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The rise of in-house livestreamers? How nutra brands are reacting to China tax evasion scandal
In December, Viya Huang – China’s “queen of livestreaming” was fined RMB$1.34bn (US$210m) for tax evasion.
China’s State Taxation Administration announced that Viya, whose real name is Huang Wei, had evaded tax amounted to RMB$643m (US$100m) between 2019 and 2020.
Against the backdrop, there is now greater scrutiny placed on popular livestreaming KOLs, with some companies seeing the benefits of building its own team of in-house livestreaming talents.
“If you are a brand that has sufficient scale and you are running these livestreaming operations continuously, there is a point at which the cost for you to do an in-house livestreaming makes more sense than to continue outsourcing it,” Michael Norris, research manager at Shanghai-based consultancy AgencyChina told NutraIngredients-Asia.
In the case of health and nutrition companies, he suggests that brands can engage health professionals that are exclusively contracted to be ‘the face’ of the brand.
Grass to Milk, which sells grass-fed A2 milk sourced from Ireland into China, uses its own team of influencers, in addition to working with Shanghai Supermom, a third-party agency based in China.
“We tend to diversify our KOLs selections a bit more, and so, when we are doing livestreaming every week, it is usually a different person.
“We have also appointed a project manager who is our head of commercial here in Ireland. He is also a Chinese expat whom we have appointed to interact with the other expats. It's almost like a kind of multi-level marketing idea. He will get the most margin and any expats below him will get a slightly lower margin and they can actually employ more KOLs themselves.
“[For example], we have selected one Chinese expat based in Dublin and he's got close to a million followers on Douyin and Kuaishou.”
Last month, the company invited about 50 Chinese expats to its farm to learn about A2 milk and the grass-fed system that the company used and the whole session was livestreamed to China.
Confidence in livestreaming
Despite the saga surrounding Viya, O’Brien is confident that livestreaming e-commerce will continue to grow in China – because he believes that the crackdown is aimed at the livestreamers and KOLs leading extravagant lifestyles, and not their livestreaming activities.
“Broadly speaking, Viya is a signal of the Chinese government’s intention. I believe she is being used as a figurehead to signal to all the KOLs that it is this type of flagrant, extravagant lifestyle which doesn’t sit well with the country’s governing policies,” he said.
Nutritional Growth Solutions, which is also using livestreaming to sell Healthy Height – a protein drink that aids height growth in children, also believes that the livestreaming channel would not be much affected.
“We believe that livestreaming will still be popular in China, as what happened to Viya is an individual case.
“There are quite a few other livestreamers who are still doing livestreaming on Taobao.com after Viya’s scandal – Viya herself is a signed streamer on Taobao. In addition, there are other platforms such as Douyin that is becoming more important for foreign brands to conduct livestreaming on, and the results are quite effective.
“We are looking at our strategy for livestreaming on various platforms,” said Liron Fendell, CEO of Nutritional Growth Solutions.
Note of caution
Both popular and less well-known KOLs could suffer the aftermath of Viya’s tax evasion saga, Norris said. He cautioned firms, especially those who work with livestreamers through agencies, to ensure that the livestreamers were cleared of any tax evasion problems.
“Scrutiny on the bookkeeping of livestreaming stars – both big and small – is expected to last for a few months,” he said.
He explained that this was because some lesser known KOLs were caught for tax evasion – even before Viya’s scandal was brought to light. Moreover, the Chinese authorities had required internet celebrities and KOLs to report tax-related crimes and correct their offenses by Dec 31 last year.
“Most brands have some level of confidence that this shopping format won’t be affected. Livestreaming is still enjoyed by many customers across the country, but the individual talent that companies are working with to be able to sell the products may change.
“Brands need to seek assurance from the agencies that they are working with that the talents comply with all local laws and regulations, including relevant tax laws.
“Getting that assurance early is very important for brands to be able to plan who they would like to work with over the medium term.
“It also gives decision makers who are thinking about how to allocate their budgets and their marketing spend certainty that they are not going to, for example, lose money by giving a deposit to a livestreamer who is subsequently investigated,” he said.
Long-term profitability
Aside from the reputation of the livestreamers, some companies are also concerned with the long-term profitability of livestreaming.
An example is Auckland-based Douglas Pharmaceuticals, which is behind the nutraceutical brand Clinicians.
The company used to engage about 25 to 30 KOLs for its livestreaming sessions in China back in 2019 to sell a probiotic for women’s health and a nasal spray. It reported a 40 per cent increase in its sales since commencing livestreaming on Tmall Global back then.
However, fast forward to 2022, the company is intending to reduce its livestreaming sessions in China.
“We are reviewing our approach in China and are likely to be doing considerably less livestreaming moving forward.
“This is less to do with livestreaming scandals but more about marketing objectives and cost effectiveness. Livestreaming can be effective at generating product trial but isn’t particularly profitable in itself nor a good way of building brand equity over time,” Scott Sherriff, chief commercial officer at the firm told us.
Similarly, for Grass to Milk, the company saw higher returns when they engage their own KOLs instead of relying on third-party agencies.
“We actually found that in terms of the returns on investment, it is far better than using KOLs based out of China because the margins are lower.
“By engaging our own KOLs, we also have a lot more visibility on what's happening as well,” said O’Brien.
Norris pointed out the same problem about low margins and profitability, stressing that consumers who buy from livestreaming sessions were generally price-conscious.
“The success of livestreaming is built on the promise that is given to the consumers – that the livestreaming channel has the lowest price on the internet (全网最低价).
“And so, some brands are concerned that their price architecture will be muddled up if they use streaming as an ongoing tactic,” he said.
He added that some brands have approached livestreaming e-commerce by selling older inventory. Others have tried to try to limit the amount of livestreaming that they do by focusing only on large sales events such as 618 and Double 11.
Some have introduced livestreaming-only product lines that are available at a cheaper price, while core products are not sold on the livestreaming channel.
