By Annie Farrow
In a recent presentation during Asiafruit Congress 2015 Clint Smith, a director with the Silk Initiative, said that foreign entrants to China’s fruit and vegetable market need to work harder than ever.
Chinese consumers are becoming more savvy, government regulations stricter and competition is tougher than ever. He said that entrants needed to be clear on what they ‘bring’ to the market and ensure their brand message is supported.
Consumer demand for higher quality produce and natural products continues to grow. But a market like China will require suppliers to think ‘outside the box’ to find a space they can truly own. He also advised that fast moving competitors and consumer trends should be monitored and commit to a necessary brand refresh to stay top of mind within the Chinese market.
There are a number of opportunities for fruit suppliers in China according to Smith. Natural foods are clearly a hot topic, with a survey indicating that consumers associate fruit with concepts like healthy, safe, good quality, fresh and nutritious. The survey suggested that 41 per cent believe natural products today can’t truly be ‘natural’; 77 per cent would like natural products to play a bigger role in their lives; 80 per cent will buy more natural food products if available in a store near them; and 78 per cent look to natural products to help combat pollutants.
Smith suggested that suppliers think outside the box for plant-based, value-added product business opportunities. He asked the audience to imaging the implications if Australian goji berries were offered in replacement to the current popular local red date ingredient in their Quaker Oat breakfast cereal. Smith noted the resurgence in traditional Chinese medicine (TCM) products. He reported that there are even plant and herbal based soft drinks and teas promoting TCM values. The key ingredients in these products are generally local but could easily be replaced by imported produce.
Milk has become an everyday ‘carrier’ for fruit and vegetable drinks. Smith reported that China is set to become the world’s largest dairy market by 2017, with yogurts, ice creams and other fruity dairy products gaining in popularity. He said the rise of milk consumption continues and soft drinks containing unique ingredients are now using milk as its base. Flavours and formats are converging, with milky and juicy products being mixed into one.
He suggested marketing the health attributes of produce that speak to Chinese consumers’ concerns and beliefs. Chinese consumers are very conscious about the heating and cooling properties of foods as well as their natural medicinal properties. On a side note, apples and pears are cooling foods, cherries and peaches are warming foods and apricots and plums are neutral. Smith said understanding Chinese consumers’ concerns and beliefs around associated health benefits of your product and educating them on those less familiar can help differentiate your brand.
Smith suggested there were six steps in ensuring a successful business in China.
- Establish the fundamentals – is there a business opportunity for your brand in China and what should your message to the Chinese market be?
- Explore whether your brand is China ready and know if you should modify your product and packaging or explore new ideas.
- Validate your brand and product idea before taking the initial plunge to avoid any premature mistakes with consumers and the trade.
- Establish safeguards, as many food safety scandals in China are due to poor distributor handling and retail execution. Proper due diligence in partner selection is critical.
- To activate your brand determine what the most effective communication strategies and execution plans to reach and engage your Chinese consumers.
- Undertake ongoing monitoring because once in the market you need to stay in tune with how your brand is doing: is product moving fast enough and determine how to keep retailers accountable for success.
Smith said that brand position is central to all infrastructure plans, and that it was important to be clear on what you ‘bring’ to market and ensure that message is supported throughout:
- Spend time to be on cue with product and pack – determine which concepts, products and pack designs resonate;
- Operational execution is sometimes paramount – determine who are the best distributor/retailer partnerships;
- Engage with consumers – determine how you reach the target in a fast and cluttered market, and determine the best way to reach your consumer and get your message across; and,
- Ensure sustainable success once in market because relaxing once in the market can be fatal.
Smith reported that the online market for groceries in China is booming. Data suggests that in 2013-14 there was almost a 50 per cent annual growth in the value of grocery sales through online outlets compared with an annual growth rate of almost 10 per cent for convenience stores and around 7 per cent for hypermarkets/supermarkets. He said that online sales in rural China will grow from 180 billion yuan (~US$28bn) in 2014 to 460 billion yuan (~US $71.6bn) in 2016. For example, JD (JingDon Mall) service centres now connect rural farmers with urban consumers through 2,500 townships and 10,000 villages.
A key factor behind online growth is the improvement in distribution with China’s cold chain industry growing 25 per cent annually. But transport spoilage rates remain problematic and can be as high as 40 per cent.
Expectations among Chinese consumers are rising and as a result the retail landscape is changing with the decline of the hypermarket in favour of high-end, locally based grocery stores (many of which are now undergoing refurbishment). Consumers are moving from traditional wet markets to fully packed produce in well laid out aisles in modern stores and are also seeking branded produce. For example, FruitDay grew it’s ‘Singles Day’ online sales three-fold in 2014 on the back of promoting branded fruit.
Smith reported that about 600 million of the Chinese population are connected to internet and over 500 million are mobile internet users (2014). Already 55 per cent of smartphone users have made a mobile purchase while only 12 per cent have done so in the United States – buying something securely on the internet in China is increasing its convenience.
Smith also observed that lower tier cities are driving the growth in fast moving consumer goods (FMCG) across China. He said that 32 per cent of urban households are using e-commerce for FMCG purchases and that there is fierce local brand competition.
He also reported that the Chinese government is taking active steps to improve food safety, and companies are getting their act together in this regard. China introduced tough new food safety laws effective October 1st 2015 and authorities take food safety extremely seriously. He provided the 2011 example of a surprise spot check of the dairy industry which shut down 426 local dairy producers.
Source: China Fruit and Vegetables Opportunity – Building Your Brand Infrastructure, The Silk Initiative Limited presentation, Asiafruit Congress 2015.