The Chinese recipe

Updated: 2011-04-29 11:44

By Hu Haiyan (China Daily European Weekly)

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The Chinese recipe
A saleswoman dressed in traditional Chinese clothes promotes Shanghai Jahwa's Herborist counter at a Sephora store at the Champs-Elysees in Paris. Provided to China Daily

Largest homegrown cosmetics firm keen to grab bigger share from foreign giants

Touring his Herborist sales counter in Paris recently, Ge Wenyao, president of the largest Chinese manufacturer of cosmetics and healthcare products, gave a big, wide smile. Situated at the famous Champs-Elysees, in the fashion capital of the world, the store not only spoke to the great heights his company, Shanghai Jahwa, has reached thus far, but it represented just the tip of the iceberg of Ge's ambitions - of creating a lifestyle empire.

"Having Jahwa's products sold in Paris, the fashion capital of the world, makes me feel proud," Ge says. "It seemed like an impossible mission for Chinese cosmetics companies to carve out a share of the Western market."

Chinese consumers spent about 145 billion yuan (15 billion euros) in 2009 and China's skincare market has long been a target for foreign companies such as L'Oreal of France. Domestic companies, on the other hand, have fallen far behind. But among Chinese cosmetics companies, Shanghai Jahwa is a dominant force and had revenues of 3.1 billion yuan in 2010.

"We have gained almost 20 million yuan in sales from overseas markets and we expect that this will grow up to 26 million yuan in 2011, a year-on-year increase of 30 percent," Ge says.

But thanks to a new marketing and investment plan, the 63-year-old Ge is setting his sights higher. He plans to turn the company's use of traditional Chinese herbal medicine into a fashion powerhouse with not only skincare products, but fashion services, spa salons, jewelry and boutique hotels.

And he says he is going to do it on his own terms without the financial backing or support from foreign companies.

"We want to develop Jahwa into a large-scale fashion giant," he says. "The growing appeal of China's vast heritage in herbal medicine provides us with another competitive edge. This heritage can help distinguish our brand from many and more powerful foreign competitors."

Initiated in the later years of the Qing Dynasty (1644-1911), Shanghai Jahwa is the country's leading daily cosmetics producer. Although the 113-year-old company is only selling its Herborist line of herbal skincare products overseas through Sephora, company officials said they are encouraged by the achievements.

"We have opened 120 sales outlets in France and expanded the sales of Herborist labels in other European markets including Italy, Spain, the Netherlands, Turkey and Luxembourg. We also want to tap the North American market in the near future," Ge says.

The State-owned firm currently has 1,000 Herborist stores in China. The middle-tier Herborist label, which was launched in 1998, has seen a sales grow on the mainland by more than 50 percent in recent years.

Jahwa's share in the cosmetics and toiletries market on the mainland increased steadily to 1.7 percent in 2009, according to figures from Zhengdian International, a Beijing-based consulting company with a focus on the cosmetic industry.

But Jahwa is also one of the few major Chinese cosmetics and personal healthcare product makers that have not been acquired by international companies, who have in the past decade been active in buying up local name brands. L'Oreal, Beiersdorf of Germany and Johnson & Johnson all have controlling stakes in Chinese cosmetics companies.

For Ge, selling out to a Western competitor is a painful and valuable lesson. In 1991, Shanghai Jahwa teamed with US-based SCJohnson & Son to establish Shanghai Johnson. Jahwa contributed two-thirds of the company's fixed assets as well as its Ruby and Maxam brands and most of the company's top employees. Maxam, a cosmetics brand first established in 1962 by Shanghai Jahwa, was one of China's largest cosmetics producers before the deal.

According to media reports, because Jahwa was State-owned, it was forced into the deal by the Shanghai municipal government as a means of attracting foreign investments.

After the deal, however, the Maxam brand gradually faded away from the public eye. By the end of 1993, three years after Maxam was purchased, annual sales decreased to just 60 million yuan from 300 million yuan in 1990.

In 1994, Shanghai Jahwa retrieved the brand rights to Maxam from its joint venture and has revived the brand, but a plaque hanging on the wall in Ge's office is a stark reminder. It reads: " You can never be too careful in business management."

He says that the plaque reminds him that one should weigh all the pros and cons when selling brands to foreign companies.

"Jahwa has made the determination to stick to develop our own brands, and will not sell brands to any foreign company," he says. "The time has passed when the Chinese consumer just blindly wants to buy foreign products for the sake of their Western labels."

Ge says that although foreign companies still maintain a lion's share of China's high-end cosmetics market, Chinese companies are quickly developing and learning from their foreign competitors.

"As a domestics company, we have a deeper understanding of the Chinese customer's needs," Ge says.

He says that Jahwa has tried out numerous strategies in its competition with foreign companies. For instance, its promotion of traditional Chinese herbal medicine has been a unique selling point in its products.

He adds that in recent years, research and development, brand management and product quality management have advanced significantly at Jahwa.

In developing its own brands, Jahwa has also attempted to restore its old brands. It brought back the Shanghai VIVE brand last year to tap into the high-end makeup market in China.

With its clever packaging designed to imitate old Shanghai's commercial posters, VIVE is essentially selling fantasies about the lifestyles of beautiful people on the Bund 80 years ago. In the 1930s, the Bund was a place where jazz mixed with gunshots, high society mixed with triads, celebrities mixed with spies and extravaganza mixed with adventure. Ge says that "the launching of VIVE is an important part of the company's strategy to place itself in the market of high-end products".

The location of the first VIVE boutique has also been carefully planned out. Located at the legendary Peace Hotel, which used to be Shanghai's prime venue for high society in the first half of the last century, the store sells branded cosmetics, accessories, gifts and souvenirs, all designed and packaged with 1930s commercial art.

VIVE's products do not come cheap. A scarf is priced at 880 yuan and a 50-milliliter bottle of VIVE perfume costs 890 yuan. But Ge admits it will be a challenge for VIVE to appeal to followers of international brands.

"It is far from enough to attract customers just through nostalgia and story-telling. We will try to remove any doubts with high-class quality and service," Ge says. "We also focus a lot on product innovation. For instance, almost 3-5 percent of our annual sales will be spent in research and development on new products."

Ge is also quite confident with Jahwa's marketing prowess.

He says that because of the diversification of China's marketing channels, Jahwa is superior to foreign companies in third- or fourth-tier cities. "We started up an online business service last year, which provides another competitive channel for our business expansion," he says.

After working in Jahwa for almost 26 years, Ge is confident that domestic cosmetic companies will continue to grow and develop.

"Definitely in the future, there will be some Chinese cosmetic companies surpassing the foreign cosmetic companies in sales. Maybe it is Shanghai Jahwa, or some other newly emerging companies," Ge says.

Yu Xueling, secretary-general of the Guangdong Chamber of Daily Used Chemicals, echoes Ge's sentiments and says: "Although foreign companies are still surpassing domestic companies in sales, with the development of China's comprehensive national ability and the rising popularity of the Chinese culture, it is possible for the Chinese domestic companies to fight back."


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