Customers inquire about nutritional supplement products at Holland & Barrett's Shanghai store. Gao erqiang / China Daily

UK health food stalwart makes ambitious start in China

Holland & Barrett, the biggest health food supplements retailer in the United Kingdom, has entered the Chinese market with the opening of two franchise stores in Shanghai this month.

It plans to have 18 by the end of this year, and more than 300 within five years.

"We know there is great demand, so we have quite an ambitious plan in the Chinese market," says Mark Stewart-Maunder, the company's global franchising manager.

China has witnessed a growing demand for nutritional supplements in recent years, driven by an aging population, rising incomes and a better-educated urban consumer population.

Last year, more than 260 billion yuan ($41 billion, 33 billion euros) in health foods were sold in the country, according to the National Development and Reform Commission's Public Nutrition and Development Center.

Meanwhile, the China Health Care Association's data showed that Chinese consumers' average spending on healthcare products in 2011 accounted for 0.1 percent of their total expenditure. Consumers in developed countries spent only 0.03 percent.

Holland & Barrett has chosen a selection of health, beauty and sports products to trial in the Chinese market, out of its entire franchising product collection of 3,000.

With prices similar to those in its home market, its products target China's urban middle-class consumers.

Stewart-Maunder says that Holland & Barrett's 90 years of history will be a key selling point, with its China stores displaying pictures of iconic British sites, and sporting the same distinctive green shop fronts as in the UK.

Founded by Samuel Ryder as a market garden in Brighton, on the south coast of Britain, Holland & Barrett was acquired by Lloyds Pharmacy in 1992, and again by US nutritional supplements conglomerate NBTY Inc in 1997.

Its number of retail stores has grown to more than 700 in the UK and Ireland.

But the new outlets in China will have larger browsing spaces, allowing customers to explore the new brand. The two new shops in Hongyi Plaza in Shanghai, which opened on July 12, will have floor spaces of 200 and 100 square meters, served by a total of 12 staff members.

Chris Wood, minister and deputy head of the British embassy in China, says he feels excited that the British household retailer is taking a "bold move" in a crowded and competitive market.

"Chinese consumers are increasingly wealthy nowadays, and also becoming more discerning," he says, noting that lifestyle products have great potential, with luxury British brands such as Burberry and Rolls-Royce achieving fame in China.

Local people in Shanghai are curious about the new shop and fresh brand. Xia Guifang, a 54-year-old retired worker, says she is definitely interested in the products, as "something from the UK must be of good quality". But she says the prices are a bit high.

A bottle of cranberry capsules sells at 278 yuan.

Holland & Barrett's China expansion came after the company launched a global franchising strategy four years ago. It has since established 10 franchise stores in Singapore, six in Cyprus, three each in Malta and the United Arab Emirates, and one in both Hungary and Gibraltar.

Stewart-Maunder says that China has "always been on the radar" and "we've had many hundreds of enquiries from interested parties". But finding a franchising partner was challenging, as some parties were too small to make the investment required, and others did not understand the brand's core values.

Finally, appliance manufacturer Changzhou Globe Co came along and convinced the Holland & Barrett board that a partnership would work.

"Now we feel that we have a partner with a like mindset, has engaged in extensive market research, and is really willing to invest behind the brand over the long term," Stewart-Maunder says.

Retail is a new venture for Globe and it recruited experienced managers to bring expertise in retail operations, training, information technology, public relations and marketing to help build the brand in China.

A senior management team from Globe also spent four weeks at Holland & Barrett's UK headquarters learning the product portfolio and marketing program.

The company will face stiff competition in China, where many multinational health product brands already have a presence.

Amway, a direct seller, has staked out a leading position with a market share of 16 percent in 2010, according to Euromonitor. Its 2010 sales reached 21 billion yuan.

General Nutrition Centers Inc, a Pennsylvania-based manufacturer and retailer of health products, launched in major Chinese cities, including Shanghai, Guangzhou and Shenzhen, last August.

NBTY, Holland & Barrett's parent company, has also invested heavily in China since 2005, and has introduced about 200 products under its Met-Rx and Nature's Bounty brands. Its revenue reached 500 million yuan last year, an increase of 70 percent on 2010.

Stewart-Maunder says that Holland & Barrett's expansion into China is independent from networks established by other NBTY brands, whose products and market strategies are "completely different".

Although all its products in China are imported from the US, NBTY China's managing director Xia Junbo said earlier this year that the company will consider localizing production by acquiring Chinese businesses.

However, Holland & Barrett takes pride in offering Chinese consumers products manufactured in the UK and its current expansion strategy focuses on working closely with its franchise partners.

Meanwhile, China's domestic brands are also fighting for a bigger share of the pie. Beijing-based Tongrentang, a traditional Chinese medicine producer with more than 300 years of history, launched subsidiary Tongrentang Health in 2003 to sell herbal healthcare supplements.

The healthcare branch's sales revenue grew from 180 million yuan in 2003 to 5.6 billion yuan in 2011.

Sales manager Song Tong said earlier this year that Tongrentang Health is aiming for 10 billion yuan in sales revenue by 2014, by increasing its stores from 1,200 to 1,700, particularly in less-developed third-tier cities.

Stewart-Maunder says that a certain level of competition will help to "expand product categories in the Chinese market" and benefit every brand, but is convinced that Holland & Barrett's product quality will help, backed by its manufacturing certification and endorsements from organic associations.

The company earlier this year launched a new training scheme, the Natural Health Academy, which became the first high street program to receive the UK government's Education Development International endorsement.

Banking on its quality training credentials, Holland & Barrett is also launching a health consultancy service in China, where customers can book one-on-one sessions on healthy living.

To increase awareness for the brand among China's affluent middle class, the company has established strategic partnerships with property developers Capitaland and Wanda Group to place stores in their new shopping mall developments.

Stewart-Maunder says the growth of Holland & Barrett's other franchises have made him optimistic about the brand's future in China.

"We're excited to see that our franchises' sales levels continue to grow at double digits year on year. So our brand will grow, although it requires patience and long-term commitment," he says.

Contact the writers at cecily.liu@chinadaily.com.cn and xieyu@chinadaily.com.cn

(China Daily 07/20/2012 page20)