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China’s changing tastes creating import, branding opportunities
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By Mark Godfrey, SeafoodSource contributing editor reporting from Beijing, China

It’s an indication of the profit margins in quality food that Suning, China’s largest electronics retailer, has lately ventured into online sales of fresh food, going to the huge expense of putting overseas procurement and cold chain operations in place across the country. Suning has watched jealously while online retailer Tmall.com last year reported triple-digit growth in food sales, with seafood the fastest-growing category.  

While Suning has ditched fridges for fruit and seafood, big time brick-and-mortar retailers have been reporting weak financial results and are being forced to invest massively in online retail infrastructure to compete with Suning and more established online retailers like JD.com and Yihaodian.com (a Walmart-invested entity).

Indeed it’s all change in China’s retail landscape, and that’s good news for suppliers of quality food product seeking to build sales or brand recognition in China where distribution options are opening up.

Online retailers are opening up China’s hinterlands to suppliers of food products, as evidenced by last month’s opening by JD.com of a giant logistics center in Taiyuan, the capital of inland Shanxi province, far from wealthy coastal cities like Shanghai and metropolises like Guangzhou.

Rolling out stores and infrastructure into unfashionable regions like Taiyuan will be a massive and costly task. But this adds to the enormous opportunity China’s online retail scene represents for suppliers of seafood and other quality foodstuff.

Online retail opens up regions hitherto exclusively in the grip of state-owned retailing giants —and giants like Walmart that demand volume other quality seafood suppliers don’t have.

China’s conventional food retailers meanwhile are losing money and looking for ways to innovate and reverse the decline. Supermarket chain RT Mart, for instance, has ventured into the mainland with shoptaiwan.cn, a site that allows mainland Chinese to purchase food from Taiwan, seen as more advanced in food safety and quality. The embattled Lianhua supermarket group, meanwhile, announced recently it would combine with another retailer, the Zhongbai Group, to cut logistics costs.

Aside from the dramatic shift in retail habits, what’s equally remarkable is the rise of frozen food – both domestically produced and imports – in value terms up from USD 2.83 billion (EUR 2.59 billion) in 2012 to USD 7.2 billion (EUR 6.6 billion) in 2014. Factors like wage growth and urbanization draws Chinese consumers onto dining formats previously unavailable. Young, internet-savvy consumers in particular have been turning on to frozen and pre-cooked food rather than fresh produce bought at wet markets and cooked at home.

This is particularly good news for overseas producers of food and seafood, because fundamental factors will continue to favor food imports in China. The rise of labor costs and increasing shortage of land and water in China means imported food will continue to be cheaper. The opening up of regional airports and ports (now allowed to do customs clearance) means it’s never been easier to get product into the country. With local retail sales growing at 10 percent a year, now is the time to establish a presence in China.

A slow but ongoing crackdown on food safety, meanwhile, is forcing consolidation of the domestic food production space. Chinese consumers have lost confidence and turned to imports. A promised update of the country’s food safety law will continue the process of consolidation — though this being China actual enforcement will be key.

In some respects China’s food market remains a wide open space with lots of room for quality products. The relative absence of credible local food brands was lately lamented by Yu Xubo, the head of COFCO, a state-owned food trading giant, who launched womai.com to sell his company’s imported and domestic foods to well-heeled Chinese consumers.

And now with acceptance of frozen seafood growing, a great opportunity exists for foreign seafood suppliers to build a brand presence here. There’s long been a danger that foreign exporters won’t be able to fund the kind of distribution and marketing effort required to take advantage of the opportunities in China. Few — other than perhaps ubiquitous Thai conglomerate CP — have had the funds and energy for a long-term marketing effort at point-of-sale.

But now is a time of fundamental change in China’s retail landscape and this creates opportunities. Online outlets spreading their logistics capacity nationwide means there’s a reach into China that previously never existed. There’s also a demand and enthusiasm for fresh and frozen seafood product — as shown by the entry of Suning into the fray.

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