The China Opportunity New Zealand Natural Products Summit Michelle Yeh 2013.03.21
What comes to mind when you think of China? 2
When abundance is no longer an issue… 3
Vanity Takes Over 4
Before Liberation 5
Young Urban Chinese Couple Today 6
The Bund in Shanghai 1990 7
The Bund 2010 8
The NEW China 9
China – a big market 10
China – the world’s second largest economy and cosmetic market • Market Size & Growth: China cosmetic market reached 200 billion RMB in 2011 – with a 15% annual growth. – mainly driven by premium brands, which grew at 21% in 2011 • Trends: – Foreign brands own 80% of the market – Online cosmetic sales reached 37 billion RMB in 2011 – the demand for green personal care products has increased significantly in recent years. 53% of the respondents said that they have bought green personal care products in 2011*. *According to 2011 report by HKTDC,
Natural & Organic in China Sales of organic products in China have quadrupled in the last five years. 1 There is a growing level of concern about product safety and potential harmful effects of chemical ingredients. The market is projected to continue its growth undoubtedly. The Chinese skin care market saw dynamic growth with a 40% jump in new skin care products in 2010, far outpacing the growth in Europe and the US. The Chinese organic market is projected to grow 10 times in the next 10 years. 2 1 The Soil Association 2 18report.com 12
Green Beauty & Lifestyle Evolution China US W. Europe, AUS/NZ Alternative Luxury Trend Way of Life Lifestyle 13
Luxury Goes Beyond the Surface Natural Products’ Key Selling Points for Chinese Consumers: •Safety - #1 •Efficacy - #1 •Trendy •Luxury •Lastly, eco-friendly 14
Who is your Target Market? Two Trendsetter Groups: Primary Target: - Well-educated, upper-middle-class urban Chinese*, mostly in their 20’s, 30’s & early 40’s, trend-setters in China - Relatively more health-conscious, not yet knowledgeable about environmental issues, but mainly concerned with product safety and product benefits for themselves - Most in tier-1 & tier-2 cities est. 175 million Chinese can afford luxury goods today (source: China Branding Strategy Association) Secondary Target: - Expats, their trailing spouses and families (450,000+ foreigners in Shanghai alone, plus est. 1 million migrants from Taiwan, HK and Macau - More familiar with natural & organic concepts; more sophisticated and knowledgeable with various brands 15
Who is your competition? 1. Pharmaceutical/Dermatologist- Recommended Brands 2. “No-Additive” Brands • Imported brands • Local brands 3. Natural Positioning • Imported brands • Local brands
Pharmaceutical/Dermatologist -recommended Brands 17
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No-Additives Brands 20
FANCL: NO- ADDICTIVES Entered in 2004 Counter # ： Current stats N/A, 2010.10 celebrated its 100 th Store
Natural Brands 22
L’Occitane: from Provence Entered in 2005 93 stores in 2012
Kiehl’s: Herbal Apothecary Entered 2009 35 Stores in China in 2012
Jurlique: Bio-dynamic Entered in mid-90’s as a spa line Re-launched in 2009 as a retail brand Store #: N/A
Local Brands 26
Started 2004 Over 650 Points of Sale today 27
Started 2003 840 points of sale 28
What should be your channel of distribution? 29
Channels 1. Supermarket/Hypermart – high-end supermarkets 2. Department stores/Shopping Centers 3. Drug Stores – Traditional drug stores – personal care convenience stores 4. Specialty Stores – cosmetic stores – pharmacy beauty stores – natural/organic stores (beauty/lifestyle) – stand-alone stores 5. E-commerce 30
Supermarket & Hypermart • Wal-Mart, Carrefour and other hypermarkets: where urban residents to buy daily necessities, food and daily care products • The channels cosmetics sales accounted for approximately 35.3% in 2010, has become one of the most important sales channels, in recent years. 31
High-end supermarkets 32
Dept Stores/Shopping centers • As of the end of 2011, China has 2,795 dept stores/shopping centers. 60% of China’s total consumption still come from 700+ fourth-tier cities. 33
Traditional department stores • Accounted for 28.1% of cosmetic sales in 2010 sales. • Increase in the number of large- scale high-end department stores, the gradual decline in the number of small and medium-sized department stores • Department stores in the density of the first-tier cities, in the second, the number of third-tier cities 34 gradually increased.
