Japan's IKEA might not sell in China - Shaun Rein

Shaun Rein

Japan’s discount-furniture king, Akio Nitori, dubbed the country's IKEA, now wants to export its success into the region's largest market: China. Business analyst Shaun Rein doubts whether their Japan success can be copied into China, he tells Bloomberg.

Bloomberg:

At 73, (owner) Nitori said he’s not ready to retire, but he handed day-to-day control to longtime lieutenant Toshiyuki Shirai while he concentrates on expanding in countries such as China, where he’s opened 11 outlets since 2014 and plans to double that number this year. 

“It’s going to be a lot harder than he thinks,” said Shaun Rein, founder of Shanghai-based consultancy China Market Research Group who offers Ikea’s travails as an example of how difficult the market is to crack. Ikea’s stores are packed with people -- but they come to take naps on showroom beds and enjoy a bit of free air conditioning, rather than to buy. 

For Nitori, the challenge will be building brand cache, Rein said. “You can’t compete on price in China.” 

Still, Nitori is betting he can replicate his success in the world’s most populous nation, a market 10 times the size of Japan’s. It’s key to meeting his current 30-year target: 3,000 stores by 2032. 

“I’m absolutely confident we’ll make it, as long as you don’t hold me to the deadline,” he said with a laugh. “The demand is endless.”

  More in Bloomberg.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more consumer experts at the China Speakers Bureau? Do check out this list.  

Going global: tough for food companies - Paul French

Paul French

Globalization might be high on many corporate agenda's, but food products offer special challenges, as tastes and eating habits vary. Retail analyst Paul French illustrates in CKGSB Knowledge a few strategies by Chinese food companies. 

CKGSB Knowledge:

For the investors, it was all backwards. In early 2011, Chinese dairy producer Bright Food convened a meeting with outside investors and consultants. The company had mountains of cash, priceless connections and Beijing’s blessing. Having grown to become China’s second-biggest food and drink company, it was now looking to expand into the UK market. All it needed was something to actually sell there. 

“We asked them, ‘So you’re planning to sell Guangming milk [the company’s flagship milk brand] in Manchester?’” says Paul French, founder of market research firm Access Asia and one of the consultants at the meeting. Bright Food executives responded that yes, they were. “We just said, ‘Well then, good luck with that one.’”... 

Yet for all the clever and counter-intuitive reasons Chinese firms choose to go global, few are as unexpected as that of Bright Food. After the meeting with investors last year, the company announced in May 2012 that it would purchase a controlling stake in Weetabix, an iconic UK cereal brand, in a deal that valued the company at nearly $2 billion. 

Breakfast cereals are a fast-growing market in China, particularly in the muesli category (in which Weetabix owns the valuable Alpen brand). Besides distribution opportunities in China, Weetabix could lend Bright Food some brand cachet. 

But cereals (and foods of any kind) tend to be unique to certain regions, and it will be tough to transplant Weetabix’s offerings to the China market, say analysts. While these are still early days, neither Bright Food nor Weetabix has yet announced any plans to make major changes to their product line-up or distribution. French of Access Asia says he’s spoken with executives at Weetabix, who report that Bright Food has taken a hands-off approach to the company. 

Rather, the acquisition probably had a much more mundane purpose. “The logic [to the takeover] is that you’ve got a lot of cash in a very high currency that you need to do something with,” says French. With asset prices in the US and Europe at record lows, Bright Food reckoned it was a good time to go shopping for Western food brands. 

If the British economy improves it could yet prove a smart buy, especially considering the alternatives. “What else are you going to do with the money? Maybe buy a chain of hotels in Hainan or something,” French muses.

More in CKGSB Knowledge.
Paul French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Localizing products for the China market is not easy, noted Ben Cavender last summer in a hangout. He illustrates the cases of B&Q, IKEA, Dunkin Donuts and Gap. Cavender is also a speaker at the China Speakers Bureau.

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Trust crisis hits KFC's sales - Shaun Rein

Shaun Rein

Chinese consumers expect foreign brands to be safer and better than domestic ones. But when that confidence is hurt, like happened after a government investigating into the poultry supply of KFC, damage can be huge, explains business analyst Shaun Rein in Bloomberg. 

Bloomberg:

The Shanghai Food and Drug Administration on Dec. 20 said tests conducted by a third-party agency from 2010 to 2011 found found eight batches of chicken supplied to Yum by Liuhe Group Co. had levels of antibiotics that didn’t meet prescribed standards. Yum, which operates KFC and Pizza Hut chains in China, got 44 percent of its revenue from the Asian nation in 2011. The company said that it stopped all supplies from Liuhe in August. 

“The trust in KFC was so high that now the anger is high,” said Shaun Rein, managing director of China Market Research in Shanghai. “People tend to trust western brands, they think these brands have better quality control over the supply chain and they are not going to cut corners.” 

