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Clearwater Seafoods – B2C in China

in Misc on October 20, 2019

The following article is based on this Harvard Article

Harvard Article

Technological advances and changing consumer preferences are fast reshaping China’s retail landscape. Chinese consumers today have different and more sophisticated expectations of products, services, experiences and value. They increasingly demand a seamless “shopping experience” across all shopping channels. The rapid development of online retailing continues to pose challenges for traditional retail. As the sector evolves, market players are increasing their efforts to keep up with and adapt to the changing landscape. 

Food consumption in China, in terms of consumer spending, has consistently increased over the last decade. In 2005, according to China’s Bureau of Statistics, food consumption accounted for approximately 37 percent of total household expenditures, or about RMB 2,900 per year. In 2015, food consumption accounted for approximately 31 percent of household expenditure, or nearly RMB 4,100 per year. Meaning, in the ten-year period, on average, money spent on food consumption for consumers in China increased by 41 percent. The increase is noticeable when analyzing consumers’ buying preferences. 

Keywords for consumers: 

Convenience

Successful products are easy to buy. Consumers in China are hesitant to enter credit card information online but payment services (e.g., Ali-Pay, WePay) are common. The payment services allow consumers to purchase with just a few clicks or by waving one’s phone in front of a receiver. Home delivery, online product offerings (including in mobile applications), and promotions are also expected from retailers. 

Value

Consumers in China are resourceful and collaborative. Shoppers are patient in their purchases in order to evaluate a product’s brand, public status, safety, and price relative to available substitutes. Consumers will actively collaborate about a product offering. Poor consumer feedback tends to travel fast and wide. Customer service and product consistency are highly valued. 

Keywords for retailers: 

Digital

China’s retailers are rapidly transforming from traditional retail channels into e-Commerce channels. E-Commerce has become an element of nearly all retailers in China, especially for the new and expanding retailers. 

Specialization

China’s retailers are developing specialties within certain food commodities. For example, there are more and more retailers focused on only organics, meat products, or fruit. 

China’s retail sector is the primary method in which U.S. exporters and food producers can reach consumers in China. Rapid urbanization and a growing middle class are driving China’s retail sales to record levels. As a result of globalization and development, China’s younger populations have become accustomed to imported food products being available at retail stores in major cities (i.e., first-tier cities). 

China had 3.7 million retail outlets, of which 3.5 million comprised street vendors, shops, kiosks and mom-and-pop outfits that formed part of the traditional retail market frequented by suburban dwellers and the older generation. The balance of retail outlets consisted of what was referred to as modern retail, frequented by urban dwellers and the younger generation. The latter came in four formats: supermarkets, hypermarkets, gas stations and convenience stores. Although smaller in number, modern retail outlets generated 62 per cent of total grocery sales in China. 

Small sized convenience stores and specialty stores remain to be the most prominent retail model. High quality and premium priced food products, including imported food and beverage, is expected to continue its success in first-tier (e.g., Shanghai, Beijing) cities. Retailers are now focusing on imported food sales in second- and third-tier cities (Nanjing, Chengdu). 

In China, there is a saying “民以食为天 (min yi shi wei tian)”, which means “food is the most important in one’s life”. 

Key retail cities in China are Shanghai, Beijing, Shenzhen, and Guangzhou (i.e., first-tier cities). 

Consumers of imported retail products

Foreign nationals living in China that are seeking products they are familiar with are willing to pay premium prices. More chain retailers (e.g., BHG, Ole) are starting to target these consumers. Small local specialty retailers (e.g., Jenny Lou’s, City Super, and Corner’s Deli) also have success in attracting foreign nationals. 

Affluent Chinese consumers are seeking high quality products that portray an image of status. High-end retail chains (e.g., Sam’s Club, Taste, Great, Treat) cater to these buyers, and tend to focus on products with special health claims. Labeling and brand image are important to these consumers. 

Middle-class Chinese consumers seek the same high quality and safe products the affluent and foreign national consumers do but are willing to seek out the best value. These consumers tend to be somewhat price-sensitive and will compare several brands before they make a final purchase decision. On average, this target group is looking for food products that are fresh, easy-to-prepare, and consistent. Companies that offer value-added services and great customer service seem to do well with this group of consumers. 

China’s younger generation has become more knowledgeable about imported food products. This group of consumers will still purchase in the many wet markets around China but at a much lower frequency rate in comparison to past generations. Younger consumers now purchase through hypermarkets, supermarkets, and online. Healthy eating is important as well is convenience. Many will buy through online or mobile shopping applications (e.g., We-chat and the Ali-pay). 

