Going west: Big opportunities in China's smaller cities for Kiwi exporters

Friday, 20 September 2019

Chengdu and Xi'an offer new opportunities for Kiwi companies exporting to China.

Chengdu is China's panda capital and hordes of tourists come to see the undeniably cute black and white bears in the giant panda breeding research centre.

But it's Chengdu's 16 million humans who are attracting the attention of Kiwi exporters, along with other western cities such as Xi'an, population 12 million, and home of the famed Terracotta Warriors.

The focus for trade is often on Beijing, Shanghai and Guangzhou, so-called tier 1 cities on the eastern seaboard, but that is changing.

More than 40 Kiwi businesses and tourism organisations recently attended 'opening doors to the west' forums in Chengdu and Xi'anorganised by the China Chamber of Commerce in New Zealand.

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Pic's Peanut Butter founder Pic Picot says China's smaller cities like Chengdu feel a bit more like New Zealand. 'Initially I thought I'd never understand Chinse consumers, but ultimately they are just the same as New Zealanders, they have families, they have concerns about staying fit and eating healthy food.'

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Parley Reynolds, Asia marketing manager for Moa Beer and West China sales manager for Constellation Brands, says Chengdu residents are willing to try new things, but promotion is important, and it is not enough to put a product online and hope it will sell.

Parley Reynolds, Asia marketing manager for Moa Beer, has lived and worked in China for a decade, including three years in Chengdu where he also represents Constellation Brands.

He says cracking the Chinese market is never easy, but out west there is less competition.

'They have more disposable income, and they're looking for experiences and things that are different.

Freshippo supermarkets are stocking New Zealand products in China and guarantee delivery within 30 minutes for customers who live close by.

'When you go to trade shows and events, people pay a lot more attention to you and your products.

'In Beijing and Shanghai, because they tend to be the focus of foreign companies entering China, they're almost overwhelmed with the volume of companies trying to make their mark.'

Chengdu is the capital of the Sichuan province which was hit by the 2008 earthquake that killed almost 70,000 people and Reynolds says that disaster shaped residents' attitudes.

'The earthquake was a huge wake-up call about the preciousness of spending time with family and friends and not just having your head down and putting money in the bank, and hoping one day you will have time to go and enjoy it.'

As well as the emphasis on work/life balance, Reynolds says Chengdu people like the outdoors and have been described as 'the Kiwis of China.'

Moa sales in China have grown 300 per cent in the last two-and-half years, and while he feels they are 'just scratching the surface of what's possible,' he does not underestimate the challenge of winning over discerning consumers.'You can buy a 12 pack of local beer that's cheaper than one bottle of our beer, so we have to be on point with our promotions and marketing to convince people to pay so much more.'

Online versus offline

New Zealand exporters' goods on display in the Chinese city of Xi'an during a business forum. Exhibitors included NZ Natural ice cream, Vogel's bread, Maui sheep milk, and Richora honey.

China was the first country where Pic's Peanut Butter was launched solely online. That was three years ago and it has only been available in stores for about a year.

Founder Pic Picot says New Zealand's clean green image remains a powerful marketing tool but getting the distribution network right was also key, and Pic's company representatives visit China about six times a year to cement relationships.

'We make more trips to our Chinese market than to any other country [we sell to] … It's important for our Chinese distributors to see that they have a close relationship with us.

'You can't expect to do well in China first off, you have to make a long term commitment.'

Famed for its giant panda breeding research centre, the city of Chengdu is being explored as a potential market by a growing number of New Zealand companies looking at opportunities in China's western provinces.

Pic's is one of 18 small to medium (SME) companies that have banded together to launch NZ Food Basket on Alibaba's Tmall e-commerce platform.

China Travel Service is also promoting a new foodie tour combining traditional tourist activities with visits to Food Basket producers such as Babich Wines, Vogel's, and Zealong Tea.

The project has support from New Zealand Trade and Enterprise and the agency's China development manager Mike Arand says the 'country pavilion' is a first for Tmall.

Even large New Zealand companies are small by Chinese standards, and it is important to understand the complexity of doing business there.

'It's not one big homogenous market, it's multiple markets, multiple geographies, cultures and levels of income.

Jerry Clode, founder of The Solution market research agency, gathers information by interviewing up to 400 Chinese consumers a year. He says the city of Chengdu, which has a GDP similar to that of Norway, offers huge potential for New Zealand exporters.

'It's really dangerous to say 'I'm going to China,' it's almost like you should say 'I'm going to Chengdu, or Sichuan or Shanghai or the Yangtze River Delta.''

Arand says the competition in the west is as intense as anywhere else in China.

'Where there perhaps is an advantage is that you might be able to go with an independent distributor, as opposed to trying to tackle it with a distributor who says they can do all of the country.'

