-proof market.  

The contributions of convenience stores under the epidemic control period in China

Convenience stores Coronavirus crisis management was quick and flexible. During this time, people have to stay at home, so many ones choose to make online orders to supply necessities. Hangzhou.com reported that Lawson stopped providing cooked food to avoid possible virus infection and replenished more instant food. The online orders of the convenience store Hangzhou.com increased by over 3 times. Meanwhile, many convenience stores use their ways to support anti-virus. Lawson started to sell fresh vegetables, and fruits that it did not replenish before. It also provided free breakfasts and food delivery to people who are against the epidemic now.

After Coronavirus, convenience stores may face more challenges in China.

According to OSTRICH’s data, its daily sales were around 8,000 yuan per store during the epidemic. In 2018, the daily sales of sample convenience stores in China was 5,299 yuan per store. In a short time, the sales of convenience stores may be intact. However, Wang Wei, the founder of Sheng Xian Chuan Qi, reminded us that retail enterprises may face the inflation brought by the economic downturn and the sluggish consumptions caused by the price rising. Convenience stores are forced to think about their future operation due to the potential economic recession.

The convenience stores market in China is promising and competitive.

Convenience stores in China have experienced several decades’ evolution and especially during the Coronavirus period, they reacted efficiently. Now, even facing challenges, the convenience stores market in China is still promising and competitive.

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This article The convenience store market in China is the first one to appear on Daxue Consulting - Market Research China.

The so-called “China paradigm” is, once again, showing its consequences on the world. Similar to 2008 when imported infant formula was massively bought by Chinese due to the infant formula scandal, to the extent which  some countries like the Netherlands or Australia experienced shortages and increased prices of infant formula in their own countries, we are currently witnessing the same for surgical masks. China is a new paradigm that shakes every single economy in the world. A few decades ago, the concept of the “butterfly effect” got popular as a tiny change at the opposite side of the world could lead to consequences oceans away. In the case of the virus, even small changes in Chinese consumption are impacting the rest of the world.

A Comparison between SARS and Coronavirus

Similar to SARS, the new coronavirus originated in animals and migrated to humans. The outbreak was initially associated with Wuhan’s Huanan Seafood Market that sells mainly seafood, in addition to chickens, bats, marmots, and other wild animals. With the human-to-human transmission, there was a spread of cases in Wuhan and other cities in China. By mid-January 2020, cases have been identified in Thailand, Japan, South Korea, as well as western countries like the U.S.

A brief comparison of SARS and Coronavirus

Data Source: WHO, Worldometer

Based on the current data, new coronavirus seems to be less deadly than SARS. However, it is spreading much faster. The 2002/2003 SARS outbreak led to a total amount of 8,094 effected cases over the course of 8 months; whereas, the epidemic of COVID-19 has that number only within a couple of weeks. On January 30, 2020, the WHO Emergency Committee has declared the outbreak of new coronavirus disease is a “public health emergency of international concern” (PHEIC).

Confirmed Cases around the World (February 12, 2020)

Source: The New York Times

The Possible Impact of COVID-19 on China’s Economy

The outbreak of SARS in 2003 caused a sharp dip in China’s economic activity (shaded area). The growth rate of the second-quarter GDP (y-o-y) dropped to from 10.8 to 9.7%. After the outbreak, the growth rate returned to normal levels immediately. In total, it was estimated that SARS reduced China’s annual GDP growth rate in 2003 by 0.5%. Even though the negative influence came from SARS, by the end of the year, the GDP growth rate in 2003 still reached 10%. These numbers show that although SARS sharply affected GDP growth, China made a swift recovery. 

Data Source: National Data

The adverse impact on China’s economy caused in COVID-19 might be much more profound  compared to the effect of SARS in 2003. Before the financial crisis of 2007-2008, the economic development in China achieved significant momentum—growing by an average of almost 10% a year. However, China’s economic growth has slowedThe productivity and overall economic growth have been falling for several years. In 2018, the annual growth rate of GDP reduced to 6.57%.

Data Source: National Data

Besides, the tertiary industry has accounted for an increasing portion of China’s economy in the past decades. In 2003, the secondary industry accounted for the largest share (52.20%) of the country’s gross domestic product. The percentage of the tertiary industry was only 33.38% (3,918.8 billion yuan). However, in 2017, the tertiary industry became the dominant industry in China’s economy, with a share of 51.69% (42,703.15 billion yuan). Meanwhile, the percentage of the industry sector has gradually shrunk. In 2017, it decreased to 40.46%.

Data Source: National Bureau of Statistics of China

Service sector hit the hardest during SARS

According to the data in 2003, the outbreak of SARS had negative influences across all industries, ranging from primary (like mining and fishing), secondary (like manufacturing), and tertiary (service). . However, the service sector was hit the hardest. In the second quarter, the growth rate of the tertiary industry decreased by 1.8%, while the growth rate of primary and secondary industries only reduced by 1.1% and 0.9%, respectively. Furthermore, the growth rate of primary and secondary industries quickly rebounded to the average level in the third quarter. In contrast, the growth rate of the tertiary industry only increased by 0.1% in the third quarter, and it took an additional three months (the fourth quarter) to regain the previous growth rate. Since the tertiary industry becomes more important in China’s economy in present, the GDP growth will be held back by the new coronavirus more significantly.

The Growth of Three Industry GDP (2000-2006)

Picture Source: Sina Finance

In the following, we will give a detailed insight to analyze how COVID-19 will affect China’s economy from various aspects.

Financial Market’s impact from SARS and Coronavirus

The Hong Kong Stock Market reacted in advanced

During the SARS outbreak in 2003, both the Hang Seng Index and the SSE Composite Index have declined. However, the Hong Kong stock market reacted in advance of the Chinese stock market. From the middle March to the end of April (the peak outbreak in Guangdong Province), the Hang Seng Index dropped by more than 8%. On April 24, 2003, the Hang Seng Index hit the lowest point, consistent with the peak of the SARS epidemic. The reaction of the A-share market was a bit slow. The SSE Composite Index experienced the first round of crash from April 16 to May 9, 2003, with a drop of more than 8%–similar to the Hang Seng Index. For the rest of the time, the fluctuation of the SSE Composite Index was not out of the ordinary.

The stock markets recovered by July

From May 2003, as the epidemic of SARS was gradually contained, the Hang Seng Index started to rebound. Although the SSE Composite Index was increasing slowly in the meantime, it experienced a second sharp decrease in the middle of May. Then, it started to rise again. Generally, both the Hang Seng Index and the SSE Composite Index returned to the normal levels after the outbreak was under control. But after July 2003, the Hang Seng Index kept increasing, while the SSE Composite Index decreased again. However this likely resulted from the monetary policy at that time.

During the SARS outbreak, the central bank kept a stable and prudent monetary policy without the reduction of the interest rate. At that time, China just joined the WTO. The economy was booming with a vast amount of foreign exchange flowing to China. A large number of international payment surplus had appeared—both the current account and capital and financial account sustained high surplus.

How quickly will China’s economy bounce back in 2020?

However, in 2020, the driving force of China’s economy is much weaker. The  financial market needs loose monetary policies to go through the outbreak. As a result, on February 3^rd and 4^th, 2020, the central bank conducted “reverse repos” and invested 1.7 trillion yuan in increasing liquidity.

Data Source: Yahoo finance

Retail Sales plummet during SARS outbreak

The outbreak of SARS hit the retail industry, and the total retail sales collapsed in April 2003. During the SARS peak period (May 2003), the growth rate reduced to 4.3%. With the outbreak appeared to be coming under control, the growth rate of retail sales quickly ensued. In July 2003, it returned to 9.8%. Consequently, the annual growth of retail sales of consumer goods in 2003 reached 9.1%, increased by 0.3% as compared to 2002.

Data Source: Golden Credit Rating International Co., Ltd.

Consumer goods sales reflected low consumer confidence

In 2003, the essential consumer goods, including grain, oils, and daily commodity, kept a steady growth. It might be caused by citizens’ anxiety to save in preparation for an epidemic. In contrast, the sales of consumer discretionary, such as sporting goods, clothing and shoes, and jewelry, were adversely affected. The sales grew more slowly or even shrunk.

Data Source: Golden Credit Rating International Co., Ltd.

SARS was formative for e-commerce

Before the outbreak of SARS in 2003, e-commerce in China was at the emerging stage. SARS outbreak promoted e-commerce (e.g., eBay, 8848) in China, in fact, JD.com credits the SARS outbreak to their 2003 launch in e-commerce. The volume of e-commerce increased dramatically (166%) because people were kept indoors by the coronavirus. Taobao, the current leading e-commerce website in China, was founded by Alibaba on May 10, 2003, the peak of the SARS outbreak.

The Coronavirus tells a different e-commerce story

We predict that the new coronavirus in 2019/2020 will also have a similar influence on retail sales in China. “Panic buying” is one of the most frequently mentioned word during the outbreak of COVID-19. However, the hit of coronavirus on sporting goods, clothing, and shoes may be milder. Thanks to the development of online shopping websites, citizens who are restricted at home can purchase needed products through several clicks at home.

Other online channels such as takeaway platform, fresh product platform, errand platform, and online business with offline supermarket will have more rapid development. The stock price of Yonghui supermarket, the leading player in fresh food e-commerce, has increased significantly by 24% in the past six trading days, with the market value reached to nearly 90 billion (yuan).

Catering, Hotel, and Tourism during SARS and Coronavirus

Outbound Tourism

The SARS outbreak in 2003 caused the number of outbound visitors only increased by 21.8%, with a 15% decrease in the growth rate.

Data Source: National Tourism Administration

China remains the world’s biggest market in outbound tourism, with 149 million outbound visits made by Chinese travelers in 2018, up 14.7% year-on-year. While in 2003, the number was just over 20 million. China is also the largest spender in outbound tourism. In 2018, China’s outbound tourism pumped 277 billion USD into the global tourism industry.

To contain the spread of novel coronavirus, China’s Culture and Tourism Ministry had ordered travel agencies and tourism companies to cancel tour packages. The action came about at the start of 2020’s Chinese New Year holidays when millions of Chinese travelers travel across abroad. COVID-2109 will have a more severe influence on the global tourism industry and other related sectors. Due to the outbreak of novel coronavirus, the expected loss of Russian inbound tourism from China will be 10 million (USD); the predicted loss of South Korean tourism will reach 2.9 trillion (in South Korea won) in the first quarter of 2020.

Inbound Tourism

SARS outbreak heavily influenced the tourism industry in 2003. The number of inbound visitors reduced by 1% in 2003, but had a retaliatory increase in 2004 (27%). The recession’s hit also reflected in the number of visitors to some famous resorts. In 2003, the number of visitors to Huangshan, Lijiang, and Guilin was decreased by 20%, 11%, and 22%, respectively.

