As I like to say, China is a land of extremes and inconsistencies . There seems to be no middle ground. For example, China has some of the best manufacturing facilities when it comes to producing dietary supplements and ingredients. Association members like Sirio Pharma and TSI Group immediately come to mind. And then there are the, well let’s just say undesirables.
And as for inconsistencies, we need look no further than China’s regulations. China is diligently working to transform its economy from an export oriented one to that of a consumer market. However, many products that Chinese consumers are ready to “consume” such as dietary supplements either can’t be imported or have to jump through so many hoops that cost and time to market entry puts a strangle hold on the industry. On one hand the government is pushing consumers to buy, but on the regulatory side they are putting the brakes on. This is exactly the case with China’s dietary supplement industry.
Thankfully China’s consumers always find a way to get what they want and Alibaba was the first to recognize this inherent nature and turn it into a multi-billion dollar platform. They did so by first establishing alibaba.com (B2B) and taobao.com (C2C). This was later followed by Tmall.com and more recently Tmall.hk both being (B2C) platforms. There are of course other notable platforms doing CBEC in China, but I’m focusing on Alibaba as the originator and the one holding the lion’s share of the e-commerce market.
I’ve been in China since 2005 and it wasn’t until 2014 that I began to see the face of China’s supplement industry begin to change. January 2014 was a time where the Administration of Quality Supervision Inspection and Quarantine (AQSIQ) began stopping the importation of foreign supplements that did not have China FDA’s blue hat* registration.
This move hurt a lot of global supplement firms. Fortunately at this same time, CBEC was finding its legs and beginning to pick up momentum. Fast forward one year to November 11, 2015 Alibaba’s “Single’s Day” holiday, which is now a huge shopping day in China over-shadowing the United States’ “Black Friday”. We can see from the figures below that the numbers were truly staggering. China’s consumers wanted foreign products and Jack Ma’s Tmall was right there to broker those deals.
TOTAL SALES $14.3 BILLION
So the question is, “How is CBEC changing the face of China’s dietary supplement industry?” Here’s my list of changes:
1. Changed the way consumers shop.
2. Allowed many global supplement companies to “re-gain” access to a market that was abruptly shutdown back in January 2014.
3. No need for supplements to obtain China FDA “blue hat” registration
4. No VAT, high import taxes or multiple layers of distributor profit margins
5. Lowered global shipping rates
6. As a result of #4 & 5 above, we see much lower prices that are now just above U.S. retail. Where as before retail prices were typically 2-3 times U.S. retail.
7. The slowing of direct sales channel
Number “7” is a big one considering that direct sales companies are the market leaders and have been for more than two decades. Using Amway as an example, their global sales have slipped for the last two years. 2015 sales were reported at $9.5 billion, which is a 12% lose compared with 2014. China is their biggest market and where they are losing the most.
The other day I noticed the Amway service center down the street from my house had closed. The first thing I thought was, it has begun. I always knew that once China’s supplement market opened up, direct sales companies would be faced with some challenging competition. Amway isn’t alone here, NuSkin and USANA also saw loses as I’m sure most other direct sellers. Executives point to a slowing economy and exchange rate issues. This certainly isn’t helping, but it seems clear that CBEC is demanding a bigger piece of the pie and is getting it.
Chinese consumers now have access to global leading brands at very responsible prices, free shipping and at a touch of finger with their smart phone. To put this into perspective, Amway’s Vitamin C product is currently selling for the equivalent of $53 a bottle. They are supposedly using a more expensive ingredient, but most consumers are not knowledgeable enough to determine anything besides price and that the bottle says “Vitamin C”. CBEC offers vitamin C from many international brands selling for less than $20 a bottle. Not really much of a contest.
The convenience and pricing that CBEC offers is really changing the face of China’s dietary supplement industry. I’d love to hear your thoughts or experiences with the above topic. Good or Bad, do take the time to share.