Ziwi Peak in China

The war on price control has begun

On June 19th, the New Zealand premium pet food brand Ziwi has announced on its official wechat account a series of measures to fight disruption of its pricing structure.

Brand Success Story

The brand, with products priced at US$30 to US$80 per kg in China, targets wealthy clientsIts spectacular growth in the past few years can be attributed to a series of factors.

1 | The premium positioning of the whole product line is giving to final customers a feeling of safety. In a country where trust in food products is at an all-time low, spending the extra bucks is often the only way to ensure that pets (and ourselves) are eating healthy (and sanitary safe) food.

2 | The solid Free Trade Agreement between New Zealand and China has allowed NZ brands to enter Chinese pet care market rather early, and through rather favorable conditions. Among other incentives, New Zealand factories need to register with the Ministry of Agriculture (MOA) but products are exempted from GACC registration (former AQSIQ). 

3 | From the very beginning, the brand has put serious efforts in being present and heavily visible in brick and mortar shops, at exhibitions and in special offline events. Many digital marketing agencies around the web continue to promote an online-only approach to distribution and sales for foreign brands in China. Do not believe that: you must get your final audience to touch your products sooner than later. It’s not just about branding, but to build trust and recognition for your products

4 | New Zealand as a country has experienced a fantastic image in the past 5 years, from tourism to FMCG products. Naturally, pet food brands and ingredients suppliers have benefited from this positive image.

Ransom for success

These elements, combined with sustained marketing efforts, helped the brand to reach customers far beyond its natural target audience : wealthy, educated, urban pet owners usually well aware of nutrition facts. The reputation travelled across the country to 2nd and 3rd tier cities, teasing pet owners who also have a significant purchasing power but have different consuming habits and are more price sensitive. 

epet.com e-commerce

With thousands of private e-commerce stores using marketplaces such as Taobao, Tmall, JD, Little Red Book, or dedicated online pet retailers such as Epet and Boqii, it seems difficult to keep prices under control and enforce consistent discount campaigns.

That’s exactly what happened in the last months, which saw uncontrolled discount operations on various platforms, online but also offline. For retailers, it’s all about catching a volatile audience who pays an obsessive attention in finding the best deals for their pets. 

These discount campaigns, which are often imposed to the brands by marketplaces, certainly boost sales volume but hurt brand image and long term pricing strategies. 

These deals sometime hide product quality issues, labelling fraud and other scams… But that’s another war brands are fighting.

Re-gaining control over the pricing strategy

The announcement from Ziwi is definitely a bold move. “Shocking!”, said the local media Chong Ye Jia. Probably few brands at this stage would have taken such a clear decision, risking to lose market shares and make some key distribution players *very* unhappy.

The brand announced to stop (with immediate effect) the cooperation with several major platforms which supposedly did not respect pricing guidelines.

 

Translation of the official announcement

1. Ziwi will stop cooperation with E-Pet main website and mobile App store with immediate effect, June 20th 2019.
2. Ziwi will stop cooperation with Boqii's Tmall flagship store with immediate effect, June 20th 2019.
3. Ziwi will stop cooperation with Maishi special shop (online) with immediate effect, June 20th 2019.
4. Ziwi will stop cooperation with all Pet Inn's online and offline stores with immediate effect, June 20th 2019.

Tony Chen
Asia Manager, Ziwi Limited
June 19th, 2019

It is interesting to note that this frontal and public approach to the problem is not common in China, where parties traditionally try to avoid embarrassment (loss of face).

So far, there has been no public reaction from the retailers affected by this announcement. 

Reaction to the announcement

General public and a lot of independent retailers have been more open to express their opinion. Selected extracts:

The pet industry needs to be standardized. Retailers are engaged in a cutthroat competition to lower their price. It's not profitable for sales. How can we except any domestic brand can work well. There is no way to make good products under this kind of market environment. How can the industry develop in a health and stable manner?
This brand will disappear soon in the future...
I think it's a good move from the brand. To disorder the price is definitely vicious competition and to disturb the market. How come a regular proper sales channel sell product without considering the cost? How can dutiful sellers survive if we don't rectify the market order?
I can see most of the comments come from pet shops or retailers. But for our not-rich cat owners, this kind of price competition benefits us. As long as the products come from real distribution channel, and the quality is guaranteed, we for sure appreciate the price as low as possible. Otherwise, we can choose many other brands. Ziwi is not the only choice.
This movement is obviously to punish some shops as a warning to many other ones. Recently, pet shops selling ziwi are having an intense competition. There are sales activities like buying ziwi cans together with ziwi other products to get more discount. We all know the rough cost from the general distributor, but still someone are selling ziwi with a very low price in wechat groups or groupons. There are also people selling the products which are going to expired very soon in a low price. What can we do if the big environment is like this.
Ziwi always acts as a high profile. However, there are only few people buying Ziwi at its official listed price.

Conclusion

Until recently, it was difficult to imagine a foreign brand refusing direct sales to a key online retailer like Epet. Such a deal was seen as a true opportunity to open the doors of a giant market. But everything in China changes quickly. More brands are coming in from abroad; new importers are gaining market shares; local brands are stepping up in terms of quality.

The overall competition gets fiercer. Retailers are on the front line of the battle for market shares. There will be casualties in the race for the low price point. Ziwi’s move is definitely a step into the war to reaffirm its premium positioning and protect those who play by the rules. At the same time, a few major local brands continue to burn millions of dollars to gain market shares.

Is it the beginning of a normalization of the distribution channels, taking over the disrupted model prevailing so far? How other brands facing the same issues will react in the coming months?

The future will tell. 

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