Drug store • 7.2% of 2010 cosmetic sales sales • Drug store franchise brand with professional impression. – Traditional – Modern 35
Traditional drug stores 36
Personal Care Convenience Store 37
Specialty Stores • Small individual stores • Regional/National chain stores • Focused more on quality, higher customer loyalty. • Specialty stores help promote brand image, ensure high quality services and standardized prices • It is expected that specialty stores will become another key retail channel for cosmetics as large shopping complexes spring up. 38
Specialty Stores - Cosmetic Store 39
Pharma beauty stores 40
Specialty Stores: Natural organic beauty/lifestyle store 41
Stand-alone store/counter 42
E-Commerce 43
Tmall Stats • TMALL: 213 million active accounts • US$175 billion sales in 2012 • 54% of Chinese shop online at Tmall • 68% of what they buy is clothing and accessories, with much lower rates for digital goods, consumer electronics • 2013 will be the year that Chinese e-commerce surpasses U.S e-commerce, with $265 billion in sales compared to a projected $230 billion for America • total Chinese online sales will reach $445 billion in 2015 44
Sampling Channels 45
Key Question: Should you be in China? 46
A Big Price to Pay • Product Registration • Business license cost • Monthly tax filing • Special formulation • Special packaging • Special people • Rising cost of living (rent, HR, travel) • Copycats • Brand Consciousness 47
Product Registration • Tedious, costly and time-consuming 9-12 month process (see attachment for detailed process) – Requires full disclosure of formula and production protocol – Approx. 2500 USD per SKU – Approx. 30 sets of samples from the same batch required for testing • Will require full cooperation and support from brand headquarters to supply information required by FDA on a timely basis • Modification of labeling most likely necessary to comply with Chinese regulations • Try to avoid ingredient listing on primary packaging • Changing regulation
Animal Testing L'OCCI TANE's position on Animal Testing •Please take time to read and understand our position on this important subject below: •L’OCCITANE does not and never has tested its products on animals and guarantees that the active ingredients and raw materials have never been tested on animals at any point in the product development or manufacturing process. •L’OCCITANE has long been committed to the suppression of animal testing for beauty products, along with associations including One Voice and PETA. It was one of the first companies to be admitted to the British Union for the Abolition of Vivisection (BUAV) in 1997. •China’s policy is to test cosmetic products which are to be sold in the Chinese market in order to safeguard consumer safety. These tests are conducted by external laboratories in China. In December 2011 the BUAV decided to remove their accreditation from all companies operating in China. PETA followed suit this year. •Since December 2010, L’OCCITANE has been meeting with representatives from the Chinese authorities and in February 2011 the company took part in a colloquium in Beijing - together with the BUAV and the Chinese authorities - which aimed to implement alternative tests to animal testing, recognized by these same authorities. •L’OCCITANE is fundamentally committed to the abolition of animal testing of beauty products worldwide and by working with the Chinese authorities and promoting our products, which are not tested on animals during the product development and manufacturing process, to Chinese consumers, we believe we are more likely to encourage positive dialogue and prove the case for the removal of animal testing for beauty products. •L’OCCITANE continues to work alongside the BUAV as one of the main beauty brands represented on its China Taskforce. This group works with European and Chinese groups in order to promote alternative testing methods. The last meeting took place in May 2012 and regular meetings ensue. To this end, the Chinese authorities have recently launched a new program to investigate alternative testing protocols and L’OCCITANE continues to proactively participate to push for these alternatives to be implemented as soon as possible. 49
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