1450247399266

By Elizabeth Winkelman

Daigou  代购   has become a business phenomenon in recent years,  with an estimated 80,000 daigou sellers in Australia.    The impact of daigou on a company’s sales, brand and reputation cannot be underestimated.  Bellamy, the infant formula brand’s “downfall” is said to have been through trying to cut out the daigou by offering their products at the same prices found in Australian stores on TMall Global and Jing Dong, two major e-commerce stores in China.   With no profit margin, Australian daigou abandoned Bellamy with shocking results to their share price.

Daigou has firmly entered the English vernacular.  Often referred to a “grey trade” where overseas Chinese buyers make purchases on behalf of their personal connections through WeChat.  Starting with an inner circle of friends and family, many daigou gain thousands of social media followers through word-of-mouth, and sell items which are Australian made, from  infant formula, super foods, to vitamins and cosmetics to their buyers in China.  WeChat is the main platform for daigou sellers, yet WeChat limits each account to 5000 friends.   Thus, many daigou will open multiple WeChat accounts for the purpose of selling.   Daigou also on-sell to other agents within China, who have their own buyer networks.   Chinese apps and relationship networks have such influence that they can render traditional methods of e-commerce as near obsolete.   Couple this with third party payment platforms such as Wechat Wallet and Alipay, buyers in China purchase their daigou products with sophisticated ease.

Industry consultants estimate that the Australian daigou population make between $40,000 to $100,000 per year, paid in RMB into a Chinese bank account.   It is a “grey trade” by the fact that these daigou are making individual purchases stated as “gifts” on express parcels sent to China, even though a daigou will make an extra 5 – 15 % ( other estimates put the figure at 30-40 %) profit on each item and most of this is undeclared profit, with prices marked over 50% above their Australian retail price, yet the buyer back in China still avoids any import fee.  Thus the buyer is still purchasing the product cheaper than if they were to buy it in-store on most occasions.  These missing taxes have been estimated to be worth A$1 billion to the Australian economy.

Trust within social circles is at core to this daigou business model, where growing consumer class in Mainland China prefer to buy products through people they know.  Yet trust in Chinese society, is a concept that has been eroded by a perceived lack of safety.  Food and pharmaceutical scandals have rocked China for generations and created an insatiable need among consumers for overseas food and health products.  A small sample of these scandals have been soy sauce made of human hair, gutter oil cooked for restaurant meals, carcinogens to bleach tofu, contaminated strawberries, lethal counterfeit pills and fake beef containing paraffin wax  – the list goes on.  Unsurprisingly then, that the trust gained through personal networks, enhanced via social media platforms are disrupting traditional e-commerce business models.  Yet the food scandal which created more international attention was during the Beijing Olympics in 2008, with the death of 6 infants from infant formula made with melamine.

Back in 2008, while this news scandal was unfolding, I was nursing my new-born son in an apartment in Beijing.  Living so close to the scandal and knowing family friends who were directly affected by it, plus the inescapable pollution triggered an urge to return to Australia.   I found my Chinese neighbours trying to convince me that my child would not gain enough nutrition through breastmilk alone. Social pressure to “supplement” with milk powder was something that struck me, not the lack of nutritional knowledge, but the level of influence within the community.  I did revert to infant formula for a time, also asking friends to send Australian infant formula to China, along with so many other working parents who have no choice but to leave their children during the working day.  When faced with these choices, it’s no wonder that Australian infant formula has been selling like hotcakes in China.

m_1407948797_nFaRyE

Australia and New Zealand have a unique selling point for Chinese consumers: our products are known for being high quality and for stringent safety regulations.  Nowadays, go into any chemist or supermarket and it is common to see daigou loading their trolleys with a plethora of Australian products. Yet infant formula and  milk powder remains the number one product for Australian-based daigou.

Chinese buyers are more sophisticated and well-travelled now, with more disposable income than ever before.   Through regular news feeds on WeChat, they are also more aware of prices and products in Australia’s retail sector.   I sometimes receive WeChat messages from Chinese friends telling me to go to and pick up some brand of cosmetics or vitamins because it’s on sale this week in Australian stores.  Influence is a core aspect of what drives daigou sales.  It is a way for buyers to ensure authenticity.  Chinese buyers also exert influence as to what daigou should buy.  They can request orders for almost anything and have their products sent express air or shipped.  Chinese consumers are now among the world’s biggest spenders   New media – be it via online video streaming sites or reality TV programs are also influencing the Chinese consumer market.  Images of actress Fan Bing Bing’s lavender bear in Tasmania sent the Weibo-sphere into a buying frenzy.  Last year, it was widely reported that Sanitarium have enlisted Chinese reality star Alyssia Chia as their Weetbix brand ambassador after a product placement on the Chinese drama Ode to Joy sent sales of Weetbix sky-high in China.

Product placement can and does have a rapid and incredible impact with Chinese audiences.  On a personal note, I’ve also had a lot of requests to send Weetbix and goat milk powder to China, showing just how powerful brand messaging can be in China.