Great article referring to future profits of companies sourcing income from sales to China via daigous, nothing to see here for BUB's share holders as they have forsaken the daigou channel hence their year old IF stock sitting on shelves in Oz collecting dust.
The article unfortunately incorrectly lumps A2 together with Blackmores, and Murray Goulburn and those two companies difficulties in hitting their projected sales targets in China which A2 certainly has not. Poor research on behalf of the article's author on that point.
Of specific interest to us is that A2 has a excellent relationship with the daigous, unlike certain other IF companies who have burnt their bridges with them thru greed and incompetence which benefited companies like A2 who have never tried to cut the margins of the people who helped their product get the recognition and reputation it now has achieved in China.
The kicker is the last sentence of the article
"Ms Wang expects the level of involvement in the daigou sales chain could easily triple in two years’ time."
With the expected announcement of CFDA approval for A2's IF manufacturer is the green light the company has been waiting for to trigger the massive ramp up in IF production from existing and new plants shortly to come online. The tripling in daigou sales chain in addition to increased supply and new products and markets could in my opinion could also see the same corresponding jump in A2's current SP.
Rise of China’s army of ‘personal shoppers’
Access CN MD Livia Wang says there are 80,000 daigous in Australia. Picture: Chris Pavlich
Bella is a personal shopper for customers in China. Picture: Chloe Smith
Sales by so-called daigous of Australian goods to Chinese consumers, such as baby formula and health products, could easily triple over the next two years, according to a key player involved co-ordinating the trade locally.
In an interview with The Australian, Sydney-based consultant Livia Wang welcomed last week’s announcement from China’s State Council to extend the grace period for new rules for cross-border online trade by another year.
The managing director of consultancy Access CN, Ms Wang said the package of announcements from Beijing on the e-commerce market last week was good news, as it showed that Chinese authorities were determined to get the new rules around e-commerce sales of goods right.
“E-commerce is an important channel for goods to be imported into China and the government wants to give people time to adjust and to make sure the implementation of the new rules goes smoothly,” she said. “It shows their commitment to encouraging the market.”
The total global online sales market into China has grown by more than 28 per cent last year to about $US890 billion ($1.12 trillion), according to figures from the Chinese Ministry of Commerce.
Sometimes called the “grey market” the daigou, or personal shopper, market is where Chinese people buy sought-after products off the shelves of Australian chemists and supermarkets and send them back to friends and family in China.
The more sophisticated daigous act as traders, buying goods wholesale, repacking them and sending them direct to homes in China. And while it is often individuals doing the buying and selling, their collective buying force they can literally make or break a business.
There is no estimate of the value of the “grey” market from Australia to China but the total online market of consumer goods including infant formula, beauty products, supplements, wine and beef from Australia into China is estimated to be worth more than $800 million.
Ms Wang said there were now as many as 80,000 daigous, or personal shoppers, in Australia selling Australian goods into China but their business model was becoming more sophisticated. They were now buying their goods through a network of more than 1000 “gift stores”, which were able to buy the goods on a more wholesale basis.
The shops also handled the packing and labelling of the goods for shipment to China, also making sure they complied with Chinese import taxes.
Given feedback from logistics companies, Ms Wang estimates there are now more than 40,000 parcels a day being sent from Australia to China with the bulk of consumer goods being sent by daigous.
But she warned that the increasingly commercially savvy Australian-based Chinese daigous were now quick to drop a “hero brand” if they see their potential margins from a particular product being squeezed. They will quickly turn to new products and brands where they can make more money. “Australian brands still have a huge appeal in China,” Ms Wang added.
“The demand from the China market is much stronger than two years ago, but the daigous are changing their business model.”
“If a product is always discounted or if it is selling very cheap in China, they won’t feel like there is enough room for them to sell their products.
“If companies want to encourage daigous to promote their products to their friends in China they need to structure their wholesale pricing to make sure they allow enough margin for the daigou to survive.”
China’s State Council last week outlined plans to extend the grace period for new licensing provisions for goods being imported into China via e-commerce for another year.
It was the prospect of a crackdown by Chinese authorities last year that caused a sharp fall in the share price of Australian companies such as Blackmores and A2 milk because of the uncertainty.
The announcement around the online channel also included plans to set up more cross-border online trading zones to facilitate e-commerce into China.
The first zone was set up in Hangzhou in 2015, the city which is also the headquarters of e-commerce giant Alibaba. The zones expanded last year to another 12 cities including Shanghai, Tianjin and Chongqing.
Still a fraction of the total cross-border online business in China, sales through these 13 zones, is estimated to be growing at more than 100 per cent.
Chinese Premier Li Keqiang said last week that prospects for cross border e-commerce in China were “very bright.” While companies such as Blackmores, a2 Milk and Murray Goulburn, are finding the China market more challenging than they thought,
Daigous are now shopping through a growing network of more than 1000 “gift stores” — up from about 200 only a year ago — mainly in Sydney and Melbourne, which can negotiate a better bulk deal directly with companies, than personal shoppers walking into supermarkets or pharmacies.
Ms Wang the daigous’ business model becoming more formalised amid stricter requirements by Chinese authorities, particularly the 11.9 per cent import tax.
Their growing businesses selling Australian products back to people in China has also meant they are looking to get a better deal by bulk buying.
These stores negotiate deals with the suppliers, package and ship product to China and handle the stricter customs and import tax requirements.
The daigous’ major focus is developing a network of family and friends and customers in China, mostly contacted through social media sites, particularly WeChat, who are responsive to their recommendations on the best Australian brands to buy.
In some cases, the Chinese shoppers will walk into stores streaming video of products on their smartphones to buyers in China who then make their orders with the daigous via WeChat.
Ms Wang does not want to comment on the situations facing particular companies in Australia selling into China. But she says they must recognise the rapid changes in the market.
Daigous will quickly stop supporting a brand if they feel it is being heavily discounted in supermarkets in Australia or on e-commerce platforms such as those operated by Alibaba. “The daigous have a very low tolerance for risk,” she said. “With the gift stores they don’t need to stock products or even package them up.
She says brands wanting to sell into China must ensure there is a margin for the daigous to make money on the transaction — otherwise they will seek other lesser known brands.
She says the Australian goods that appeal to Chinese consumers include mother and baby products, skin care products, nutritional supplements, food and unique goods such as Ugg boots and woollen goods.
She says the daigou selling channel in Australia is the most developed in the world, as a result of the large numbers of Chinese students and tourists in Australia who recommend Australian products to their friends back home. “Australia is a few years ahead of America and Europe with its daigou market selling consumer goods directly into China.”
Ms Wang has been among those changing her own business model. In the past she has organised large conferences of daigous in Sydney and Melbourne to connect them with companies wanting to sell to the Chinese.
“Last October we had a conference in Sydney where there were more than 12,000 people attending. They were queuing for three blocks to get into the Town Hall.”
But the numbers were becoming unwieldy. This year she is hosting conferences focusing on the gift stores and connecting them with brands wanting to sell into China. “We have hosted two events in Sydney this year of around 500 people each. They are closed-door events which allow the brands to directly engage with gift stores.”
Ms Wang expects the level of involvement in the daigou sales chain could easily triple in two years’ time.
(20min delay)
