Asia consumer & brands: Mark tank

Baijiu, the colorless Chinese spirit served neat at family gatherings and business negotiations since the Tang Dynasty, is not exactly an obvious generation Z marketing category. But such is the rise of new consumer brands in emerging Asia’s youth-driven economies that even the most traditional of products is getting relabeled for the modern era. 

This is the thinking behind Jiang Xiaobai, a baijiu brand that is going head-to-head against a stodgy class of ornately bottled incumbents with slick, angular packaging and unorthodox cocktail suggestions for China’s 300 million gen Z and millennial drinkers. Xiaobai is marketed as a “mood drink” that places a stronger emphasis on intangibles such as emotional resonance and identity recognition than simply wetting your whistle.  

“Liquor is kind of a social currency and character symbol. Jiang Xiaobai is gradually reshaping the competitive landscape of the alcoholic beverage industry and is expected to become the industry leader,” says Fan Bao, a founding partner of China Renaissance, which led a $300 million Series E for the company in September via its Huaxing Growth Capital unit.  

“Huaxing has long increased its investment in the new consumer field,” Bao adds. “We believe that intergenerational culture changes will usher in a wave of opportunities for the revival of traditional brands and the birth of new brands.” 

Demographics are a key driver in the rise of new local brands in emerging Asia. Younger consumers are believed to want more personally relevant products; things that reflect their values, have strong local identities, showcase green credentials, and preferably come with a good creation myth.

As one investor puts it: “A lot of products don’t have much of a founder story behind them, but it helps to create a story that fits the product because that’s what resonates with the Instagram generation.”

The upstarts

To some degree, people have always wanted these things – the difference now is that new brands can deliver them more easily. Practical distribution infrastructure barriers that have historically kept small brands off the shelf are gradually being erased by technology, especially in the form of e-commerce. At the same time, the internet age has leveled the playing field by making it possible to build brand awareness and precisely target specific audiences on a shoestring budget.  

In most of Asia, these trends have exacerbated a few distinct disadvantages for the major international brands. First, many global players do not consider emerging economies to be core markets, so rapid reinvestment to support the fringes of the corporate empire is not a priority. And for similar reasons, top brand management talent is usually rotated out of these markets relatively frequently. 

As a result, global brand operators in Asia often fall into a standardization trap, where cookie-cutter protocols in terms of product stocking and customer engagement are handed down from headquarters and fail to make an impact locally. The problem for homegrown challenger brands is that although a lack of understanding of local tastes and preferences on the part of their international peers implies an opening, this has not necessarily translated into reduced competition.  

“Even if you’re a well-funded challenger brand and run by a young entrepreneur who gets it, it’s difficult to scale profitably, because customers at the upper end of the income pyramid are saturated with established multinational and local brands,” says Chinta Bhagat, a managing partner at L Catterton Asia. “The only space that’s typically not been covered at all is at the lower end of the income pyramid, and it’s much harder to make money there.” 

Digital-native brands thriving in this environment see tech-enabled relationship building as the only way to communicate with customers intimately enough to convince them to change from a product they’re already comfortable with. They also recognize the value in ensuring quality at every touchpoint of the customer experience. Any weak links in this chain will quickly find their way online in one form or another and end up defining the brand for anyone exploring it for the first time.  

“The old-world brands have access to the same technologies as the brands that were born online, but they communicate very differently. You can see that on their websites and in every social media post,” says Arjun Anand, an executive director at Verlinvest, who oversees India and Southeast Asia.

“There’s a huge difference in engagement and even in the way the copy is written because if you’re digitally native, you don’t know any other way to communicate than through these channels.” 

Verlinvest invests almost exclusively in online and offline consumer brands, primarily in food and beverage, but also in personal care products and e-commerce platforms with a brand element. Key portfolio companies include Kopi Kenangan, an Indonesian Starbucks challenger, yogurt brand Epigamia, sauces and condiments company Veeba, and wine maker Sula. The latter three are based in India and have each scaled at least 10x since the firm’s initial investment.  

For investors with increasing exposure to brands, Kopi Kenangan may prove instructive on the risks of brand dilution, especially given the fast-service coffee segment’s reputation for aggressive and unsustainable expansion strategies. The company, which had plans to open more than 1,700 new locations as of a $109 million round in May, will be keen to avoid this pitfall by closely monitoring quality in new outlets and erosion of the cachet that made it popular with its earliest adopters. 

Making an impression

Epigamia, meanwhile, offers a useful illustration of how a new brand can enter a competitive market; yogurt is a household staple in India served with almost any meal, and there are more than 10 high-profile incumbent brands in the category. The company positioned itself as the only Greek yogurt in the country. The high-protein, high-probiotic, low-lactose alternative was marketed as a snack for energetic millennials not to be confused with curd.  

Deepak Shahdadpuri, a managing director at DSG Consumer Partners, an investor in Epigamia, notes that the biggest headwind to exploiting this kind of differentiation is customer education. His preferred technique has been in-person sampling at supermarkets, shops, and events. Since the onset of COVID-19, however, DSG has only been able to launch one new food product, a freeze-dried fruit brand called Halo, and it is unclear how the online-only approach to hooking curious consumers will play out.  

