Three disruptive practices driving retail growth in China
How emerging and established brands are finding their own disruptive path to success in the Chinese retail market
August 2020 saw the world’s second largest retailer, Costco, make its debut in mainland China. As Costco opened the doors to its first warehouse club store in Shanghai, enthusiastic shoppers flooded in to buy everything from Birkin bags and Kweichow Moutai liquor to Costco’s famous Kirkland Signature own-label ranges. The store had to suspend its business by early afternoon because of huge crowds.
The Costco experience suggests that Chinese consumers are always ready for the next disruption. Despite the slowing economy and trade tensions between China and the US, Chinese consumers are also ready to spend, as indicated by their still-growing appetite for fast-moving consumer goods (FMCG). In the first three quarters of 2019, total FMCG sales monitored by Kantar grew by 2.7%, 6.9% and 5.7%, respectively, maintaining the same pace as 2018. Despite higher inflation, consumers continued to trade up and the number of active brands grew by 4.2%. While the emergence of new brands led to more intense competition in the Chinese retail market, it also brought a new dynamic.
Kantar also noticed that in both fast-growing and maturing categories, 20% of the brands are always star performers, growing more than twice as fast as the market average. Some of them are new entrants to the market and others are more established. This development suggests that in today’s fast changing market, both big and small players can find their own disruptive path to growth. As China’s retail market continues to evolve, disruptive players win by excelling in these three brand building practices:
- Identifying and fulfilling emerging and highly individualised consumer needs
- Optimising marketing investment with the most effective content and social media
- Integrating online and offline channels with innovations and collaborations
Meeting individualised consumer needs
Chinese consumers are increasingly sophisticated with different consumer cohorts showing distinctively different needs. For example, despite already commanding the largest share of the bottled water category, Nongfu Spring has grown by double digits by introducing products that tap into different usage occasions. Over the past few years, the brand successfully launched products to serve a wide range of occasions, such as gifting and rice cooking. It also targeted products at special audiences, such as families with babies and elders.
ISDIN, a Spanish derma-cosmetics brand, focused on promoting different usage occasions for sun protection, as Chinese consumers have become increasingly conscious of different protection needs. ISDIN successfully promoted a broad spectrum of products for each sun care need, including prevention, daily care, maintenance, treatment and repair.
Creating effective content and social media
Content and social media investment is gradually replacing the traditional search-based media strategy to accelerate brand building and sales conversion. Kantar’s latest report suggests that 14% of consumers now purchase food and beverage products through WeChat (on a merchant’s or brand’s own Mini Programme). The social-driven sales channel also accounted for 16% of the incremental sales value of the sector. Short-video content has continued to change the way users consume content too. Due to increasingly fragmented lifestyles, users only have time to engage with bite-sized pieces of content.
Livestreaming has taken off and become a widely accepted means of promoting and selling products. This is largely due to the appeal it has among consumers in China’s lower-tier cities. Alibaba’s Taobao livestream generated more than 20 billion RMB ($2.8 billion) in gross merchandise volume (GMV) during China’s Singles’ Day shopping festival. Brands are also becoming increasingly savvy in their use of Key Opinion Leaders (KOLs) to engage their audience and Key Opinion Consumers (KOCs) to create user-generated content on social media platforms such as Little Red Book.
Online to offline (O2O)
As online and offline channels integrate further, we’re seeing the elimination of the border between brick-and-mortar retail channels and the virtual world. Alibaba’s acquisition of hypermarket chain RT-mart has accelerated its digital transformation with the adoption of an O2O platform across its 400-plus stores throughout China.
Starbucks is another brand that’s advancing its O2O strategy. Consumers in China can now order their favourite drink from Starbucks and have it delivered by Alibaba’s delivery platform Ele.me within 30 minutes. As part of its collaboration with Alibaba, Starbucks also opened Star Kitchens inside Freshippo supermarkets, to streamline and enhance its order fulfilment and delivery services. Starbucks has also recently launched its Coffee Express service which allows customers to order their favourite drink before they arrive and then pick it up immediately.
Succeeding in the Chinese retail market
In a rapidly evolving marketplace like China, brands need to deliver disruptive growth and follow the three brand building principles above. Creating superior products based on a deeper understanding of individual needs is paramount; brands will have to endorse an always-on content and social communication strategy to keep engaging with their consumers; and managing the mix of offline assets and online presence remains a critical challenge while presenting excellent opportunities.
But accomplishing these goals requires a deep understanding of the market that comes from research, planning and commitment, as illustrated by the Costco example. Before its crowd-pleasing store debut in China, Costco gained insight about Chinese consumers’ tastes and preferences through years of operating a Tmall (a Chinese language website) cross-border ecommerce store – leading to an overnight success that was actually years in the making.
28 October 2020
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