From M&S to whisky – China’s middle class snap up western goods

May 23, 2012 5:22 pm 0 comments Views: 39

British food and drink producers and retailers are proving there really is a market for selling tea to China

Biscuits line a shelf in a Tesco store in Beijing. British brands, such as Weetabix and Tyrrells crisps, are proving an unexpected hit with consumers in China who are developing a taste for breakfast cereals and frozen curries.

British favourites such as baked beans and cream of mushroom soup have proved an unlikely hit with Chinese shoppers at Marks & Spencer’s flagship store in downtown Shanghai.

But it doesn’t stop there – shoppers are also stocking up on frozen salmon or cod fillets, ready-made frozen curries, chocolate-chip cookies and porridge oats. Everything is shipped in from Britain. There is even a bakery selling rebaked bread – rolls and pastries that are brought in frozen from the UK.

“We’re even selling tea to the Chinese – they like the more interesting infusions,” says Stephen Rayfield, country manager for China at M&S.

UK food and drinks manufacturers, along with supermarkets, are queuing up to tap into China’s burgeoning taste for western food. At a time when British brands such as Weetabix are being gobbled up by Chinese companies, a growing number of UK businesses hope to grab their own slice of the booming Chinese grocery market.

They have the full support of the UK government. As part of David Cameron’s “march of the makers”, the government in January announced a drive to boost British food and drink exports to countries like China. Agriculture and food minister Jim Paice flew to Dubai to tout British produce the following month, and is now touring China. Food and drink is one of the biggest sub-sectors of Britain’s manufacturing industry, which makes up a tenth of the economy.

“In so many cases the Chinese have taken over our manufacturing base, but with British food they can’t do that,” says Lance Forman of H Forman & Sons, the last smokery still operating in east London. The firm, founded by a Jewish immigrant from Russia at the start of the last century, has been exporting smoked salmon to Hong Kong for the last 30 years and now wants to break into China. “One hundred years of history – the Chinese can’t copy that,” he adds.

Chinese eating habits have started to mimic those in the west – the growing middle class has started having cereal for breakfast rather than rice; chocolate, crisps and biscuits as special treats; and using teabags rather than traditional leaf tea. This brings mixed blessings: nutrition experts warn that obesity is already growing among the younger generation in big cities.

China recently overtook the US to become the world’s biggest market for grocery shopping, underpinned by an expanding population, a shift to more expensive foods and strong economic growth. It is predicted to grow twice as fast as the US to be worth almost £950bn by 2015 – from £609bn at the end of 2011 – according to industry researchers IGD.

Tesco already has more than 100 stores in China, and Sainsbury’s is believed to be in talks with a potential partner about entering the Chinese market. Its team in Shanghai has conducted a thorough feasibility study, following consumers in and out of shops and traditional markets. A spokesman said: “We do not see international expansion as part of our short-term plans but we are exploring other possibilities for growth in the medium to long term.”

Sainsbury’s is still smarting from its disastrous foray into Egypt in 1999. It pulled out in 2001 after running up losses of more than £100m in just two years in the country, which had no tradition of supermarket shopping. Sainsbury’s then chairman, Sir Peter Davis, admitted the company had gone in “too far, too fast”.

M&S has four fashion-and-food stores in Shanghai after opening the first one, measuring 5,000 sq metres, in 2008, as well as three others in the smaller cities of Ningbo, Changzhou and Wuhan.

It got off to a rocky start but intends to focus on Shanghai, where a rapidly growing new strata of Chinese society – the urban rich – has developed a taste for western brands from Prada to Gucci, along with French wine, Spanish olive oil and British biscuits and beer. Shanghai is the world’s fastest-growing city economy, with a population of more than 20 million.

Chinese food importer Gorden Wei, chairman of Shanghai Ted Enterprises and vice-president of the Shanghai Import Food Enterprises Association, says Chinese consumers are “quite conceptual”. That is to say, they associate wine with France (in particular Château Lafite Rothschild from the Bordeaux region), chocolate with Belgium and whisky with Scotland.

He worries that Chinese shoppers are not sophisticated enough to remember more than a handful of western brands. “We’re doing a missionary job; we’re educating people about other brands,” says Wei. He also warns British exporters not to expect to sell in big volumes, arguing that goods such as Campbells Shortbread are regarded as a “high-end product” in China.

But this does not worry Rayfield at M&S, who has seen “made in Britain” food and drink fly off the shelves in the six months he has been in Shanghai. Some 17,000 packs of crisps and nuts were sold in the last quarter, more than double the level a year ago, as well as 35,000 pieces of frozen fish, up 26%.

Much of the western food available, such as biscuits and chocolate, is bought by consumers as gifts for others or treats for themselves.

“We’re at the top end of the market,” says Rayfield. “The Chinese customer sees us for that as well. They come in to top up, to buy a treat from us. We’re not going to be an everyday supermarket.” That doesn’t come as a big surprise after a quick look at the high price tag.

Similarly, in the City Shop adjacent to the Ritz-Carlton hotel in Shanghai – part of a local supermarket chain – a box of Dorset Cereals muesli is priced at 104 yuan – roughly £10. A pack of PG Tips is 78 yuan. This shop caters mainly for expats, but a new, bigger City Shop has now opened in downtown Shanghai to lure in Chinese shoppers.

Different taste buds are another challenge. For example, Chinese customers found Cadbury’s chocolate too sweet initially, recounts Elina Wen, purchasing director at importer Pinlive (Shanghai) Foods.

As in other countries, Tesco has adapted its ranges to cater for local tastes. For example, it stocks lots of bulk rice, many different types of live fish and has a dim sum counter. It also offers a wide range of baby products – formula milk, disposable nappies, strollers and bikes – because China’s one-child policy means that families spend a lot of money on their only child.

Tesco has opened more than 100 hypermarkets along the Chinese east coast since its launch there in 2004. It has also developed its own shopping malls, branded “Lifespace”, which are anchored by a Tesco store. At last count sales in the country had reached £1.3bn.

Tyrrells crisps, made on a farm in Herefordshire, have also found their way to China through a big Shanghai-based distributor, Sinodis, which also distributes Weetabix, Haribo and Dr Oetker. “If you want a little bit of England, Tyrrells is for you,” says the firm’s marketing director, Oliver Rudgard. “The Chinese market is very similar to India: it has not reached its full potential. The large retail brands only have tens of outlets. As they grow, we grow with them.”

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