Chinese Consumer - Market Dynamics in Retail

Good friend and colleague who is a global leader in retail innovation, Mr. Tony Tsai, Chief Executive Officer – BHG Retail Innovation Institute & Executive VP Operations – The BJ Hualian Hypermarket Co. forwards an excellent article from Nielsen called "Changing Market Dynamics in China's Retail Industry".

The article states of the consumer product goods while touching on the fast moving consumer goods:

"The government’s retail statistics show a slowdown in retail sales over the last six months from 22 percent growth year on year in Quarter 3 to 19 percent in December and 15 percent in February. This slowdown is certainly reflected in FMCG as well. When looking through Nielsen data, specifically in the Modern Trade channel, there is a significant slowing from a 13 percent growth in Q4 2008 to two percent in Jan/Feb 09."

Mr. Tsai and I had discussed, interestingly sitting in Dubai a few years back while we were conducting an analysis of Gulf retail markets, how retail growth in emerging regions like Gulf begins with super market arena in tier 1 cities is followed by hyper and mini growth. What I was curious about was what happens with tier 2 and then tier 3, where the consumer desires for the experience of the tier 1 cities and the super markets? Inevitably it is consumer economics driven. As tier 1 cities grow larger and harder to navigate, hyper and mini marts start to provide the essentials of daily consumption while the weekend trips are reserved to the super "stores".

In case of China, Mr. Tsai had shared about 6 months ago that the workers who do not have work in the cities are returning to the tier 2 and tier 3 cities and towns. The Nielsen reports the results of this:

"Lower tier cities, where the spend on food and beverages represent roughly 40 percent of household expenditure, are achieving double digit growth, however the growth is potentially being fueled by the fact that more workers are staying in their hometowns as less job opportunities exist due to factory closures in South China. Another factor could also be that consumers are moving from villages to the towns to do their shopping as well as downgrading to lower priced products."

Also, Mr. Tsai back then highlighted that fluctuations in economics of a rapidly growing region like Gulf will impact consumer behavior, such as brand switching. I felt that bargain hunting may start to play a role in the consumers decisions

The nielsen report validates these predictions for the rapidly growing region like China impacted with economic woes:

"Consumers are changing their purchasing behavior ... with the significant increase in promotional activity, are being ‘trained’ to buy more on promotion. This highlights the importance of price right now with 85 percent of Modern Trade shoppers paying more attention to price promotions."

China Update

Few selected reports from China:

"China's shopping team to sign over 30 deals in the US - a delegation sent by the Ministry of Commerce arrives in the US to explore trade and investment opportunities. The delegation will visit Washington, Chicago and San Francisco on a 10-day trip. The delegation is expected to sign more than 30 deals with American companies."

"China still struggling with over-capacity in some regions - the Ministry of Industry and Information Technology holds a press conference. According to the press conference, China's industrial output grew 5.1% year-on-year in the first quarter of the year. March alone saw a rise of 8.3%. Zhu Hongren, director of the Performance Inspection and Coordination Bureau under the Ministry of Industry and Information Technology (MIIT), says China is still struggling with over-capacity in some regions. In the first quarter, 15 provinces and municipalities posted industrial growth of over 10%. Industrial growth in Central and West China is faster than in East China."

"China bans import of poultry from Kentucky, US - the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) says on its official website that China has suspended all imports of poultry and poultry products from Kentucky, the US after an outbreak of the bird flu was reported at a chicken farm in Kentucky. "

Computer Vision in Consumer Space Grows

The thrust in the computer vision sector has grown to the point that the Association of Computing Machinery (ACM) has launched a new conference Interactive Multimedia for Consumer Electronics, to take place on October 19th, 2009 in Beijing (details here).  Of interest will be papers and workshops on presence and environment sensing, face and hand detection, recognition and tracking, facial expression and emotion / mood recognition, and gesture and activity recognition.

Machines Providing Real-Time Consumer Insights

"...Unilever, an Anglo-Dutch consumer-goods giant, is using expression-analysis software to pinpoint how testers react to foods. Procter & Gamble, an American competitor, is using similar technology to decipher the expressions of focus groups viewing its advertisements."

