A Taste of Success – Opportunities for UK companies in China’s food and beverage market
Continued growth in China’s food and beverage market and changing consumer trends are allowing UK companies to bring a taste of Britain to China.
As China’s economy has moved up the value chain, its culinary taste has followed. Instead of continuing to consume fast, cheap, utilitarian Western food, middle class shoppers are now using their growing disposable incomes to opt for greater quality and variety.
Even more important is their emphasis on food safety and the desire to buy from trusted sources. Over the last 20 years the number of food retail outlets has mushroomed. ResearchInChina’s China Supermarket Industry Report 2010 states that from 2006 to 2009, the total supermarket sales in the country’s top 100 chain retailers grew from RMB 340.6 billion to RMB 575.6 billion. The total number of supermarket outlets also increased from 16,025 to 23,814, and foreign-funded supermarket enterprises took off after 2004, when officials lifted all foreign capital entry restrictions into China’s retail industry.
However, in addition to internationally recognised brands like Tesco, Walmart and Carrefour, a growing number of smaller Chinese chains such as City Shop and various boutique food retail outlets offer foreign food and drink brands a platform for market entry.
Take for example Jenny Lou’s. In 1986, Wang Jianping (Jenny) married Lu Xudong, and transformed their small stall from a single-delivery trike into an ever-expanding empire that currently numbers ten stores in Beijing. “We benefited from the fact that China opened up and more and more foreigners came live in Beijing…But we don’t only cater to foreigners,” said Lu in a rare 2010 interview for Chinese newspaper Global Times. “Many Chinese people with high incomes don’t trust Chinese products and many young people prefer imported goods.”
City Shop, owned by Shanghai City Supermarket Co. Ltd, has seen a similarly meteoric rise in recent years, with nine stores in Shanghai and a single-store expansion into
the Beijing market. “More and more Chinese customers are buying western food products for their regular consumption,” says Bei Xie, Manager of the Import and Export Department for Shanghai City Supermarket. Even in smaller cities similar boutique stores are springing up, such as Tastylife Supermarket in Xiamen, Fujian Province. Imported products are even beginning to appear online, as detailed in the EU SME Centre’s 2011 Food and Beverage Market Report, which states that: “an organic food supplier began email ordering in 2005 and has offered online orders for its home delivery service since 2008. It now regularly supplies 1,200 households in Beijing, about 500 households in Shanghai, and hotels and restaurants in Guangzhou and Shenzhen. There are also an increasing number of European wine suppliers successfully selling online in major urban centres. Chinese consumers trust that recognisable European sites will supply genuine wine.”
Although overall demand is expanding, high-end products remain the most popular with Chinese customers. “The general trend we have noticed is that quality Western goods are getting more popular year on year,” says Tom Yeung, Sales Manager at Wilson Int Foods HK Ltd. “Chinese consumers, though, tend to purchase these items as gifts.” The market as a whole is clearly flourishing. Figures from the UK’s Food and Drink Federation show that China entered the top 20 UK export growth destinations for the first time in 2011, with a 55 per cent increase on 2010 figures. This includes huge increases in fish, seafood, dairy and meat products, with most rising by over 100 per cent from the 2010 figures. Demand in Hong Kong also increased by 40 per cent overall, with meat, soft drinks and cakes rising significantly from the year’s previous figures. This bodes particularly well for UK food companies that offer high-quality products with strong branding.
Although volumes might not be particularly large at this point, the market potential is there, and the Chinese palate will continue to evolve. For food companies with the right branding and strategic patience, China offers a genuine chance for future expansion. “I believe the China market offers a tremendous amount of potential for British food & drink manufacturers – however, companies should not expect instant results” says Rahul Kale, Head of International Sales for Typhoo Tea. “British companies should work closely with Chinese importers and support the brand.”
China’s food market development and UK companies’ opportunities are part of a wider strategy to export food products overseas, with China as one of the key markets. This includes the recent £50 million pork export deal and the potential for further meat product gains over time – until UK-China government negotiations conclude, lamb and beef exports to Mainland China are not permitted. “UK pork exports to Greater China now represent 18 per cent of all pork exports and more than 50 per cent of pig offal exports,” says J.P. Garnier, Head of Exports for the Agriculture and Horticulture Development Board, the English Beef and Lamb Executive, and the British Pig Executive.
Developed by the Department for Environment, Food and Rural Affairs, UKTI, industry trade associations and top exporting companies, the Farming, Food and Drink Exports Action Plan, published in 2012, is the cornerstone of a domestic drive
to champion British food abroad. When launching the initiative, Jim Paice, Agriculture Minister, remarked: “British food is already known the world over for its quality, and with
surging world population growth and demand for Western products, there are huge opportunities for our producers to tap into emerging markets,” he says. “I’m convinced the sector can become an engine for growth for our economic recovery…It’s crucial we get the right support to business at home as well as championing British products abroad.”
Despite the clear market potential however, companies do need to be aware of China’s complex and sometimes daunting food import and labelling regulations. However, with the support of UKTI, CBBC and the Food and Drink Exporters Association (FDEA), as well as a good partner in China, help is at hand to assist companies in negotiating the regulatory landscape.
