It’s our observation that Chinese domestic brands’ success is poorly understood. It’s often been simplified to patriotic consumer preference. We created a workshop exercise, called the “Domestic Brand Rorsarch Test” to break the idea local brand success can be simplified to one cause. Here’s an extract from the exercise (which you can download here) to show you the multitude of factors at play.
Have you heard of Oatly? If so, chances are you know a little about the market for milk alternatives. But what are the prospects for milk alternatives in China?
Read on to find out what China’s market for milk alternatives looks like today, with a focus on oat milk.
Growth Tailwinds for Oat Milk In China
Before getting into some of the tailwinds, it’s worth noting that Chinese cuisine already has a number of alternative milks, like soy milk, almond milk and peanut milk. Indeed, these kinds of milk are alreadt enjoyed at breakfast tables across China. We think this means the barriers for consumers to accept alternative milks are lower in China than other countries. Further, when you consider some 90% of Chinese adults may have some level of lactose intolerance, you get a sense of alternative milks’ potential in China.
So, what does the size of China’s alternative milk market look like?
In 2020, China’s alternative milk market was worth RMB55 billion (USD$8.5 billion). This includes a wide-range of beverages, principally soy milk, almond milk, oat milk, walnut milk, peanut milk and coconut milk. You could say 2020 was a watershed moment for plant-based milks in China. Tmall’s Plant-based Protein Beverage Innovation Trend Report showed an 800% increase in plant-based protein beverages sold through the platform.
We expect this market to grow between CAGR 2% and 4% to 2025. Outside of lactose intolerance, the other factors driving growth in alternative milks are:
Perceived nutritional benefits
Low fat and low cholesterol properties
Purchase convenience, availability and affordability
Are you looking to find out whether your food or snack brand has a taste profile that works for Chinese consumers? Contact us to see how research solutions like focus groups and product trials might be able to help!
Early Movers for Oat Milk In China
Oatly has had much success in China. Indeed, some commentators have gone as far as to say that Oatly’s future fortunes are tied closely to success in China. However, Oatly isn’t running this race alone. In May this year, it was observed that there are over 50 oat milk brands on Alibaba’s Taobao and Tmall, an increase of 152% year on year. Of these, the brands who have raised VC funding and have a compelling go-to-market proposition include:
Ongoing Themesfor Oat Milk In China
Whether optimizing their own nutrition, pursuing new beverage trends or experimenting with healthier lifestyles, Chinese consumers will likely have plenty of alternative milks to choose from.
What’s particularly interesting about alternative milks in China is that it marks the intersection of a number of themes in China’s food and beverage market: weight concerns, changing lifestyles and new preferences.
Last December, Douyin flagged its intentions to help merchants sell through Douyin via cross-border e-commerce. It subsequently started onboarding merchants in January 2021. Kuaishou quickly followed and began onboarding cross-border e-commerce merchants in May 2021.
This means overseas brands can launch an e-commerce presence on Douyin and Kuaishou, China’s largest short video platforms, without having a local Chinese business entity.
Why Douyin or Kuaishou For China Cross-Border e-Commerce?
When people think of China cross-border e-commerce, they typically think of Tmall Global. By GMV share, Tmall Global is the leader in China’s cross-border e-commerce channel. However, there are compelling reasons why Douyin or Kuaishou may be suitable for China market entry for cross-border e-commerce.
Douyin and Kuaishou are among China’s largest apps. Douyin is reported to have 600 million Daily Active Users. That places it as one of China’s largest apps. Kuaishou is no slouch, either. It has Monthly Active Users.
Douyin and Kuaishou have significant e-commerce ambitions. By GMV, last year Douyin transacted around $28 billion and Kuaishou transacted $56 billion in GMV. These figures pale in comparison to established e-commerce players, such as Alibaba ($1.2 trillion of GMV in 2020), JD ($398 billion of GMV in 2020) and Pinduoduo ($255 billion of GMV in 2020). However, these com[anies have grand ambitions for e-commerce. Douyin’s parent company, Bytedance, has ambitions to triple e-commerce GMV this year. Kuaishou reckons its GMV will double this year. As such, the excitement around Douyin and Kuaishou’s burgeoning e-commerce businesses comes from future potential, rather than current scale.
What Are The Advantages of China Cross-Border e-Commerce?
Cross-border e-commerce in China holds a specific distinction. International companies are allowed to sell certain goods to Chinese consumers online, through platforms such as Tmall Global, Kaola, Douyin and Kuaishou at preferential duty rates and without a license to operate a business in China. As you can imagine, that’s a significant reduction in red tape. It also lowers the cost of doing business in China.
