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What China’s new consumer wants

Out past the glinting international hotels, the Ferrari and Lamborghini dealerships, Louis Vuitton and Prada, it's not hard to find old Shanghai.

"Consumers in [the Chinese] market don't want to be clones of Western consumers."
Glenn Murphy, Regional Director for New Zealand Trade and Enterprise in Greater China

Discovering what Chinese consumers want in Shanghai

In a noisy backstreet, past the night markets with steaming pots of soup and trays of rustling live prawns, Epic Brewing boss Luke Nicholas finds what he is looking for.

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Caption: BATTLE OF THE BRANDS – Well-educated and well-travelled, the new Chinese middle class is the target of many global brands. But how to reach them?

Jackie's Beer Nest is a tiny pub, with a stag's head on the wall, a couple of beer chillers, some mismatched furniture and a distinct hipster vibe.

When Nicholas arrives sometime around midnight, he's greeted like a star. They know all about Epic beer here – a poster is on the wall – but a visit by the guy from New Zealand that actually makes it is a special occasion.

For Nicholas, Jackie's Beer Nest confirms what he'd heard: “There's a subset of this massive market that drinks and enjoys craft beer".

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Caption: HOPPORTUNITY KNOCKS - Epic Brewing Company owner Luke Nicholas, right, pours a couple of cold Epics for the patrons at Jackie's Beer Nest in Shanghai.

At the moment the big beer brands rule, but if cosmopolitan China follows the rest of the world – and there's no reason it won't – craft beer will become a favourite of a new middle class that's keen to assert its individuality and good taste.

Peter Cullinane, Founder and Chairman of Lewis Rd Creamery, finds what he's looking for at Bazaar by Lotus, a high-end supermarket underneath one of the many shopping malls in ritzy Xintiandi.

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Caption: AT THE FRONTLINE – Founder of Lewis Road Creamery, Peter Cullinane, sizes up the competition for his premium milk products in a Shanghai supermarket.

Centrepiece of the dairy section was a display of around two dozen different brands of milk and flavoured milk. “This is great," says Cullinane, as he pulls out his smartphone and starts photographing labels.

“I want to spend an hour or two here just soaking all this up. It's mind boggling, but bloody fascinating and you can only experience this by being here. Seeing what is selling, how it's packaged and priced, and who it's aimed at is extraordinary intelligence for me."

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Caption: TALK TO THE CUSTOMER - NH Packing Managing Director Shane Newman, left, LeaderBrand Produce Ltd Export Manager Richard McPhail and ANZ NZ's head of Asian Relationship Banking Clarke Schaumann, talk to a customer in a Shanghai supermarket. The customer had just bought a couple of NZ-grown squash.

China is where the world's exporters want to be. There's so much promise – the world's second largest economy by GDP and the largest by purchasing power parity, the world's fastest growing consumer market and second largest importer of goods.

Driving the explosive consumer spending is a middle class that has grown from close to zero in 1995 to a forecast 340 million in 2016.

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Caption: CONSTANT RENEWAL – Swathes of old Shanghai are torn down to make way for new housing and commercial developments.

Unlike previous generations of Chinese, this group is well travelled, well-educated and wants products that reflect that new affluence. McKinsey predicts that between 2010 and 2020, discretionary spend is going to grow by an average of 7 per cent.

Nicholas and Cullinane were part of a group of 16 New Zealand food and beverage, education, engineering and forestry producers (along with three Australians) that ANZ took to Shanghai and Taipei in May to see those markets first-hand.

The week-long tour was an intense programme of workshops with experts in the market, meetings with potential customers and contacts, visits to the frontlines of retail and a blast through central Shanghai in a Chinese military motorcycle sidecar.

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Caption: FULL THROTTLE AHEAD - ANZ business customers see Shanghai from vintage Chinese military motorcycles.

It was the seventh business tour to Asia organised by ANZ, which has a presence in 30 markets around the region. The businesses that went along were top of their game in New Zealand, and serious about exploring what opportunities China might hold. But it's not an easy market to get a bead on.

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Caption: RISING FAST – New and old Shanghai face off across the Huangpu River.

“China is where the ground is constantly shifting. The pace of change means you have to constantly re-learn what this market is and how it works," says Graham Turley, ANZ NZ's Managing Director Commercial & Agri, who led the tour.

In just five years e-commerce has upended how Chinese find and buy goods, while social media has emerged as the major way in which consumers form opinions about products.

The Chinese Government's recent austerity and anti-corruption drives – which took away a high level of Government spending on consumer products – have simultaneously hastened China's transformation into a genuine consumer market and had a devastating impact on ales of some luxury goods.

“The lesson here for anyone considering this market is that in a command economy, your market can still be wiped out at the stroke of a pen," says Glenn Murphy, Regional Director for New Zealand Trade and Enterprise in Greater China.

Having been exposed to the global market for more than two decades, doing business in China conforms to global norms more than it did, but many of the old rules still apply.

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Caption: IMMERSED IN THE CULTURE - ANZ business customers get a Tai Chi lesson at Fuxing Park in Shanghai.

Mary Boyd, Director Corporate Network for The Economist Intelligence Unit, sees increased sophistication on both sides about building lasting trading relationships, which are vital in a market where there is little legal recourse to resolve disputes.

New Zealand companies are fortunate that the Free trade Agreement between the two countries – China's first with a Western economy – in 2008 was a catalyst. “The result is there is now a lot of information there, a lot of sources of support and ways for New Zealand businesses to make themselves more familiar with the business situation in China," Boyd says.

But due diligence is still as important as ever. The business landscape is not only crowded of multinational competitors, but also serious domestic players which have grown as a result of technology and talent acquired through mergers and acquisitions.

There is also a resurgence in Chinese values and culture within China. “There is a real desire for China to still be China," says Murphy. “Consumers in this market don't want to be clones of Western consumers. They want to continue to have Chinese characteristics about what they do and how they express themselves."

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Caption: WE DO - Old Shanghai makes a great photo backdrop for a newly married couple.

For Luke Nicholas and Peter Cullinane, whose products occupy the value-added, niche end of the market, the challenge will be to reach the 340 million newly affluent Chinese. Just getting a product on the shelf - itself enough to drain the resources of many medium-sized New Zealand companies – won't necessarily get it sold.

“As in the West you have to educate the consumer about the product, the brand story, and the health and safety components of the product," says Damon Paling, Customs and Trade partner for PwC. “In such a competitive market, connecting with your customer is extremely difficult."

He also points to social media. “WeChat, Weibo (Chinese social media platforms) are fantastic ways to connect with the consumer. Consumers like to share their experiences after they've purchased, they want to learn from others before they purchase, so aside from traditional channels of distribution and e-commerce, social media is an area that has to be explored if you're looking to connect with the Chinese consumer."

This rings true with Cullinane, whose $6.49-a-bottle chocolate milk was a runaway success in New Zealand aided by a viral social media campaign.

Cullinane believes he can replicate some of that success in China. “Consumers are happy to pay a premium if they know they're getting a premium. I believe people are pretty much the same everywhere. There is a bit of hope here …"

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Caption: NEXT LEG – The ANZ customer tour boards the jet for the next leg of the journey – three days in Taipei, Taiwan.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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