Daigou were once ‘make-or-break’ for Australian brands in China – where are they now?

a2’s sales took off when these personal buyers – mainly Chinese students, tourists and migrants – scooped up tins of its and other brands’ formula from supermarket shelves in Australia and New Zealand to send to friends and family in China.
Former and current daigou told This Week in Asia that such personal shoppers were the most active in Australia and New Zealand between 2012 and 2017, when consumption and brand consciousness of China’s middle class boomed, while masses of Chinese tourists and students – many of whom became daigou – flew to countries around the world.

The daigou phenomenon was not limited to baby milk formula – vitamins, supplements, skincare and even UGG boots all became part of their shopping haul.

Customers browses shelves at “Mr Vitamins”, a chain of supplement outlets in Sydney, in 2016. Photo: AFP

As one former daigou in Australia told This Week in Asia: “Chinese buyers were buying everything and anything, I was even buying toys”.

But the daigou dream turned sour for a2 and other Australian and New Zealand brands as Chinese authorities began cracking down on import tax evasion, local consumers expressed their outrage and pandemic-era travel restrictions hit the cottage industry hard. Chinese e-commerce expanding its reach into Western markets also had an effect, ex-daigou and experts said.

Yet the daigou have not completely vanished.

Instead, they have morphed into a more refined retail ecosystem, partnering with Australian and New Zealand brands that have expanded their online presence to directly connect with Chinese consumers through platforms like Tmall and Douyin, according to James Hudson, a former Alibaba executive in Australia and founder of e-commerce consultancy FrontierBlue. Alibaba owns the South China Morning Post.

The era of individual Chinese students purchasing products … for resale to their networks in China has largely passed

James Hudson, e-commerce consultant

“The era of individual Chinese students [in Australia] purchasing products from retailers like Chemist Warehouse for resale to their networks in China has largely passed,” Hudson told This Week in Asia.

“The remaining daigou have transitioned, or evolved, into large-scale distributors operating across various online and offline channels.”

For a2, slower daigou sales hit hard in 2020 just before the class-action lawsuit was launched and by 2021, the company had suffered a 62 per cent drop in market value.

‘Make or break’

Daigou are not just personal shoppers. At their peak, they were tech-savvy entrepreneurs whose collective power could “make or break Australian brands seeking to enter the Chinese market”, said Chinese digital media and technology expert Haiqing Yu.

At the height of the phenomenon in Australia, there were about 100,000 to 200,000 daigou bringing Australian brands into China, said Yu, a media and communications professor at the RMIT University in Melbourne. Collective sales attributed to daigou activity once reached around A$100 billion (US$64.2 billion), according to Hudson.

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In addition to buying products on behalf of customers, daigou also acted as marketing representatives and consultants for Australian brands, according to Yu. Many of them found clients through word of mouth and were recommended by family and friends.

“Successful daigou are also ingenious social-media marketers,” she said.

“The daigou industry is built on trust, with consumers in China placing their trust in their personal shoppers overseas to source and ship authentic products.

“WeChat functions as the nexus … It is this network of networks … from which the Chinese daigou derives their network capital.”

Where are they now?

Former daigou Mimi, who did not want her last name to be publicised, described daigou shoppers as “walking s”.

“We do better than advertise, we share samples and stuff we like with our friends, and they share it on,” she said.

But her days of running around after class at the University of Technology Sydney buying things for the 3,000 or so customers she had in China around 2016 were over, she said.

Daigou are now a sunset industry,” she said.

Before the pandemic, shoppers among China’s rising middle class were keen to grab “everything they could”, former daigou say. Photo: Shutterstock

Mimi, who works in retail in Hurstville, a suburb popular with Chinese Australians, said her “side hustle” as a daigou grew so fast that she managed to earn enough to pay off her yearly university fees of A$50,000 (US$32,500) – just from selling baby milk formula, toys and other items.

“In those days, people just scrambled, grabbing everything they could,” she said.

“It was crazy, people had too much money. They had FOMO [fear of missing out] and buying things just to compete for status and class with other rich friends.”

But as the Chinese economy struggled, people stopped spending so lavishly and Mimi’s lucrative trade dried up.