Data Source: National Tourism Administration

SARS choked luxury hotels

The pain was also felt in the hotel industry. In 2003, the growth rate of starred hotels’ occupancy rate in China became negative (-4%). Starred hotels incurred serious losses with a total profit of -4.1 billion yuan. Take the Jin Jiang Hotel as an example. On a year-on-year basis, the net profit in the first quarter of 2003 increased by 549%; but in the second quarter of 2003, it decreased by 159%. The growth rate did not return to the average level until the first quarter of 2004.

The Coronavirus halts tourism

The outbreak of COVID-19 will bring a similar impact on tourism, hotel, and catering—might be more severe. Chinese New Year is one of the most important festivals for catering, hotel, and tourism industries. The 15-day festival makes it an excellent time for travel. Because of the spread of novel coronavirus, the Chinese government halted all group tours. Many of the attractions (e.g., Shanghai Disney Land, the Forbidden City) are closed. In 2019’s Chinese New Year, it saw 415 million inbound trips, and its trade volume exceeded 500 billion yuan, which accounted for 7.8% of annual tourism income. However, this source of income faded away in the 2020’s Chinese New Year.

Food and Beverage impacted by SARS and Coronavirus

As for the catering industry, 2003 was a tough year, too. The growth rate of total income (y-o-y) reduced from 27.4% in 2002 to 19.7% in 2003. However, in 2004, it dramatically increased to 54.4%.

The tradition of having New Year’s Eve dinner with family members makes Chinese New Year an essential business opportunity for the catering industry as well. As a result, New Year’s Eve is the busiest time for most restaurants. However, the fear of contagion in public places and travel restrictions prevent people from dining in restaurants. Xibei Restaurant, one of China’s well-known catering brands, is through a difficult time. The turnover of Xibei Restaurant during the 2020’s Chinese New Year dropped by 87% as compared to 2019’s Chinese New Year. On February 10, 2020, the CEO claimed that the company could not last three months if the outbreak could not be controlled.

Yum China, which owns both KFC and Pizza Hut, has closed 30% of its stores in China, and has stated that the remaining stores are making half the sales as usual. This could cause the company a net loss of up to 450 million USD in the first quarter of 2020.

Transportation and Logistics challenged by SARS and Coronavirus

According to the data from State Post Burea, from January 24 to 29^th 2020, the whole delivery industry collected 81.25 million packages from customers and delivered 78.17 million packages to customers. As compared to the same period (according to the Chinese calendar), the growth rate reached 37.6% and 72.3%, respectively (y-o-y).

Data Source: State Post Bureau

During the outbreak of SARS in 2003, highway, railway, civil aviation, and water transportation were all shut down. Passengers on highways, railways, civil aviation, and water transport all fell remarkably. The negative influences peaked in May and recovered gradually. In the third quarter, the passenger volume rebounded.

Picture Source: GF Securities

Civil aviation was hit the hardest during SARS

The most affected sector was civil aviation. Take China Eastern as an example. The outbreak of SARS significantly reduced passenger volume in the second quarter. The growth rate of net operating income reduced from 15.10% for the first quarter to -37.18% for the second quarter. Hence, China Eastern suffered from a net loss of 1.24 billion yuan, and the stock price reduced from 5.06 yuan (at the end of March) to 4.28 yuan (at the end of June).

SARS boosted the development of logistics

The reduction of population mobility contributed to the development of logistics during the SARS outbreak. The delivery industry bucked up. In 2003, the volume of domestic express delivery increased by 23% (y-o-y)—much higher than the growth rate in other years.

Similar patterns are being witnessed during the COVID-19 outbreak. According to the data disclosed by the Ministry of Transport, from January 10 to January 29 (the first 20 days of Chunyun period), railway, road, water transport, and civil aviation in total handled 1.23 billion passengers, a decrease of 11.9% year-on-year. Specifically, 183 million passengers took the railway with the smallest decline of 1.3%; 998 million passengers took the highway with the largest decline of 26.4%; 15.61 million passengers took the water transport with a drop of 26.4%; 32.76 million passengers took the flights with a drop of 7.7%. The passenger volume growth rate of highway, railway, civil aviation, and water transport decreased by 13.0%, 9.4%, 21.8%, and 18.1%, respectively.

Data Source: Ministry of Transport

Light Industry during SARS

The growth of light industries was heavily influenced by the SARS epidemic. In 2003, the operating income growth rate of office and school supplies reached 26.8% (y-o-y) during the first two months. But the average monthly growth rate in the following three months reduced below 20%. The epidemic reduced commercial activities, which was a major reason of reduction of demand of office and school supplies.

Household appliance industry

Similarly, the income growth rate of household appliances slowed down during the outbreak, resulted from shutting down offline shops and supermarkets. As for the textile industry, SARS had limited influence on upstream firms but had a considerable impact on the downstream firms. According to the National Bureau of Statistics, the retail sales growth rate of textile goods (e.g., clothes, shoes, knitwear, hats, etc. ) dipped sharply during the outbreak. In May 2003, the growth rate decreased to -3.5%. The grim period was caused by shutting down offline shops as well. In 2003, the number of Internet users in China was small (79.5 million), and e-commerce was not poplar. Hence, the sales of textile goods were heavily dependent on offline shops.

Data Source: National Bureau of Statistics of China

One might say that the well-developed digital eco-system in current China will eliminate the adverse impact caused by coronavirus on the downstream firms. That might be true for the textile industry. E-commerce has become the primary sales channel of textile and knitwear. In 2018, the number of Internet users increased to 828.51 million, and online shoppers reached 610.11 million. In the Apparel market, 54% of total revenue came from online channels. However, in other industries such as household appliances and electronic devices, offline shops still play vital roles in retail sales. According to the data from Mobile No.1 Research Institute, the mobile phone offline market accounted for 80% of the total sales in May 2019. As a result, the novel coronavirus will cause a reduction in retail sales in the light industry.

The upstream firms will also be affected by the COVID-19 epidemic. After Wuhan was cut off from the outside world, governments in the rest provinces put travel restrictions in the local cities and asked offices and production facilities to postpone reopening. These labor-intensive firms may suffer from labor shortages after the outbreak, which will contribute to the increase in costs and the decrease of output.

Livestock and Poultry Industry prices fluctuate from SARS and Coronavirus

Due to the travel restrictions, the closing of farmers’ markets, and decreased demand from the catering industry, the outbreak of COVID-19 will influence the livestock and poultry industry as well.

SARS outbreak in 2003, however, exerted a limited impact on the pork price. The consistent fluctuation may due to two factors. On the one hand, since cargo transportation was blocked during the outbreak, pork from remote areas did not have access to the market. On the other hand, catering companies were suffering a difficult time. They were incapable of purchasing more pork. Supply and demand fell simultaneously. Consequently, the price fluctuation was not significant. However, immediately after the epidemic, pent-up demand was unleashed, causing pork prices to soar up in October 2003.

When it comes to the current coronavirus outbreak, the cross-regional transport of live pigs is blocked with a disordered circulation market. Therefore, the discrepancy of pork price between main selling areas and main producing areas are continuously expanding. Meanwhile, the catering industry is suffering from similar misery. That is, both supply and demand are going through a hard hit. Nonetheless, because of the African Swine Fever (ASF), the pork industry had been profoundly hurt in 2019. The outbreak of coronavirus will make it worse—the pork market in China will take more time to recover

The Average Pork Price in China during SARS

Source: Ministry of Agriculture and Rural Affairs

Different from pork prices, the price of processed chicken had large swings during the pandemic in 2003. The price crashed down after a slight rise. Wens, one of the biggest broiler companies in Guangdong Province, had an average sales of 800,000 broiler chickens per day before SARS epidemic. However, the average sales shrunk to less than 400,000 broiler chickens per day, and the number of overstocked broiler chickens was over 3.3 million, resulting in a 70% decline of the broiler chicken price. After the SARS outbreak, the price of processed chicken was increased significantly—a similar trend to pork price. It is predicted that the price of livestock and poultry will decrease during the current outbreak but will increase to varying degrees after the outbreak.  

Otaku Economy has taken off during Coronavirus

The so-called Otaku Economy has benefited from the Coronavirus break. Online video hosting services (e.g., Youku, iQiyi, Tencent Video, Bilibili), Short video platforms (e.g., Kuaishou, Douyin, Xigua), and online social network platforms (e.g., Weibo, Wechat, Toutiao, Zhihu) peaked during 2020’s Chinese New Year. According to the data from Quest Mobile, Douyin and Kuaishou grew to more than 40 million users every day; Toutiao grew to more than 20 million users per day during the Chinese New Year holidays. On average, people spent 98 minutes per day on online video hosting services and 105 minutes per day on short video apps. The collaboration between the movie “Lost in Russia” and Byte Dance made the downloads of Xigua app reached the first place on that day.

More importantly, these platforms have made an enormous contribution to information transparency, popularization of science, and information transmission during the epidemic period. Medical apps such as DXY (丁香园 in Chinese) have become essential platforms for people to understand the knowledge of the novel coronavirus. Weibo has become a public platform for people to oversee the government’s reactions during the epidemic. In the 2002/2003 SARS outbreak, the Chinese government refused to provide information to Chinese outside of Guangdong Province and even did not allow a WHO team to visit Guangdong province early in the epidemic. The lack of openness caused delays in efforts to control the outbreak, resulting in criticism of China from the international community.

The gaming industry, especially mobile games, has boomed during the Chinese New Year holidays. Honor of Kings (王者荣耀 in Chinese), on average, had 120-150 million active users per day, reaching one-tenth of the entire population. On New Year’s Eve, the total transaction was over 2 billion yuan (single day), which was only 1.3 billion yuan last year. Additionally, the outbreak of novel coronavirus has promoted online education and telecommuting. DingTalk (钉钉 in Chinese), the enterprise communication and collaboration platform developed by Alibaba Group, has exploded during the outbreak. More than 200 million people use the app to work at home. On February 5, 2020, the downloads of DingTalk, for the first time, exceeded Wechat and reached the first place on the Apple App Store.

The Possible Impact of the Coronavirus on the Global Economy

2002/2003 SARS outbreak wiped 40 billion (USD) off the world markets. Compared to the 2002/2003 SARS outbreak, the global economic effects of COVID-19 are likely to be more severe. Simply because China’s economy is much bigger and more intertwined with the global economy.

In 2003, China only represented 4.31% of the global GDP, while in 2019, it represented more than 16%. China’s economy is critical to the worldwide economy. It is now the biggest market for new cars and semiconductors, the largest spender on international tourism, and the leading exporter of clothing and textiles. Thus, the negative effect caused by COVID-19 is likely to have more global consequences. That is, if the growth of China’s economy slumps, the global spillover will be much more significant. It is estimated that the outbreak of the novel coronavirus in China will be three to four times larger than 40 billion blow from SARS.

