Healthy choices

Foreign nutritional product makers on happy hunting ground as chinese consumers put priority on safety and quality

Though branding has undergone a sea change in China over the past few years, there is still no denying the fact that foreign brands enjoy considerable advantages in China over domestic brands.

Nowhere is the trend more evident than in the health products sector, where a series of safety and health issues in recent times have propelled demand for foreign brands that are leaving no stone unturned to boost revenue.

Christine Holgate, chief executive officer and managing director of Blackmores Ltd, an Australian nutrition products maker, says: "It is the perfect time to explore the Chinese market."

Established in the 1930s, Blackmores has more than 400 natural nutrition products including fish oil, vitamin C, and vitamin B complex under its belt. Last month, the company formally entered the Chinese market by teaming up with the Hong Kong-based convenience store chain Watsons Personal Care Stores Inc and Tmall, a major online shopping website in China.

"Our target customers include modern working class people in China who lead a busy life, as well as those who want to improve their inner and outer beauty in a natural way," Holgate says.

According to statistics provided by the National Development and Reform Commission's Public Nutrition and Development Center, more than 260 billion yuan ($40.72 billion, 33.23 billion euros) worth of nutrition products were sold in China last year.

Blackmores is not the only Western nutrition company that decided to tap the huge market in China. Last year, General Nutrition Centers Inc, a manufacturer and retailer of health products in the United States, started selling its products in major Chinese cites like Shanghai, Guangzhou and Shenzhen.

Holland & Barrett, the biggest health food retailer from the United Kingdom, opened two stores in Shanghai last month.

"We believe that there is a strong but unmet demand from Chinese consumers for good quality natural products, especially from the aging and more affluent population," Holgate says.

Unlike their European and US counterparts, Holgate says Blackmores will not open its own chain stores. It will instead rely on "the most effective routes to boost revenues in China".

Besides its retail partners, the company is also establishing direct linkages with new platforms such as e-commerce and TV shopping which are slowly becoming popular with Chinese customers, the company says.

"I want Blackmores to be remembered as a health product developer, and not as a retailer," she says.

Peter Osborne, director of Blackmores Asia, says the company's strategy is to focus on multiple channels to grow revenue.

"We are entering the market with Watsons because we know them well. We also have excellent rapport with them."

He adds that generally, Watsons appeals more to women because there are a lot of health and beauty products. Women are also main target customers for Blackmores. In the 1990s, Blackmores started working with Watsons to sell its nutrition products in Hong Kong.

"We've been in Hong Kong for more than 20 years, and it was also the door for us to enter the mainland. We have spent a lot of time surveying the Chinese people," he says, adding that Watsons has more than 1,000 stores in the mainland and plans to scale it up to 3,000 in the next two years.

"Our products will reach out to more consumers with Watsons' expansion," he says.

Dale Preston, managing director of Nielsen's Greater China Retail Measurement, says that Western food brands can automatically charge a premium in China, as they are well-known for their quality and safety. "Chinese consumers are fully prepared to pay more for foreign food brands," he says.

Holgate admits that scandals from local food brands in the past few years have dented consumer confidence, but stresses that Blackmores is positioned for consumers who value good quality, but not necessarily as a premium brand.

"I think many Asian markets are like Thailand. It is a market with some wealthy people and many not so wealthy people," she says. "We are certainly not the cheapest, but what people do get is a quality product with a significant amount of background research."

That positioning is also reflected in the product price tag. A 400 capsule of "fish oil 1000" is sold at 299 yuan in the Tmall online flagship store, while the price for the same product in Australia is about A$38.95 (about 260 yuan).

According to Holgate, the prices of Blackmores products all over the world are normally within a 10 percent margin variation.

"We will not price our products high, just because we are in China. The information between borders is getting increasingly transparent. People might be one week shopping in Australia and then in Singapore. Shoppers are becoming more aware of the price disparity by going online."

As a health food company with footprints in Australia, Thailand, South Korea and six other countries, Blackmores realized that it has to adapt to every market due to different regulatory requirements and customer preferences.

"For instance, in Malaysia, manufacturers are not allowed to put a vitamin and a mineral together due to regulatory reasons," she says.

The company has specifically formulated products such as eye health, calcium and cholesterol for the Chinese market.

"Heart problems are a major cause of death in China, so fish oil, which protects brain and heart health, will be the first products that are sold in China," she says.

Customer preference also varies from place to place. In Thailand Blackmores sells more products with vitamin C, which improves the immune system. "It is very popular due to frequent weather anomalies in the country like the floods," she says.

Though China is a country that admires natural foods yet without many modern nutrition products, Holgate says the potential is immense.

"It (the market potential) is so huge that we need to be sure that we can deliver to our customers by having sufficient stocks."

Holgate is so ambitious about the market prospects that she says her concern is that "we might be too successful too soon and cannot satisfy the demand".

In Thailand during a recent epidemic outbreak, the company's vitamin C products were sold out overnight, she says.

To deal with such potential challenges, Holgate says the company is running its own warehouses in China, while expanding ties with other Chinese partners. This year, the company plans to hire 200 product advisors to work in the stores giving advice.

"Five years from now, China could be as big as the Australian market," she says.

wangchao@chinadaily.com.cn

(China Daily 08/17/2012 page5)