Disappearing daigou are causing sales in Australia to plummet in key industries like infant formula, personal care and beauty, and nutritional supplements.
Daigou in Australia are personal shoppers who ship products to China. In this multi-billion dollar industry, millions in revenue have been lost by dairy and supplement brands because of changes precipitated by the pandemic. Australian baby formula companies like Bubs, Nuchev, and A2 join others in daigou-driven markets to find new distribution strategies to get their products into the hands of Chinese consumers.
Pandemic-related issues are causing major shifts in this dynamic market and how it operates.
- Australia’s multi-billion dollar daigou industry struggling amid coronavirus pandemic (Oct 16, 2020, ABC News Australia)
This post is based on the ABC News Australia article, Chinese personal shoppers and Australian brands devastated by impact of coronavirus, by Bang Xiao, October 17, 2020; the Sydney Morning Herald article, A2 Milk to boost direct China sales as daigou market sours, by Dominic Powell, December 18, 2020; the AFR article, Disappearing daigou pull rug from Bubs and Nuchev (requires subscription), by Simon Evans, November 3, 2020; and the YouTube video in the Spotlight. Image source: PIXTAL/AGE Fotostock
1. What are daigou and why are they important to Australian businesses?
Guidance: Daigou are personal shoppers who buy on behalf of consumers in China. Some are international students from China with friends and family at home who ask them to shop Australian stores and ship back highly prized Australian products. Many have become social influencers with large followings whose recommendations can lead to the success or failure of Australian products in China. Some have grown into businesses that purchase directly from companies like Bubs or Blackmores Vitamins and employ many people to pack and ship products to China.
The sales of many Australian businesses have grown in recent years as a result of this “gray” and generally unregulated market for getting products into China. Chinese consumers have valued the safety and quality of products produced in Australia.
2. What key changes in the external environment have led to the problems Australian businesses are facing today?
Guidance: The two key changes are dramatic changes in the demographics of university students in Australia and a significant drop in tourism as a result of COVID-19 restrictions and travel bans. These have greatly reduced the estimated 120,000 to 150,000 people engaged in daigou trading in Australia in 2020.
As fewer international students study in Australia and tourists from China are banned, products purchased and shipped to China via the daigou “gray” market have slowed substantially. Of the roughly 1,000 brick-and-mortar stores that catered specifically to daigou shoppers, about 30 percent have either temporarily or permanently closed.
In addition, changes in distribution options have played a major role in slowing sales. Blue Sky International Express, a key player in the daigou shipping supply chain, estimated that it handled logistics for 60 percent of the daigou shipments to China. When it went bankrupt in May, shipping options decreased dramatically and freight costs among remaining options were substantially higher.
In addition to these changes, the purchasing power of Chinese consumers has dropped due to economic and employment challenges related to the pandemic. Chinese buyers with reduced incomes and pandemic-related fears of buying outside of the country began turning more often to domestic product options. In addition, shipping delays have made shipping lead times too long for some customers to wait.
3. What new strategies and distribution channels are Australian businesses considering to try to boost sales to Chinese consumers?
Guidance: Bubs, for instance, will continue to try to develop e-commerce options to sell its products to Chinese consumers. However, it is also striking an agreement with a Chinese company, Beingmate, to make its formula in China. This would bypass the normal daigou as well as appealing to Chinese consumers who now seek to buy domestically produced brands.
This approach, it should be noted, had serious negative repercussions in the past, when a different infant formula maker tried to cut daigou out of the picture and received a lot of negative backlash from social influences who started recommending that their customers switch to other brands.
Depending on how long COVID keeps Chinese tourists and students out of Australia, substantial changes may be made that cause a permanent shake up in how products reach the Chinese market.