Looking to new markets as sales in China leap . . .

THE combined forces of the emergence of the Asian middle class and ageing have converged to give some companies a huge lift in export sales, primarily to China, says Peter Osborne, Managing Director, Asia, of the Australian nutraceuticals company Blackmores.  The challenge is to diversify into other markets to provide sustainable future growth . . .

THE MARKET SUCCESS that Australian nutraceuticals company Blackmores enjoys in China ironically poses a delicate balancing problem.
The Sydney-based company eschews reliance on one single market, no matter how big and promising. So the imperative is to develop strategies to diversify — and to hold up its dominance in the Australian market.
Over the next six months, Blackmores plans to make a range of its products available to what could potentially be a large market in Indonesia.
Peter Osborne, Blackmores’ Managing Director, Asia, says the company last year established a joint venture with listed Indonesian major Kalbe Farma, one of the largest healthcare companies in Southeast Asia.
“The growing middle class in Indonesia is a new and potentially huge market for us,” says Osborne, who was recruited by Blackmores’ Chief Executive, Christine Holgate, seven years ago, to help build a presence in Asia.
Over that time, Osborne, a former Australian Senior Trade Commissioner with extensive Asian experience, has increased the company’s market spread from five to 15 countries.  These include China, Singapore, Thailand, Malaysia, Hong Kong, Taiwan and Korea. “We have grown sales by about five-fold and profits have increased significantly,” Osborne told ATI.
Putting aside the explosive growth for Blackmores in China, largely due to the opening of China’s e-commerce platforms to cross-border business (see ATI April 2015), Osborne says the firm’s collective Asian market has been growing in double digits each year. In the six months to December, sales totalled AUD170 million.
“Over the last seven years we have had a strategy to diversify the risks in our Australian business with Asia, and within Asia to diversify risks within our markets and distribution channels,” he says.
“It has been pretty tough in Thailand in the last 18 months. Sales were pretty flat following uncertainty arising from the military coup there. But when our Thai business was pretty flat – it is now returning to growth — Korea was performing strongly. That is why it is important for the company to spread its risks across multiple markets.“ Osborne says the company wants to maintain balanced, sustainable growth into the future.
When asked why Japan has not been a target market for Blackmores, Osborne says it is simply a case of not having the resources.
“For a company of our size, it would be difficult to be working on China, Indonesia and
Japan at the same time,” he says, before
adding:  “We would like to have a presence in all Asian markets — over time.”
Blackmores’ success stems from a corporate decision to where possible establish its own distribution channels in each of the 15 countries in which it markets. Previously, it relied on agents for distribution and marketing – but it was an approach that did not necessarily work.
Indonesia is a case in point. Blackmores
entered the market a decade ago using local agents, but failed to establish a significant footprint. Now, it is re-entering the market in joint venture with Kalbe Farma.
Asia is not a new market for Blackmores.
Marcus Blackmore, the company’s current Chairman and son of the founder, Maurice Blackmore, first went to Thailand 35 years ago to establish a business there. The company has also been in Singapore and Malaysia for some three decades. It has a solid market in both countries.
For Blackmores, a sea change occurred when eager Chinese consumers burst onto the scene through the Internet and e-commerce. Here is a classic example of how the Chinese consumer is able to transform a market — in this case for vitamins and other health supplements.
Sales have skyrocketed, accompanied by a vertiginous climb of Blackmores’ share price on the Australian stock market. Once seen as a sleepy company, Blackmores is now truly a
media and stock market sensation.
Blackmores’ share price touched $220.90 in January this year — the highest price yet reached by a single stock on the ASX — before settling to $160 per share at the time of writing.
Each Blackmores share is now more than twice as valuable as a share in Australia’s largest bank, Commonwealth Bank. — at $71.19. Blackmores is trading at a price-earnings ratio of more than 60 times — again a rarity for an Australian listed company.
Blackmores’ share price rise has coincided with the explosion of the Chinese e-commerce market, triggered by new Chinese Government regulations enabling e-commerce merchants to do direct cross-border business.
In that sense, the Chinese market is quite unique, says Osborne. “We don’t have the same sort of dynamics in other Asian markets. But we still expect solid growth from them.”
Several trends, he told ATI, have converged to give Blackmores, and indeed, other Australian companies including Swisse, also a health supplement maker, a huge lift in export sales to Asia, primarily to China.
“It is the combined forces of the emergence of the Asian middle class and ageing,” he says.
“Once people have a certain amount of
money, their focus turns to health for themselves and their family. The second big trend is the ageing of the population. Unlike Westerners, who look for cures, in China and in India they look to preventative medicine.  So Asia is receptive to natural healthcare.
“Once you put these megatrends together, you’ve got a rapidly expanding market for our healthcare products.
“Australia has one of the highest standards of regulation on health supplements in the world. Our products are made to pharmaceutical standards under Therapeutic Goods Administration (TGA) requirements. The TGA registers products and monitors their production to ensure that high standards are maintained.”
Blackmores manufactures the majority of its products in Australia and New Zealand, but to cope with increased demand, it has the capability to manufacture in TGA licensed facilities in Canada and Germany.
Overlaying regulatory oversight, says
Osborne, is the perception of Australia as a healthy country of blue skies, green grass and so on. Australia’s green and clean reputation has helped push the Blackmores brand in Asia.
In a sense, the Blackmores brand is about Brand Australia.
“In most Asian markets, we sell a strong set of core products — fish oil, glucosamine, evening primrose oil, vitamins C and D,” says
Osborne, adding that while the Asian markets are broadly the same in terms of the products they import, there are local variations which necessitate different formulations for specific markets.
“Unlike the past, when we shipped products made for Australia to Asia, today we have a stronger focus on making products specifically for the Asian consumer,” he says.
“We have a product development team in Singapore and we have become good at formulating specific products for Asia.
“For example, we are marketing a range of products that fight the effects of pollution in China — products that provide antioxidants. We would not necessarily sell these pollution-related products in Australia.”
Osborne says Blackmores sells lecithin — a soy-based product used by Chinese women as a beauty treatment and for pregnancy support — in China.
China is also a good market for vitamin E cream, especially in the North of the country, where it is used to combat dry skin during
winter. Osborne says it helps to have Chinese celebrities seen using the products. (Blackmores retains recently-retired Chinese tennis star Li Na as its Brand Ambassador.)
In Korea, Blackmores has created a product specifically to help Koreans with weight management. Osborne says this particular product is manufactured in Korea due to import restrictions on one of the main ingredients.
Koreans also have a different use for fish oil. They use it to help in blood circulation, especially during the Korean winter.
In Thailand, he says, the market is big for a product known as Marine Q10, which helps with skin elasticity. Thai women use it as a beauty
product.
Has the surge in demand from China influenced the price of Blackmores products?
Osborne says: “We try to keep standard pricing across all our markets because, with e-commerce and the Internet, consumers can quickly compare prices in different markets.”  Pricing policy needs to reflect the realities in all its markets, including Australia, he adds.  
Osborne says Blackmores continues to strive to stay as the top brand for its products in Australia because it is trading on its strength as Australia’s largest health and nutraceutical brand.
“Australia is still the core of the business,” he says. “We need a strong Australian business for the brand. If you are an Asian or Chinese consumer, and you want to buy the best brands in Australia, you look for the top brands.
“The Australian market is growing at 10 per cent a year. It is certainly the strategy of the Blackmores’ Board to continue to grow the Australian business.”