Source: The World Bank

Major International Commodities

The outbreak of COVID-19 will also influence the prices of major commodities. Take oil as an example, in the second quarter of 2003 (the outbreak of SARS), the growth rate of domestic gasoline consumption fell 8%; the growth rate of domestic kerosene consumption decreased by 40%. The growth rate of overall oils demands fell from 10% to 3%. Affected by the declining market in China, the growth rate of global oils consumption reduced from 2.5% to 1.5% as well. Correspondingly, the international oil price, which was $33.9 (USD) per barrel before the outbreak, suffered a sharp decrease by 28%.

In 2003, domestic consumption in China only accounted for 6.9% of global consumption. In 2018, the share increased to 13.4%, doubled since 2003. Therefore, it is predicted that the outbreak of novel coronavirus will dampen the domestic oils consumption by 10% (around 1.3 million barrels per day), and subsequently will make the growth rate of global oils demand to go from positive to negative. 

Import and ExportSARS outbreak in 2003 suppressed both consumption and productivity. However, import was struck harder than export. The panic of contagion and the reduction of population mobility decreased domestic demand. The following three reasons caused a limited influence on export. First, SARS was controllable. As a result, it had a limited negative impact on the global economy and furthered the global demand. Second, in 2003, China just joined WTO, and the oversea orders were increasing. Third, the peak of the SARS outbreak started in March 2003. Unlike Chinese New Year, it was less likely to affect manufacturing or reopening, and firms could deliver the products in time.

Data Source: Ministry of Commerce

The impact of COVID-19 on foreign trade maybe more severe. With a high reproductivity rate, the novel coronavirus is hard to contain. Since the outbreak started during the Chinese New Year, the government has carried out more strict policies including sealing off cities, postponing school and work, cancelation of public transportation. In addition to the reduction in imports, exports will also suffer.

China plays a vital role in the global supply chain. The manufacturing output in China accounts for around 30% of the global manufacturing output. However, the epidemic delays the reopening of offices and production facilities. The decreasing productivity result from a novel coronavirus outbreak will continuously shake China’s status in the global supply chain. Currently, the interrupted supply of components made in China has affected groups of manufacturing companies around the world. For instance, South Korea’s Hyundai, the world’s fifth-largest carmaker, suspended operations at its giant Ulsan complex on February 7, 2020, caused by the short on supplies of China-made wiring harness. If the interrupted supply happens continuously, it will force the upstream companies to shift manufacturing from China to other Southeast Asian countries. Then the decline in export will be irreversible.

Meanwhile, the supply chain crisis in China has been used as an opportunity by politicians in the United States. Secretary of Commerce, Wilbur Ross claimed on January 30, 2020, that the coronavirus outbreak in China would have a positive impact on the U.S. economy as it could help jobs and manufacturing industries return to the U.S. from overseas at a quicker pace.

Read about China’s economic recovery from COVID-19.

The ultimate Coronavirus economic impact in China report

This article Comparing SARS and Coronavirus economic impact 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.

China’s fitness industry has experienced both an explosion and now a recession

The history of fitness centers in China

China’s fitness industry started around 2000. After that, Beijing’s successful bid for the Olympic Games in 2001 and the SARS epidemic in 2003 set off a nationwide fitness trend. China’s fitness industry was in its prime. During that time, many well-known chain brands such as Hosa Fitness, Nirvana sports, and UION Life began to appear. The industry gross margin exceeded 40%, attracting a large number of players to enter.

After 2004, the fitness industry in China showed explosive growth. In 2010, Beijing had 530 fitness clubs. However, due to the serious homogenization of fitness clubs and the single profit model, gyms competed with price wars. On the demand side, the global financial crisis in 2008 and the rise in housing prices, the spending of white-collar workers on fitness decreased, and the growth of the fitness industry market slowed down. In 2011, the number of gymnasiums in the country showed negative growth.

Until 2015, with the rise of fitness apps represented by “Lefit“, “Keep“, “Super Monkey“, the fitness industry once again ushered in rapid development. However, the new direction of development did not favor traditional fitness centers, and exposed the problems of fitness centers in China.

The current conditions of China’s fitness industry

The population of gym-goers in the United States accounts for 20.3% of the total population, while in China it is only 3.1%. Though China still has a large gap in the number of fitness clubs and the number of fitness members, China’s fitness industry is continuously expanding. According to the National fitness plan 2016-2020, the number of people who take part in physical exercise at least once a week will reach 700 million in 2020, and the number of people who take part in physical exercise regularly will reach 435 million

Compared with the North American market, the development of China’s fitness industry is relatively lagging due to the following reasons: Firstly, the domestic cost of fitness is higher; the per capita fitness expenditure in China is more than the US. Additionally, the fitness industry in China has a single format and a serious homogenization of service content.

Hosa Fitness collapsed overnight. The mass closure of fitness centers in China

Problems of fitness centers in China: the prepaid model leads to high debt ratio

According to the 2018 fitness industry report, nearly 84% of fitness clubs last less than 12 months. There are various reasons for the closure, such as increased competition in the market, poor management, the downturn in the economic cycle, etc. However, problems of fitness centers in China are all about “cash flow drying up”.

Just as most service industries, China’s fitness industry adopts a prepaid model. Fitness clubs receive cash flows for the next year or even five years at the moment they sell their year cards and private courses, which makes the payoff period extremely short. Some clubs can even recoup their investment costs as soon as they open, and locking up customers at the same time. The problem, though, is that these huge cash flows are not counted in the club’s profits. There’s a joke going around in the fitness industry.

“When the club’s membership consultant makes money, the coach makes money, and even the front desk makes money, the boss doesn’t necessarily make money.”

Sales commissions for membership consultants and coaches are paid out the same month. In order for a fitness center’s owner to profit, the gym needs to continuously acquire new customers. Many clubs’ owners bet on the ‘hot headed’ compulsive buying of fitness beginners. In other words, the gyms profits are dependent on the immediate decisions of beginners, but not on retaining loyal customers. Under this condition, many fitness centers are more concerned with the selling power of membership consultants and coaches rather than the quality of service they provide for current members.

This creates a vicious circle. A fitness club can only roll cash flow by absorbing new members without any intention to improve service quality. Without improving service, there will be no renewal rate in the second year. Therefore, it is the norm for fitness clubs to go out of business after only two or three years. The biggest problem here is that the prepaid model makes the club’s debt ratio too high.

The impact of debt on fitness centers in China

What are the consequences of a high debt ratio?

From the management perspective, the fitness club will only have expenses with no income in the coming year for every member. The gym loses money even if members only come to bathe without using any equipment.

In terms of capital, high debt ratio makes the club’s ability to resist risks very weak. Once the market environment changes, it is easy for traditional fitness centers to crash. Hosa Fitness is a typical example. Once Hosa International (the parent company of Hosa Fitness) stock price crashed, the company’s capital chain fractured. Negative news triggered consumer panic, causing the performance of the Hosa Fitness to decline. Because the cash flow was no longer sustainable, Hosa international was unable to provide support, and Hosa Fitness failed to seek financing alone and eventually collapsed.

In fact, when Hosa Fitness announced its official opening in 2017, it should have encountered insufficient funds. Normally, fitness chains insist on directly operating their stores, but Hosa Fitness had to switch to franchising their stores to get funds.

For the prepaid model, China’s government departments lack effective regulatory measures. According to the “Corporate Bankruptcy Law“, when enterprises are bankrupted and liquidated, the wages and labor insurance expenses owed by the enterprises are preferentially paid off. Then is the taxes owed by the bankrupt enterprises. Since gyms that bust tend to owe large salaries, there has been a lot of spending chaos. For example, it is hard to re-sell memberships, and the gyms refuse to give refunds, hence gym members encounter unfair treatment in the fitness centers.

Traditional gym chains in China are often battered with negative reviews. According to the comments on Dianping, among the 18 fitness clubs of 6 well-known chain brands, the lowest rate of negative comments is at 9.7%, the highest at 31.1%, reaching 21.5% on average, and the rate of positive comments is only 65.6% on average.

How can China’s traditional fitness center survive and go further?

With the warning of Hosa Fitness, is there a way out for China’s traditional fitness centers? What are solutions to the problems of fitness centers in China?

Firstly, reducing the prepaid period can reduce debt, switching the annual membership to a monthly system. America’s experience may be instructive here. The mainstream of fitness clubs in the US offer monthly membership. In general, the monthly card is charged 50-60USD, and the high-end one is about 100USD per month. Also, there are some compromised approaches, such as a seasonal card or half-a-year card, etc. But this way will also increase the pressure on cash flow, pressing higher requirements for the operation.

Another option is to improve the attendance of classes. Registrations for classes and training sessions are good indicators of the success of a fitness center, as they are a method to make secondary profit from current members. Data show that in 2018, the average number of private training sessions in Hosa Fitness was only 67.3 classes per month.

There are also ways to improve cash flow by increasing retail sales, such as water bars, nutritional supplements, and peripherals. But for now, this is still a small supplement. According to the 2018 fitness industry data report by 三体云动, retail sales account for only 3.1 % of gym revenue.

It is difficult to achieve a low debt ratio in traditional fitness clubs without changing the target users and product forms. In terms of problems of fitness centers in China, traditional gyms need further transformation and upgrading. The model of traditional fitness clubs in the future must not be as sales-oriented and must pay attention to service and reputation. The profit model in the past will be gradually eliminated, and the traditional fitness clubs will eventually return to being service-oriented.

For example, gyms can use group classes to attract new customers. The Chinese fitness population is small and the starting point is low. Classes offer a good starting point for beginner, and can stimulate secondary consumption. Judging from the popularity of Super Monkey, Spacecycle, Keepland, traditional fitness clubs in China also need group courses to increase users.

Group classes can also increase the stickiness of service. Under the current system, the level of private coach’s service is widely criticized. On the one hand, the expertise of fitness coaches is uneven. The data shows that half of the coaches in China have been in business for less than two years, and the coaches from professional sports colleges only accounted for 25.2%. On the other hand, the sales-focused model of fitness clubs does not play a positive role in consumer experience. Therefore, to improve service and increase the stickiness, the key is to improve the level of personal trainers and create a consumer-focused management system.

The new emerging business model of the fitness industry in China

The threat of new-style fitness centers

As mentioned earlier, the new type of fitness club is threatening the traditional gyms. The following will introduce the profit model of the new type of fitness club in China.

Take SUPERMONKEY as an example. SUPERMONEY is a fitness brand from Shenzhen. The first group class studio of SUPERMONKEY came out in 2015. Most of its studios are located in business districts, with class times before working hours, during lunch, and after working hours.

SUPERMONKEY profits mainly from two aspects: one is cash flow, and the other is cost structure control. In terms of cash flow, the price of each class of SUPERMONKEY ranges from 69 RMB to 239 RMB. Normally, one studio can hold 300 training classes a month, with about 15 people for each class, so the annual revenue of a single store is about 3.8 million RMB.