Jerry Clode is the founder of The Solution, a marketing research agency helping brands get established in China, and he conducts hundreds of interviews a year with Chinese consumers in their homes.

He says ecommerce has allowed SMEs to behave more like larger companies, giving them the opportunity to pull in new business by using brand advocates.

NZ Food Basket chair Nicola O'Rourke says Chinese consumers don't appear to want to compromise over the level of packaging for imported fruit and vegetables.

'It's a digital version of the Tupperware party system.'

Richora NZ uses Chinese TV stars to push its Manuka honey products and after a Tmall video promotion by a high profile influencer, it sold almost $5m of product in 10 minutes. Allbirds shoes has sold exclusively online in some international markets, but the company's president of international, Erick Haskell, a speaker at the Chengdu trade forum, says that for China, Allbirds opted to sell through branded stores as well as on Tmall.

The ability to capture feedback from Chinese customers, 90 per cent of whom made purchases by mobile phone, was vital and led changes to the shoe's Merino wool lining.

'We didn't get it anywhere else in the world but immediately in China people said wool is too hot.'

Recycling China. Recycling is starting to catch on in China and these recycling bin toys are used to teach children how to sort their rubbish.

Packaging dilemma

In a Freshippo supermarket in downtown Chengdu it's not hard to spot New Zealand products – apples, Kiwifruit, milk powder and peanut butter.

Freshippo offers free delivery within 30 minutes if you live within 3 kilometres of a store and a conveyor system whirring away above customers' heads carries shopping bags of goods ordered online.

Rockit apples sold in a Chengdu supermarket are encased in recyclable plastic tubes but the company website says it is working on fully compostable cardboard packaging.

Fresh produce, often in small quantities, is heavily packaged and for New Zealand companies pushing the sustainability message, that presents a bit of a dilemma.

Until recently China took waste from other countries for recycling (including New Zealand), but was not big on recycling at a local level.

However, that is changing fast in larger cities where there are fines for failing to sort your rubbish and according to the China Daily new waste management regulations mean Shanghai hotels have stopped providing disposable toiletries in their rooms.

Clode says Chinese consumers are increasingly focused on sustainability, and toy recycling bins are being used to teach kids how to deal with waste.

Zespri China spokesman, Ivan Kinsella says look-alike brands, such as this seizure of Zaspri labelled kiwifruit, are more of an issue than direct copies.

In China what you buy says something about your social status, the type of person you are, and because New Zealand brands are more expensive they need to 'tell a strong sustainability story,' Clode says.

'You can justify [the higher price] in terms of quality, but local consumers are saying 'OK, you're asking me to pay twice as much, I expect brands I engage with to take leadership on this. I'm not seeing it from Chinese brands, but I'm not paying as much for them.''

Food Basket chairwoman, Nicola O'Rourke who is also general manager of Lewis Road Creamery, says it is a difficult balancing act for exporters.

On one hand, some Chinese consumers embrace sustainability, but they still want their imported produce to arrive in perfect condition, O'Rourke says.

'I've seen people doing a great job of putting recycling in the right bins, but they're still not interested in reducing their consumption of plastic or polystyrene or whatever else is wrapping the fruit,' she says.

'If it's a premium product they expect that it comes with layers and layers of wrap, because it's protected and tested and all those things Chinese consumers are looking for in the quality of their food that's from another country.

'If the avocado is coming from New Zealand, they pretty much want to see it in bubble wrap,' O'Rourke says.

Zespri's China spokesman, Ivan Kinsella says it is important that kiwifruit arrives undamaged, but mindful of environmental concerns, its packaging is recyclable and labels are compostable.

Fighting fakes

As well as preventing physical damage to its fruit, Zespri is also assiduously protecting its intellectual property (IP).

Kinsella says Chinese regulators have helped crack down on counterfeit branding.

Over the last three years they have taken more than 150 administrative and criminal actions over counterfeit Zespri product leading to the seizure of 13,000 trays of fake fruit and a million fake labels.

Kinsella says six people are in jail for Zespri counterfeit offences, including offenders operating a printing plant that made counterfeit packaging, and a group of traders in a major fruit wholesale market selling fake labels so local fruit could be passed off as imported.

Having a product copied can be seen as a compliment, proof of a good reputation, but Kinsella says it's a form of flattery Zespri could do without.

Arand says registration of brands and trademarks is essential, even if New Zealand companies are still at the stage of 'just sniffing around' in China, but protecting IP is getting easier.

'As China goes world-wide, they want to make sure their own backyard is clean, so they can also claim some IP protection when they go around the world.'

Stuff travelled to China with support from the Asia New Zealand Foundation.