“When you have someone tasting the product, they can actually look at it and tell you if they like it or not. It’s also a great opportunity to get them to pick up a few packets at the same time. We do a lot of digital, don’t get me wrong, but it’s not the same,” Shahdadpuri says. “If we send a free sample to your house, we have no idea if you even sampled it or not. I’ve discovered a lot of products online over the last seven months, so it is happening, and it’s efficient, but I don’t think it will replace traditional sampling immediately.”

In lieu of in-store sampling, the most effective tool for introducing an unfamiliar product with a premium price may be a graphic approach to branding. China’s Wangbaobao, a decidedly flashy oatmeal brand, seized the initiative last year when it surpassed humdrum segment heavyweights like Quaker to become the top-selling cereal on Alibaba Group’s Taobao platform only one year after launch.  

“Wangbaobao’s customers might have never bought oatmeal before. The user groups and use methods are completely different. It became a new category and created a new market,” says David He, founder of BA Capital, which led in a RMB100 million ($14 million) round for the company in April. BA is also an investor in Jiang Xiaobai.

Wangbaobao marketing materials trumpet the brand’s health benefits and ready-to-serve convenience, but the secret to its meteoric rise is roundly attributed to visual appeal. The product goes big on vivid colors in freeze-dried fruit and pastel packages. Indeed, its founder, Jing Yao, previously ran a cosmetics store on Taobao and took inspiration from cosmetics display aesthetics.  

Some investors characterize this story as a sign that shifting attitudes about appearances in Chinese culture are creating new image-based brand openings, even in categories as devoid of sex appeal as oatmeal. The notion is that while traditional Chinese wisdom frames beauty as a superficial virtue, younger generations are taking it up as a core value.  

This is delicate terrain in any jurisdiction. Navigating cultural nuances around how the public will respond to a brand’s logo design, packaging materials, or philosophical backdrop is an exercise that must be done in-country and preferably with dedicated external support.  

Consistent messaging is the key to building a brand narrative within a given cultural context, but once a product goes cross-border, there is much to be lost in translation. China can be particularly difficult in this regard. Several regional investors tell AVCJ it is better to launch an entirely new brand when expanding into the country rather than attempt to sell an existing brand.  

Third-party consulting support is therefore indispensable but not without its pitfalls, especially in emerging economies where most entrepreneurs are first-time founders.  

“The traditional approach of the ad agency is to flatter you nonstop until you sign the check,” says Marcus Osborne, co-owner of Malaysian branding services provider Fusionbrand. “It’s very intimidating, exciting, and glamorous, and the first thing you want to do to prove that you’re successful is to be on the billboards. The reality is, that’s not effective, and it’s not building a brand.” 

Osborne observes that the biggest hurdle for small Southeast Asian businesses competing against international brands is their reliance on an approach that emphasizes competing on price rather than creating teams where everyone buys into the same vision. Data-driven relationship building with a targeted audience is often eschewed for traditional advertising channels that pump up founders’ egos but not their brands. This is especially problematic among brick-and-mortar players.  

“They don’t appreciate the concept of building an organizational brand as opposed to the concept of just being in business,” Osborne says. “There’s a trading mentality; if you sell enough stuff, you’ll get enough money to go to the next stage. It’s very tactical, not very strategic. Branding is strategic. Small domestic businesses are reluctant to invest in branding, which is a strategic initiative. They don’t have the long-term viewpoint.”

Going global

New media usage is significantly more sophisticated in China, where several ubiquitous algorithm-based platforms variously serve as product review boards, targeted advertising channels, and marketplaces. The critical utility of these services is that they are not a digitization of TV spots and billboards – they’re a digitization of word-of-mouth publicity. As such they are viewed as one of the reasons China will be the first emerging economy in Asia to see global success with a consumer product brand.   

“There will be more and more international consumer brands coming out of China in the next five years,” says Rui Han, a partner at Gaorong Capital. “First, China’s supply chains are constantly improving. Second, China has the world’s most advanced social media marketing methods, including WeChat, short videos, and live broadcasts. Finally, we have accumulated many local consumer brand entrepreneurial talents and professionals trained by multinational companies..” 

AVCJ challenged investors to name a developing Asian brand that has made waves in international markets, with the consensus response being, “nothing substantial yet but one is coming soon.” Ayurveda beauty products and premium tea are considered possible avenues for productizing the Indian national brand, while halal foods may create a global winner for Southeast Asia. In China, a strong candidate could be Feiyue, a footwear brand from the 1950s that has recently established a cult following among Western celebrities and their fans.     

In China and India, part of the explanation for a lack of globally exported brands is the abundance of expansion headroom domestically. Many brands in these markets see little justification for pursuing a risky and expensive adventure overseas when a greater number of new customers could be acquired with a renewed push at home. Beauty products may be an exception since much of the allure is in the exoticism of being a foreign product.