SUPERMONKEY classes are booked through the WeChat mini program, which allows customers to select and pay online based on store location, class type and class time.

In terms of cost structure, there are six types of SUPERMONKEY stores: universal stores, theme pavilions, bicycle studios, parent-child stores, static stores, and fitness cabins. The area of a store generally between 200-300m² often located on the second or third floors of malls and office buildings. To reduce costs, there is no front desk or locker rooms. The coach only comes during class, and the users can enter the classroom by entering a code sent only to those who register for the class, which greatly reduces spending on employees.

In the course development and coaching reserve, half of the courses currently come from Lesmills courses, and others are the independently development by SUPERMONKEY. The copyright price of introducing a Lesmills course is high, more than RMB 100,000. Therefore, 90% of the gyms in China, especially the small gyms, do not purchase copyright. In addition, SUPERMONKEY established the Super Scarlet Academy to train its fitness instructor. This is also a preparation for the SUPERMONKEY to start a large-scale private training course or even open a comprehensive fitness center.

A good way to target fitness beginners as the main customers

Whether it’s SUPERMONKEY, Lefi or Keepland, they are all doing the same thing: targeting fitness beginners. Once again, the penetration rate of the fitness population in China is only 3.1%. According to insiders, 99% of those who signed up for an annual membership in traditional fitness centers are fitness beginners. In terms of the current market and the people’s fitness levels, group classes are more in line with the needs of fitness beginners.

Specifically, what are the needs of fitness beginners? They do not need to time and money into a rigorous training schedule with a personal trainer. Rather, they desire to experience the feeling of fitness, find happiness in sweating, and even to show off their healthy lifestyle in WeChat moments. Therefore, the pay-per-visit group classes are enough to meet the needs of fitness beginners.

What about the future?

Targeting fitness beginners is just one of the hottest trends in China’s fitness industry right now. Whether it is a traditional fitness club, or a new type of group classes studio, it is not that easy to lock-in customers. Li Lu from Daxue consulting says,

“Nowadays, customers are disloyal, especially younger ones. Group exercise classes and traditional fitness centers have to find their own irreplaceable points to lock-in customers.“

Unique courses, professional coaches and appealing studios can all be features of a fitness club. Fitness centers need to provide a sense of belonging to disloyal customers. In addition, marketing measures for traditional fitness clubs are old-fashioned, such as flyers and telemarketers. Gyms are better off switching from flyers to digital marketing. When the focus shifts away from desperately making profit to serving the customers, a lot more fun and attractive business models are available to gyms.

Author: Rita Fan

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This article Hosa Fitness closed its doors. What is causing the downfall of China’s traditional fitness centers? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

The spirits market in China is flourishing as the income level of Chinese consumers is increasing. High-end spirits, such as Moutai, Chivas, and Martell, are common guests on Chinese tables. Besides Baijiu, the local spirit of China still dominates the Chinese spirits market; while western spirits like whiskey and brandy have more and more influence on Chinese consumers’ alcohol choices. Western alcohol culture is becoming popular among the younger generation, and the rise of e-commerce platforms (e.g., Taobao, JD, etc.) enable western spirits brands to enter China’s alcoholic beverage market more easily. Nevertheless, the regulations of China’s alcoholic beverage market suffered changes for a long time, and the legislative body has still not reached consensus on how to regulate alcoholic drinks in China.

Spirits regulations in China

Various regulations of alcoholic beverages in China, including spirits regulations in China, are in place. The Ministry of Commerce of China (MOFCOM) issued the new version of the Food Safety Law of China in 2009 and amended it in 2018 as the document to regulate the Chinese spirits market. In 2015, MOFCOM also issued two standards, Management standard for alcohol commodities retailing and Management standard for alcohol commodities wholesale, to instruct alcohol business entities to undertake the purchasing, selling, distributing and storage of alcoholic drinks in China. At the same time, regional administrative bodies, such as provincial governments, also issued local spirits regulations as complementary documents to China’s alcoholic beverage market.

As for exporting alcohol to China, there are spirits regulations which exporters must become familiar with. The State Economic & Trade Commission, which is known as MOFCOM, issued Administrative Rules for Imported Alcohol in Chinese Market for all alcoholic beverages in China that are imported from other countries and areas.

In 2017, MOFCOM also mentioned that it would set up a comprehensive institution to guide and monitor the production, distribution, and consumption of alcoholic drinks in China. This institution would include unified spirits regulations in China as the guideline for the Chinese alcoholic beverage market.

Chinese spirits market size

Seven kinds of spirits are on sale in China, respectively are Chinese Baijiu, Whisky, Brandy, Vodka, Rum, Gin, and Tequila. According to the data on Taobao and Tmall, which are the e-commerce platforms run by Alibaba Group, Chinese Baijiu sold most bottles in China compared to the other spirits. Considering the representations of Taobao and Tmall, it is clear that Chinese Baijiu still beverage of choice in the spirits market in China.

Another thing to be noticed is that Whiskey performs better than western alcoholic beverages in China: about 2 times more than Vodka, 3 times more than Brandy and Rum, and 10 times more than Gin and Tequila.

Consumption of alcoholic drink in China

Spirits brands sell their products mainly through Taobao/Tmall and JD as online channels. These brands set up their official stores on the platforms and attract consumers by multiple discount activities. Some of these brands also build up their own e-commerce platforms or utilize their websites as part of their online sales channels. Among these platforms, JD is the most prevailing online channel for spirits brands. Baijiu brands on JD are 630, which is about 3 times more than those on Taobao/Tmall. Brandy and Whiskey, the other two prevailing spirits in China, both have more brands in JD than Taobao/Tmall as well.

Offline sales channels are also crucial for promotion of to alcoholic drinks beverages in China. Spirits mostly are sold offline in bars, specialized alcohol stores, wholesales market, restaurants and supermarkets, and currently there are a lot of these spots. Taking Shanghai as an example, there are 670 specialized alcohol stores, 2581 bars, and 220 wholesale markets in total, exposing the spirits to more consumers. However, as bars are exotic and cocktail culture seldom includes Chinese Baijiu, bars are usually not the places to sell Chinese Baijiu with other western spirits.

Brands that are famous in the Chinese spirits market are Moutai for Baijiu, Martell for Brandy, Absolut for Vodka, Chivas for Whisky and Bacardi for Rum.

According to Baidu index, around Chinese new year in 2019 is the time when spirits were mostly searched by Chinese consumers. Chinese Baijiu had not as many increments in searching as other spirits; one explanation could be Chinese consumers are not as familiar with foreign liquors which warrant more research before buying, which reflects the desire of buying western spirits grows stronger.

Search results of specialized tobacco and alcohol stores and bars, which are the main spots that Chinese consumers buy alcohol beverage in China, in Baidu map and Dianping show that a good deal of these spots exist in Shanghai: there are about 744 specialized tobacco and alcohol stores and 2519 bars (including night clubs) where provide spirits sales in Shanghai, which are the same places as other cities in China. These alcohol stores and bars consist of Chinese spirits market and boost the sales of alcoholic drinks in China. One point is Chinese Baijiu is mostly sold in specialized stores while western spirits are mostly sold in bars and night clubs as bar culture is more compatible with western spirits, and cocktails are made by western spirits instead of Chinese Baijiu.

Spirits recognitions of Chinese consumers

Since the Chinese spirits market is still developing, Chinese consumers online searches are more queries about alcoholic drinks in China, asking questions about spirits and expressing different feelings of drinking spirits.

What are spirits for Chinese consumers?

The result of Baidu index shows that Chinese consumers know more of Chinese Baijiu than western spirits. When it comes to western spirits in China, related words like ranking, names, brands, and types show up more than before.

On Zhihu, while Chinese consumers are in the learning phase of the different liquors in China, there is a lot of questions on how to distinguish one spirit from another (Brandy and Whiskey), or Japanese Sake from true spirits. It seems that Chinese consumers don’t have much knowledge of identifying western spirits.

Chinese spirits market also has no detailed category of spirits when they are displayed in markets. Street shots of several Chinese specialized tobacco and alcohol stores reveal that spirits are easily separated by two types: Chinese Baijiu and other spirits.

Contact us for any question on the Chinese market

More Chinese consumers become big fans of western spirits

Despite the fact that Chinese consumers don’t know much about the western spirits, the culture of the western spirit becomes more and more popular among Chinese consumers, especially among the post-80’s.

On Baidu index, it shows that age group 30-50-year-olds to the majority of Badu searches on spirits including Baijiu and foreign spirits. While the 20’s age group has not reached their max earning potential, but there are more people in this age group coming to understand the different spirits in China.

KOLs’ introduction of spirits

Besides the initiatives of Chinese consumers, KOLs on Weibo and other Chinese popular platforms also facilitate the understanding of the spirits in China. Certain KOLs post what they know about alcoholic beverages enabling more and more Chinese netizens to understand the alcoholic drinks in China, including how to drink them.

How Chinese drink western spirits: cocktails or shots

Spirits in China may be consumed differently than in the west. For Chinese Baijiu, it is almost always drunk straight. This method was not suitable to other western spirits for most Chinese consumers at the beginning because they were not accustomed to the flavors of western spirits, and therefore bars and night clubs mainly produced cocktails rather than serving shots. But currently, Chinese consumers are trying to take western spirits in the same way as Chinese Baijiu. Single malt Whisky, for example, is becoming a new favorite in bars as Scotch Whiskey become famous in the spirits market in China.

The four most popular alcoholic beverages in China

Based on the graphs showed above and current market situation, the four alcoholic beverages most popular spirits in China, namely Chinese Baijiu, Whiskey, Brandy, and Vodka.

Competition analysis of Baijiu in China: Moutai still take the first

Chinese Baijiu is the best-selling spirit in the Chinese spirits market. At present, there are dozens of Baijiu brands in Baijiu market in China, and the most popular one is Moutai from Guizhou Province.

According to the pie graph of 2017, Moutai accounts for above 60% of the Baijiu market in China, followed by Wuliangye, which accounts for 26%, the remaining brands’ market shares don’t exceed 10% individually.

The bar graph above shows the preference of Chinese Baijiu consumers. It seems that the brand and the price are the main aspects when Chinese consumers consider most when they buy Baijiu. This can also explain why Moutai has the biggest market share in Chinese spirits: as Baijiu is already the most popular spirit in the Chinese spirits market, Moutai is also in the leading position of Baijiu market in China as it has both high price and low price products, which allow Moutai to keep its brand awareness and give diverse price choices to consumers.

Competition analysis of Whiskey in China: Single malt whiskey booms

Chinese liquor consumers are younger compared to other countries, according to the news report on ifeng. Whiskey brands like Chivas have already noticed this trend and adopted the corresponding tactic to attract young consumers group. Chivas, one of the famous Whisky Brand, invited Kris Wu, who is a pop star in China and is popular among Chinese more youthful generation, to shoot the advertisement for its Whisky. The advertisement aimed to attract Kris Wu’s fans, who mostly are young people as well as the potential consumers of the whiskey market in China. To attract more young consumers, Chivas also cooperated with the NBA and successfully increased its spirits sales in China as basketball is popular in China.

