Beyond China’s Tier-1 Cities: Consumer Trends and Opportunities for Premium Food and Beverage Brands
China is now the world’s largest consumer market for food and beverages, with an average import growth rate of approximately 15% during the last five years.
The rise of the consumer classes, increasing disposable incomes and concerns about local product safety is dramatically transforming food consumption patterns. Demand is growing quickly for the types of premium ‘clean and green’ products that Australian brands are known for. While the Tier 1 cities like Shanghai and Beijing are increasingly saturated marketplaces, there are distinct opportunities elsewhere in some of the lesser known Chinese markets for Australian brands.
This was the backdrop for Mark Tanner, Managing Director of Shanghai based China Skinny's keynote address on Tuesday 2 July, to a full house at Trade Victoria's Investment Centre.
“Most people when they talk about China they talk about Shanghai and Beijing, and then they launch a brand, they think about these markets,” Tanner says.
“In many cases it’s the right thing to do because these consumers are wealthier and they are spending more on sophisticated and imported products - But in many other cases they are not.”
Tanner highlights that its important to take distinct characteristics of individual cities and markets into account, when considering how to crack into China.
He notes consumer habits and preferences can change rapidly between each city, “Shenzhen and Guangzhou, for example, are only a 30 minute train ride apart, yet they are completely different cities: Guangzhou is an old city, people speak Cantonese there, and tend to live at home, they live with their parents.
“Yet go just down the road to Shenzhen, and it was a fishing village 30 years ago so the people have come from all around the country and the common language that bring’s them all together is Mandarin. Many of them are migrants, so they don’t live at home and they may only see their parents once a year at Chinese New Year.”
These fundamental differences require careful nuancing by marketers, for example, on messaging around family bonding.
Beyond tier-1 cities
Whilst understanding this complex landscape takes time and effort, Tanner highlights the immense opportunity that exists within China's lower tier cities.
Already, there are 114 cities in China with a population greater than Melbourne. This figure is set to rise further, with research from the Boston Consulting Group finding that
between 2016 and 2020, 50 million new consumers are going to reach the middle to upper classes and half of those are going to be from cities that are smaller than Melbourne.
This trend is creating a significant number of consumers with enough money to spend and make discretionary purchases to buy premium and imported products - something Tanner encouraged food and beverage brands to think about as a part of their business strategy going forward.
Premium food and beverage opportunities
Austrade have identified strong interest from the China market for Australian dairy products (including, milk powders, yoghurt, cheese and butter), seafood (particularly saltwater shell fish such as oysters, crabs, lobster and abalone), fresh fruits, breakfast cereals, chilled and frozen beef, processed foods, wine and craft beer and natural fruit juice.
Tanner added; “The consumers that are buying most of these premium and imported products are millennials…They’re earning more, they’re much more willing to spend…and they’re online, they’re not using traditional channels they’re on WeChat and using e-commerce channels.”
The Tourism factor
A key factor that is often overlooked as being linked to premium food and beverage purchases in China is the rise in tourist numbers. Chinese tourism to Australia recently overtook tourism from New Zealand as the number one tourist market in Australia.
This is somewhat of an untapped opportunity for food and beverage marketers.
Tanner sites work undertaken by Tourism Australia, which found that 69% of Chinese consumers who had visited Australia had a very favourable impression of Australian produce, compared with 27% of the population overall. Tourism, therefore, plays an important role in building your premium food and beverages brand in the region.
To capitalise on this opportunity, Australian businesses need to develop strong knowledge of the particular market they are targeting, right down to a city-level understanding. To further enhance Australia’s position as a high-value food and beverage exporter, it is crucial for Australian businesses to maximise their consumer understanding and detailed market understanding to enable success.
“If you look at the tourist make up that’s happening in Australia 58% of Chinese tourists to Australia come from tier 2 or lower cities so the majority come from these cities, they’re tasting and sampling Australian food and beverage and...spend 60% more on Australian products when they return to China.”
The Challenges
Some of the major challenges identified during the Q&A session with the audience were around supply-chain logistics and regulation for food and beverage products entering the China market. Michael Cope, Head of Global Development, Australia Post, provided insights into how Australia Post is expanding their offerings throughout China via Joint Ventures and partnerships with in-region services.
“We have worked with China Post for a very long time and we have a very successful Joint Venture…And we didn’t do it within 3 months…We have been able to facilitate movement of Australian consumer product into China and we’ve also been working very closely with e-commerce platforms like Alibaba and Tmall in being able to facilitate trade for Australian Small to Medium producers.”
Angeline Achariya, CEO, Monash Food Innovation Centre offered advice on where to start with entering lower tier cities in China.
“Start with the consumer, start with a market and what is it that this market and consumer needs, Don’t make assumptions because it’s a different country or different culture that whatever works here is going to work there…Its about understanding behaviours, its about understanding how people will use your products and then taking those insights and designing what the offer is, “she says.
For further resources
Download our China Country Starter pack and view our Case Studies
A full image library from the event is available here
Read Mark Tanner's interview in The Australian from this event on July 7 here
This event was supported by Australia Post and Trade Victoria