China Consumer

Happy June 18th

The key takeaways from China’s mid-year shopping festival

618-shopping-w

JD.com also celebrates its anniversary on June 18

On the night of June 18, Li Jiaqi, looking visibly exhausted, announced in a raspy voice on his Taobao Live channel that he would take a week off after the 618 shopping bonanza (named after the date June 18). The king of lipstick sales (see WiC491), who has been struggling with rhinitis and bronchitis, told his legions of fans that he needed to undergo a “small surgery” and his “office also needed an upgrade”.

It should hardly come as a surprise that Li, like many e-commerce livestreamers in China, needed a break after working overtime in the run-up to the 618 festival. This year’s event was bigger than ever. The Chinese government saw it as an occasion to reboot domestic consumption following the Covid-19 outbreak. Consumer brands that were struggling during the pandemic with ‘locked down’ shoppers also pinned their hopes on 618 to boost second quarter sales.

A lot of companies tapped livestreamers to sell their products. “The battle of this year’s 618 was longer than ever before, lasting almost a whole month. A lot of merchants started promoting as early as May 20. We only started on the night of the 24th. But we started the whole planning process back in April,” an executive that works for the ailing livestreamer Li told Lanjing Caijing.

“How do I feel about 618? Tired. The whole event was so long: I have been working non-stop since the beginning of the month to the middle of the month,” Cassie, the manager of a women’s apparel storefront on Tmall, told Yuele Wanjia, a showbiz portal. “But exhaustion aside, we are still hopeful that this 618 will deliver explosive results, bringing the first half of this year to a perfect conclusion.”

Thankfully, China’s consumers did not disappoint. Gree chairwoman Dong Mingzhu took the crown for the top online salesperson, selling Rmb10.2 billion worth of appliances during her four-hour session (although there were rumours that most of the buyers on her livestreams were her own distributors). Li, the lipstick king, racked up Rmb223 million, mostly in the beauty category. Viya, another internet KOL, drove Rmb140 million in sales and as many as 30 million people tuned in to her channel on Taobao Live at its peak.

E-commerce giants also had plenty to celebrate. JD.com reported its transaction volume totalled Rmb269.2 billion ($38 billion), which was 34% higher than the year-earlier amount. Alibaba said its own gross merchandise value topped Rmb698.2 billion across its e-commerce platforms, with 3C (computer, communication and consumer electronics) and home appliances being the two most popular categories.

Smartphone makers were especially aggressive as they sought to offload their inventory. Because of the pandemic, consumers had largely held back on upgrading their handsets. Huawei saw its domestic shipments drop from 36 million units to 28 million units in the first quarter. Globally, too, its smartphone shipments plummeted from 60 million to 30 million units.

All the major smartphone manufacturers introduced discounts during the 618 campaign this year, ranging from Rmb300 to Rmb800, 36Kr reported.

Even Apple took part. On Tmall, it offered a Rmb400 discount on its iPhone 11 (Rmb4,999 before discount) and Rmb500 on the iPhone 11 Pro (Rmb7,499), which helped sales reach Rmb500 million in the first five hours of the promotion. Huawei offered up to 30% off some of its flagship models like the Mate30 and Nova6.

Homegrown labels were the biggest winners. Five out of the six phone makers that surpassed Rmb1 billion of sales on Tmall were domestic brands (Huawei, Midea, Haier, Xiaomi and Aux).

Nevertheless, consumers are still showing signs of trauma from the coronavirus crisis. Toilet paper, the shortage of which caused mayhem in the initial stages of the outbreak, was the top-selling item this year, along with milk, wet wipes and detergents. Some medical face masks also sold out during the shopping event…

Cola giant goes on diet

Pepsi eyes a $17 billion market

Back in 2012, when Rob Rhinehart invented Soylent, a milky drink packing 35 nutrients needed for human survival, his mission was to save time and money without compromising health. After a month of relying just on the beige elixir, Rhinehart reported his food costs were 89% lower and his physique had noticeably improved. “My skin is clearer, my teeth whiter, my hair thicker and my dandruff gone,” noted the then 23 year-old engineer in his blog How I Stopped Eating Food.

Thanks to a crowdfunding campaign and venture capital backing, the drink soon became a hit with Silicon Valley techies, and is now widely sold across 7-Eleven and Walmart stores in the US.

Today, similar products are taking root in China, as suggested by a slew of new releases.

PepsiCo, for instance, launched a ready-to-drink milkshake known as Smart Calories, or Dikakong, early this month under its cereal brand Quaker. Containing grains, freeze-dried fruits and whey protein, the drink comes with four flavours such as apple-cum-pomegranate, and oat and quinoa. Each bottle caps its energy supply at 200 kilocalories, but promises to keep dieters full for up to four hours.

“The market potential for meal replacement [in China] is gigantic,” an executive from Pepsi told 36Kr, a news website, claiming that nutrient-dense synthetic food represents the future of Chinese eating. In spite of the country’s deep-rooted culinary heritage and the strong social value its people place on dining together, the US food and beverage giant says it is seeing new demand for such ‘meal replacement’ drinks from busy urban consumers.

Its Smart Calories brand targets not only youthful, white-collar women looking to lose weight, but also people on the road, working overtime and practising intermittent fasting – scenarios for a growing number of city dwellers as they juggle a faster-paced lifestyle with greater social emphasis on body image.

China’s meal replacement market was worth roughly $8 billion in 2017, accounting for 12% of the global market, according to Euromonitor. By 2022 it could potentially double to $17 billion. This trajectory is fuelling the fortunes of Hangzhou Hengmei, a synthetic food contractor that reported a quadrupling of sales between 2016 and 2018 to over Rmb100 million.

Also significant is the number of new brands propelling the sector’s growth. Switzerland’s Nestlé has launched three meal replacement labels (i.e. NesQino, OPTIFAST, and Build U) since 2019, alongside a dozen local players including WonderLab, MissZero, ffit8, and Keep, a homegrown social fitness app.

The trend explains why Pepsi has chosen Smart Calories to draw attention to its social e-commerce platform in China, which it has established with a view to capturing another big market: healthy snacks. We reported in March that the company acquired Be & Cheery, a Hangzhou-based online snack retailer, after becoming the second largest shareholder of Natural Food International, China’s second-largest health food producer (see WiC485). The new investments aim to help the company cushion falls in junk food sales as the likes of carbonated drinks and potato chips are shunned by more health conscious consumers.

But the bigger issue that Pepsi has to deal with at present is the coronavirus outbreak at its factory on the outskirts of Beijing. As of June 20, eight workers were found to be infected, of which two had visited the capital’s Xinfadi wholesale food market, where the second wave of infections began (see WiC500).

Pepsi said that 480 employees had been sent to quarantine and all had tested negative for the virus. Production at the plant, which focuses on Lay’s chips, has also been suspended to allow for a disinfection process amid wider consumer concerns over potential contamination of Pepsi products.


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