China food market entry: Traditional routes best avoided

By Kacey Culliney

- Last updated on GMT

Related tags People's republic of china Beijing

Cut costs and reach target consumers: Go online
Cut costs and reach target consumers: Go online
Going online in China is a cost-effective, viable alternative for food and beverage brands entering the country amid sky-high entry costs and structural inefficiencies in traditional retailers, according to a new report.

Data Drive Marketing Asia’s (DDMA) report ‘Online Shopping in China’​ was compiled following 9,000 consumer interviews across the key urban markets of Shanghai, Beijing, Guangzhou, Chengdu and Wuhan, 22 focus groups and an interview with the chairman of Yihaodian; the fastest growing B2C site in China.

Successfully entering the Chinese market, especially with a new brand, is a complex task but “it is an awful lot easier, simpler and straightforward,”​ online, Sam Mulligan, director of DDMA, told FoodNavigator-Asia.

“The ‘daily foods’ segment is an area growing very quickly online,”​ and confectionary, drinks and snacks are the products trending strongly online in China, Mulligan said.

Assurance with control

One of the advantages of working online is that food and beverage companies, especially Western, “can have direct control over their products in terms of shipments and supply chain which is absolutely key when working in China,”​ Mulligan said.

Similarly, companies can also control and monitor costs far better than when working with a traditional distribution outlet like a supermarket, “as online is very transparent in terms of pricing,”​ he added.

“The problem of rising costs is out of control,”​ in China, he said, “supermarkets are experiencing increased labour costs, rental, security and electricity… as a result, the cost of entry (listing fees) for products has been pushed up.”

“This is really prohibitive for new entry brands,”​ he added.

Labour costs are up by between 40-60%, he said, logistics have been driven up by around 250% over the past five years, warehousing and rental has increased and China is “probably one of the most expensive markets in the world to advertise products,”​ as a Western brand.

The target: ‘Young, urban professionals’

Another attractive factor to working online is the consumer group, Mulligan said, as “they are effectively Western manufacturers’ target group,” ​with a distinct preference for Western food brands.

The average age for consumers purchasing daily food and beverage products online is 21 – 30 in the developed markets of Shanghai and Beijing, according to DDMA data.

“They are a white-collar group, well-educated, have more money, are influential in companies – in middle or senior management, they are bi-lingual, well-travelled and more internationally minded,”​ Mulligan detailed.

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