Food safety is a big worry for many Chinese consumers and it may take at least three to six months for them to start returning to KFC stores, Rein said.

More in Bloomberg.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Not all foreign companies get it right, when they have to adopt their offers to Chinese tastes. Ben Cavender recalls how four companies, B&Q, IKEA, GAP and Dunkin Donuts got it wrong when they tried to localize.

 

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What is going wrong in localization? - Ben Cavender Hangout

Ben Cavender

Localization is the mantra for foreign companies entering China, but many fail. Ben Cavender, senior analyst at the China Market Research Group (CMR) will address some famous cases during a Google+ Hangout on Thursday.

Cases will include, but are not limited to IKEA, The GAP, Dunkin Donuts, and B&Q. You have other cases you want to discuss? Or you want to chip in with our own experiences? Do drop us a note here in the comments or here. A limited number of invitees is possible during the hangout, which will take place at 4PM Beijing Time, 10am CEST, interviewed by Fons Tuinstra of the China Speakers Bureau.


Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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IKEA's China problem: too popular - Shaun Rein

Image by Getty Images via @daylife

The Swedish furniture retailer IKEA has become a public attraction comparable to Disneyland in the small number of stores they have in China, writes Shaun Rein on the CNBC website. When you are too popular as a foreign brand, it is not only good news.

Consumers check out displays to get ideas on how to decorate homes. Some even nap on beds. Families buy 25-cent hot dogs while kids play in the clean and air-conditioned environment. IKEA has become a mini Disneyland for cash-starved Chinese...

And what is worse: they are not buying.

Many consumers flocking their aisles cannot afford fat margin furniture items. Instead they take photos, or even grab IKEA catalogs, and copy products at cheap custom furniture stores. If they do spend, they buy dollar bathmats and drinking glasses. IKEA now sells coffee tables that cost less than a Starbucks latte.

Image by Fantake via Flickr

Basing a sales growth model on discounting and cheap products is not a viable long-term strategy. Several hundred upper middle class consumers told my firm in interviews they are put off by IKEA’s large crowds and cheap prices. In other words, IKEA is too expensive for the majority of consumers, but too cheap for real spenders.

But IKEA is adopting its strategy, and perhaps not making much money on furniture, but in other ways, Rein argues.

More at CNBC.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your conference or meeting? Do get in touch.

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Trade under threat of Fukushima fallout - Shaun Rein

Toyota SUV in trouble via Wikipedia

The effects on trade between Japan and China cause by the Fukushima nuclear disaster is bigger than expected, warns Shaun Rein at CNBC, as Chinese consumers not only stop buying Japanese food, but Japanese products like Toyota's SUV cannot reach the Chinese market.
Rein is bullish on the home decoration market, where he expects this year a growth of 15 percent, as Chinese home owners turn to renovation as the sales of residential real estate slows down. Unfortunately, the foreign retailers like B&Q, Home Depot, but surprisingly also IKEA fail to capture that momentum.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Home Depot loses, IKEA wins; why? - Helen Wang

Image by Getty Images via @daylife

Home Depot announced the closure of outlets, a stiff reminder that life can be tough, even in a fast growing Chinese market. But what is IKEA doing better, wonders Helen Wang in Forbes, as they are opening more outlets. What lessons can be learned?

In the last fifteen years, home ownership has gone from practically zero to about 70 percent. However, many people have little sense of how to furnish or decorate a home. They are very eager to learn from the West. This is one of the reasons that IKEA is very popular in China. Their Western-style showrooms provide model bedrooms, dining rooms, and family rooms showing how to furnish them. Their stylish and functional modern furniture is particularly appealing to young couples...

Three lessons Helen Wang has:

Helen Wang via Flickr
• Chinese consumers need to be educated as they have no role models. They are eager to learn but they need guidance. Companies that invest in educating the market can expect to reap handsome rewards.
• Pay attention to local customers’ preferences. For example, the kitchen is usually small and considered secondary in a Chinese home. Chinese cooking usually blackens the kitchen with soot and grease and is the domain of an ayi, or household helper, who cooks for the family.
• Most Chinese homeowners live in condominiums rather single family homes. They do not have a garage that can store tools and ladders. A more appealing package would be pre-designed interiors with installation included.

More in Forbes.

Helen Wang is a speaker at the China Speakers Bureau. When you need her at your meeting or conference, do get in touch.

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Dell goes for cheap

A few interesting left-overs from yesterday. I'm doing too many things these days that cannot be blogged. But the news that computer manufacturer Dell is going to produce cheap computers in China was special.
I have been blogging about Dell's strategy in China before and just as other companies like Ikea and Best Buy, who came to China and seemed to give up on their core business model: offering consumers a cheap offer.
The suggestion: foreign companies have a hard time to compete on price with their domestic competitors. Now, Dell resumes also in China its competitive approach.