Whilst selling health foods to a nation of health-conscious consumers sounds like a recipe for retail success, Holland & Barrett’s entry into the Chinese market looks destined to fail. Weaning Chinese consumers off traditional Chinese medicine is already a challenge in itself and one that requires a competitive value proposition. By charging European prices, Holland & Barrett has already made its first mistake and, unfortunately for the retailer, this is just one of several flaws in its entry strategy.
Holland & who?
Holland & Barrett may be a household name in the UK but it is by no means a globally recognised brand. This has proven to be the difference between success and failure for Apple and Best Buy, respectively. Whilst Apple leveraged its brand equity to retail its own products, Best Buy struggled to differentiate itself as an electronics store despite promoting itself as a service-oriented retailer. This scenario is likely to be replicated for Holland & Barrett as it struggles to be accepted by sceptical Chinese consumers who have used traditional Chinese medicine for generations.
Why pay more?
Pricing levels in Shanghai appear to be similar to those in Sussex. This means that a bottle of cranberry capsules costing RMB278 (£28) will absorb 21.7% of the income of a Shanghai consumer earning a minimum wage. In comparison, the most expensive bottle of cranberry capsules on sales in the UK costs just £16.15, a mere 1.7% of the income of a UK consumer on the national minimum wage. Shanghai also has one of the highest minimum wage levels in China, which means that if Holland & Barrett plans to expand outside the municipality, the pricing issue is likely to become even more problematic.
China and the UK: Differences in Vitamins and Dietary Supplement Unit Prices, 2011
Source: Euromonitor International, Consumer Health
Franchise model not the right remedy
Despite pricing and branding both being oversights by Holland & Barrett, the real flaw in its strategy lies with its business model – franchising. Whilst franchising can be an exceptionally effective way to establish a low-cost presence in a new market, the franchisor invariably relinquishes some control of how the brand is perceived by consumers. With high prices and limited brand equity in China, Holland & Barrett would have been able to better adjust its strategy with directly-operated stores.
Looking ahead, there is no doubt that Holland & Barrett products will appeal to consumers in China as they fit well with the Chinese principles of longevity, fertility and prosperity. Shanghai, being the business capital of China and the most Westernised city, is a natural starting point for Holland & Barrett and it will fit a niche in the market. However, to become “the No. 1 brand for health living in China”, there is unlikely to be enough demand at the prices Holland & Barrett is charging to cover the relatively high costs of the franchisees. This will result in a high turnover of franchisees as store owners struggle to make any meaningful profit from Holland & Barrett products.