States the article "Machines that can see" here in The Economist.  Similarly, the ability of sensors driven understanding of environments can enable in-context communication with a perspective consumer.  Further, remembering the consumer and the context allows for touching them in a non-disruptive fashion where the flow of information or marketing is "continued".  For example, as the article states:

"Digital billboards—the large TV screens that display advertisements in public places—already take into account the weather (touting cold drinks when it is hot) and the time of day (promoting wine in the evening). NICTA, a media laboratory funded by the Australian government, has gone a stage further. It has developed a digital sign called TABANAR, which sports an integrated camera. When a passer-by approaches, software determines his sex, approximate age and hair growth. Shoppers can then be enticed with highly targeted advertisements: action figures for little boys, for example, or razors for beardless men. If the person begins to turn away, TABANAR launches a different ad, perhaps with dramatic music. If he comes back later, TABANAR can show yet another advertisement. “You tend to go: ‘Wow, thanks, how did you know I needed that?’,” says Rob Fitzpatrick of NICTA."

At P&G, I led an effort in kiosks that enabled a perspective consumer to conduct virtual beauty care at the shelf for beauty care products.  Such services have existed in South Korea in specific but they may be going main stream across the world in other CPG categories:

"Computer vision has even advanced to the point that it can perform internet searches with an image, rather than key words, as a search term. Later this year Accenture, a consulting firm, will launch a free service, called Accenture Mobile Object-Recognition Platform (AMORP), that will enable people to use images sent from mobile phones to look things up on the web. After sending an image of, say, a Chinese delicacy, a curious foodie might receive information gleaned from AsianFoodGrocer.com, for example. Fredrik Linaker, head of the AMORP project at Accenture’s research centre in Sofia Antipolis, France, likens the project to “physical-world hyperlinking”."

The use of computer vision based applications beyond consumer centric opportunities are tremendous as well.  The article discusses the applicability and examples of use in intelligence and safety sector also.

Crowds - Wise?

A good article on The Economist looks at simulating crowds here. It discusses how computational models of crowds is starting to enable more realistic behavior of humans. As an example, the article discusses the behavior of people during a fire blaze.

"The trouble is that the software that is used to do this generally treats people like particles in a fluid, says Mr Wittasek. “It assumes people behave like water flowing through a pipe,” he says. “They move at constant flow rates, heading for the nearest exits. But that’s not realistic.” Human behaviour is in fact far more complex and often quite irrational. When fleeing a fire people will often try to retrace their steps and leave the building by the way they came in, rather than heading for the nearest exit—even if it is much closer."

The article discusses the learning from the film "The Lord of the Rings" - where massive crowds of waring orcs were simulated with each individual orc having an independent brain to make decisions from a predefined set.

Of course, the article has a section labeled "The wisdom of the crowds"! Interestingly the article talks about crowds of humans and animals with examples.

Consumer Insight: Middle East - Beauty and Health

New technological entrees into emerging markets always provide an insight into what the consumer is asking or aspiring for.  Beauty (health, skin, etc.) is a consumer product goods category that grows as the consumers become more affluent in a region.

A related example here "Middle East Launch of Revolutionary Cold Laser Technique For Body Shaping" is a solution that was either very exclusive in the region or one had to travel to receive.  The article states:

"Dr. Douglas Dedo of the Palm Beach Institute of Cosmetic Surgery and past President of the American Academy of Cosmetic Surgery added: “This revolutionary treatment can work without any kind of surgery or the need for excessive dieting or exercise; though as a doctor I always recommend a healthy lifestyle for my patients. What is also exciting is that clinical studies have revealed that ZERONA™ can help in the treatment of acute and chronic pain relief as well as in controlling cholesterol and triglycerides.” "

Robotics in Commercial and Consumer Space

Friend Ms. Jessica Banks passes along a video on Festo's latest robotic technologies showing how they may connect into the commercial and consumer markets. See details on the company Festo here.

TiE - The Indus Entrepreneurs and TiECON 2009

The Economist recently cited in the article "Global Heroes" here, The Indus Entrepreneurs (TiE) as one of the premier entrepreneurial organizations in the world.

I am proud to say that I am a charter member of the organization. TiE (see global website here) is a non-profit organization with the mission to - "... to foster Conscious Entrepreneurship Globally by Educating, Mentoring and Networking."

The above article states:

"TiE was founded in Silicon Valley in 1992 by a group of Indian transplants who wanted to promote entrepreneurship through mentoring, networking and education. Today the network has 12,000 members and operates in 53 cities in 12 countries, but it continues to be anchored in the Valley."

TiE is hosting the world's leading entrepreneurial conference in Silicon Valley on May 15th and 16th, 2009. See details here.


I recommend the TiECON 2009 conference and the TiE organization to all entrepreneurs, successful and budding alike.

