Are Chinese brands developing too fast?

While I am doing research for our articles, I often have a strong feeling that indeed, Chinese brands are becoming very popular and successful. But at the same time, it also feels like there are now so many new brands coming out of nowhere and all of a sudden ranking TOP 1 in their product categories. It seems a bit unbelievable.  

What’s more, there are so many new “successful” brands out there, but it is actually quite hard to differentiate them. Their marketing tactics and product designs are quite similar. It seems that now the key factor in a new brand’s success is not the creativity of its marketing, but the size of its marketing budget.  

So what are some of the issues behind the rapid growth of Chinese brands? And how can brands avoid making the same mistake?

Brands are too eager to present a healthy lifestyle

Three most frequently seen phrases when it comes to food products are zero fat, zero sugar and zero calorie. Some are true, while some are just using those phrases to win love from consumers while not being honest.

We talked about Genki Forest’s scandal before. It is a domestic beverage brand that developed very fast. 4 years after it was founded, the brand achieved over 2.5 billion RMB in sales. (Gossip: Genki Forest’s sale performance goal in 2021 is 7.5 billion RMB. I really doubt it can achieve it.)

However, it was caught in a scandal for lying to its customers that its drinks were zero sugar. It was kind of using people’s blind spot of equaling zero cane sugar to zero sugar and making use of it. Though Genki Forest apologized after it was discovered, it was a terrible and insincere apology.

Genki Forest isn’t the only example. Wine and alcopop brands are joining the trend, saying they are in the “three zero” healthy team. However, wine is either made from rice or grapes, how can they possibly be without any sugar? Many electronic cigarette brands are being ridiculous as well. Some of the domestic e-cigarette brands claim that their products are healthier than traditional ones, that they contain zero tar.

Excessive use of China Wave or Guochao (国潮)

Guochao is the use of Chinese cultural elements in products. It is true that many Chinese consumers have embraced the Guochao trend, especially Gen Z and millennials. And some brands have done very well leveraging this trend. A few representative brands are new tea brand Sexy Tea or Chayan Yuese, beauty brand Florasis, and sportswear brand LiNing.

Another good example would be a barbecue brand or a chuan brand called Kuafu Zhachuan (夸父炸串). Kuafu is a character from a Chinese ancient fairy tale. Barbecue or chuan is the food that most young people would prefer. If the brand does the same thing as Florasis by adding those ancient Chinese elements on its packaging, it would seem very odd.

So to make the brand appeal to young people while remaining in the Guochao trend, Kuafu twisted those elements a little bit and had the image of Kuafu appear to be a cartoon character.

But it seems that some brands understand the trend superficially by simply slapping Chinese elements on their packaging. This is a quick way to be on the trend, but brands really need to think about their brand and whether or not those Chinese style elements make sense. What’s more, brands need to be more thoughtful and creative about the designs they use. Just adding the characters for “China” onto something is already cliché.

Are you Really a Winner if There is No Competition?

While reading some of the analyzing articles in Chinese, I usually get caught up with catchy phrases such as “how does xxx manage to become the TOP 1 in xxx category with just xyz years”.

These saying are true. Those brands did manage to become the TOP1 in certain category. But the number of product categories on marketplaces such as Tmall are also expanding. If you compared the number of new Chinese brands that came in first in their category during 618 this year (459) with last year’s (360), you will find that nearly 100 more brands become product category champions.

Being able to call yourself #1 in a category is key to a brand’s success these days. So marketplaces are creating more and more niche categories for brands to compete in. For example, the Food & Beverage category has been classified into coffee, tea and snacks. But they don’t stop there, they are further divided into chicken snacks, sparkling wine, rose tea etc.

This makes it easier for brands to become the champion in certain category. The more detailed the category, fewer competitors will they face. Besides, they only have to be #1 over the course of the festival in order to earn the title. So anyone with a large marketing budget can become #1.

While this may be a good tactic for now, consumers may eventually catch on to the fact that everyone seems to be the best. Then being the best will gradually lose its meaning.

Everyone is Using the Same Factories

One of the key reasons why there are so many domestic brands emerging in recent years is that they don’t need to spend time building factories. There are many manufacturers that will work with small brands and can handle all the manufacturing and logistics. The brand’s founders only need to think of a brand name and its design, and later, the marketing part.

This kickstarts a brand, but it also results in similarity among products. Brands are also aware of the drawback, and they are figuring out ways to make themselves stand out. One of the ways is the shortcut we mentioned above, to redefine or specify their product category, and announce themselves as a forerunner in the industry.

Our thoughts

Chinese brands indeed develop very fast. New brands are quickly emerging seemingly nonstop.

But behind this, is their large spending on marketing and promotion. Perfect Diary is often mentioned when talking about this issue. While its products are often ranked #1, in 2020 its net income was -$412 million USD and its sales & marketing expenses as percentage of revenue was 70.3% in Q4 last year.

What brands really need to focus on is the quality of their products and services. Consumers are smart and they know when a brand is trying hard to show its presence without solid products and services to back it up. While many of these smaller new brands are getting flooded with money from investors right now and can pour large amounts into marketing, you can only get so far by burning cash.

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