UK (Scotland) and the USA are the original countries of popular brands on Taobao/Tmall.  Due to a good reputation, flavor, high-end images, and fashionable package design, their spirits sales in China are quite high.

There are a few Asian brands (such as Japanese) selling on Taobao/Tmall, but their sales are much lower than Western brands.

With the popularity of Whisky, Scotch Whisky exposes more to Chinese spirits consumers, which creates a new submarket of the Whiskey market in China: single malt Whisky. According to the data released in 2018 by SWA (Scotch Whiskey Association), “a record number of 2,026,779 bottles of single malt 70cl Scotch were exported to China in 2017, a surge of 190 percent compared to five years ago, and equivalent in value to 20.1 million pounds ($25.3 million).” China Daily reported. It shows that the exporting alcohol to China of SWA will increase, and single malt Whiskey is expected to grow in sales and stimulate the growth of the Whiskey market in China. First-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen have bars specialize in providing single malt whiskey to Chinese consumers.

Competition analysis of Vodka in China: Vodka and fashion

The Vodka market in China is led by Absolut Vodka produced in Sweden, followed by Skyy produced in the USA. The reason that Absolut Vodka has led the Vodka market in China for many years is it cooperated tightly with different sectors. In the past years, Absolut Vodka considered what was popular and utilized the favorite element to decorate its products and create an appealing advertisement. By the upscale images, pleasant taste and creative advertising, Absolut Vodka has been the most popular vodka brand and attracted many high-income consumers in the Vodka market in China, although its price is relatively high.

Competition analysis of Brandy in China: Chinese Brandy producer Zhangyu

The table above shows the Brandy market in China is occupied by French Brandy brands, which enjoy a long history of Brandy production and decent reputation. Their high-end images, good quality, and appealing package designs attracted a large number of Chinese consumers.

Brandy brands in the Chinese spirits market utilize digital activities to advertise themselves and boost Brandy spirits sales in China. Martell, a famous Brandy brand, makes its advertisement by cooperating with e-commerce platforms and social media to build up its high-end image, such as participate in Tmall’s “Super Brand Day” and shoot videos for ads.

One thing noticeable is that Chinese Brandy brand Zhangyu also emerges and accounts for the most market share in the Brandy market in China. It seems that Chinese domestic alcoholic beverage manufacturers are also entering the Brandy market in China to compete with foreign brands. However, as Zhangyu shows, Chinese Brandy products are at a low price to win the market share compared to French counterparts.

The current trend on the Chinese spirits Market

For China’s alcoholic beverage market, the spirits market is promising, and three trends are predicted to be shown as follows:

The majority are young consumers

More and more international brands are targeting young consumers (post-90s) by building fashionable images since they have enormous consuming potential and willing to pay for fashionable lifestyles. At present, as more and more night clubs, bars, pubs are prevailing around 1~ and 2-tier cities in China, and they are the central bodies who receive exporting alcohol to China, younger generation group have more chances to get access to western spirits, knowing more about western spirits culture as well as stimulating the growth of the spirits market in China. With growing China’s alcoholic beverage market, and higher income level, the scale of the market may influence more young consumers to enter the Chinese spirits market.

More sales of mobile shopping apps

Mobile shopping apps are creating new distribution channels for many brands; international brands are trying to increase their sales through the rising mobile shopping in China. At present, 71.7% of mobile devices had shopping apps installed, and as Taobao/Tmall and JD develop their own mobile app to access to their online platforms, the popular spirits brands like and Martell who have already set up official stores on the platforms or had cooperation with them will probably surge their sales in Chinese spirits market.

Author: Dennis Deng

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This article The spirits market in China: The four most popular alcoholic drinks among Chinese consumers | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

In China, the demand for landscaping and gardening activities has increased considerably in recent years. Aesthetics and environmentalism are the primary driving desire for this change in consumer preferences. As the economy is moving towards environmentally-friendly industries, the concept of gardening is also changing among Chinese consumers.

Market researches show that the CAGR for the global gardening tools market in 2017 was 1.6%. Persistence Market Research estimated the global sales of gardening tools in 2017 was 280 million units. This figure is expected to surpass 300 million by the end of the year 2025. Now, Asia-Pacific cultures incorporate gardening activities into their lifestyles as it becomes recognized as a leisure activity. In China, people are gradually accepting the idea of horticulture as a therapy for daily life getaways. Small gardening tasks are not only a hobby but a ‘medicine’ to reduce stress.

The increasing popularity of ‘Do It Yourself’ (DIY) in gardening also brings a fresh approach to Chinese middle-class consumers. Rising disposable income affects leisure choices, and small gardening and horticultural activities are being widely recognized as a relaxing and worth-trying way to maintain the peace of life.

The gardening tools manufacturing industry in China, however, is not developed to scale. So far, the main competitors in this market are all small-to-medium sized enterprises with fewer specialties and a broad range of products. Thought highly competitive, the market specification is not precise and there exist no major market players in the domestic production.

In short, the Chinese gardening tools market is growing, and the business potential is unrealized. An international brand can actively compete in this field as the market is not mature, while promotional strategies are the keys to successful expansion.

The gardening tool market composition – Overview

The gardening tools market in China is now experiencing a strong growth trend. In 2017, the estimated market size of gardening tools had reached 7.42 billion RMB with a CAGR at 24.71%

The increasing market size comes along a more specialized division of different market segment in China. There are mainly three segmented markets of the gardening tools market in China which are tools for public gardens, for family gardens and for maintaining forests. According to Daxue’s research, the leading consumer groups for gardening tools in China consist of three large groups: local government (public) gardening service providers (business) and families.

The gardening tool market composition – Consumption analysis

Consumption patterns are seasonally adjusted

Consumption in the gardening tools market in China is showing a strong annual-seasonal pattern. According to the 2018 sales data from January to November on Tmall/Taobao, the largest online retail platform in China, the consumption pattern of gardening tools sales in China is seasonally adjusted with the peak sale happened in May and the lowest in January.

Also, in November there is a slight upward twist on sales volume, which may largely due to the Double 11 Shopping Carnival with huge discounts on every type of goods including gardening tools.

Keywords search intensity based on Baidu Index regarding specific gardening products such as ‘lawnmower,’ ‘bush cutter,’ ‘watering can,’ and ‘chainsaw’ also shows a clear seasonal pattern.

[Source: Daxue Consulting]

The search frequency of the keyword ‘bush cutter’ has stably fluctuated around a certain value. But its lowest also happened during the Spring Festival season.

[Source: Daxue Consulting]

Consumer preferences revealed by Social Media

Consumers of gardening tools in China utilize different social media platforms to ask, gather, evaluate and make decisions on different gardening tool products.

Zhihu.com is the most prominent Chinese online Q&A platforms with social media features. People ask questions about gardening tools on Zhihu.com to gather useful information:

Social Media as a way of sharing product experience

Weibo and Wechat are two major social media platforms in China. Many people have posted on gardening tools/machine.

According to the social media research done by Daxue, positive feedbacks on these products are mainly focusing on the following aspects:

• Easy to use/carry, saving the labor;
• Good quality;
• Long service life;
• Environmentally friendly.

[Source: Daxue Consulting]

[Source: Daxue Consulting]

• Engine noise and exhaust gas;
• Cannot do continuous work;
• Easy to be damaged;
• Cannot achieve expected outcomes.

On Weibo and Wechat, brands introductions and requests for product authentication are the main contents among the posts about gardening tools and machines in China.

E-Commerce platform buyers concerns quality as a priority

Major e-commerce platforms such as Taobao/Tmall and JD.com all have functions for online customers to leave a review after purchase, whether positive or negative. Most discussions about gardening tools are focusing on products’ quality and prices. Consumers can post pictures of the real goods they receive in the review for others’ reference. Also, some sellers online offer a small amount of cash or gift card reward for those positive and detailed buyer’s reviews.

[Source: The picture has been from a buyer’s home and shared on JD as a review of a lawnmower from Tuochuan (拓川). The buyer gave positive reviews for its good quality]

[Source: The pictures have been taken from a buyer’s home and a garden, and shared on Taobao as reviews of a big pruner from JOUNFULL (京聚福)]

Positive Reviews:

[Source: Daxue Consulting]

[Source: Daxue Consulting]

The gardening tool market composition – Products analysis

Gardening Shears

Gardening shears are one of the essential gardening tools in China. Data from online retailing platform Tmall/Taobao shows that domestic brands have potentially a higher monthly sale than their international counterparts. Domestic brands Deepbang (深邦) and Worth (沃施) ranked 1^st and 2^nd in November monthly sale in 2018. International brands Gardena (嘉丁拿) and ARS (爱丽丝) only reached 40%-50% of the sales of domestic brands at the same time. The top seller prices of the products are relatively low, and it is the main reason for their outstanding sales.

[Source: Daxue Consuling]

[Source: Daxue Consuling]

Shovels

Local brands Qinglin (青林) is undeniably the leader in sales for this product in November 2018 with more than 10,000 items sold. Zhuoshi (卓石), another domestic brand also sold more than 5,800 items. These two brands contributed significant sales volume in November 2018 for Shovels than their international counterparts. For global brands, Gardena (嘉丁拿)’s sale reaches a bit over than 10% of that of Qinglin (青林), making international brands’ sales insignificant compared with domestic brands.

[Source: Daxue Consuling]

[Source: Daxue Consuling]

Lawnmower

Sales of a domestic branded lawnmowers are higher than international brands. Local top seller Jianxing (剑兴) has extremely low prices compared with the international top seller and have sold more than 1,000 items in November 2018. However, INDEL (英德尔), the global top seller does not trail behind too much compared with the second top domestic seller Shengchao (圣超). The difference in their sales is less than 100 items. Fujiwara (藤原), another international brand, did not perform well with only 314 items sold at the same time. Overall, domestic brands all play better than international brands at a lower price.

[Source: Daxue Consuling]

Handsaw

Most handsaw brands have built their official stores on the leading e-commerce platforms such as Tmall/Taobao and JD.com in China. International brands usually have higher prices. As a result, their sales are much lower than those of domestic brands. In November 2018, local leading brand Juli Jin’gang (锯力金刚) sold more than 2,200 items, and this is more than four times the sale of which the top international brand ARS sold at the same time.

[Source: Daxue Consuling]

The gardening tool market composition – Manufacturer analysis

Worth (沃施)

Worth is one of the major gardening tools providers in China. It has built an official website for showing brand stories, product catalog, and news/events updates. Worth has three major product series: power tools, petrol tools, and hand tools. Among these series, hand tools are primarily sold online on different e-commerce platforms including Taobao/Tmall, JD.com, and others. Worth consider its products have long product life, making those tools handy with high qualities. The significant sales points including long product life, easiness of use, efficiency, low maintenance costs, and environmentally friendly designs.