International players such as Wal-Mart, Carrefour, and Metro are facing keen competition from leading domestic chains like China Resources Vanguard and Yonghui. These retailers are transitioning from old to new neighborhood (i.e., old facilities are being closed while new facilities are being built in new suburban areas). The total number of stores has remained nearly the same over the past year. Nearly all hypermarkets and supermarkets sell imported food products. In 2015, the leading retailers selling consumer packaged products include China Resources Vanguard, RT-Mart, Wal-Mart, Lianhua, Carrefour, Yonghui, Nonggongshang, Haihang, Bubugao, Wumart, Metro and AEON China. High-end chains include Ole’, BLT, Sam’s Club, Bravo, as well as BHG. 

China’s convenience retail sector continues to grow. Convenience stores and community stores can be found in public transportation centers (e.g., subway stations, airports, and train stations), shopping centers, or scattered throughout the city. Specialty retail markets appeal to affluent, wealthy consumers in China. The stores are either located inside downtown commercial buildings or close to high-end shopping centers or living communities. 

Major convenience and specialty stores include

7-Eleven: Currently there are over 1000 outlets nationwide providing 24-hour value-added services, featuring snacks, wine and liquor, drinks, cigarettes, hot and cold delicatessen food items and non-food items as well as magazines. 

Corner’s Deli: A fast growing imported food store. Now it has 12 outlets in Guangdong and Hainan, all featuring a wide range of imported food items. U.S. cheese, condiments, breakfast cereal and other packaged products such as dried fruits, snacks, and nuts are selling well. 

Jenny Lou’s: A major specialty imported food chain in Beijing with over 17 stores. Target consumers include expatriates and upper-middle income Chinese consumers. Half of the products sold in this chain are from United States. Popular items include breakfast cereals, dried fruits, nuts. 

Pagoda: This leading specialized fresh fruit community chain owns over a 1,000 outlets and recently acquired Beijing-based Guoduomei’s share. With the head office in Shenzhen, Pagoda aggressively opened new stores in Beijing and Shanghai this year. Seasonal U.S. imported fruits such as table grapes, cherries, apples, pears and citrus are often displayed on shelves. 

Digital Shopping 

E-Commerce is dramatically growing in China. Currently, e-Commerce accounts for over 10.7% of the total integrated retail sales. China’s E-commerce market retail sales total is about $480 billion. Industry insiders estimate that about 10-30 percent of retail imported food and drink products are sold through Ecommerce channels in China. Almost all major online retailers and platforms such as Amazon, JD, Tmall, Womai and YHD, sell food and beverage. 

Tmall.com: This leading online shopping company is based in Hangzhou. As both E-commerce and m-commerce in China is booming, Tmall successfully created Single’s Day (Double 11) as a major shopping holiday in addition to the Chinese Lunar New Year season. The shopping campaigns target the younger generation and single persons. Three types of stores available on TMall Global: Flagship store, specialty store, franchise store or monopolized store. 

Yihaodian.com: In early 2015, Walmart (China) took full control of Yihaodian.com. In 2012 WalMart (China) further invested into Yihaodian. Based in Shanghai, Yihaodian started seven years ago in introducing imported food items to online consumers. However, in the past two years, the online platform has been struggling to grow. 

JD.com: JD is the second largest e-commerce platform in China with 21.2 percent market share. JD.com invested $70 million to acquire fruitday.com (a specialized fresh fruit e-commerce player in China) to increase their product offering. Recently, JD.com partnered with E-Jiangnan to set up a self operated cross-border warehouse, dealing with fresh fruits, dairy products and other products. It is expected that this new B2B2C business model will allow them to decrease operational costs and take advantage of the tax benefits of CBEC. 

Amazon.cn: Amazon has 1.5 percent market share in China e-commerce business. In 2015, Amazon.cn launched its flagship store on TMall.com featuring products sourced directly from overseas. Based on its global supply chain, and 96 large operation centers in the world, Chinese customers can order products via amazon’s websites in the United States, Germany, Spain, France, UK and Italy. These websites combined offer over 80 million SKUs’ of imported items online with over 25 million SKUs from the United States. In order to attract Chinese customers, amazon’s website in the United States slashed the international shipping fees and improved the delivery times for orders from China. Facing fierce competition amazon.cn launched its own ‘fresh products’ section in May 2015. The section offers over 300 SKUs and just about everything from seafood to fresh fruit and meat as well as fresh cheesecake. 

