With a population of 1.4 billion people China represents the ultimate goal, and often the initial market for many of New Zealand’s export brands. No matter if you’re a giant such as Fonterra or a humble home-based enterprise, here are some interesting insights on China’s e-commerce market opportunity in 2021.
At the 6th China Business Summit held in Auckland in July 2020, attendees both physical and virtual were reminded of the scale of China’s consumer market and the opportunities it represents for New Zealand’s export community. It was also a heads-up on the support available for Kiwi exporters looking to access the China market, starting with New Zealand Trade and Enterprise’s support, both on the ground in China and in New Zealand, and across all industry sectors and channels.
Reflecting the fact that China has been New Zealand’s top trading partner since 2017, Greater China requires NZTE’s largest offshore presence. It has a team of 70 people spread throughout the cities of Beijing, Shanghai and Guangzhou, as well as the MFAT office in Chengdu – plus a purpose-built meeting, function and event centre in Shanghai’s Xintiandi district complete with demo kitchen and small commercial kitchen.
As reported at the Summit, the restrictions created by Covid-19 impacted heavily on the trading landscape. Provisional data from Statistics NZ in July 2020 showed that for the period 1 February to 24 June 2020 (if you don’t count the pre-pandemic January data), the value of New Zealand’s exports to China were $360 million less year-on-year – or down 5.3 percent.
(For more go to https://www.mfat.govt.nz/en/media-and-resources/publications/market-update-china-2-july-2020/).
NZTE has identified a number of trends of interest to Kiwi export firms in the post-Covid-19 era. These include the increased premium placed on food that is not only healthy, but also safe; more consumers seeking products tailored to their specific needs; and an increasingly crowded marketplace – which means Kiwi companies must work harder to keep their brands active and up-to-date.
NZTE launched myNZTE (my.nzte.govt.nz) in 2020, a free online portal offering curated, in-depth information and guidance to help Kiwi exporters navigate their export journey to China and other markets. This portal contains information for almost every aspect of doing business in China – including market validation, tips on building brand, protecting IP, recruitment, developing a digital marketing strategy, getting products into China and sector intelligence.
China’s e-commerce landscape
One of the most significant observations linked to the Covid-19 pandemic worldwide has been the big surge in online shopping. And especially so in China.
As Scott Brown, managing partner of Redfern Associates, a well-established advisory firm on China explains, China has long been a world leader in online e-commerce and delivery – Covid-19 simply enhanced that fact.
“In many ways China was the most well positioned country to deal with non-physical consumerism,” he says.
Pre-covid e-commerce in China was already experiencing continuous annual growth across most categories, but the virus outbreak accelerated this and made brands even more reliant on online sales in the market.
Ashwin Pillay, senior digital executive with associate company Redfern Digital, says the digital landscape has become more dynamic, especially so in terms of paid media channels. This can be seen in the boom of livestreaming and diversification of target consumer demographics.
“For example, during the outbreak in China older consumers had to become more reliant on
e-commerce to fulfill their shopping needs, opening up a new demographic for brands to target.”
Pillay believes the fact that the ecosystem has evolved further simply means that brands must be better prepared and strategic in how they approach the market.
China’s e-commerce landscape is one of the most competitive in the world. Chinese consumers have every brand and product imaginable right at their fingertips.
“This highlights the importance of getting your brand and product offering right for the market. What works for the brand in New Zealand may not be the case in China.”
Research shows that it takes six to eight touchpoints with a brand for a Chinese consumer to purchase a new product, explains Pillay.
“Before New Zealand brands look to enter the China market, they need to do their homework, and this is something that we as an agency really push our brands to do – to ensure they get it right the first time.”
By homework, he’s referring to elements such as understanding your target consumer(s). What is it they care about? What is it about your product that distinguishes it from your competitors and makes it better? How does your product fit into the daily life of consumers?
And what are the key unique selling points of your product that really resonate with those consumers?
Opportunities knocking
China’s central government continues to invest in the ongoing development of e-commerce, which is good news for Kiwi brands. Companies recognise that it’s a unique mode of entry into the China market that doesn’t involve the regulatory and legal hurdles of setting up a legal entity.
Both Brown and Pillay are well positioned to monitor the market trends and opportunities in China.
Brown says all generations of Chinese are now concerned with health, healthy eating and nutrition – and this should encourage many Kiwi exporters. “This includes vegan and plant-based products, which is an increasing trend. I’m told the category is up 450 percent during, and post Covid.”
He says anything in the wellness space is an opportunity, and with exporters facing ongoing disruptions in other traditional markets as a result of Covid, now is a good time for exporters to diversify and move into China.
“Chinese retailers and platforms we speak to are hungry for new and well-supported products in these spaces.”
Ashwin Pillay also knows which categories represent the most opportunity in 2021. He describes these as:
- Plant based drinks – estimated to account for 24.2 percent of China’s total beverage market in 2021. “Both the government and Alibaba are heavily promoting zero sugar, zero calories and zero additives in beverage products, creating a major opportunity for health-focused drinks.”
- Children-focused dairy products with functional benefits (high calcium, probiotics etcetera), including yoghurts, drinks, and especially cheeses.