Worth has a digital presence on major e-commerce platforms with no existence on newly inducted e-commerce operators such as Kaola and Pinduoduo. This means Worth is still operating in a conventional online retailing pattern as Kaola and Pinduoduo are based on an entirely different rationale for e-commerce.

Customer view this brand as high quality guaranteed. Aftermarket services and excellent craftsmanship are also praised among all customer review posts online. The only drawback pointed out is that its products are selling at relatively higher prices among the entire product category.

Worth has its Weibo account with 69,564 followers and 11 posts till November 2018. But it has no Wechat presence at all. Its entire social media profile is not active.

Gardena (嘉丁拿)

Gardena is a favorite gardening tool brand based in Germany. Its official Chinese website contains different product types (series), updates on company news, service information and customer support. In China, Gardena primarily sells four kinds of products: watering tools, lawn care, grass shears, soil and ground, and smart system solutions for gardening. To further promote its products, Gardena describes its products as having good quality with long product life, effective and efficient while very handy and easy to use.

Gardena has a digital presence on both Taobao/Tmall and JD.com, which offers a convenient way of e-commerce in China. In new e-commerce platforms such as Kaola and Pinduoduo, Gardena has no active presence. Its conventional e-commerce presence is as strong as Worth (沃施), which make these two brands the major gardening tools providers in the Chinese market.

Customers consider this brand as a representative for high quality and great designs. Easy to use and useful application is also being praised on significant e-commerce platforms. Similar to Worth, Gardena’s product is relatively pricey. In addition, online customers think their products, through effective and user-friendly, are having insufficient sizes.

Gardena maintains both presences on Weibo and Wechat with 9,580 and 319 followers respectively. However, they did not show active status and remained inactive during Daxue’s research period.

STIHL (斯蒂尔)

The official website of STHIL China contains three subsites for its trading company in Taicang, Jiangsu, its manufacturing factory in Qingdao, Shandong, and its official German website in Germany. The primary body of these websites is related to the company news and events updates as well as the product series. These websites also provide detailed knowledge of equipment caring and handbooks for different types of power tools. STIHL mainly sell power tools in China including chainsaws, hedge trimmers, and brush cutters.

STIHL has a digital presence on both Tmall/Taobao and JD.com. Compared with Gardena and Worth, STHIL’s sale is not significant. This is mainly due to the nature of its products being power tools which incorporate more technologies than the other two brands. One surprising fact about STHIL is that this brand has a presence on Pinduoduo, and have a relatively high sales volume per day when Daxue was conducting the research.

Customer view STIHL as a brand with good quality and user productivity. STIHL’s chainsaw is especially being regarded as an enduring tool with great value. Some negative feedbacks indicate the product is on a mediocre level of quality with bad aftermarket services. These are only the minority. Most of the feedbacks praise STIHL for its high quality and long product life. Some suggest the product is ‘worth to buy.’

STIHL has an active presence on both Wechat and Weibo with 47,418 and 8,385 followers respectively. It has maintained an active status on Weibo for it has posted 21 posts during November 2018.

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The gardening tool market composition – Promotion

Advertising is prominent

Advertising is considered an essential promotional tool for all types of products in China including gardening tools. Greenworks (格力博) released an online advertising video to promote its new arrivals for public green spaces. This brand is focusing on medium and large size gardening machines.

The video highlighted the fact that all products are electrically powered gardening machines. This means they are all environmentally friendly. And these products meet the need for environmental protection restrictions in the Chinese market.

[ Souce: https://v.youku.com/v_show/id_XMzYyMTMxMjE0MA==.html?spm=a2h0k.11417342.soresults.dtitle ]

The video’s main scenes are divided into several gardening machines of Greenworks: pole saw, blower, string trimmer, top handle saw, hedge trimmer and lawn mower.

The video implied the excellent effects and quality of those gardening machines; it also highlighted those machines are all new energy (electricity) products.

Brand Naming

Choosing an appropriate Chinese name for your brand not only conveys the ideologies and doctrines embedded in your brand but is also a way for people to keep your brand in mind. Several gardening tool brands have made good examples. These names connect with the concept of gardening and create the image of gardeners and plant growth.

Worth – ‘沃施’ The Chinese name consisted of the two Chinese characters: ‘沃’, meaning ‘to irrigate’, and ‘施’ meaning ‘to spread manure.’ Together the Chinese name implies the brand is related to growing plants, such as gardening tools and farming tools.

Gardena – ‘嘉丁拿’ The Chinese name consisted of three Chinese characters. ‘嘉’ means ‘good or wonderful,’ ‘丁’ implies the concept of a gardener, and ‘拿’ means ‘hold.’ This Chinese name implies that the products are of high quality and are the best matches for gardeners.

STIHL – ‘斯蒂尔’ The Chinese name based on the pronunciation of its original name. The Chinese name accommodates the pronunciation and uses Chinese characters.

The gardening tool market composition – Distribution channels

Online retailing coverage in China

JD.com has far more presence of brands in gardening tools. This phenomenon may due to the higher security deposit Tmall/Taobao require for registering and opening up an official store on its platform. The online promotional activities mainly happen during double 12 shopping festival (following the success of double 11 shopping carnival created by Taobao, double 12 shopping festival was also created several years ago to stimulate the consumption potential of online retailing further).

[Source: Daxue Consulting]

Offline retailing coverage: case in Shanghai

Major offline retailing points for gardening tools are specialized stores and wholesale markets. The number of those offline retailing points are limited, and most of them are located outside the residential areas and business districts. The possible location for those stores is in the surrounding suburbs of a city.

Searching keywords ‘gardening tools’ renders 16 results of stores on Baidu Map and 14 results of stores on Dianping.com. Among those, 16 are specialized gardening tool store, and only 5 of them are wholesale markets.

[Source: Daxue Consulting]

Shovels, hoes, garden shears, and handsaws are widespread gardening tools in China. On Taobao/Tmall, the sales of shovels (for gardening) were far more than hoes (for gardening) in November 2018. The sales of garden shears were also more than handsaws during the same period.

[Source: Daxue Consulting]

Gardening tools market trends and promotional solutions

The Chinese market for gardening tools is changing and growing. Daxue identified the three key market trends that will shape the future of the Chinese gardening tools market.

1. Environment protection

Many gardening machines are petrol products, which causes air pollution. Thus, many brands have started to use electricity as new energy of gardening machines for environment protection.

2. Chinese independent brands

By learning from international gardening tools brands, many domestic manufacturers have now created independent brands and developed better technologies to enter the high-end market (both the Chinese market and the global market).

3. Appearance is becoming important

Since the living conditions of Chinese consumers has been improved rapidly, many people have started to pick their gardening tools with a nice appearance (quality, effects, and price are still important). Therefore, some brands began to offer gardening tools with better designs.

To further support the promotional purposes, brands who want to enter the competitive Chinese market should fully utilize the promotional channels including specific websites, specialized magazines and social media key opinion leaders (KOLs).

Additionally, there are now specialized websites as promotional channels waiting to be fully exploited.

1. Chinagardentools.net (中国园林工具交易平台) at Chinagardentools.net
2. Gardentools.cc (园艺工具网) at gardentools.cc
3. CSC86.com (华南商城) at csc86.com

Specialized magazines as a purposeful promotional channel:

1. Xiandai Yuanyi (现代园艺)

Xiandai Yuanyi (现代园艺) is a well-known professional magazine about gardening in China. The magazine offers technologies, plant knowledge, and sales information. The gardening tool is a part of the magazine’s content.

KOLs are important in Chinese social media life. For international brands, KOLs are a huge part of modern Chinese product promotions activities. Users of gardening tools are influenced by KOL’s shared opinions and introductions. KOLs, who post information about gardening tools, mainly consist of gardening/machine KOLs, photographers, goods designers, and brand founders.

[Source: A Weibo account of a photography KOL, writer and editor of a Chinese magazine 《IFIORI》. Her account has 422,035 followers. One of her posts about gardening tools received 100 likes and 55 comments]

[Source: This is Internet news and info KOL; the KOL mainly posts info about daily use goods and hot internet topics. The KOL has 65,876 followers. Gardening tools are part of his posts]

The Chinese gardening tool market takeaways

The Chinese gardening tool market is growing rapidly with huge unrealized potential. Gardening and horticultural activities are now popular among middle-class Chinese. With a rising disposable income, people are now willing to spend more on high-quality gardening tools with outstanding design and craftsmanship. E-commerce platforms are a major battleground for the market competition of local and global brands, and brand promotion in China is essential to gain extra market share.

As the gardening tool market in China is still amateur but highly competitive, international entrants are advised to carefully design their marketing strategies and promotional methods before the entrance. Social media existence is essential, as Chinese consumers heavily rely on online product reviews and feedbacks to help with their purchasing decisions. Also, brand naming and advertising are crucial for people to remember your brand.

China is now turning into an environmentally friendly economy with eco-friendly industries booming. Gardening tools sold and used in China are also coping with this trend. To successfully launch a business in the gardening tool market in China, it is important to keep the products and brands up to the current trends. Again, social media is a great platform for both gathering consumer feedbacks and promoting your own products for brand recognition.

Author: Jiameng Hu

Daxue Consulting helps you get the best of the Chinese market

Do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions.

This article As gardening gains popularity as a leisure activity, where do China’s gardening tools come from? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Historical reasons explain the rejection of cheese by Chinese consumers

Traditionally, dairy products were associated with the nomadic tribes who lived on the fringes of China and who were regarded as barbarians. So back then, eating cheese was associated with an unsavory lifestyle.

Also, the majority of Chinese people avoided the consumption of dairy products, including cheese, because so many of them are lactose intolerant. In fact, many East Asians are lactose intolerant because of a lack of exposure to cheese. It’s a vicious cycle.

Cheese currently becomes trendy in China: Booming cheese market

Daily dairy intake is consistently an important theme in China, however, cheese consumption, while growing still remains low. Chinese dairy consumption of fresh & UHT milk, yogurt, and milk powder account for 95% total cheese market share. Cheese, butter and other dairy products share the remaining 5%. Cheese consumption in China recorded 0.1kg per capita in 2016. Looking at the neighbor countries, Japan and South Korea, both were over 20 times higher than China (2.4kg and 2.6kg respectively), which implies a significant opportunity for cheese in China in the future.

The market has seen a surprising growth, revenue in the Cheese segment amounts to US$1,056m in 2019. The Chinese cheese market is expected to grow annually by 5.3% (CAGR 2019-2021). Between 2009 and 2017, the volumes of cheese demand, as well as supply, see continued growth, thanks to emerging diverse formats, acceptable flavors, and textures catering to Chinese palates. Domestic suppliers of cheese still account for less than half of the whole demand, meaning cheese consumption in China relies heavily on imported cheese.

