It’s no secret that the Chinese love to eat, and like anyone else, they don’t like to worry about what’s on their dinner plate or in their baby’s milk bottle. That’s why the constant stream of terrifying food safety scandals in the news has developed a new class of distrustful and skeptical consumers who are looking more carefully at the source of their milk, meat and even snacks. It’s one of the reasons that a growing number of consumers are seeking out imported food products from the United States, Europe and other countries, and perhaps why the imported food market in China is poised to explode. In over a thousand detailed interviews conducted by the China Market Research Group (CMR) in the past few years, consumers across China talked about their food buying habits and reported they’re looking not just for safe products but for nutritious ones as well.
Faced with so many options, shoppers often cannot decide what brands to buy. They’re increasingly turning to imported food and foreign brands to ensure that they provide their families with safe products. In a recent study, 70 percent of heads of household told CMR they will increase how much they spend on imported foods and are willing to pay premiums of up to 30 to 40 percent over domestic equivalents. “Imported groceries have become my first choice not only for milk and meat, but also for fruit and vegetables,” one Beijing woman in her mid-30s told interviewers.
In the past, Chinese shoppers primarily used price and product origin as proxies for safety when comparison shopping. They mostly avoided the cheapest brands and products under the assumption that they’re most likely to cut corners on safety. Chinese shoppers had less knowledge of specific brands so in their minds, high price was the only way to assure high food quality. For example, consumers believe premium-priced milk such as Australian-imported Devondale must be fresher and more nutritious than cheaper brands stocked nearby. Why? It’s one of the most expensive brands out there – as a result it’s a top seller on online supermarket Yhd.com. A key lesson for food brands is to avoid competing at the low end, as shoppers will assume that you have lower quality and will trade up to more expensive alternatives as soon as their budget allows it.
American food producers have a strong advantage in the premium segment. Our respondents told us that they view the United States, along with western and northern European countries, as having strong standards for safety and quality control. The high regard for U.S. food producers was apparent in Shuanghui’s US$7.1 billion acquisition of Smithfield Foods in 2013 and in Yili’s decision to team up with Dairy Farmers of America. American brands are in a position to take full advantage of their history as consumers look for scale and reputation to judge whether products are worth the premium, giving the upperhand to large, global brands with years of experience.
Consumers, however, especially those in Tier 1 and larger Tier 2 cities like Chengdu and Hangzhou, are becoming more sophisticated and discerning. They are increasingly skeptical about taking brand claims at face value and are taking time to do research before they make decisions. To address this change, more hypermarket chains like Tesco and Carrefour are providing in-store product traceability systems for imported products to assure customers that the items they buy are indeed high-quality. The widespread use of smartphones and the WeChat app allow shoppers to scan two-dimensional bar codes on package labels and browse detailed information, including the name of the dairy farm where the milk was produced, its safety certifications and records, right down to pictures of the farmers and the cows on the field.
At the same time, consumers are becoming more sophisticated about not just food safety but also nutrition. Previously, most were satisfied if they had a good balance of meat, vegetables and a staple dish on their plate. Today, more people are scrutinizing the nutritional content on food packages. For example, our study indicated that mothers in Tier 1 and Tier 2 cities are looking for ingredients that will help in their child’s development or have anti-aging properties like omega-3 fatty acids. At the same time, young, single women are looking to minimize their calorie intake and are eating less salt and fat. According to our survey, 75 percent of women between 20 and 35 are interested in limiting their calories and 30 percent said they use one or more apps to calculate how many calories they consume each day.
These dramatic shifts in how people look at food is leading to increased opportunities as well as challenges for foreign brands.
As it is hard for foreign brands to produce quality products at a low cost to consumers, brands should focus on the products for which consumers are most willing to pay higher premiums. In general, foreign brands might find the most success exporting children’s food products and organic foods to China, as Chinese consumers prioritize the safety and growth of their children. In the last three to five years, there has been an annual growth of about 50 percent in this area, a trend that’s likely to remain steady.
Organic food is now part of the vocabulary for many people and although there is strong interest in the concept, the absence of a clear, unified standard for what qualifies as “organic” causes consumer confusion and wariness of false claims. Consumers are increasingly distrustful of claims about organic products issued by different departments or organizations leading to confusion and distrust.
While Chinese consumers are willing to try new types of food, the reality is that they still prefer Chinese food and familiar flavors at most meals, especially at home. This is true even for young white-collar workers in Tier 1 cities, who show the strongest interest in foreign brands.
Chinese consumers will not give up Chinese dishes but will spend more on imported products for selected food groups such as seafood and meat, which they will use to cook at home. Foreign brands that offer more localized offerings can do well. According to our research, Century, the canned seafood brand from Thailand, is a leader in the Chinese market, offering a variety of flavors including both traditional Chinese flavors like black bean and five-spice and more Western flavors.
Many interviewees told us that they are interested in trying more western-style foods at home, but their inexperience preparing non-Chinese dishes and their lack of familiarity with western recipes intimidates them. Perhaps foreign brands may find it useful to educate consumers about preparing Western meals at home, especially packaged canned food. Many consumers CMR interviewed reported that they welcome detailed recipes, in Chinese, on product packaging. Foreign brands can also utilize advertisements, press and television cooking programs to educate consumers on western cooking. These channels are prevalent in China and 70 percent of Chinese consumers interviewed said they look at these sources for information. Take for example olive oil brand Betis, which uses television ads to inform viewers that olive oil is not just a replacement for regular cooking oil but can be used in other dishes including Western-style salads.
Urbanites in China lead increasingly busy lives. They are pressed for time and are less likely to live with their parents or other relatives who stay at home and prepare meals. These demanding consumers want quick, pre-prepared meals. Convenient, easy to prepare and easy to cleanup meals are strong selling points.
There are still great opportunities for American brands to penetrate deeper into the Chinese market as consumers believe American foods are safe and nutritious. Today, Chinese consumers know more about American food, and recognize that fast food represents a small part of American cuisine. If Chinese consumers continue to lose trust in domestic brands, then consumers, particularly those with higher incomes living in Tier 1 and Tier 2 cities, will turn to foreign brands like Dole and Quaker Oats as well as meat from the U.S., Australia and New Zealand. Some 80 percent of consumers told CMR that they are more likely to shop in high end supermarkets, followed in popularity by famous hyper-markets like Wal-Mart, due to the higher trust in big names and their strong penetration in China.