June 16, 2018


Two stories about tea and dairy products

The conclusions of the governmental report that was released in May at the E-commerce Convention in Beijing came as no surprise: e-commerce transactions grew by 11,7% in 2017.

Several facts were as well underlined in this report: the outstanding development of the cross-border e-commerce (+120% in cross-border imports), the fact that online platforms and offline industries are increasingly integrated through the use of big data technologies, and the dramatic changes in consumption habits such as the use of mobile payment which increased by 44%. In other words, e-commerce is today one of the main distribution channels for consumption goods, when it is not the most important one.

This article thus explores how companies, especially in traditional sector (tea and dairy products), adapt to this new (online) normal. Their stories are not only inspiring for tea and dairy products’ companies, they are also characteristic of an essential asset companies must display on the Chinese market: the faculty to adapt.

Tea for the millenials

Tea is to China what wine is to France or beer to Germany, a part of their culture. Now is the time when the “Grands crus” arrive on the market, and some of them can reach several thousands of euros for a kilo of tea leaves (the price is determined by the region where the tea leaves are grown). Yet, tea is less and less affectionate by young Chinese. Besides, it is a challenge for the consumers to recognize a good tea from the taste, and even a bigger challenge to recognize it from the packaging, when buying one’s tea in supermarkets. Contrary to wine, price is not a reliable indicator of quality.

Recently, several tech companies saw an opportunity and came up with innovative business models in order to tackle these challenges: Xiaomi introduced Xiao Guan Tea, NetEase came up with Yanxuan, and Penguin Guide also launched their own tea brand. These undertakings seem at first daring as none of them had previous experience in the tea business where it does matter. Yet, Xiaoguan’s 700 millions yuan sales in 2017 indicates otherwise.

Indeed, these tech companies used their technology and innovative sales methods and adapted them in the tea market. They thus managed to improve and modernize the consumer’s experience, a decisive feature in a brand’s success say all the recent consumers studies in China. For instance, selling on e-commerce platforms gave them a reach to the post-90s consumers, and it simplified the purchasing act for the consumers.  Reaching the post-90s is primordial in nowadays market as they become the driving force of the consumption market (McKinsey survey 2017). These consumers are now looking for high quality unique and traceable products, as well as to a lesser extent, other generations of consumers.

XiaoGuan also used the authority of height “tea masters” for marketing, which provided the brand with an image of know-how, guaranteed quality and uniqueness. The fact that the founder of the brand is himself originating from a traditional growing area surely helped: it brought a feeling of tradition, and a deal of personal history to XiaoGuan’s products.

The opening of offline shops completed this innovative strategy. Decorated by the Apple stores’ designers, these shops are the offline side (consumer’s unique experience) of the online sales (easy purchasing process).

All in all, in adapting their products to the new consumption loci and in developing a branding strategy, these tech companies could enter a traditionally rather close market with success.

Improve your knowledge of your consumers, personalize the consumers’ experience

Certain actors, already since long on their market, are also starting to use big data, such as Mengniu, one of the leaders in dairy products for around one century in China.  For Mengniu’s CEO, Jeffrey, Minfang LU, artificial intelligence is a tool for companies to use to improve their organization and their service to consumers (McKinsey interview, 2017). It is all the more necessary that digitalization of the commerce in China also creates several challenges for big traditional companies. Indeed, in the dairy products’ case, Chinese increasingly buy online and opt for home delivery. Consequently, they buy more often and in smaller quantities. They are thus more often choosing a product in a market that is also having a wider offer, and dairy products’ companies need to convince them more often, and through a different media for what it matters.

A national company such as Mengniu counts more than 20millions of “active” consumers, meaning that these consumers share voluntarily information about their preferences and their consumption habits on e-commerce platforms and social networks. For Jeffrey LU, these data are a goldmine to know how to improve their products and marketing. Yet, the company’s current resources are insufficient to treat all these data. One solution that was found is to cooperate with e-commerce platforms who already collect and analyze these data. For instance, Mengniu has a project with Alibaba to analyze their supply chain and determine where to produce, and how to improve their transportation network to gain in efficiency. Mengniu’s teams also analyze consumers’ data in order to design more personalized products, which the consumers are now looking for.

Lastly, market digitalization is not only an opportunity for companies to gather more data about their consumers, it also opens a new communication channel where they can rather directly reach these consumers. Chinese consumers want healthier products with a better traceability, information that a firm like Mengniu can easily provide as it disposes of data on all their farms and even on their cows. Thanks to nowadays data technologies, Mengniu has the capacity of taking up an informative role towards their consumers, not only providing them with information on the products, but also on the nutritional values of dairy products. Jeffrey LU also sees an opportunity to build a story around their milk: “We are not just a milk manufacturer telling you what we can do; we want to be part of your life.” as he says.

Hence, these two stories illustrate the trends of the markets, and the changing expectations from consumers, whatever the sector, and how companies can deal with that. The tea companies showed innovative capacity and put in place a new business model that seems successful in a market in needs of modernity. Regarding the dairy products industry, Mengniu managed to take advantage of their great pool of data to answer requirements from the consumers in terms of better information, personalized products and service. Exploiting these data is also useful in order to improve the supply chain of the company. In many instances in China today, it is all about building a story with the consumer.

By Manon Bellon

Credits : Photography by 魏徐亮 Wei Xuliang

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