Daigou downturn: Supplement and infant nutrition brands hit by lockdowns and travel restrictions in Australia

09-Nov-2020 - Last updated on 09-Nov-2020 at 01:30 GMT

A series of COVID-19 related lockdowns and travel restrictions has weakened the daigou retail channel for several health and nutrition brands in Australia. ©Getty Images

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A series of COVID-19 related lockdowns and travel restrictions has weakened the daigou retail channel for several health and nutrition brands in Australia, with brands such as Swisse, Bubs, and Nuchev, reporting sales slumps from the once lucrative channel.

The daigou channel typically involves Chinese students studying in Australia who buy and bring local products back to China. Travel bans due to the pandemic have paralysed this mode of operation.

The other ways daigous work is to sell the products to other daigous or to supply the products to resellers in China.

In its Q3 financial report, Health and Happiness (H&H), the Chinese parent company of Swisse, said revenue from the ANZ market in Jan to Sep this year was RMB$881.4m (US$133.4m) – which was an annual decrease of 31.6%.

In Q3 alone, the revenue from ANZ fell 20.5% to RMB$294m (US$44m).

Sales from its Adult Nutrition and Care (ANC) division – which consists of brands such as Swisse – went down by 32.1% in Jan to Sep when compared to the same time last year.

The company believes that the decline is expected to continue in the rest of the second half of the year.

“This decline in sales was primarily attributable to prolonged COVID-19-related lockdowns and travel restrictions, which negatively impacted our daigou-related business,” the company said in the report.

The impact on the Baby Nutrition and Care (BNC) was lower, with sales down by 3.6%.

Within ANZ’s domestic markets, the company stressed that business was stable, and Swisse’s share in the Australian vitamin, herbal, and mineral supplements (VHMS) market from Sep 2019 to Sep 2020 was 13.5%, it said, citing data from IRI.

For infant formula brands Nuchev and Bubs, the daigou sales slump was just as apparent.

Bubs said while growth was seen in all key markets, its group performance was “considerably impacted by the sharp downturn in the domestic daigou channel.”

Its group quarterly gross revenue was down 34% to AUD$9.4m (US$6.8m).

It said the Chinese consumers were shifting to cross-border e-commerce to get their products, due to the time lag for the products to move through the daigou ecosystem.

For Nuchev, its quarterly net revenue fell 52% compared to the same time last year due to disruption to the daigou channel.

While the company acknowledged that the contraction of the daigou channel is industry-wide, the disruption caused by reduced flights to China and feweinternational students in Australia, had caused greater disruption than expected.

Mitigating measures

The companies still see daigou as a viable business and have put in place measures to address the challenges.

Bubs said it was working with its corporate daigou partners to support social marketing with their daigou customers via live-streaming and social e-commerce.

“We have already started to see positive sales momentum return in late September through to October, and we anticipate improved performance from the daigou channel in the second quarter as we lead into China’s major e-commerce shopping events,” the company said.

It is also developing new adult goat milk functional products under its CapriLac brand – which is approved for the general trade channel.

Nuchev said it was expecting its new strategies in its cross-border channel to make up for the shortfall from the daigou channel.

For H&H, it will prioritise its entry into more baby specialty stores via new distributors, consumer education, and the launch of two more infant milk formula series.

Its points of distribution in baby specialty stores had grew to 44,991 from 41,134 in Jun to Sep.

China fast-booming

While the Australia-China daigou channel is dwindling, China’s consumption of nutrition products has been fast-growing, led by online and cross-border e-commerce.

H&H said its revenue from Jan to Sep was up 11% yoy to RMB$6,408.6m (US$970m).

In Q3 alone, revenue from China was RMB$2,139.7 (US$323m), up 7.6%.

This growth was driven by the online channels and a sharp increase in demand for its immunity products.

The firm also came in fifth in the overall cow milk infant formula market with a market share of 6.1%, while its probiotics revenue up 20.3% from Jan to Sep this year as compared to the prior year.

Sales of Swisse’s products was up 23.9% yoy, due to demand for its immunity ranges, channel expansion and greater brand awareness. The brand also maintained its no. 1 position in China’s CBEC, with a market share of 5.8%.

China now accounts for 82.5% of the total group revenue. Last year, it was 76.5%.

“Our revenue growth stabilised further in the third quarter, supported by robust sales growth recovery in China, particularly in the third quarter,” said H&H Group CEO, Laetitia Garnier.

“Our recent and targeted strategies of expanding sales channels and pivoting towards online marketing timed perfectly with the revival of consumer confidence and spending in China following this year’s lockdowns,” she added.

The company is set to expand its presence in the lower-tier cities, while seeing growth from product premiumisation at the same time.

Bubs also said that China remained its lead export market with strong growth trajectory.

Its goat formula export sales to China was up 76% from Jun to Sep, while volume sales jumped nine times across all top-tier CBEC platforms.