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Food Ingredients: The Lure of Convenience Amplifies Sales
By Jack Marr
U.S. exporters stand to
benefit from a growing market for convenience foods and improved
distribution networks for all industry sectors.
All across eastern China, imported food ingredients are gradually finding their way into local food production and palates. Spurred on by recent economic activity, the local population is on the go and increasingly demanding convenient, high-quality foods. Shanghai's consumers, particularly the young, have more money and less time to shop and chop, and this means a wide variety of opportunities for U.S. exporters of value-added food ingredients.
One way to understand this market is to look at it by generation--and by generation gap. The older segment of the population still almost exclusively buys traditional foods, shopping daily at "wet" markets (street markets specializing in fresh produce) and washing, peeling, chopping and preparing almost all their food by hand. The younger segment is starting to prefer convenience and speed: the fast-food, snack, beverage and bakery sectors are all thriving under their patronage.
Another salient feature of the Chinese marketplace is its deep-rooted traditionalism. Chinese cuisine does not use a lot of ingredients and is still by far the number one preference for breakfast, lunch and dinner. Many Western staples such as ketchup, Mediterranean spices and dairy products are simply not used in Chinese food.
Thus the consumer and Chinese restaurant markets for imported food ingredients are marginal. U.S. exporters must turn their attention to the burgeoning Western foods market and to value-adding convenience.
Food Ingredients Defined: Agriculture-based products that will change, enhance, enrich or create a special flavor when added to base ingredients.
Bare Shelves
The home-use consumer food ingredient market will potentially be the largest. It is the one, however, into which Western food companies have made the fewest inroads, due in part to the nature of Chinese cuisine--its strict reliance on oil, salt, ginger and vinegar--and partly due to the dearth of convenience products specifically tailored to the Chinese home.
Home-use convenience products may be the "killer application" for food ingredients in China. If priced correctly, they have widespread potential appeal because of the time they save and their familiar flavors. The challenge lies in education and marketing--teaching that time is money, and that food shopping and food prep take a great deal of the former.
Getting the Most Out of Your Dough
The bakery sector is an important one for American and other imported food ingredients. The Shanghainese are very fond of Western baked goods, especially breads and cakes, and there are a great number of small bakeries around the city. This is probably due both to the carryover from Shanghai's semi-colonial history and to the fact that Chinese cuisine does not provide a large selection of desserts to satisfy the sweet tooth.
Because of the need for a high-quality and consistent supply to churn out baked goods, imported ingredients are used in large quantities. These ingredients include wheat flour, dairy products, almonds, raisins, corn, cherries, basil leaves, tomato sauce, cheese, black pepper, curry powder, non-dairy toppings and garlic powder. It should be noted, however, that this sector is already highly developed and thus very competitive.
Fast-Food Attack
Although the majority of eating establishments in Shanghai are still Chinese, there has been a boom in the number of fast-food restaurants over the past several years. This is led in eastern China by KFC and McDonald's. Chain restaurants are also beginning to pop up, including Pizza Hut, Haagen Dazs, Tony Roma's and the Hard Rock Cafe. Each uses a wide variety of imported food ingredients and has sophisticated distribution networks, saving suppliers time, money and headaches.
This market, and especially the fast-food market, presents a double-edged opportunity for potential food ingredient importers. Although the hotel and restaurant industry market is large and growing, it is based on economies of scale. The tendency is to locally outsource production of ingredients to joint ventures and Chinese firms as soon as it is economically feasible.
Nevertheless, as soon as the Shanghainese palate develops each new taste, restaurants will surely develop as a market for a broader and more detailed range of ingredients.
At present, specific opportunities in this sector include condiments such as ketchup and sauces, soup mixes, spices, flour, beverage and ice cream mixes, cream cheese and fresh vegetables such as lettuce and onions.
What's Cooking in Chinese Kitchens?
Regional cuisines in China can arbitrarily be categorized as spicy in the West; hearty in the North; fresh and light in the South; and salty and sweet in the East. Cooking most homestyle Chinese foods requires a long time prepping with fresh ingredients and a short time frying at high temperatures in the ubiquitous wok.
The grocery list includes meats, vegetables, rice in the South and noodles and steamed dough in the North, and usually only a handful of other ingredients: soy sauce, Chinese rice vinegar, cooking wine, salt, sugar, monosodium glutamate, ginger, garlic, spring onions and hot peppers. Except for peanuts, the nuts used in some dishes such as the famous Kung-pao chicken are often imported.
Servicing the Chinese Food Service Industry
One legacy of China's command economy is the vast numbers of institutional lunches served each day in factories, schools, universities, government offices and other institutions. Each pumps out inexpensive, subsidized, low-quality meals made entirely of domestic ingredients. Some sectors such as transportation, however, are showing signs of deregulating and are experimenting with better quality, privately contracted train and airline meals. Another recent sign of progress was the success of a Shanghai joint venture of Hormel, Inc., in selling American-style cocktail franks to local school lunches.
Shanghai, though, is privatizing at dizzying speeds. Hundreds of office developments, now rising from the rubble of construction, will one day be filled with tenants. Employees at joint venture companies usually eat box lunches called hefan; though they are very inexpensive, they lack the quality and sanitation that sophisticated consumers desire.
From Farm to Factory
Food manufacturing and
processing represent a very large opportunity for U.S. exporters
of food ingredients. Currently, many major U.S. brands have set
up food manufacturing facilities in China due to high import
tariffs, lower labor costs and problems with market access for
imported food. This trend should continue. The demand is mostly
for high-quality "particular" ingredients such as
whey for baby formula and pig feed and almonds for chocolate ice
cream pops.
McCormick, the Hunt Valley, Maryland-based company, is the dominant player in the food ingredients processing industry. McCormick sources and distributes garlic and other spices, sending "agricultural engineers" to comb the globe for spices. Their bounty is then shipped to high-tech processing plants usually in the United States and then reshipped to other clients at home and abroad.
However companies choose to approach the China food ingredients market, a little cultural awareness and common sense can go a long way.
Realize that along with China's 5,000 years of history go 5,000 years of cuisine. Tailoring products to local market idiosyncracies is crucial to success.
Remember that the China of today is changing so quickly that trends must be closely monitored and followed.
Finally, bear in mind that a whole new generation is maturing to whom a cheeseburger may not seem like such an exotic import but whose eating habits can still greatly be shaped by promotional tools.
Market Notes
The author is a marketing specialist with the Shanghai Agricultural Trade Office. Tel.: (86-21) 6279-8622; Fax: (86-21) 6279-8336; E-mail: atos@public.sta.net.cn
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