· Sanhe Kitchenware worked with Pinduoduo to create multipurpose pans for Chinese consumers
· Sanhe’s domestic sales have surged since February due to COVID-19, helping to compensate for plunge in export orders
When export orders stopped in March due to the coronavirus pandemic, many of China’s contract manufacturers were caught flat-footed with no Plan B.
Not so for Zhejiang Sanhe Kitchenware Co., one of Europe’s biggest cookware producers through its collaboration with brands like Germany’s Zwilling J.A. Henckels and WMF, France’s Le Creuset, Italy’s Bialetti and Tescoma. The company, which also sells under its own brand name Sanho, manufactures more than 25 million pots and pans a year.
While export sales still account for the majority of its business, the company has been working to build up its domestic sales for several years. Back in late 2018, Sanhe was one of the first batch of companies to sign up for the New Brand initiative launched by e-commerce giant Pinduoduo (PDD) to support 1,000 factories across various industries to create and refine their own brands.
Plan B worked. Domestic sales for Sanhe usually contributed 30% to total sales before the coronavirus but have doubled since the second half of February, as demand for cookware surged with more people eating at home. “Thankfully, the growth in domestic sales helped partially compensate for the drop in exports,” a Sanhe sales and marketing executive told Pingwest in an April report. “Domestic e-commerce sales in particular grew quite fast.”
The early pivot helped Sanhe withstand an otherwise potentially catastrophic hit to their business. For a wide swathe of China’s export-dependent manufacturers, the coronavirus pandemic has “added frost on top of snow,” coming as it is in the midst of a trade war with the U.S.
Multinational companies have long relied on original equipment manufacturers in China to produce everything from apparel to iPhones. But the coronavirus pandemic has underscored the urgency for these factories to build their own brands and win over Chinese consumers.
Sanhe first began targeting the Chinese market in 2015. After gaining experience in manufacturing and research and development, the company started testing demand for its own brand in the domestic market. Selling to China’s consumers, however, was a different ballgame from dealing with overseas brands as a manufacturing partner.
For instance, consumers in Europe and the U.S. tend to change their pots every six months to a year, while those in China might use theirs for at least three to four years. And while kitchen shelves in the West are filled with different sized pots and pans, Chinese consumers prefer pans that can be used for multiple purposes, from stir-frying to boiling to stewing.
In 2019, PDD worked with Sanhe to develop a multipurpose pot for the domestic market with the same craftsmanship and quality as its export models, but at a lower price of 99 yuan ($14 per piece). PDD provided market insights into consumer preferences such as functionality, material, color, as well as analysis by age, gender and spending power. These insights helped with research and development as well as inventory management, according to Sanhe.
The 99-yuan pot was a hit and Sanhe’s daily orders surged from about 6,000–7,000, to more than 100,000 during big promotional events. Sanhe’s overall domestic sales climbed 108% in 2019 with the help of e-commerce platforms.
PDD’s consumer-to-manufacturer (C2M) model works by providing manufacturers with aggregated user insights and consumer preferences so that they can better tailor their products. The direct-to-consumer model also removes layers of intermediaries, resulting in a virtuous circle of cost savings leading to lower prices, which in turn generates more demand and economies of scale.
“Under the C2M model of Pinduoduo, the factory can develop and produce in a more timely manner according to online demand, and the product development cycle is shortened by 50%,” the Sanhe executive said.
In May, PDD launched a campaign to promote these lesser-known factory brands to its more than 600 million users. PDD also livestreamed tours of these factories, offering consumers a behind-the-scenes peek at how the products being offered were made.