Caught in the middle: Daigous in Australia
By now, most retailers have heard of daigous (pronounced ‘die-goos’), the personal shoppers who buy Australian goods, especially natural and organic skincare, supplements and baby products, Down Under and resell them to customers in China.
Daigous are often Chinese international students or new immigrants, who sell ad hoc through the social platform WeChat. Over the past two years, they have demonstrated their power to make and break Australian businesses, with Bellamy’s, the one-time darling of the daigou trade, being the prime example.
Daigous helped turn the infant formula company into a household name in China, where food safety scandals have plagued local milk and infant formula producers for years. But amidst speculation of a government crackdown on the suitcase trade last year, Bellamy’s decided to start selling directly to Chinese consumers through JD.com and Alibaba’s Tmall platform.
While the crackdown never materialised, daigous stopped recommending the brand to their buyers, and Bellamy’s, left with excess stock, was forced to slash prices in China as well as Australia. The company’s share price plunged and shareholders pushed to clear out the board after CEO Laura McBain resigned.
This is contrast to the fortunes of New Zealand’s a2 Milk Company, which tripled its profits in 2017 to an all-time high on the back of Chinese demand for its infant formula products. The trend has proved to be a mixed bag for retailers too, which have struggled to keep shelves stocked with certain highly popular items.
Speaking at the Global Food Forum in Melbourne in April, Woolworths’ CEO Brad Banducci said, “It’s a very vexing issue for us as we end up out of stock for our poor customer. We used to be out of stock on infant formula for Bellamy’s and now it has moved to a2 milk and others.”
For some people who advise Australian businesses on entering the Chinese market, these are all strong reasons to tread carefully with daigous.
“The huge sales that Bellamy’s, a2, Blackmores, Swisse and other Australian mum and baby products and nutrition supplement brands are experiencing in China demonstrates the power of daigou. But given it is such a grey area, there’s always a downside, such as the significant issues Bellamy had at the end of last year,” Don Zhao, co-founder and executive director of Azoya International, tells IRW.
“Daigous are a very grey area and the government is trying hard to regulate this market sector. It was widely reported earlier this year that a daigou was caught up in illegal sale. Therefore, retailers shouldn’t purely depend on daigous as a channel into Chinese consumers,” he says.
But others, like Dr Matthew McDougall, say daigous provide an incomparable service for emerging brands that don’t have the budget to market themselves in China. He is among those who are now working to professionalise and legitimise the daigou trade.
The rise of D2C: daigou to consumer
Until recently, McDougall lived in Beijing and ran a digital agency that helped Western brands market to Chinese consumers. And he acknowledges there are downsides to the daigou trend.
For one thing, brands have no control over their positioning in the market and no access to sales data. This can make it difficult to predict demand, plan stock and set prices in China and at home. And for another, daigous may not deliver an optimal customer experience, or they may stop selling altogether.
But as McDougall points out, the alternatives to entering the Chinese market aren’t necessarily much better.
“I had great brands that were selling natural Australian products, but they had to spend half a million dollars to get cut through in China. That’s too much for almost everyone. And there’s still no guarantee you’ll sell anything,” he tells IRW.
“At the same time, I saw this trend of the daigous gaining momentum in the media, especially for products like infant formula and honey. I thought it was an opportunity because word-of-mouth is such a strong channel for Chinese consumers.
“Brands see daigous as a grey channel, they see it as seedy or dodgy, but for certain brands, it’s an essential part of their channel,” he says.
McDougall uses the phrase D2C, or daigou to consumer, to prove his point and says more Australian brands should be embracing daigous as a stepping stone into the Chinese market.
“Think of [D2C] as a marketing, rather than sales channel. Then you can add B2C, but not until you prove interest in the brand and a response to your marketing. It de-risks China,” he says.
McDougall himself recently launched a marketplace called DaigouSales.com, which he hopes will allow brands to benefit from the trend without experiencing the downsides. The marketplace allows daigous to create storefronts on WeChat where their buyers can shop for popular Australian products.
Daigou sellers select which products they want to stock and set their own prices. The marketplace handles the sourcing, shipping and payments.
Since launching four months ago, McDougall says he has invited select daigou to set up shop and secured over 50 brands in categories like mother and baby, skincare, supplements and wine. He says many more daigous and brands are on a waiting list.
“I was quite surprised at how crazy it’s been. We’re getting at least one new brand a day. Last week, we had nine brands come to us,” he says.
But despite McDougall’s optimism that daigous are here to stay, he warns not to overestimate their impact.
“The large brands that have leveraged daigous since 2014 didn’t plan it. It was an organic process. Good timing and luck essentially created multibillion dollar companies on the back of daigous. But that environment doesn’t exist now. There won’t be a new brand that becomes the next a2 Milk Company.”
No easy shortcuts
Indeed, some people maintain there are no easy shortcuts to cracking the China market. Catherine Cervasio, founder of the natural skincare brand, Aromababy, has been selling in China for 10 years, long before daigous or e-commerce were viable sales channels.
“As far as I know, we’re the only natural baby brand that has actually passed CIQ [China Inspection and Quarantine], which requires a huge paper trail of documents, including formulations,” she tells IRW.
Today, Aromababy is sold through national Chinese pharmacies, duty-free stores in international and domestic terminals, as well as online through Kaolo.com, Alibaba’s Tmall Global and smaller websites like Adore Beauty.
“Because [bricks-and-mortar] was the only market open to us at the time, that’s what we did. Now we’re in a unique position because retail stores are looking for an offering [like ours] and we’re already there,” she says.
Cervasio says service providers have been pushing brands to adopt e-commerce and daigous in recent years because they provide an easier path to market than bricks-and-mortar stores. But she says brands shouldn’t discount traditional retail opportunities.
“When you’re there on the ground in China, the e-commerce and daigou factor isn’t as big as it’s played out [to be] here. E-commerce is good and there’s some level of opportunity, but to get traction and sales, there still needs to be something outstanding about your brand in China…in terms of brand heritage or marketing penetration,” she says.
“I would say, if you want to be seen as a serious business in the China space, you need to look at a two- or three-pronged approach, and it should include bricks-and-mortar.”