Article from AFR:

Mr Peter Nathan mentions that whilst daigou channel has been impacted, he believes "momentum is returning" and the channel will not disappear.
He also is of the view that social sites like Pinduoduo is not appropriate for A2 as it is just price driven and not brand-loyalty driven.
There will always be mothers who will pay a premium for international IF like A2.

Where the retail daigou are now

Carrie LaFrenzSenior reporter

Nov 13, 2020 – 2.30pm

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University students and tourists operating as personal shoppers for Australian products such as infant formula and vitamins are unlikely to return in force, as the future of the traditional daigou now sits in social e-commerce with giant's like China's Pindoudou.

According to Jeremy Hunt, who helped grow Health More over the past seven years into one of the largest distributors in Australia to the daigou channel, these smaller personal shoppers will not come back to what it was, and that is due to social e-commerce.

Health More COO Jeremy Hunt says retail daigou are moving to social e-commerce platforms like Pindoudou, where they don't have to buy any stock. Arsineh Houspian

"The traditional daigou that would empty shelves at the supermarkets have transitioned to marketing on platforms instead," the former Swisse vitamins executive said.

"They don't buy the stock, they make their money by sharing it and promoting it on social e-commerce now."

At the peak of the daigou trade in 2017, the Health More group was turning over about $400 million per annum - making it larger than ASX-listed Adairs - by on-selling vitamins, baby formula and beauty products like Aesop and Jurlique.

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Health More today turns over about half that amount, but direct selling to platforms has increased, as has its social e-ecommerce sales.

Mr Hunt questioned how larger infant formula player, The a2 Milk Company, might fare in this new world when historically the group has not been active on social e-commerce platforms.

“I’m fascinated to see how this works out," he said. "How will a2 Milk maintain this volume when a key part of its supply chain through the domestic daigou and traders is diminishing in size?”

“Peter Nathan recently told investors he does not want a2 Milk sold on Pindoudou, but that is where shoppers are.”

Pindoudou (PDD) is the largest interactive e-commerce platform in China, founded by China's third richest man, Colin Huang, with the company valued at over $US100 billion.

PDD's motto is "together, more savings, more fun", and it has eliminated the middlemen, selling discounted items directly to consumers that group together. Yunji is a smaller business also taking advantage of social relationships on apps like WeChat to acquire, engage and sell to users.

A2 Milk's head of Asia Pacific, Peter Nathan, told AFR Weekend that PDD is a new sub-channel, similar to e-commerce, but he is not convinced supporting this channel is appropriate given the price destruction to its premium infant formula product.

"At this stage, they are purely driven by price, so therefore they are not concerned with maintaining the brand's positioning," he said.

Mr Nathan added that the company’s position has been clear that the daigou channel has been impacted by COVID-19, but believes momentum is returning.

"No one can be certain that the daigou have moved on; that is not what we have seen, and not what we believe," he said. "There is still a fundamental difference between daigou and social e-commerce: they don't have the same relationship with the brand."

In Australia there are three major corporate daigou players: Wenjun Zhang (known to all as a2 Andy) is a2 Milk's largest customer, moving thousands pallets of a2 Platinum every month.

He sells via his app and previously had merchants buying from Coles and Woolworths, but is now facing an issue with is his army of smaller buyers no longer operating here in Australia due to COVID-19 travel restrictions.

Bellamy's main corporate daigou partner is HVK Trading, owned by pharmacist Hung Nguyen, while Danone's Aptamil counts its main partner as David Nguyen, who is also a pharmacist in Hurstville in Sydney.

UBS analysts estimate that smaller daigou account for about 37 per cent of a2 Milk Australia/NZ formula sales, while corporate daigou account for another 20 per cent of sales.

Supply disruptions caused by COVID-19 restrictions have been responsible for the majority of decline in retail daigou sales for a2 Milk, with simular issues reported by Danone, Bubs Australia and specialty daigou shop, AuMake.

In late September, a2 Milk cut 2021 sales and earnings guidance following a collapse in the daigou market in Australia. UBS warned that there could be another infant formula-led profit warning this year.

A2 Milk remains one of the strongest selling brands in China, and Mr Nathan was not worried about its position, despite a move by the Chinese government to support local formula brands by providing customers with coupons to help stimulate spending.

Despite the coupon issuance, Mr Hunt said while some might be drawn to cheaper local brands, there are always mothers willing to pay for the premium international brands.

"I don't think it's negative for a2 milk, it's promoting the category. As the market leader, this is good for them," he said.

Carrie LaFrenz has more than 10 years' experience as a business journalist having previously covered healthcare, retail/consumer goods, industrials and agribusiness. She is based in our Sydney newsroom. Connect with Carrie on Twitter. Email Carrie at carrie.lafrenz@copyright link