Week #29: China's pet crisis 😭, Why you might've got the WPP scandal wrong 🤔, “Hermès of ice cream” melts🍦 | Following the yuan

I believe that the WPP investigation has more to do with Xi Jinping’s anti-corruption efforts than China targeting foreign corps, read more for why.

Hi hi, I've just wrapped up my 2nd week of Cantonese class and I'm feeling pretty confident about ordering dim sum—as long as the waitress speaks as slowly as the voice from Duolingo. 🥟

Interestingly, I've found Duolingo to be more adaptive than traditional textbooks. For instance, while I'm learning phrases like "What’s your number?" in class, Duolingo is teaching me, "What’s your WeChat name? Should I scan you or should you scan me?" This feels much more applicable IRL. Kudos to them.

You know what’s coming up other than Halloween? The world’s largest e-commerce festival Double 11! A couple of months back, I discussed how the prevailing discount mindset amid an economic downturn might influence this year's Double 11. Now, it's clear: the event is shifting towards being more value-driven. Starting with Tmall’s own VIP membership, they're also claiming to offer the lowest prices compared to other platforms incl. JD.com, Temu’s parent company Pinduoduo, Douyin, Kuaishou, Xiaohongshu. I’m curious to see how this pans out.

1. China's pet crisis 😭

What happened: After a recent incident where a toddler was injured by a Rottweiler, there has been a surge of concern among pet owners in China. This is due to an uneven government clampdown and backlash from non-animal lovers. Local authorities re-emphasized laws banning 20 to 40 breeds, including German Shepherds. Reports indicate that many areas are capturing and killing stray animals, while few send the captured animals to civilian-run shelters.

Pet owners share concerns on social media about poison being left on streets or needles being inserted into delivered pet products. To safeguard their pets, they're exchanging tips on safe areas and how to identify tampered goods. Many pet product sellers are now using discreet packaging to prevent tampering, an important move before pet owners buy in bulk during Double 11.

A pet owner walk their ‘large dog’ in a cage in Chongqing (left); a pet owner eats pet food to test for poison (right). Image: screenshots

Dig deeper: As said in my two-part deep dive about the pet sector: China is split between those who treasure pets as family and those who view them merely as commodities. It’s hard to reach a consensus on all levels.

As a pet owner myself and a market watcher, I strongly believe that brands and companies should do their best to lobby on animal protection legislation, because that is the pain point.

Good marketers are amplifying this message. Pet food producer Partner 帕特, backed by LVMH’s investment arm L Catterton, placed an interactive ad in Hangzhou subway in early Oct. where each press of the button results in 10g of dog food donated to astray animals. Others, like cat food producer Nutram 纽顿, are advocating for stronger animal protection laws in weekend markets.

Partner’s subway ad. Watch full video here.

PSA: If you’ve raised pets or lived in Shanghai, you may have heard of a “weird” monk in the city’s Bao’en Temple. 55-year-old Master Zhixiang doesn’t do religious practices as other monks do, but decided to make the temple into a shelter that’s now hosting over 10,000 dogs. Still, ~100 dogs being sent there every day. If you want to help out, please consider becoming a flying partner to help them find new homes abroad, or make a donation here via WeChat. You can also reply to this email and I will help you.

2. Why you might've got the WPP/GroupM scandal wrong 🤔

What happened: Following previous raids on firms such as Capvision, Bain & Company and Mintz in China, multinational company WPP (NYSE: WPP)’s media investment arm is the latest to be scrutinized. However, the nature of this incident is different from the typical narrative.

This time, the spotlight isn't on anti-espionage. Three individuals, both current and former WPP employees, have been arrested on accusations of accepting significant bribes between 2019 and early 2023. This action allegedly breaches the Chinese bribery crime specific to non-official servants 非国家工作人员受贿罪, as per the Economic Crime Investigation Unit under the Shanghai Municipal Public Security Bureau's announcement last Saturday. The Financial Times first reported on the raid.