Test Market Demand: A launch via cross-border e-commerce allows new market entrants to de-risk their entry into China and assess market demand over a 12 or 18-month period, before looking to commit further resources and explore distribution opportunities within China’s massive consumer market.
Validate Market Entry Business Case: North American and European brands prefer test-and-learn approaches to market entry. Entry through e-commerce allows brands to gauge what sort of effort and resource commitment they’d need to pursue entry into China. In addition, it also allows newcomers an opportunity to test and finesse assumptions about their unique value proposition, marketing, pricing, merchandising and relative strength against domestic and international competitors.
Build in-Market Presence: Although there are indirect channels to reach Chinese shoppers (like overseas influencers and airport retail), these don’t deliver the return-on-investment that in-market presence does.
What Are The Next Steps To Enter China via Cross-Border e-Commerce?
Overall, cross-border e-commerce is an effective channel for overseas businesses to test and learn market entry China. With Douyin and Kuaishou in the mix, brands have more choices about which cross-border e-commerce channel they enter China with – they can enter through Tmall Global, Kaola, Douyin, Kuaishou or even Pinduoduo. If you’d like to know more about cross-border e-commerce, please get in touch with one of our team.
Analysts at Credit Suisse believe overseas luxury brands are safe from an increase in domestic brand competitiveness. The research team believes famous high-end brands are less affected than their more downmarket peers by the bloom of “Guochao” – the trend that is drawing Chinese consumers towards domestic brands.
China’s popular short video apps, Douyin and Kuaishou, are significant marketing channels and are rapidly gaining scale as e-commerce players. Brands are not only directing their content marketing budgets towards these apps, but also using them to create multi-million-dollar sales channels. For instance, L’Oréal Group recently became the first major international brand to open a Douyin flagship store, which it’s reported raked in more than CNY 22 million (USD $3.42 million) in Gross Merchandising Volume (GMV) between April 30 and May 6.
If you haven’t seen China’s see-now, shop-now livestream e-commerce format, check out this video before reading on.
Douyin e-Commerce Isn’t The Biggest Player in Town
While there might be plenty of media talk of Douyin’s e-commerce ambitions, Douyin is still a small player in China’s e-commerce scene. By GMV, last year Douyin transacted around $28 billion. Douyin’s rival, Kuaishou, transacted $56 billion in the same period. These figures pale in comparison to established e-commerce players, such as Alibaba ($1.2 trillion of GMV in 2020), JD ($398 billion of GMV in 2020) and Pinduoduo ($255 billion of GMV in 2020).
However, Douyin’s potential as an e-commerce player lies in its current scale. Douyin is reported to have 600 million Daily Active Users. That places it as one of China’s largest apps. Further, Douyin’s parent company, Bytedance, has ambitions to triple e-commerce GMV this year. As such, excitement around Douyin’s burgeoning e-commerce business comes from its future potential, rather than its current scale.
Douyin e-Commerce Isn’t Just Livestream e-Commerce
Douyin e-commerce started as livestreaming e-commerce. However, it would be a misconception to think that all Douyin e-commerce is livestream e-commerce. In March, Douyin expanded its e-commerce services with thelaunch of flagship stores for brand accounts. That takes Douyin a step closer to a mobile e-commerce marketplace. Other e-commerce marketplaces started from product listing and moved to recommendation feeds, flash sales, livestream e-commerce and other formats. Douyin, however, has evolved the other way.
Douyin anticipates flagship stores will increase brand exposure. A spokesperson for Douyin predicts the ratio of product views to total page views from the account’s homepage should jump from 17 percent to 80 percent, and click-through rates will also rise.
Whatever Direction Douyin e-Commerce Goes In, TikTok Will Go Next
Bytedance is the parent company of Douyin and TikTok. In both apps development, a good rule of thumb is that whatever happens on Douyin, TikTok will follow soon thereafter. Take livestream e-commerce as an example. This was Douyin’s foothold in e-commerce. Now, TikTok is doing the same in select markets, like Indonesia. Like Douyin, TikTok has very clear e-commerce ambitions. Per this article, TikTok has briefed advertisers on three new eCommerce integrations coming soon to the app:
A tool that lets its most popular users share links to products and automatically earn commission on any sales
The ability for brands to showcase catalogs of their products on the platform
“Livestreamed” shopping, a mobile phone version of television shopping channels, where users can buy goods with a few taps after seeing them showcased by TikTok stars
Sound familiar? That’s right, this is a carbon copy of Douyin’s e-commerce playbook. Accordingly, if you’re in China and have operations overseas, you can give your overseas colleagues a big head-start by sharing knowledge of local practices. Alternatively, you get in touch with one of our experts to give you a download on what’s happening in China e-commerce.