New | Baby-goods businesses not booming despite loosening of China’s one-child policy
Chinese couples not keen on having more children and second-time parents tend to be more careful in their spending, industry players say
Retailers of baby goods have not seen much growth since China loosened its one-child policy two years ago.
Chinese couples are not keen on having more children and those who are, are careful in their spending, industry players say.
“There hasn’t been an obvious increase in our revenues over the past two years. I think the industry is in the process of integration and in a ‘war of states’ era,” said Zoe Liu, operational manager of high-end baby-goods retailer Baby International Blue, which runs several stores in Beijing and Shanghai.
New investments flowed in and competition entered the industry stimulated by the “good news” that more families could now have a second child, analysts said.
“[But] our margins have been squeezed by rising rents, price wars, and agents buying baby products from abroad,” Liu said.
“We therefore had to expand into second-tier cities and launch other services, such as kids-themed restaurants in our stores, to sustain our development.”
Even so, the baby-products sector can still be deemed a “sunrise industry” with promising prospects, said Li Daiwai, research centre director of baby-goods portal Baobei360.com.
Many new products are launched and many stores or online shops are opened every day,” Li said. “There’s no doubt market competition is cut-throat. But it turned out that baby-products retailers have not grown as quickly as their investors expected.”
The bulk of the industry’s newcomers were funded by capital from other sectors, Li said, lured by the Chinese government’s announcement in 2013 that couples could now have two children if one parent was an only child. Prior to the 2013 policy change, only couples who were both the only child were entitled to have more than one baby.
But the response has been cooler than the authorities expected, with only one million couples applying to have a second child last year – half of the official estimate – according to the National Health and Family Planning Commission.
“Families with a second child are quite rational,” Li said. “They know what products are useful and what aren’t. They also know which products or brands are more cost-effective. Besides, the items their first child used can be handed down to the second.”
Liu sad many of her customers were second-time parents and that such customers were generally hesitant to spend lavishly.
Among the products, baby milk power and diapers showed the strongest demand, said Jason Yu, general manager of market research firm Kantar Worldpanel’s China division.
According to a report released jointly by Kantar and consulting firm Bain & Company in July, the sales of diapers and baby milk powder in 27 mainland cities rose 12.2 per cent and 5.5 per cent respectively in the year from March 2014, beating most other fast-moving consumer goods.
“The market proportion of high-end items – like imported baby formula sold at more than 300 yuan (HK$362) per 900 grams and diapers costing at least three yuan a piece – has expanded greatly over the past year,” Yu said. “This shows consumers chase safe and high-quality products for their babies.”
The slow growth has not affected all baby-goods retailers, however. Some, especially online shops, still enjoy increasing sales.
E-retailer Mia.com has seen its annual revenue rise 30 per cent since it opened shop one-and-a-half years ago, its CEO Liu Nan said.
“We have been caught up in the whirlwind of cross-border e-commerce, since mothers born after 1980 are fans of authentic imported baby products,” Liu Nan said.
Ma Yun, the founder of Gou.com, another thriving business, said his company’s secret to success was that 90 per cent of its sales came from imported baby food.
“Mothers attach importance to their babies’ nutrition,” Ma said. “What’s more, food consumed by the first child can’t be recycled for a second use, unlike clothes, strollers or beds.”
Even so, not every mother is interested in imported baby food.
“I won’t buy it as it’s not fresh,” said Shanghai mother Tina Wu, who has two sons, one six years old and the other six months.
“My younger son will soon be able to take supplementary food. I will buy vegetables and meat from the wet market near my home and cook his meals for him.”