Australia has an edge in the alcoholic beverages, enhanced soft drinks and fresh grocery markets in China due to our heritage, expertise and geography.
There are many new ways Australia can diversify its product offerings and capitalise on the growing number of Sino-Australian partnerships in agribusinesses which are benefiting SMEs and MNCs alike.
According to a British medical journal, The Lancet, when excluding non-drinkers, Chinese middle class consumers now drink more litres of alcohol annually than their Western counterparts, including Australia, the U.S, the U.K and Germany. The report cites rising wages and high-pressure workplaces for the rise in consumption. Chinese consumers drink a far greater share of spirits compared to the international average, and though the alcoholic beverage industry has faced challenges due to anti-corruption prosecution on luxurious gift giving, China still consumes a quarter of the world’s beer.
But Australia’s main opportunity is in the wine category, which is expected to grow by 10 percent from 2011-2016, driven largely by Chinese middle class families and the young urban elite. Of all Chinese wine imports in 2011, Australian wine came in second (after France), at 19 percent of market share. France has benefited from an early perception of quality in the market, but as China’s wine market grows in conjunction with the China-Australia Free Trade Agreement, there are significant opportunities for Australia. The Australian Grape and Wine Authority noted that the market share for Australian wine in China grew by 20 percent last year. A significant trend for Chinese consumers is the increasing desire to appreciate a brand experience whilst consuming wine. For example, Spanish producers capitalised on this and inspired interest amongst Chinese wine drinkers with three month classes at a Guangzhou school for consumers to learn all there is about Spanish wine.
Red wine enjoys a good reputation both for containing less alcohol compared to Chinese spirits and because of its luxurious connotations. The (fruity, antioxidant) health claims also appeal to older Chinese, while younger, well-travelled consumers are drawn to the flavour. New players in this category must also decide whether to tap into China’s growing e-commerce mass market, or at the other end of the scale, take advantage of China’s luxurious gift giving culture.
Tapping into craft beer
Another less-conventional avenue of opportunity is the rise of niche alcoholic beverages. China, as the world’s largest beer producer and consumer is seeing domestic production slow in tandem with the rising popularity of foreign beers amongst young consumers. In fact, China saw a 66 percent increase in beer imports in 2013. The Shanghai Beer Festival held last Autumn even included beers made with purple rice and Sichuan peppercorns. To tap into this market, Australian craft beer producers such as the Balmain Brewing Company in Sydney have entered China (after initially entering Hong Kong) by signing a deal with a Chinese distributor to position high end craft beers to wealthy consumers in hotel bars and restaurants. To get this right, the consumer must be understood. In an interview with The Silk Initiative, Daniel Taytslin of Gotham East, a Shanghai based spirits importer and brand developer, said that the strategy isn’t about ‘going to a traditional Chinese restaurant and presenting them with one-of-a-kind gins where they’ll just drink beer and baijiu…but more about holding an education session to have bartenders act as de-facto brand advocates’.
Enhanced soft drinks
Coca Cola’s recent purchase of a Chinese multi-grain drink maker (Cu Liang Wang) is an example of the dynamic nature of China’s soft drink industry. As the interest in sodas wane (the market saw a 3 percent decline in 2012), China’s fruit and vegetable soft drink industry is currently growing at 20 percent annually. There is a lot of variety in this sector, with soft drinks flavoured with fruits, vegetables and even traditional Chinese medicinal ingredients. The industry has also seen products combining different market categories, such as Super Milky Pulpy Juice, a drink developed by Coca-Cola that mixes dairy and juice.
Tapping into China’s $66 billion soft drink industry (2013) with annual growth of 15 percent requires a deep understanding of the consumer due to its flavouring and distribution challenges. The opportunity here for Australia, particularly smaller producers, is to focus on product ingredients and how these are processed. Instead of competing with conglomerates such as Coca Cola and Suntory, who are jostling with Chinese groups such as Wahaha, Australian producers should focus on strategic-in-market partnerships. For example, Zhu Xinli, the head of Huiyuan Juice (which holds 51 percent of the juice market in China), has been eyeing investments in Australian agribusiness. He suggests that there are “1.3 billion Chinese consumers crying out for premium Australian products,” whilst also emphasising the importance of co-operation between Australian and Chinese producers on “all aspects, including technology.”
China’s $1 trillion grocery market is transitioning to suit the changing demands of China’s 600 million online customers. Consumers are demanding fresh groceries to their door. Already, Australian steak is available through online retailers such as T-mall, and fruit and vegetable producers, such as Australian nectarine farmers, are eagerly awaiting approval to sell their goods through online retailers.
Fruit and vegetable imports do not necessarily have to target high end consumers. This month, Canada’s Mucci Farms sent its first shipment of ‘cutecumbers’ (mini cucumbers) to a wholesaler in Shanghai, with the CEO saying the terrific reaction to the product is due to the fact that it’s new and interesting and has a crunchy and sweet taste with no seeds. Chinese consumers are known to try new products, particularly foreign, and with fruits and vegetables still a common snack in China, new interpretations of traditional groceries such as cucumbers will attract curious consumers.
There is also value in agricultural expertise which should not be overlooked as a key point of positioning in a country dominated by sub-par wet markets. For example, Jiang Quan of the Beijing Academy of Agricultural and Forestry Sciences, has sought out Australian producers in particular to improve the production of Chinese pears. Pears are indigenous to China though there is growing awareness that Chinese growers can benefit from modern techniques and technologies.
Let's go organic
With regards to production techniques, the $500 million ‘niche’ organic industry in China is actually the fourth largest organic market in the world. Recently, the market has been growing at over 30 percent a year as concerns over pollution continue to rise. Larger foreign producers who have applied early for China’s elusive organic license include Fonterra, Anchor and Angove (wine), though Australian fruits, particularly citrus, will benefit from superior perceptions of quality and safety.
John Moore of Summerfruit Australia says that marketing to the whole of China makes no commercial or logistical sense when it comes to organic produce. Instead, he says to focus on the upper middle class in tier one cities where 48 percent of consumers look for, and are willing to pay for, imported fruits. He also notes that as it only takes 14 days for the products to reach Shanghai by sea, Australian producers have no competitors to rival their fruits for quality, sweetness and taste. Australia also benefits from its location in the Southern Hemisphere and can provide fresh counter-seasonal crops, such as apples, to northern producers.
Andrew Kuiler (Andrew@thesilkinitiative.com) is the managing director of Shanghai-based food and beverage consultancy, The Silk Initiative.