Chinese Consumers Are Buying Into The Italian Lifestyle

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By Chris Devonshire-Ellis

Years ago, when I was a yacht broker based in Athens, a friend and I sailed from the island of Corfu to the Bay of Naxos in Sicily. We didn’t have much money, but we knew how to have a good time. One evening, having visited a nightclub about 10km away from the main town Taormina, we realised we’d spent all our money with nothing left for a taxi back. A long walk back in the pitch dark awaited us. As we trudged along, with the occasional glance back for any friendly passing drivers, with thumbs aloft hoping to hitch a ride, a small Fiat stopped by with about six local Italians already squeezed in. They squeezed us in a bit more having offered us a lift. On the way back to town we struck up a conversation about Italian fashion – at ages of about 23-24 it was important to look cool. “Do you know any Italian designers?” They asked “Yes, I replied “Benneton!” “An Italian man!” they roared back, and the list went on and on, all the Italian brands my friend and I could remember, with “Italian man!” being the loud, raucous refrain as we sped home. I once offered “Yves Saint Laurent!” to be met with a puzzled split second then, inevitably “Nearly an Italian man!” in response. They dropped us home, laughing, and happy and we swore eternal friendship. Needless to say, I never saw them again.

I relate this anecdote to illustrate that even after 40 years, Italian fashion, brands and lifestyle continue to be, well cool, and stylish, coveted, and is still expanding its lifestyle chic on an international basis. China has long been receptive; the march of the cool Italian lifestyle has received a recent boost.

As I mention in the latest issue of Asia Investment Research Italy’s Lavazza made an increased investment into a US$200 million JV with Yum, while Fosun acquired Sergio Rossi (shoes) and will sell these in China. It is worth noting that Italy is a member of the Belt and Road Initiative and that Chinese consumers appear to be taking up the Italian lifestyle with opportunities for related investments. The Lavazza expansion for example will spur interest in Italian coffee culture, such as machinery, porcelain, and flavored syrups. Porcelain manufacturers can also take part – who doesn’t love artisan espresso cups?

Likewise, the Sergio Rossi acquisition will have downstream impact on the leather and shoe component industries and Italy’s fashion industry in general. More Chinese consumers buying Italian shoes will spill over into other fashion and fashion accessory sectors.

There are two main points to this; firstly, that it is really important to track specific investments being made in China as they impact upon and open up opportunities for other business sectors. Lavazza sticking a bunch more money into its China JV seems standard news and hasn’t merited much comment. However, it’s a significant amount of money and is designed to expand Lavazza’s market reach to new consumers in China.

Statistica
state (courtesy of McKinsey) that China’s middle class consumer base is now about 700 million, or to be blunt, about twelve Italy’s. Not all of those will suddenly drink coffee, but the younger Chinese consumer demographic aged between 20-30 are more open, and like my fashion-minded gentlemen racing their Fiat through the streets of Taormina to give me a lift, are lifestyle and fashion-conscious too. If you take the Chinese consumer population aged between 20-30 it amounts to about 22% of the total, or 154 million (@ 3 Italy’s). If you add in the 30-40 age group as well it jumps another 7% and another 49 million, or basically another Italy minus Sicily. These are huge figures.

What is interesting about that market is that this is the exact same demographic that Sergio Rossi shoes are aiming for. Then contemplate the additional impact. With coffee culture, it is the kudos of having those fantastic espresso makers, manufacturers such as the huge steaming machines for espresso bars and restaurants made by La Pavoni, La Spaziale and Elektra Casa, and for home consumption manufacturers such as De Longhi, Gaggia, Rancilio, Nouva Simonelli and Saeco. Meanwhile, something to go with your coffee?

France’s Monin syrups should be taking note, as should Italy’s Torani and Da Vinci brands. Want to avoid import duties? Set up a China manufacturing facility and sell not just in China but from January 1st to all the RCEP nations. That is the Free Trade Agreement that includes ASEAN coffee culture members Cambodia, Indonesia, Malaysia, Singapore, Thailand, and Vietnam in addition to Australia, New Zealand, Japan, and South Korea.

Italians also consume pastries such as cornettos, brioche, bombolone, and those fantastic Amaretto biscuits. Hotel chefs in China should be asking F&B to develop a coffee bar and get creative in their kitchens. The point is, thinking about the repercussions of the types of investment being made by companies such as Lavazza is important – and as mentioned is a key part of our new Asia Investment Research product. (Downloadable on a limited complimentary basis here).

The second part of the story is the reality behind the Belt and Road Initiative and what it intends to do. Lost amongst all the noise and criticism (a weird one that last point, if it’s such a bad idea, then why have the US and EU come up with competing schemes?) is the issue that China remains a massively growing market and its population are increasingly demanding.

A problem with a One-Party state is that it must deliver. Not doing so invites social unrest, and to a large extent the CPC are driven by the need to provide to the people. The Belt and Road Initiative has and continues to build infrastructure that leads to China. The BRI feeds China energy, water, and other resources at the nationally strategic level. But what the Italians are showing us is that the BRI is also now offering inroads into the Chinese consumer market. World Data Lab think that China’s middle class is growing at 6% per annum and will reach 1.2 billion by 2030. With China also in the RCEP free trade agreement, accessing China gives an overall Asia market potential of about 2.5 billion. This is serious strategic positioning for businesses selling to middle class consumers.

We will be exploring other upcoming Investment trends into China and Asia via Asia Investment Research. Registration to our next issue, which deals with getting Chinese minority investments into your business can be obtained here.

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Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com

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