By 2019 the cheese currently becomes trendy in China particularly Shanghai and other 1-tire cities. This may be preceded by the following reasons. First, Increasing upper-middle-class and affluent households. Second, a new generation of freer-spending, sophisticated consumers, born since 1980. Third, the growing power and ease of e-commerce delivering cheese to China’s doors. Forth, the rapidly accelerating Western culinary influences have introduced cheese to these cultures. Last but not least, an increasing number of expats requiring Western goods and, as a result, the active growth of imported stores.

Cheese consumption in China: What’s the image of the cheese?

The Chinese Nutrition Society issued updated dietary guidelines for Chinese consumers in 2016, recommending that each adult should consume 300 grams of dairy products per day – current consumption is 100 grams.

Most of the time, protein and calcium intakes are presented to Chinese consumers. “Good for pregnant women and the elderly” states Baidu Baike (the Chinese Wikipedia). The nutritional side is explained and the description highlights that the cheese is a concentrate of milk, from 10 kilograms of milk only 1 kilogram of cheese is producing.

Moreover, amidst increasing awareness of children’s diets, cheese snacks have been well-received by parents, especially in tier1 and tier2 cities. Kids cheese market dominates 55% of the retail cheese market (Kantar 2017) and sees positive growth in the near future. Therefore, many processed kinds of cheese can be seen as more common in supermarkets and convenience stores due to light flavors.

[Source: Yili]

“Cheeses do not only attract expatriates any more. We can see a lot of Chinese customers coming to buy cheeses,” said an experienced dairy salesperson in Ole, an upscale supermarket in Shanghai.

The landscape has changed a lot recently compared with the situation in 2015.  Before 2016, it was nearly impossible to find cheese in small stores, and 94% of the imported cheese market was sold through large international supermarkets and hypermarkets.

The Chinese cheese market should overcome cultural barriers

The cheese consumption mix in China is dominated by processed cheeses, which are more suited to the local palate. Chinese consumers, in general, do not favor the strong tastes and scents of many natural cheese varieties. Furthermore, processed cheese is easier to handle when used in hamburger and pizza preparation.

The attractiveness of the Chinese cheese market as a large consumer of cheese is enforced by the lack of Chinese cheese producers, enabling international companies to shape the market. Despite France being the largest producer of cheese in the world, France only accounts for 4% of the current market share. New Zealand, Australia, and the U.S. are the largest exporters of cheese in China.

[Source: OEC]

Shanghai is for many years the leading power of China economic and trade development. International trade of goods is facilitated in Shanghai, enabling the city to discover new products at an earlier stage; it includes the cheese market implementation.

Therefore, the deep analysis of the Chinese taste and cheese preferences will help to study this market and the audience and in the future easily predict acceptation from customers. Shanghai Roria, a European food importer offered tastings of various French, Italian and Spanish cheeses in Shanghai. As a result, the rate of satisfaction toward the strong blue cheese was extremely low, as only 30% said it was amazingly good. Unlike in western countries, a lot of Chinese consumers have never tried Cheese and have an image of a bad smell concerning to this good; this is illustrated very well by the Chinese word for cheese “nailao” (奶酪), meaning “milk jelly”. Whereas Cheese has another Chinese name: “zhishi”(芝士, a buzz word now in China ), is mostly being used in the context indicating cheese.

Why the Cheese market in Shanghai can lead the way

In Shanghai, people enjoy experiencing new products and discovering new tastes from imported products. For foreign companies, educating and changing consumer tastes represents a real challenge. That’s why firms such as Bongrain Food preferred other strategies to enter into the Chinese market by adapting to the market and introducing tailored products according to Chinese tastes. Thus their products have already seen 50 new varieties. In Shanghai, the most famous cheese brands are cheese snacks for children such as Stick Cheese, Kiddy Cheese and Small Triangle Cheese. Those may represent the beginning of the Chinese adaptation to the taste of cheese; especially by going through new Chinese youth.

According to Euromonitor, cheese is being added to school lunch menus in many primary schools in Shanghai.

In the nearly past, Cheese was strictly considered as a luxury food. But with the rise of consumer awareness of the nutritious benefits of the product due to exposure to western culture and style in large international cities such as Shanghai, parents have started to buy cheese snacks for their children. Typical families believe that the presence of calcium in cheese will support vital functions in the growth of children.

Another sign of the increasing popularity of the cheese market in Shanghai is the recent apparition of traditional cheese makers in the streets. La Parisienne and La Formaggeria, for example, offer both a decent array of cheese right in the center of Shanghai. A wide range of cheese can be found on the Internet and deliver high-quality cheese in China quickly.

Also, there is an increasing amount of tasting events held in Shanghai and will get more Chinese consumers to try cheese for the first.

A variety of cheese-related foods sparks the wave of “cheese lover”

Western-style cuisine began to enter into the Chinese market a decade ago, and now it has been widely accepted by Chinese people, no matter the burgers from McDonalds or KFC, or pizza from Pizza Hut, or creative popular dishes all having options for cheese flavors. But still, Cheese’s development in China is at an early stage with low per capita consumption and novelty driving sales.

1. Cheese has emerged thick and fast in many recipes

Nowadays, Chinese netizens are favor of sharing everything about their daily lives through social media, such as LRB, short for Little Red Book(小红书), a social network for Chinese users. If we search “芝士”(Cheese)on LRB, more than 220,000 posts are shown in the results, teaching you how to cook “Tomato cheese rice”, “Cheesecake”  or other dishes receipts of each include cheese.

[Source: Little Red Book]

2. Cheese milk cap (奶盖) becomes ridiculously popular amongst the young generation

With the rise of Wanghong drinks (网红饮品)，for example, HEYTEA and Lelecha among famous cheese tea brands, young milky tea lovers are obsessed with the type of tea with cheese on the top. According to HEYTEA’s official website, this type of topping is made of salty cheese imported from New Zealand. Cheese tea lovers are willing to queue up for several hours only to order one cup of drinks.

[Source: HEYTEA]

3. Cheese snacks are gaining more popularity in Shanghai

Cheese snacks in retail performed well in 2018, and most of them are processed cheese which is trendy at the moment.

How to select proper cheeses for kids?

• 4 critical contents: protein, fat, calcium, sodium;
• Cheese is the concentration of milk, ready for kids supplementing protein and calcium;
• Cheese can be categorized into “natural cheese” and “processed cheese”, most kids cheeses are processed one. In terms of nutrition, these two types of cheese are almost the same.

Similar to kids cheeses, normal cheese snacks are majorly processed and have a variety of shapes, including stick, mini cup portion, cube, ball, triangle, bar shape and so forth. Considering user-friendly, convenience-in-use and easy-to-carry is a crucial factor for snacking consumption. On the other hand, innovative appearance is leading consumer trends. It’s very likely that in the near future, traditional original flavor cheese snacks can hardly meet the varied demands of sophisticated Chinese consumers. Compared to slight taste improvement by foreign brands, some Chinese brands provide very unique offerings, such as potato, date, peanut, and pizza flavor.

Shanghai given its unique attributes about open to new things and large disposable income of citizens, is expected to lead the cheese evolution in China. Lactose intolerance, according to studies, can be less of a problem if people begin to have cheese and milk in a younger age. It is reasonable to believe that exponential cheese consumption is expected to grow continuously in the foreseeable future.

Daxue Consulting helps you get the best of the Chinese market

Daxue Consulting can provide you with support in discovering the Cheese Market in Shanghai. We conduct all the market research and consulting services you may need, such as potential analysis, cost analysis, implementation feasibility etc. To know more about the Chinese cheese market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

This article The cheese market in Shanghai: Cheese evolution | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

E-pharmacy, also called “internet pharmacy” (网上药店) are online platforms that act as intermediaries or retailers to facilitate the sales of medicine, and are becoming increasingly popular across the world. China is currently facing many of the same regulatory and security challenges with their e-pharmacies as many other developing countries. Despite this, China has many unique market forces and players that make its e-pharmacy development different, and as Daxue Consulting has observed in the past, those agents often contribute and interact in unusual ways.

The Chinese e-pharmacy market has been growing substantially in the last six years according to Sinohealth CMH (中康 CMH). Sinohealth’s study shows that B2C e-pharmacy sales reached almost 28 billion CNY in 2016, which is a 93% YOY increase since 2015 and is over 17 times the sales amount in 2012.  With its rapidly expanding size, China’s e-pharmacy market is already becoming one of the world’s most important sectors of the healthcare industry.

E-pharmacies allow for pharmaceutical to be conveniently delivered to a patient’s doorstep. Photo credit: Daxue Consulting.

Contact us for any question on the Chinese market

Today, the largest Chinese cities are experiencing a massive increase in demand for health care goods and services, averaging roughly 30% every year. According to China Internet Network Information Center (CNNIC,中国互联网络信息中心), over half of the Chinese population are internet users, with 5.14 million Chinese expected to regularly purchase products online through platforms such as Tmall and Jing Dong (京东), and those numbers will continue to rise in coming years. As a result, the combination of two major trends in China, healthcare and e-commerce, is powering the development of the e-pharmacy alternative at a tremendous pace. In 2016, China overtook Japan and became the world’s second largest pharmaceutical market, with over 914 enterprises approved to sell over-the-counter (OTC) medicines online in China as of January 2017, according to China Food and Drug Administration (CFDA,国家食品药品监督管理总局).

Succeeding in e-pharmacy in China: practicality over risk

One of the reasons for the success of e-pharmacy in China stems from the fact that many Chinese are being drawn into a busy lifestyle where short holidays, rigorous work environments, and long hours are all too common. This results in high levels of stress and pressure within the population and fueling the demand for consumer health products, particularly vitamins and dietary supplements (VDS). The average consumer’s purchasing power is rising quickly in China, and so too is the demand for healthier products to boost their immune systems, delay aging, and fight fatigue. Lack of free time leads the Chinese to value convenient round-the-clock shopping and the fast home-delivery services provided by e-pharmacies.

[ctt template=”2″ link=”g8Pap” via=”no” ]B2C e-pharmacy sales reached almost 28 billion CNY in 2016, a 93% YOY increase since 2015[/ctt]

In many cases, many Chinese citizens are increasingly finding less time to navigate a complex healthcare market, and are off-put by expensive medical services. It is only natural then that self-medication and traditional medicine have remained very common methods of healthcare in China. E-pharmacy services offer a clear solution to the current Chinese lifestyle and desire for rapid product delivery.

E-pharmacy platforms show that herbal and natural ingredients are the most popular medicines. The general Chinese consensus on non-herbal and non-natural medicines such as prescription drugs is quite poor, as they believe these medicines to cause unwanted side-effects and are generally less safe. Thus, OTC products intended for fighting allergies, colds and coughs saw strong growth in 2016, along with dermatological creams in Chinese e-pharmacies.