Consumer Segmentation

Friend and colleague Franz Dill writes about "Death of Consumer Segmentation" here.

Biofuels - Did the Consumer Know or Ask?

One of marketing's various roles is to enable the target consumer to be educated about what the product or service provides and why it will help alleviate their pain. Similarly, marketing is a tool to create perceptions that at times are contentious. Biofuels is an interesting sector where new data and numbers will require either consumer education or perception building on the part of manufacturers and retailers to clarify information that is "contentious". This is going to be an interesting sector to watch that has delivered consumer innovation to alleviate the pain, or has it? You be the judge.

"[International Council for Science] ... supports some controversial findings published in 2007 by Paul Crutzen of the Max Planck Institute for Chemistry in Mainz, Germany. Dr Crutzen concluded that most analyses had underestimated the importance to global warming of a gas called nitrous oxide (N2O) by a factor of between three and five. The amount of this gas released by farming biofuel crops such as maize and rape probably negates by itself any advantage offered by reduced emissions of CO2."

States the article in the Economist article "Biofools" here. Currently, on average up to 10% Ethanol produced from corn is included in petrol sold in the USA. A few statistics on Ethanol that are helpful in alleviating misconceptions in an article at the CATO Institute "Ethanol Makes Gasoline, Costlier, Dirtier" here.

Yet, as published on the Wall Street Journal Blogs "E-corn-omics: Ethanol vs. Gasoline vs. Food" here:

"... for now the CBO (Congressional Budget Office) is leaning toward ethanol’s corner. Based on research from the Argonne National Laboratory, the CBO says U.S. corn ethanol, as currently produced, amounts to a 20% reduction in lifecycle greenhouse-gas emissions compared with gasoline."

The above data and political decisions may be in contention but the true impact of producing biofuels brings the issue closer to home when one considers its water consumption, see an excellent article in the Economist "Sin Aqua Non" here. It states:

"... climate change has persuaded western governments to subsidise biofuels, which could prove as big a disaster for water as they already have been for food. At the moment, about 2% of irrigated water is used to grow crops for energy, or 44km³. But if all the national plans and policies to increase biofuels were to be implemented, reckons the UN, they would require an extra 180km³ of water."

Does the intelligent "community" of consumers of energy know the depth of impact caused by biofuels? Or do the "crowds" of consumers hurl and herd themselves at what some said should be done? See my discussions on debunking the myth of wisdom of the crowds among these blogs.

China and Singapore Plan "Knowledge City"

Following the "Suzhou Industrial Park", "Tianjin Eco-City", the third large-scale cooperation project between China and Singapore - "Knowledge City" has been settled in the north district of Science Town in the Guangzhou Development Zone. Both sides have reached an agreement on the location of the project and will jointly carry out the project's feasibility study from April to Aug. The construction of the project is expected to begin in early 2010.

China: Tax Management

From my friend and colleague Mr. Tony Tsai, Chief Executive Officer – BHG Retail Innovation Institute & Executive VP Operations – The BJ Hualian Hypermarket Co.:

On reduction of taxes to stimulate various sectors:

"An official at the State Administration of Taxation says that the State Administration of Taxation will issue a new tax policy to promote development of venture capital enterprises. The Chinese government will offer preferential tax treatment to venture capital enterprises in corporate income tax."

"The National Development and Reform Commission (NDRC) holds a symposium for the development situation of China's IT industry in Hefei, the capital of Anhui province. Representatives from the Shanghai Municipal Development and Reform Commission suggest that the central government reduce value-added tax and business tax for the IT industry. Representatives from the Jiangsu Provincial Development and Reform Commission suggest the central government issue detailed rules on the implementation of a stimulus plan for the IT industry as quickly as possible."

"Coface, the leading international credit insurance and credit management services group, recently published the results of the survey of corporate credit risk management among Chinese enterprises for 2008. The survey shows that the financial crisis has led to a marked deterioration in payment behavior by buyers interested in China. More than 90% of respondents have revealed problems with overdue payments. In 2008, there was a trend towards longer payment delays. The survey shows that more than half of the respondents regard financial difficulties as the main reason for nonpayment, while poor or inexperienced management is the second contributing factor for 25% of them."

"According to yesterday's media reports, the National Copyright Administration will collect a music copyright fee of RMB2.5 per minute from TV stations, and RMB0.3 per minute from radio stations. An official from the National Copyright Administration says today (April 15) that the music copyright fees for TV or radio stations have not yet been set."