GroupM, a subsidiary of WPP, contributes approximately one-third (£4.67 billion) of the £14 billion annual revenue of the London-based advertising giant. Notably, China ranks as WPP's fourth-largest market. Quoting unnamed sources and rumors, several Chinese WeChat accounts said that the bribery could amount to 700 million yuan/nine figures.

Dig deeper: Likening the WPP incident to previous MNC raids is somewhat wrong, as the situation appears more linked to Xi Jinping’s aggressive anti-corruption efforts rather than specifically targeting foreign companies. This becomes particularly evident as China prepares for the China International Import Expo (CIIE), an event designed to showcase the prowess of the Chinese market and Shanghai.

Over 30 global executives participated in a propaganda campaign organized by the Shanghai government ahead of CIIE. Captions are translated.

In recent years, China’s tech companies all had executives arrested under such name. Baidu and Tencent both started reporting to the public about their internal corruption cases in 2019. Tencent took significant action, firing 100 employees and turning over 10 to the authorities just last year. High-ranking executives from Youku and Kuaishou faced seven-year sentences for accepting bribes amounting to 855 million yuan and 756 million yuan, respectively. In a more recent incident, SenseTime’s IP Director found himself in custody in Beijing.

All these events underscore that WPP’s case is not isolated, and it is more likely that the anti-corruption initiative championed by Xi targeted the tech industry first and now is coming at media buying.

Sam Tang, an advertising professional, began his career nine years ago with a Shanghai-based agency under GroupM, where he served auto clients including Shanghai Volkswagen. He believes that the incident has more pros and cons for the sector and for businesses operating in China.

“It could serve as a deterrent to malpractices in the industry, because GroupM does not only serve international brands but also many domestic companies,” he said. “If we can promote the implementation of healthy and enforceable rules in the future, I think it will have a more positive effect on establishing a healthier and fair competitive environment.”

Another thing that this incident entails is the internal dynamics of China's bureaucracy (that departments communicate little with each other), and how little the local regulators think about China’s global image in the business world. Had the departments talked to each other and the government anticipated the international interpretation, they might have delayed actions until the CIIE is all wrapped up.

3. The expected death of “Hermès of ice cream” in China 🍦

What happened: Chicecream 钟薛高, the "Hermès of ice cream", is being accused by employees of delayed salary payments, a usual sign of troubled finance situation. And it has become all too common as China’s consumer VC market cools down.

Founded in 2018, Chicecream was once the embodiment of the Guochao, or the national hip trend. Since its inception, the brand has reported four public financing rounds. Its most recent funding announcement in May 2021 was for 200 million yuan, led by Genesis Capital.

However, during the summer of 2021, Chicecream grappled with controversies involving both products and pricing. Its ice creams didn’t melt even when put under fire, and it was criticized by netizens as an "ice cream assassin," customers felt gouged by its price. For example, an ice cream by big dairy brand would cost 3-5 yuan, while the retail price of Chicecream is 6 times as high.

Chicecream’s signature ice cream, which is shaped as traditional tiles. Image: via Dao Insights

Dig deeper: I’m starting to see more and more news about companies dying, and I feel like that’s going to be a common theme. As the era of aggressive financing cools down, there will only be more post-mortems on the so-called new consumption brands from their peak.

Celebrity-founded ventures are also facing scrutiny. While western celebrities often launch beauty lines, in China, they gravitate towards ventures like hotpot, BBQ, and milk tea because they have low barriers of entry.

Wang Wenchao, a big shot in the Chinese business community recently commented on writer, director Han Han’s restaurant chain as one of his failed investments. The topic went trending on Weibo as he said the food sucks. The chain brand collapsed in 2018 before Covid. Hong Kong actress and model Angelababy’s hotpot chain Dou Liu 斗鎏火锅 also faltered before Covid. There are dozens of other celebrity ventures that bite the dust. 🔚