Marketing to China is like marketing to Europe; a one-size-fits-all strategy will not suffice.
The key for Australian producers is to stay abreast of China consumer trends and how to deliver to these needs in a timely fashion that gets Australian products into the hearts and homes of Chinese consumers. As traditional food commodity trading industries (beef, milk, etc) become saturated with foreign and domestic product, the opportunity for Australian producers now lies in value-adding in the manufacturing space to bring new brand and product experiences to an ever expanding Chinese consumer market.
Three winning proteins
Australian beef is already thriving in China with potential upside for producers still possible though innovation and unique product propositions. The market has become crowded with beef imports which are still largely distributed in commodity form – no active branded beef presence can be seen. However, countries such as the U.S. are expanding beyond filleted and bone in cuts to charging premiums for the likes of tripe and offal parts that appeal to the Chinese consumer.
Online retailer Mangou (serving both China and Australia) sells their tripe using 'Australia's best beef' as their product differentiator. According to the U.S meat export federation, beef tongue prices can also exceed choice fillets (per pound) in Asia. The differences in beef product consumption and purchasing behaviour in China emphasise the opportunity to find market potential in completely new sub categories in the beef industry. It's about culturally understanding which aspects of the animal the consumers use in their daily cuisine. Few Chinese consumers know how to fry up a T-bone steak at home and generally shy away from doing so in fear of ruining a very expensive steak.
The opportunity presented here for Australian beef producers is how to take advantage of this growth beyond obvious filleted and offal cuts. Dried, frozen and chilled processed foods are each forecast to grow at least 10 percent annually. Among Chinese consumers, beef is perceived as a higher quality meat (compared to everyday pork) and there is plenty of room for Australian producers to occupy a 'better for you' branded positioning leveraging areas such as 'organic' or 'pasture fed' beef that many Australian producers can deliver on.
Value adding back in Australia could be where the big bucks are. For example, U.S. food giant, General Mills took over Wan Chai Ferry Dumplings in recent years and is now beating the Chinese at their own game with Wan Chai holding the number one brand position (44 percent of market share) in China's frozen dumplings market. General Mills has tapped into their decades of brand and product R&D to know how to stay ahead of the curve when it comes to Chinese consumers and their dumpling needs. Appealing to urban professionals and families alike, convenient staples such as dumplings and wantons are categories to which Australian beef can also bring considerable value. General Mills' webpage states that by championing the combination of cultural insight and cross-border innovation, their famous Wan Chai Ferry's has become the dumpling market leader in hundreds of cities throughout China. The company is now also expanding outside of the dim sum category into noodles – a category also up for grabs given the market has been flooded with low quality noodle products over the years.
From a yield perspective, Australia has a distinct advantage given that many slaughter-houses in China are drastically under capacity. While there is potential to easily ship livestock to China, leveraging Australia's geographical advantage there is also potential for the processing of livestock back home to make branded products that appeal to the China market.
China's love of seafood accounts for 35 percent of global production. Purchase channels are shifting away from selling only live fish, traditionally bought from wet markets, to processed and packaged varieties like Norwegian salmon which are now sold in supermarkets. Australia's Rock Lobster, abalone, oyster and crab have a good reputation in China. Combined with the China-Australia Free Trade Agreement, this presents a unique proposition for the Australian lobster industry. For further differentiation for Australian seafood in what is also becoming a more crowded market place, brand, product and packaging need to be carefully tailored to the Chinese market.
Fresh seafood is rarely branded in Chinese retail spaces. Like beef, commodity selling makes differentiation at the point of sale difficult for Australian producers. Innovative value adding to live product is possible through avenues such as effective packaging technology (to lock-in freshness), promotional displays and signage that talk about superior Australian growing conditions or perhaps even the 'certified' shipping arrangements that have been arranged between Australian producers and Chinese distributors to ensure a better quality product is delivered into China. When it comes to lobster specifically, origin tagging combined with consumer education (at the retailer display or in restaurant tanks) could be a powerful combination to reinforce information about the (health) functional benefits of Australian Rock Lobster over the more familiar North American lobster as well as product usage tips.
With this said, Australian lobster farmers should be keeping their eye on rising Canadian lobster imports. Dalian firm Zoneco (Zhangzidao) swallowed up one of Canada's largest producers of lobsters and online retailer TaoBao claimed 20,000 Canadian lobsters were sold online in 2013. To further differentiate itself from Canadian lobster, Australian producers may reiterate their history with the Chinese consumer in delivering quality products across all protein categories over the past couple of decades.
The Australian dairy industry represented trade of AU$389 million in 2012, though per capita dairy consumption is still low by comparison to Western standards. Per capita dairy consumption in Australia is over 8 times higher then that of China's 38kg (in 2012) and this is exacerbated in rural areas. 70 million elderly Chinese currently suffer from osteoporosis and whilst drinking more milk might come a little too late for them, this presents an educational opportunity for future consumers. Australian producers can emphasise our dairy innovation which helps deliver a superior product to the Chinese consumer. Take for example the 'A2' milk brand from Australia which uses DNA testing to identify cows that are able produce milk containing exclusive proteins. The company also offers a range suitable for those suffering lactose intolerance and also claims to provide superior calcium content which Chinese manufacturers are yet able to replicate. This type of execution requires extensive market and consumer research along with commercial intelligence aimed at ring fencing domestic producer competition.
While New Zealand currently dominates dairy exports to China (47 percent in 2012), China has continued to look at expanding import partners. As competition increases, the dairy category will become more active with different brand claims and product formats (including flavours). However, increases in dairy livestock trade between Australia and China also gives China the capacity to produce its own dairy to such an extent that the COO of United Dairy Power warns that China will become one of their major competitors within the next 15 years. This emphasises the importance of unique value-add products to secure Australia's future position in the China dairy market.
Reaching the Chinese market
While brand and product differentiation is crucial for Australian producers, understanding competition and who Australian companies can partner with to gain market access and coverage is equally important. Cases such as Zoneco's purchase of Canadian lobster is exemplified by their joint venture with Australian Fishing Enterprises. Fragmentation will eventually decrease as suppliers and producers combine to expand their reach and begin to take dominance across China.
Companies that carefully partner to gain scale and squeeze out competition will benefit most from the expected eight percent growth in the packaged foods industry over the next five years. Nestle, for example, have not only partnered with a Chinese confectionist (Hsu Fu Chi group) to use its supply chain, but have acquired shares in a Chinese medicinal corporation also (Hutchinson China MediTech), which gives them access to thousands of medicinal extracts allowing Nestle to bring culturally integrated products to Chinese consumers.
The right partner for entry is crucial and aspects such as cold distribution and safety regulations must be considered to ensure a clean manufacturer reputation. Just look at Nanna's Berries, a name occupying Australian airwaves lately given the Hepatitis A outbreak. China is working to improve its retailing supply chain, with the cold chain logistics industry expected to grow 25 percent annually to US$76 billion in 2017. Despite this, China still lags behind even the likes of India in cold distribution, with only 40,000 trucks.
Part two of this series will cover value-adding in alcoholic beverages, enhanced soft drinks and fresh groceries.
Andrew Kuiler (Andrew@thesilkinitiative.com) is the founder of Shanghai-based food and beverage consultancy The Silk Initiative. Written by Andrew Kuiler and Joel Bacall.