NetEase: Netease launched its cross-border e-commerce platform www.kaola.com early in 2015. Kaola.com sources products directly from overseas and stores them at their bonded warehouse in China. Products include baby food, food products, supplements, cosmetics, household and personal care products, apparel and accessories, and consumer electronics. In less than a year kaola.com has become a leading cross-border e-commerce business with imported SKUs of over 10,000, and monthly sales of more than $5 million as well as operating the largest bonded warehouse in China. 

Chunbo.com is a regional e-commerce player based in Beijing. It was founded in March of 2014. Chunbo runs its own organic farm in suburban Beijing offering fresh vegetables. Target customers are upper-middle income customers, and young mothers living in Beijing. Customers can easily source fresh products, seafood, beverages, snacks, and health food on its website. In 2016, Chunbo.com launched a new operation in Shanghai to support the company’s exploration of the markets. 

Differentiation Strategy 

Local Contacts: The main business-related cultural difference between the West and the Chinese is the importance of long-term business relationship. In China ‘Guanxi’ or social connections hold a great power. ‘Guanxi’ is the driving force behind business deals and government contracts. So, in the Chinese market it is therefore of vital importance to have experienced and reliable locals to work with. 

E-commerce: Currently, China’s e-commerce food consumption is 3.3% but the potential for growth is enormous. E-commerce is the fastest developing segment and will take up about 20% retail market share by 2020. Imported seafood is more eagerly accepted by e-commerce companies compared to traditional wholesale markets, hypermarkets and food services. Emerging e-commerce companies are willing to try and accept new products to sell online. China’s e-commerce has, as a result, become the best platform to launch new product sales. Seafood products that have proven successful on the e-commerce channel will be selected by hypermarkets and restaurants to sell in their channel because online big data demonstrates the market demand and potential of this seafood product. There is also the aspect of the fast branding establishment as e-commerce presents a bigger opportunity for companies to brand and spread their products. In Nova Scotia, the online categories included lobsters (live, cooked, shelled, and in parts), scallops, crab and shrimp. The retail stores also sold (and delivered) “dinner packages” for groups of 2 or 4 people. The company’s two retail store also sold “accompaniments” — lobster forks, lobster crackers, thermal bags and eating utensils, all adorned with the Clearwater logo, in addition to seasonings and Omega-3 capsules under the Clearwater brand name. The way they did e-commerce transactions successfully in Nova Scotia, whereby customers could order online and have the product delivered to their doorstep, they need to implement the same strategy in China where consumers are willing to order online, tier 1 cities. 

Educate Consumers: China is a high growth market ready for innovation and in the Chinese context, “value” consumers are moving upscale, willing to pay a premium for high quality products with integrity and reliability. They introduced the premium brand hard-shell lobsters and they are different from softshell lobster. Now it’s time to educate the consumers as to why they should pay more for a different and high quality product. 

Innovative products: The company was experimenting with distinct flavors as part of its innovating new products for both the food-services customers and retail partners. One of the successful launches was the bacon wrapped scallop, which was a popular appetizer. A more recent launch was garlic cream scallop and sauce, which was MSC-certified. The product could go from frozen to finished state in six minutes, making it ideal for pairing with pasta, chicken and steak. Creating more science-based products for the new age consumers can be advantageous to them. Recent studies are going on to improve yield from oysters and shellfish. So, they can use biotech to improve their products and can improvise ocean farming. For example, they can package in single or double pieces of cod or capers along with cooking instructions and target for the busy middle-class Chinese consumers and chances of success are higher because it’s a product which can be cooked at home unlike salmon which is largely served raw in food service outlets. 

CoO strategy: Country-of-origin (CoO) strategy where informal branding which includes details such as the name of manufacturer and place of origin so that consumers can easily have an idea about the product quality. In China, in the absence of a capitalist system, branding was connected to social systems and cultural contexts; that brand development was a consumer-initiated activity rather than the manufacturer-push normally associated with Western brand management practices. Research shows that consumers' broad general perceptions of a country, including of its national characteristics, economic and political background, history, traditions, and representative products, combine to create an overall image or stereotype that is then attached to the products of that country. So, that consumers can refer the salmon and Canadian seafood at large and associate with high quality, good taste and health benefits. 

Changing Chinese minds on frozen seafood: Chinese consumers still prefer live seafood over frozen. They promote live lobsters but need to also promote frozen lobster. They need to educate them for Clearwater's arctic surf clam products. Frozen seafood can be better than live because live seafood diminishes in quality when it travels long distances. 

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