Thousands of Chinese Kiwi traders have lost much of their $1 billion business selling products to China due to Covid-19

Friday, 9 July 2021

Lydia Pu was among an estimated 40,000-plus daigous selling New Zealand products such as honey and milk powder to customers in China.

Lydia Pu’s sales of New Zealand goods to China have slowed to a trickle, and the Auckland daigou trader is about to begin training as a nurse.

Daigou means to “buy on behalf of” and that’s what Pu began doing in 2016 when she had difficulty finding a job, using social media and a network of friends and family to flog popular New Zealand products that were hard to get or expensive in China.

“I did really well and after 18 months I bought a house. When business was good, the money was so easy to make, but now it’s so hard.”

The global pandemic, border closures, growth in e-commerce, and stricter regulation by the Chinese Government have proved a near fatal combination for the daigou trade, and there are doubts it will ever fully recover.

Because of its informal nature, it is difficult to accurately assess the value of daigou sales to New Zealand, but industry sources estimate that pre-Covid-19 it was anywhere between $500 million and $1 billion a year , providing an income for at least 40,000 Chinese residents and international students.

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Daigou downturn

Pu sourced New Zealand infant formula, honey, health supplements and skincare lines from Auckland daigou wholesale stores.

Lydia Pu has largely folded her business as a daigou trader and has set her sights on becoming a nurse.

The price difference between New Zealand and China allowed for higher profits, but that was no longer the case, and Kiwi daigous faced stiff competition from Australia, she said.

“We sell the same thing, but Australian products are cheaper. With New Zealand manuka honey, the same brand in Aussie is cheaper.”

Asian marketing strategist and Trace Research director Dr Andrew Zhu says the days of successful daigous earning $2000 a week are long gone, and he knows of 10 daigou families who have switched to selling real estate instead.

In February a2 Milk Company cited lower daigou sales as a factor in a 16 per cent half-year drop in revenue. (File photo)

Carter Yan is the deputy general manager of HLS New Zealand which represents the likes of Anchor, Vogels cereals, Oasis Beauty and Blue River Dairy sheep’s milk, distributing them through Chinese e-commerce channels such as Tmall and JD.com.

He says the figure of 40,000 daigou is probably conservative.

“There’s a saying in the Chinese community in New Zealand; ‘every Chinese household had at least one person doing daigou business’.”

Daigous are predominantly women; stay-at-home mums, international students, visitors on work visas, and some of the 400,000-plus Chinese tourists who came here each year and picked up products to sell back home.

Yan calculates daigou sales have dropped to somewhere between $50m and $80m a year, and he says more than half the 200-plus New Zealand stores supplying daigou have closed.

Alibaba Group e-commerce platforms such as Tmall have boosted consumer protections which Chinese market expert Damon Paling says gives them an edge over daigou traders.

“The Kiwi population that purchased in these stores was less than 1 per cent.”

Changing consumer trends

Yan cannot see daigou sales returning to their former levels partly because Chinese consumers’ have changed, and they simply won’t tolerate three weeks shipping time from New Zealand.

“Chinese consumers just can’t wait. In China if you’re buying on Tmall in a major city like Shanghai or Beijing, they have 24-hour delivery, and in rural areas like where my parents live in north western China 1000 kilometres from Shanghai, they receive [goods] within three days.”

Rising Chinese nationalism is another factor.

Louie Li, managing director of Ctom Group Holding, says the lack of Chinese tourists has contributed to the decline in daigou sales for his skincare and health supplements, but overall growth was up last year thanks to exports to Taiwan and Korea. He thinks that pre-pandemic the New Zealand daigou trade was at least $1b a year.

“Everyone wanted foreign goods, now everyone wants made-in-China goods, even [western style] cereal. There’s a lot of new trendy Chinese brands coming out,” says Yan.

Tighter regulation has played a part too.

The Chinese Government, mindful of the tax it was missing out on from daigou operations, cracked down on the so-called “grey” channel that dodged import duties, and the impact of that was felt before Covid-19 applied added pressure.

Linden Leaves China marketing manager Elva Wei and founder Brigit Blair are adjusting to the loss of daigou trade and the skincare company is planning to open its own store on Chinese e-commerce giant Tmall.

There has been huge growth in China’s network of cross-border bonded warehouses closely supervised by customs, where orders from e-commerce platforms are packed and dispatched.

Nelson-made Pic's Peanut Butter has done well online during the virus outbreak and uses Chinese online influencers. This livestream promo by Chinese celebrity Viya in 2020 saw 30,000 jars sold in 15 minutes.

Damon Paling, a former New Zealand trade commissioner in Shanghai, and a director of several companies that export to China, says cross border e-commerce platforms offer good consumer protection.

“Customers believe they are selling legitimate products, not counterfeits … consumers are saying ‘do I really need the daigou? I can trust that I will get the right product in the right place at the right time, and if the product is not up to spec, I can return it’.”

Adapting to the daigou decline

New Zealand Trade and Enterprise beachhead China advisor Louie Li says the daigou market was already shrinking pre-pandemic because many big brands opened their own online stores, and daigous could not compete on price.

Li is the managing director of Ctom Group Holding and has watched daigou sales of his skincare and health supplements by drop 80 per cent, but he says a new sales model is already evolving.

Kiwi daigous are becoming “brand ambassadors” who work with distributors, brands and manufacturers, and do live-stream product promos.

“Some have a million followers on TikTok, some have over 100,000 followers … I know quite a few that make $1000 a week.”

Li is converting the former Bayer New Zealand head office building in Auckland into a factory, and it will have a live-streaming room overlooking the production line, so brand ambassadors can show customers how the goods they buy are made.

In China key opinion leaders like Austin Li have huge followings, and when he did a live-stream promotion in June for New Zealand-made Grin toothpaste, 40,000 tubes sold in just one minute.

Although using well known Chinese influencers is much more expensive than selling through daigous, Louie Li says the pay-off comes from increased brand awareness.

“It’s marketing rather than sales.”

Linden Leaves skincare entered the Chinese market about five years ago and daigou sales made up about a quarter of sales before the pandemic struck.

“We took advantage of the rise of daigou in the first few years because at that time anything labelled ‘made in New Zealand’ was highly valued by Chinese consumers, and orders flew in without us having to make much effort,” says Linden Leaves China marketing manager Elva Wei.

However, lack of control over pricing became a problem, with Chinese daigou distributor stores undercutting one another and charging much less than regular retail stores and pharmacies.

Linden Leaves relationship with a luxury Korean department store was also damaged by New Zealand Korean daigou selling into the same market through e-commerce channels at a fraction of the price, and Wei says they took steps to stop that.

Last year the company chose a single New Zealand distributor for China which ships daigou orders directly to consumers, and Wei says controlling the destination of product has paid off.

“We know it’s going to China, and it’s not going to affect any other channels we don’t want the stock to flow to.”