China’s digital meat store drives opportunity
Ding Nuo Co earlier this year announced an investment of RMB25m to set up online sales platforms or shops on Chinese e-commerce sites like Tmall.com which charges companies to set up shops while also charging commission on sales. Ding Nuo supplies big supermarket chains like Carrefour, WalMart and Trust Mart in eastern China, but a strategy to generate RMB80m per year in online sales is key to the company’s future.
However a major ramp-up in online sales of Australian beef has been undermined by the influx of cheaper Brazilian beef, according to a sales executive manning the firm’s phone sales line. “But Australian beef continues to have a more premium image with Chinese consumers,” notes the salesman, surnamed Liu, at the headquarters of Ding Nuo Co’s headquarters in Wenzhou. The firm, which trades under the ‘D-Nuo’ brand, was established in 2008 in the suburbs of Wenzhou, one of China’s wealthiest cities and a two-hour drive south of Shanghai.
The company had been sourcing cattle through cooperation with local farmers and government. But rather than build up capacity in its own feedlots and processing business Ding Nuo has decided to drive growth through online sales of imported beef.
Import price falling
The firm’s Tmall flagship store sells 1.46-kilogram packaged steak for RMB169 but much beef is sold through a large range of packaged ready meals. Ding Nuo has published videos of how to make beef salads on another e-commerce site which is run by leading courier firm Shunfeng.
The cost of imported beef has been falling in China this year. Imports of frozen beef (not including offal) into China totalled 343,878 tons (t) in the first seven months of 2016 compared to 467,143t in 2015. Prices meanwhile fell to an average US$4,150/t compared to US$5,088/t in September 2015. Brazil took a 31% share of China’s imports of frozen beef in the first seven months, compared to a 19% share for Australia, previously the market leader until Brazilian beef was re-admitted to the Chinese market in late 2015.
Imported meat remains attractive to leading Chinese e-commerce firms like Tmall and JD.com because it offers attractive margins. Hence Tmall buys for its own operations like Mr Fresh, as well as charging brands like Ding Nuo to open flagship stores on the site.
Meat logjam
Meanwhile the flood of vendors seeking to get on the top players like Tmall means there’s a logjam of festivals and promotions that’s threatening to weaken the impact of such promotions, says Robin Wang, director of Shanghai-based SMH International, a marketing consultancy that conducts marketing campaigns and online promotions for western food brands in China.
Ding Nuo schedules major promotions of its beef products around China’s big festivals. The presence of multiple festivals – Chinese New Year, Mid-Autumn Festival and Singles Day – has now been augmented by a range of national-themed festivals to promote particular imported food products.
Expansion of e-commerce in China has been made possible by the Chinese government’s much-touted attempts to build a cold chain logistics system with $20bn of grant over the past five years, which appears to have yielded results. Chinese e-commerce continues to offer plenty of opportunity for meat sales, but a ‘last mile’ challenge remains for purveyors of perishable products. There have been instances of salmon and steaks being left on doorsteps in the summer sun.