- Eating for beauty – products associated with skin whitening, anti-aging, hydration, anti-hair loss, and body slimming. Products in this category range include health foods, tonics and yoghurts.
- Children’s snacks and high protein products (across the F&B space) ranging from milks to potato chips.
Pillay’s advice for Kiwi brands targeting China is to be patient, be committed and invest long-term. “China is no longer a market where your product will go to the highest bidder – in fact, it’s quite the opposite,” he says.
“Major e-commerce platforms are becoming increasingly selective in the brands they choose to onboard. As a Kiwi brand you must show your commitment to the platform through elements such as planned advertising budgets and success in your local market.
“Remember, key [digital] platforms and players in the China market are spoilt for choice as all brands globally are aware of the China market opportunity.”
Commitment and patience
Once you’ve decided to get started on the China opportunity, then it’s time to make a true commitment. And that commitment needs to be important at a board and ownership level and well supported, explains Scott Brown.
“E-commerce and retail both require investment and a medium term view. The misconception that China is ‘too hard’ is wrong,” he says. “We see companies succeeding there every day, but the market must be approached with that commitment and patience.”
He believes that what you spend in the market directly relates to the returns you get – but it must be done smartly. “The determined will invariably succeed.”
Anyone who tells you that you can’t win in the China market is wrong, Brown says. “New Zealand companies need to lift out of the traditional exporter mind-set and become market builders – and that requires a shift in mentality and attitude.
“Throwing a product at the Chinese consumer because we think it’s great is not a recipe for success,” he says. “The market is too competitive and it’s not enough.”
If you’re looking to engage an influencer or Key Opinion Leader (KOL) to boost brand awareness in China, do your due diligence first.
Here’s a checklist from Ashwin Pillay:
- Ensure your brand matches with the KOL.
- Align the platform with whatever your KPI is – whether that be brand awareness or sales – to help the decision making process.
- Monitor KOL posts for fake buying.
- Ask for KOL backend data – such as click-through rates and demographic breakdown.
- Negotiate with the KOL to see if they are willing to do a part commission and/or link to the brand/product listing (e-commerce).
- If possible, ask brands from different categories about their experience in working with the KOL.
It’s a mistake to assume that just because your product has succeeded in the home market, it will be a fit for the China market. This is simply not the case.
“This element of a brand’s China market entry journey is so crucial,” says Pillay. “Getting [your strategy] right at the beginning.”
In terms of how brands can do this, his advice is to:
- Understand how some categories online are much larger than others. FMCG averages about 11 percent of total sales online. Some categories, such as ready-to-drink for brands such as Coca-Cola and Pepsi, are experiencing below ten percent. Brands such as Dyson and Brita are experiencing more than 50 percent, and sometimes as high as 80 percent, of total sales being online.
- In terms of pricing your products:
- Look at comparable products on e-commerce platforms.
- Consider how to position products against competitors.
- Consider how many brands are competing online in your category.
Other factors to consider for your market entry include pack sizes, category-specific attributes, multi-packing, cross-promotion and seasonality.
As for brand equity (the value determined by consumer perception of, and experiences with, your brand) consider:
- Why would consumers buy your product?
- The power of Unique Selling Propositions (USPs) and how to differentiate your product from your competitors’.
- The ability of USPs to be effective in driving impulse purchases amongst buyers.
Validate and evaluate
The Chinese Year of the Ox begins on February 12th, 2021. Oxen are known for their patience, desire to make progress, and achieving all their goals through consistent effort.
All these are worthwhile qualities for Kiwi exporters looking to succeed in the challenging Chinese marketplace. It does require patience, ambition and persistence, and no company should attempt it without first seeking advice from those with experience in the market and by conducting full market evaluation and validation.
When the ‘new normal’ finally does kick in this year, already strong New Zealand-focused categories such as food and beverage, and health, are likely to fare better compared to other categories. However, post Covid-19 Chinese consumers will be seeking even more assurances over authenticity and qualification of products from outside China.
Fortunately, according to NZTE consumer research on the behavioural changes and perceptions of New Zealand products in China, New Zealand products have a strong and positive reputation there, built on safety, quality, trust and sustainability.
Consumer demand remains somewhat subdued since Covid’s arrival in China in early 2020, but business activity has returned to close to pre-pandemic levels, and, as mentioned earlier in this chapter, consumers have been quickly shifting to online purchasing. So shifting your attention to China’s digital channels is good advice.
At the China Business Summit, attendees were reminded of the importance of keeping up with the constant changes in China’s marketplace. Even though everything appears to be back to normal – being responsive is imperative.
China is a market littered with brands. The success of brand owners reaching China’s massive consumer base lies in well-designed promotional plans backed by strong budgets, both online and offline channel strategies, consumer education and competitive pricing.
Despite the events of 2020 and increased competition from other countries, the enthusiasm of China’s consumers for New Zealand’s products remains strong. China is on track to be our most significant market again in 2021.
There will be no better time to make a start.
This article was first published in the 2021 NZ Export & Trade Handbook, with the assistance of NZTE, Redfern Associates and Redfern Digital. For more advice on succeeding in the China market go to: http://redfern.com.cn/ , https://redferndigital.cn/ or https://www.nzte.govt.nz/page/greater-china-market-information