China’s air quality leads to dryness and other symptoms that are remedied with topical ointments. Calamine Lotion (炉甘石洗剂), developed by Winguide Huangpu Pharmaceutical Ltd (上海运佳黄埔制药有限公司), is an itch-relieving medication and one of the best sellers on Taobao and Tmall. Photo source: Tmall.

Skin products are getting sold faster than other OTC products in China because the highly polluted and often humid air is particularly damaging to skin. Also, Chinese consumers view dermatological products much more favorably, as they are perceived as less dangerous than ingested medicines when it comes to the use of potentially toxic substances.

 Topical medication products, such as this one which can cure skin infections, are very popular on Chinese e-pharmacy platforms. Photo source: Tmall.

This e-pharmacy phenomenon is being primarily driven by China’s younger, tech-savvy demographic groups. Consumer reviews, websites ratings, discussion boards, blogs, and other social media platforms are used frequently by these younger consumers. Firms wanting to sell their products through an e-pharmacy in China must ensure they have a sufficient online presence and the capability to manage online business operations. E-pharmacy user purchases in China depend highly on the opinions of key internet influencers and on the experiences of other customers.

Black market e-pharmacy presence in Mainland China

The rise of e-pharmacies has been mirrored by the surge of illegal sales as well, and the situation has reached a critical point. In China, according to Legit Script, only 3% of e-pharmacy websites comply with local laws and regulations. This means that 97% of e-pharmacies in China are operating somewhat illegally, and most likely with hazardous practices. Rogue e-pharmacies has become a genuine problem in China as these websites are not managed by qualified pharmacies or pharmacists, do not require prescriptions or medical examinations, and sell unapproved and falsified drugs. The public health of citizens is directly threatened by the high saturation of criminal entities in the pharmaceutical industry.

To fight the proliferation of these firms, agencies such as the Chinese Food and Drug Administration are building a drug database for public awareness. Ideally, the Chinese government will also be executing regular campaigns to shut down non-compliant sites and mitigate consumer risk. Furthermore, packaging will be improved, including clear color codes which let patients know if their medicine requires a medical consultation or a prescription.

New perspectives on diversification of e-pharmacy in China

Recent research conducted by Frost & Sullivan shows that there is a large gap between U.S. and China when it comes to the development of the e-pharmacy market. The report states that e-pharmacies accounts for over 30% of the total retail sales in U.S., but in China e-pharmacy sales only account for 1.5% of total market sales. Frost & Sullivan, therefore, concluded that foreign multinationals would be well-positioned to exploit the market differences.

[ctt template=”2″ link=”4GeeE” via=”no” ]China could legalize the selling of prescription drugs online within five years[/ctt]

The leading consumer health players haven’t missed out on the e-commerce and e-retailing trends in China. Chinese pharmacies and international players have started selling online though the most popular e-commerce Chinese websites. For example, Guangzhou-based health giant By-Health (汤臣倍键) opened its flagship store on Tmall (天猫) in 2011. After 12 months, that had already realized over 600 million CNY on the platform. This new channel of e-pharmacy is letting large firms reach more customers than ever before.

Protein powder (蛋白粉), liquid calcium supplements (液体钙), fish oil supplements (鱼油) and folic acid vitamins (叶酸) are the top-selling categories on By-Health (汤臣倍键)  Tmall store. Source: Tmall (天猫).

As online reputations are of paramount importance in Chinese e-pharmacy, direct selling companies are offering consumers various experience centers to review products. In this way, customer needs are targeted far more effectively, products can be segmented, the company’s internet image stands to improve, and brands can engage with consumers more directly. Amway (安利) and Infinitus (无限极) for example, both have implemented successful strategies with this in mind. By creating and maintaining a strong brand presence on WeChat and other top platforms, both brands could quickly garner helpful feedback and respond in kind. Other e-pharmacies should explore how to advertise in China, as mobile advertising is still one of the best solutions to boost sales in China, since mobile internet-based formats are skyrocketing at a yearly rate of 600%.

Amway and Infinitus have both created an online presence through successful branding and marketing. Bichen Zhang (张碧晨), a Chinese singer, is seen promoting an essence lotion product on Amway’s official WeChat account. Photo Source: Infinitus and Amway’s official WeChat account.

Most importantly, however, is the fact that China could legalize the selling of prescription drugs online within five years. As of May 2016, the CFDA has halted all online, third-party platform trial periods of prescription drug sales. However, the Chinese have also been looking to reintegrate those services into the economy. On December 2016, the Ministry of Commerce of China issued “The National Development Plan for Drug Circulation Industry (2016-2020)” (全国药品流通行业发展规划2016年-2020年) in which the government stated that China should cultivate many large-scale pharmaceutical enterprises with high-quality, standardized practices that extend all over mainland China.

At the same time, the government stated it would “support the cooperation between existing drug distribution enterprises and medical institutions and healthcare department, e-commerce enterprises to promote the medical e-commerce business services.” In January 2017, the Chinese government issued another series of documents, which aimed to provide a more comprehensive framework for growing the e-pharmacy industry, as well as encouraged the exploration of other prescription drug e-commerce operations.

However, the legalization of online prescription drugs sales is mainly targeted towards self-operated e-pharmacies, as they usually have the correct qualifications and certificates which allow them to sell drugs without being impacted by the policies. In that case, the investment in self-operated e-pharmacies will become a new trend. Although internet third party platforms, like Tmall, were forbidden to sell online in May 2016, those platform’s distribution channels are still stronger and more established than those of self-operated e-pharmacies.

According to the National Health and Family Planning Commission’s magazine (中华人民共和国国家卫生和计划生育委员会, China Pharmacy (中国药店), the sales of self-operated e-pharmacies and the third-party platforms account for 32% and 59% of the total online sales respectively. However, since the government is planning to standardize the market, there will be more restrictions for third-party platforms. From here, it is highly possible that self-operated e-pharmacies may overtake those third-party platforms in the future.

E-pharmacy consumers mainly consist of younger demographics. However, its convenience is also marketed to elders who have difficulties leaving the house.

In the past two years, many established pharmaceutical firms have begun to purchase self-operated e-pharmacies. For example, Renhe pharmacy (仁和药业) has purchased 56% of Yaofangwang’s (药房网) stock in 2016 for 600 million CNY, which lead Yaofangwang to realize 192 million in revenue during their first year of joint operations. Seeing successful acquisitions like Renhe’s, many third-party platforms have followed suit. AliHealth (阿里健康) purchased Guangzhou Wuqiannian Medicine (广州五千年医药) for 16.8 million CNY in 2016 to get the selling certification that Guangzhou Wuqiannian had been using.

Regulations have forced many small business operations to be acquired by large companies capable of meeting industry standards. Photo source: Alihealth.

What are the new trends for medical e-commerce in modern China?

With the competition of online pharmacies becoming more and more fierce, it becomes hard for a medical online platform to be differentiated from others and gain profits from sales. To break the ceiling, some platforms start to provide personalized products and services like online clinical services, medication guidance, and health management. Advanced technologies are also applied to improve services in different ways. This trend is called medical e-commerce 2.0. Furthermore, e-commerce 4.0 sheds light on the latest advanced technology which may have a big impact on the prospect of medical e-commerce.  Technologies like voice assistance search, artificial intelligence, augmented reality and so forth likely improve consumers’ purchase journey experience and thus, online pharmacies could take initiatives to stay ahead of their competition.

So as to differentiate the specialized platforms from normal online pharmacies that only provide products, online medical stores draw much attention on professionalization which provides additional services for customers on specialized medical advice and their applications. Many e-pharmacies such as Yiyaowang (1药网), Jianke (健客), Kangaiduo (康爱多) have launched a “medicine + doctor” model. For example, the Yizhen (1诊) app developed by Yiyaowang is effective in driving customers by providing a series of additional services, such as clinical service and medication guidance from Xinan internet hospital. The objective is to ensure the quality consistency of online and offline service so that a larger market share can be reached.

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O2O strategy being widely adopted in medical e-commerce 2.0 in China

As a core part of the transition to medical e-commerce 2.0, O2O strategy helps medical e-commerce platforms to offer better medical service, shorten delivery time and cover more customers, which will improve the competitiveness of the industry.

The O2O model aims to combine online information and offline services. For customers, they can place an order online and pick up the products in offline stores where they can get additional services like medication guidance. Customers can also place their order in offline stores even if the goods are sold out. The products will be sent from another store or the warehouse directly to the customers’ home.

Online pharmacies, such as Kangaiduo, have built offline stores on the basis of online platforms of a self-built official website, flagship stores on JD and Tmall, mobile WAP website, WeChat store, and Kangaiduo App. Some traditional offline pharmacy chains after years of operation and development have also established their presence online based on their professional service that relies on the community.

“Web-based hospital + Drugstore” is another type of O2O strategy practiced by AliHealth. It founded China Medical O2O Pioneer League with many offline pharmacies and tried to use mobile internet technology and big data technology to realize data interaction, build customer profiles, and get through the upstream and downstream industry service. Online medical service “One-minute clinic” is offered in member store of the league, providing personalized health management services.

Active social media presence in China is a clear feature shared by main platforms

Weibo and WeChat public account is their main focus on social media. Knowledge popularization by professionals and health advice are provided to the general population in the form of articles and videos. Meanwhile, product recommendation and purchase links are attached to promote sales.

For example, the official account of Haoyaoshi on Weibo, which has 459 thousand followers, provides a variety of information including public health events, health advice, and refutation to rumors. In addition, lottery events are held regularly to attract followers and increase exposure. On WeChat platform, original articles and serial caricatures about health knowledge and recommended products are sent. And customers can make purchases in Haoyaoshi online store through WeChat Mini program.

Daxue Consulting expertise on the Chinese healthcare market

A major pharmaceutical player in Europe was looking to expand their operations in China and reached out to Daxue to gain a better understanding of the Chinese market, specifically in respiratory health. Many highly-industrialized regions and cities in China, like Beijing, regularly experience poor air quality. As a result, citizens of these areas are being affected by air quality related health concerns in record numbers. Daxue’s team provided the insight and research into these critical locations so that the client could best tailor their products and services for the Chinese market.

Our project managers approached the problem from multiple angles. Qualitative interviews with medical professionals, patients, and other industry insiders helped create a picture of the scope and implications of the problem. With extensive quantitative research using advanced analytics techniques, our team was able to discern key areas of focus for the client’s expansion. Ultimately, Daxue’s recommendations helped our client design the optimal strategy for increased profitability and addressing one of China’s greatest health concerns.

In the healthcare industry and other practices, our clients share our passion for results and success. For more on our expert insights and our work in the Chinese market, reach out to learn more.

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This article E-pharmacy in Mainland China: the health shift online is the first one to appear on Daxue Consulting - Market Research China.

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