Consumer Behavior in China - Some Answers, More Questions

I really enjoyed our conversation around DBR's strategy in China and was left ruminating about whether or not Chinese consumers are ready to start purchasing and consuming Chinese wine. As discussed in class, the mistrust of domestically produced pharmaceuticals and infant formula has been a real sticking issue. A 2008 scandal in which melamine was discovered in infant formula led to serious mistrust of the domestic dairy industry and prompted increased regulation of food and beverages. This was one of the many contributing factors to an emerging desire (by those who can afford it) to buy imported goods from reliable names. I saw this trend in action in 2013, when I worked on the team that advised Smithfield (America's largest pork producer) on their acquisition by Shuanghui Group to form the largest pork company in the world. Much of the acquisition thesis revolved around the value of marketing and selling an American branded product in China, with quality implicit in the American name and packaging.

However, based on my recent visits to China and conversations with people on the ground, I think that this trend is starting to change. Part of the issue has been a general attitude that Chinese companies make low quality copies of existing products rather than innovating and creating something new (and tailored to the local market). Xiaomi, an electronics company, is a great example of how that is changing. Xiaomi has long been thought of as a maker of low cost, knock off Apple products. However, a recent visit to corporate headquarters and their new retail concept has convinced me that this is no longer the case. There is true innovation taking place, most notably evidenced by the recent launch of their Mi MIX phone (in advance of Apple launching the iPhone X). I think the same trend is occurring across industries, including fashion, personal care and food & beverages. In November, I visited a mall in Beijing that had a store selling locally grown produce and prepared foods. The store would have been at home in Williamsburg or Palo Alto, right down to the signs showing the provenance of each item and the eye popping prices. Consumers are starting to appreciate that "Made in China" can mean high quality, with the added benefit that these products are made at home by people who have an authentic understanding of the local market. I look forward to learning more about how this emerging trend will translate to the nascent Chinese wine industry.

Margaret Greenberg