China’s band of in-demand daigou sisters aiding domestic consumption push

This, along with Chinese shoppers now buying directly from the manufacturers she once used, had cemented her “retirement” as a daigou, she said – adding that she was also tired of being scorned by local shoppers who accused her of “stealing” from Australia.

“I felt so awkward, embarrassed … daigou have feelings too,” she said.

Reactions to media reports in Australia about daigou have ranged from amazement and disbelief, to fear, panic and outrage, according to RMIT’s Yu.

“They were viewed as instigators of social problems and petty crimes, as quasi-criminals and shoplifters who clear out ‘our’ baby milk formula from supermarket and pharmacy shelves in ‘micro-gangs’,” she said.

“But daigou view themselves as ‘saviours’ of the sluggish Australian retail sector … they feel unfairly targeted and alienated from mainstream Australian society.”

Many companies made so much money off daigou but they won’t admit it

Mimi, former daigou in Australia

For Mimi, Australia got what it wanted with the recent decline in the number of daigou, but Australian brands have also lost marketing power in China.

“Many companies made so much money off daigou but they won’t admit it,” she said.

Another former daigou, Fanny, said the community was not completely dead. She still shops for a few customers who have not made the switch to e-commerce and want her to buy a range of Australian products, from skincare to vitamins, for them.

The former University of Sydney student, who now works as a property agent in the suburb of Chatswood and did not want to reveal her last name, said many Chinese consumers feared being sold fake goods online. For example, she said many of her customers had been duped into buying counterfeit alcohol being sold as Chinese liquor brand Mao-tai.

She said some daigou had “gone corporate” – banding together to form a “super daigou store” by combining retail, logistics and a home shopping network.

Lyn Lin’s Phoenix Beauty Group’s newest store opened in Sydney last year. Photo: Handout

The current shopping landscape

Lyn Lin’s Phoenix Beauty Group, a well-known Sydney-based retailer that sells Australian products and souvenirs popular with Chinese consumers, operates just such a vertically integrated model.

But the retailer is not a daigou. Long before the daigou were making their presence felt in Sydney, Lyn Lin started as a bricks-and-mortar business and later expanded to selling high-end skincare products like Australian cosmetics brand Jurlique.

Primarily serving Chinese consumers, the retailer owns warehouse facilities and is an exclusive distributor for many Australian brands in China. It also sells daigou staples like vitamins or infant milk formula, and acts as a middleman for daigou and Australian manufacturers.

According to Lyn Lin, while 75 per cent of daigou in Australia have disappeared, some of those remaining have been trying to establish warehouses and distribution chains like hers.

Some daigou shoppers now sell Australian and New Zealand products via e-commerce platforms. Photo: Handout

Other former daigou have approached digital-marketing consultancies to represent them amid the shift in shopping habits, said RMIT’s Yu.

Such consultancies would typically group daigou together, offer them brand ideas, as well as helping them with product purchases, deliveries, logistics and “selling events”, she said.

Other ex-sellers have turned into independent “key opinion leaders”, promoting their former suppliers’ products and newer e-commerce stores to their network of Chinese customers, FrontierBlue’s Hudson said.

While daigou were great for brands, some would also drive prices down due to fierce competition, he said.

James Hudson (right) joins prominent Chinese influencer, or “key opinion leader”, Yuanyuan to live-stream a promotion for a client called EZZ Life Sciences. Photo: Handout

Companies also found it hard to control brand messaging among daigou as their sales, often conducted on platforms like WeChat, tended to lack transparency compared with searchable e-commerce marketplaces, Hudson said.

Stephen Jacobi, a leading trade consultant in New Zealand, said that exporters who had previously relied heavily on daigou for sales were now feeling the “sellers’ remorse”.

“It was always an unsustainable way of building a market because it didn’t allow for the development of valuable relationships,” Jacobi said.

“These are vital to obtain information about consumer preferences and to build brand awareness. What’s surprising was that even larger exporters relied so heavily on this [daigou] channel.”

As more daigou fade away from the retail scene, New Zealand exporters should consider having a physical presence in China, despite the high costs of overseas expansion, and not follow in the footsteps of daigou by selling only via e-commerce, Jacobi said.

“E-commerce channels can be useful but also come with a cost and can only take you so far. Sooner or later companies will need to establish in China.”

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