The Chinese Market: What Opportunities for Quebec Exporters?

DDuring the unfolding of the ZENiTH program, the Group Export takesan in-depth look at several markets. Audrey-Ève Néron, Senior Export Advisor at the Group Export, revisits for you the market portraits produced by Altios, partner of the China cohort, for an overview of this market.

China is a relevant market for Quebec companies, as the world's largest importer of agrifood products. The 5 main segments (seafood, meat, dairy products, fruits and cereals) represent 66.9% of the Chinese import market. Always relying more on imports, it is estimated that by 2030, the annual food consumption should reach 80 million tons in China.

This destination is even more interesting as the revenue from the food industry (food products, alcohol and tobacco) ranks 1st in the world, with an expected growth of 4.5% between 2020 and 2025. Food remains the main expense of Chinese households, with 28.2% of annual expenditure per person. In 2019, this represented US $ 882.16 per capita, an increase of 8% compared to 2018. We also note that 49.9% of consumers of imported agri-food products have a monthly income of US $ 1,160 and more.

 

FOOD CONSUMPTION IS CHANGING

While the urbanization rate reached 60% in 2020 and is expected to reach 75% by 2030, we are witnessing the rise of a middle class with growing disposable incomes and increasingly sophisticated tastes. Aspiring to a higher standard of living, consumers are willing to pay more for access to high-quality, genuine, high-end and imported products. This trend is expected to continue, due to rising median income and increased exposure to foreign influences, through travel and social media.

We are therefore witnessing an unprecedented opportunity on the Chinese market for imported agri-food products. Consumers choose them for the following reasons, in descending order of importance: food safety, quality, nutrition & health, brand credibility, taste, price.

 

LOCAL ADAPTATION, A VECTOR OF GROWTH

Taking into account local environmental, social and economic factors is a vector of success for companies targeting the Chinese market. These elements have a direct impact on consumer trends, hence the importance of being alert and responsive. In the agri-food sector, investments in research and development are common, with the aim of offering personalized products that correspond to local preferences. Major brands seek to accelerate the incubation of new products by increasing their R&D or mergers and acquisitions efforts. For example, Nestlé established an innovation center in China, which enabled the creation of 170 new products in 2019, specifically dedicated to the Chinese market.

There is also a growing popularity for products with elements of fusion between Chinese and Western foods. Many foreign brands have also offered innovative products in line with this trend, such as durian pizza. Another prime example is Lay's spicy crayfish and crab flavored potato chips.

 

DISTRIBUTION CHANNELS FOR IMPORTED PRODUCTS

The main distribution channel for imported food is online. In 2019, 74% of consumers of imported food purchased online. Several phenomena are boosting consumption, such as multiple festivals and online sales throughout the year. The "Singles Day" (around Nov. 11), for example, is the biggest annual selling festival. Initiated by Alibaba in 2009, it has since been adopted by several retailers and online sales platforms. However, JD.com and Tmall,  remain the two main platforms for purchasing imported food products. Certain product categories are experiencing impressive growth, in particular imported fresh products which recorded an average annual growth of 50% in 2019.

Although traditional large and medium-sized stores (supermarkets) remain the main distribution channel for food in China, gourmet stores focus on imported products and have higher profitability, which constitutes an attractive opportunity for exporting companies. For your information, a gourmet storesmainly sells high-end consumer goods, such as organic food and imported products. Its target audience revolves around middle and upper income groups. The gourmet stores have experienced significant growth, with a compound annual growth rate of + 11.3% from 2015 to 2019. They are expected to post an annual growth rate of + 8.2% over the next 5 years.

 

PROTECTION OF INTELLECTUAL PROPERTY

Under Chinese law, trademarks, patents, copyrights, trade secrets (know-how), geographical indications, and plant breeders' rights are recognized forms of intellectual property that can be protected. China, unlike Canada, however, applies the first-to-file principle to the registration of trademarks. This means that the first entity to register a trademark in China will be granted ownership, regardless of prior use. This is a key difference between the Canadian and Chinese intellectual property regimes. Canadian companies that do not quickly register their trademarks in China risk having their trademark registered by third parties operating in bad faith. Note, however, that the Chinese government has strengthened its control over intellectual property protection more than ever, with multiple lawsuits won by foreign companies in recent years.

By getting to know a market, it becomes easier to find your niche and seize the opportunities. The ZENiTH program offered by the Group Export, in collaboration with the National Bank, FCC and Fonds de solidarité FTQ, is made possible thanks to the financial contribution of the ministère de l'Agriculture, des Pêcheries et de l'Alimentation du Québec and of Agriculture and Agri-Food Canada, under the Canadian Agricultural Partnership.