“The headlines are that China has issued or modified hundreds of food and agriculture-related regulations and standards since it joined the WTO in December 2001,” says Dominic Stanton at the British Embassy in Beijing. “These have included food laws, labelling requirements, packaging and container requirements, food additive regulations, multiple commodity regulations, commodity-specific regulations and import procedures.”
The changes have accelerated since China passed its 2009 Food Safety Law. Since most legislation is published in Chinese with very short transitional periods, exporters can have trouble keeping track of the latest laws. Officials who have to police the system also have difficulties. Rules and responsibilities can be ambiguous, which can lead to inconsistent interpretation and enforcement.
“At the same time that China is welcoming imported products, in reaction to the continuing food scares, the application of Chinese food health legislation is being tightened particularly on the Chinese labelling of imported goods, so it is critical for the UK exporter to supply detailed and accurate information to the Chinese distributer. Patience is needed by the UK exporter in dealing with the changing legislation,” says Peter Bloxham, Chairman of PFB Associates Consultancy and specialist in the agri-food field.
BUILDING BRAND AWARENESS
After overcoming these issues, the next challenge is becoming established in the market. Although China has overtaken the US to become the world’s largest grocery market, Western brands and tastes are still in their relative infancy. Consumers may only recall a handful of Western brands, and even then their tastes will be different to Western markets. Having strong branding and finding proper distribution channels is crucial for success. “My advice is to research the market thoroughly, fly to China, meet potential importers and ask to see some of their key accounts,” says Tom Newman, Beer Sommelier and Director of the Celt Experience Brewery. “If in any doubt, don’t be afraid to try other channels. It’s worth the extra work to establish the correct customer.”
UK companies also must work closely with distributors to help them develop marketing strategies that will increase demand and awareness of their products. “Most UK food companies don’t have their own stores in China, so the most important thing is to choose a good local distributor,” says Fu Yue, China Government Relations Director for Carrefour. Carrefour now stocks a wide range of imported products in its stores throughout China, while the highly professional importer and distributor Sinodis has impressive distribution networks across the country; businesses such as these are helping companies meet the growing demand for imported products.
Promoting the essence of ‘Made in Britain’ is important for Chinese market development, because the strong branding and renowned quality of British food and beverage brands allows companies to distinguish themselves from other foreign rivals. British food associations realise that this can be a difficult task, which is why organisations such as the FDEA, supported by CBBC and UKTI, help promote British food brands and champion their products in China as well as in other emerging markets.
The Taste of Britain UK Pavilion and Trade Development Visit to Shanghai in 2011 was part of this strategy to increase awareness of British food brands in the Chinese market. Companies that took part included Burts Biscuits & Cakes, Celt Experience Brewery, Delamere Dairy, Deliteazers TM, Lizi’s, Llanllyr Source Water, Maclean’s Highland
Bakery, Premier Foods, Ramsden International, Somerdale International, Suma Wholefoods, Typhoo Tea, Tyrrells Potato Chips, Wensleydale Dairy Products, Agriculture and Horticulture Development Board Meat Services, Dingley Dell, Dunbia, Elmgrove and Norwest Foods. The UK Pavilion generated over 200 genuine business leads.
Building on the success of 2011, November will see FDEA following up with a similar market visit and UK Pavilion at FHC 2012 in Shanghai. “The China market is moving far faster than any market I’ve had any experience of in recent years,” says Elsa Fairbanks, Director of the FDEA. “The aim of the Taste of Britain event is to raise the profile of British food and drink in this rapidly developing market. Whether this is a company that is already in the Chinese market looking to expand, or companies looking to understand the market better before entry, these shows can really help improve the profile and awareness of British food and drink products in China.”
“For Tyrrells, FHC 2011 was very successful,” says Eddie Mullen, International Manager at Tyrrells Crisps, who has found its way to China through a Shanghai-based distributor. “Several key retailers have subsequently listed the brand, in one case in 350 outlets. Participation gave us a lot of useful insights and ideas in terms of developing our business in China. For example, we were able to see how local visitors reacted to our packaging and consumer communications, including merchandising materials, and having sampled different flavours of crisps throughout the show we were able to prioritise our launch range,” he continues. “I would strongly recommend participation at FHC 2012 to any UK-branded companies who are serious about exploring the Chinese market.” Ramsden International, an export wholesaler offering an extensive range of British products and export services to businesses worldwide, has also found the events useful. “FHC has provided us with a platform to present our products and services in the heart of a fast growing Asian market,” says Alex Zhu, Territory Manager Asia for Ramsden International. Ramsden’s increase in market presence and Chinese translation of its website contributed to the company’s 105 per cent increase in sales to China during 2011.
The success of British food companies in China is being bolstered by such events, and as awareness grows, quality British products can meet the increasingly varied tastes of Chinese shoppers. With more and more retail and food service channels opening up for consumers, the market for imported products offers an excellent opportunity for those hungry for success.
This article was taken from China-Britain Business FOCUS, a monthly magazine published by the China-Britain Business Council for its members.
The China-Britain Business Council helps companies of all sizes from all sectors to do business with China. Find out more at www.cbbc.org
Countries: Asia Pacific, China, Far East, Hong Kong, and United Kingdom
Topics: Insights & Statistics and Market Research