In niche categories, targeting domestic diaspora has proven a workable ploy. Singapore-based Golden Duck, a potato chip brand backed by DSG, has found some success exporting snacks with Southeast Asian flavor profiles such as salted egg and crispy fish skin to Greater China, the Philippines, and Malaysia. 

It is worth noting, however, that China and Southeast Asia have already produced numerous global offline brands in retail services. Perhaps most notably, these include premium hospitality brands such as Mandarin Oriental, Shangri-La Hotels & Resorts, Singapore Airlines, and Cathay Pacific.

Malaysia-based Navis Capital Partners has played this theme with Singapore’s Imperial Treasure, a Michelin-starred Chinese fine-dining chain that has planted flags in Shanghai, Hong Kong, Incheon, London, and Paris. Nick Bloy, a managing partner at Navis, attributes the company’s traction to uncompromising attention to detail.

Upon the restaurant’s UK expansion, for example, new foreign work visa requirements meant China-based chefs had to spend months getting their English language skills up to snuff before moving over. Rather than simply hire UK-based replacements, Imperial Treasure delayed the opening in order to get the highly specialized talent necessary to create the authentic creations that define its brand. 

“Most of the Asian brands that are going out into Europe, the US, and other parts of Asia are hospitality brands, which is an interesting area,” says Bloy. “There’s just something about hospitality that’s deeply rooted in Asian cultures and allows the region to be better at it than pretty much any other geography in the world in terms of flawlessly delivered experience. There’s a natural affinity for it, and it’s all about quality.”

 

CASE STUDY: Beta Cinemas - Millennial moviegoers

Beta Cinemas has become the fourth largest cinema operator in Vietnam in a period of five years, but after the first two largest players, there’s a big drop-off. Korea-based chains CGV and Lotte rule the roost, with about 80 and 50 locations, respectively. Beta has 12 but wants to hit 50 by 2023. Daiwa PI Partners and Vietnam Investment Group are backing the plan

Differentiated branding is the only way to make this work. Beta’s strategy is to go young and go budget. The idea is to be “the most Instagramable cinema” in the country by emphasizing fun and funky design. Prices are kept at around $2 a ticket, compared to $3-5 for CGV and Lotte.

“Every new location we build, we improve our concept and the experience. So, the more cinemas we build, the better experience we will deliver,” says Nguyen Trong Duc, Beta’s COO. “That’s different from our competitors. They use the same design and concept at every cinema they have.”

Recent progress includes the launch of a new location in Ho Chi Minh City that will be Beta’s first in a shopping mall; it has historically leaned toward residential zones for economic reasons. As with its other locations, audio-visual equipment will all be state-of-the-art, but there will be renewed attention on creature comforts.

“We’re going to be investing a lot more in luxury seats from better suppliers around the world because the customer interacts with the seat more than any other part of the cinema,” says Nguyen. “They use it for two hours. It’s a very important factor, especially the form and the fabric of the cover. Our standard is the three S’s: screen, sound, and seats. Those three things have to be the best we can deliver.”

 

CASE STUDY: Starfield - Local edge

Plant-based meat is now a global trend. The US is leading the way, but Chinese players are expected to benefit from a natural advantage appealing to local tastes. Starfield, which claims to be the fastest-growing plant meat brand in China, is putting this theory into action.

Earlier this year, the start-up partnered with Dicos, a Chinese version of KFC. Dicos is China’s third-largest fast-food chain and gives Starfield access to 2,600 outlets across a dozen cities. This is part of a broader plan to tailor-make products for around 100 local enterprises, including popular tea chains HeyTea and Nayuki Tea & Bakery. Meanwhile, a plant-based meat product has been specially designed for rice noodle rolls at Shenzhen-based restaurant chain Honglicun.

“It’s more efficient to first sell to restaurants. These restaurants can help us educate end-customers,” Cross Chen, co-founder and COO of Starfield tells AVCJ. “Our team is very willing to implement customized innovation for our customers so that their products are more suitable for their target consumers’ needs.”

Starfield’s B2B2C approach to brand awareness takes a page from the playbook of Impossible Foods, the US veggie burger heavyweight that entered Asia stressing restaurant supply and celebrity chef collaborations. The idea is that meat-eaters are more open to trying new things when selecting from a menu rather than from a grocery store shelf.

For investors like Lightspeed China Partners, which led a reportedly RMB100 million ($14 million) round for Starfield this month, being competitive in this theme will in part boil down to cultural familiarity.

“In the US, it is mainly beef-based burgers, but Chinese people attach great importance to cuisine,” says James Mi, founding partner at Lightspeed China， “You need to develop plant-based pork and chicken products that can go with many different local cuisines, there is much work to do.”

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• Topics
• Greater China
• South Asia
• Southeast Asia
• Consumer
• Technology
• Expansion
• China
• India
• TMT
• Navis Management
• Gaorong Capital
• China Renaissance
• L Catterton
• DSG Partners Asia
• Lighthouse Capital
• BA Capital