Shanghai's rising tide of consumerism means food export opportunities

Shanghai is rapidly re-emerging as one of Asia's leading industrial and economic centers. Popularly known as "the head of the dragon," this ancient city at the mouth of the Yangtze River is a gateway to eastern China's population of 200 million.

Last year, U.S. agricultural exports to China exceeded $3 billion: $2.6 billion in direct exports and about $600 million trans-shipped through Hong Kong. While it presents daunting challenges to even the largest and most sophisticated of enterprises, China's sheer size and economic significance make it a market that many companies should investigate.

China's economy has churned out annual growth rates of about 13 percent since the late 1980's. China is expected to become the world's largest economic center, measured in gross domestic product, by the year 2020, supported by its major industries - iron, steel, coal, machine construction, armaments and textiles. Economic growth has been uneven, with incomes for the nation's 300 million urban residents rising much more rapidly than those of the 900 million living in the countryside.

Unofficial reports indicate that 100 million persons in China's coastal provinces have incomes with purchasing power of $10,000-$40,000. China's growing middle class could reach 445-580 million by the year 2005 if the economy continues to expand at its present pace.

While a definition of China's middle class remains rather elusive, rising incomes are placing more and more Chinese into this demographic group. The typical member of this class is married with one child, 36-45 years old, a college graduate and a professional, such as a professor or technician.

Shanghai: Gateway to the Future

Perhaps the most cosmopolitan of all Chinese cities, Shanghai affords food manufacturers and exporters a way to experiment in this vast, promising, yet perplexing market. Rising per capita incomes and living standards among Shanghai's 16 million residents have spurred demand for consumer foods. With the possible exception of Shenzhen, incomes are higher in Shanghai than in any other city in China.

To gain a better understanding of Shanghai consumers' food purchasing habits, the U.S. Agricultural Trade Office of the Foreign Agricultural Service (FAS) recently commissioned a survey of 400 randomly selected household food purchasers. This article includes some of the survey's findings.

Food costs typically account for the greatest proportion of household expenditures. More than half of Shanghai's households spend 41 percent or more of their monthly income on groceries. Meat expenditures account for about 38 percent of the grocery bill, vegetables 29 percent, fruits 14 percent, breakfast foods 10 percent and snacks 9 percent.

Men and women are equally involved in food purchases and have similar shopping habits. They shop nearly every day for small quantities of the same types of grocery items (storage space in Chinese homes tends to be limited); they are also very price-conscious, particularly when considering foreign products.

In Shanghai as in other parts of China, the most popular markets remain the "wet" markets, traditional outdoor street markets that sell fresh produce, fish and seafood, meats and poultry products. Consumers shop almost daily at wet markets, which are usually within a 10-minute walk of home.

But Western-style supermarkets have wedged their way into Shanghai. The first opened in 1990; by 1995, the number had surged to 704, belonging to more than 20 state-run, local and foreign enterprises. By the year 2000, their number is projected to increase to 1,000. Supermarket patrons tend to be young to middle-aged and to earn above-average incomes. About 11 percent of Shanghai consumers regularly shop in these stores.

Supermarkets are capturing market share not only from wet markets, but also from "mom-and-pop" grocery stores. Reduced state subsidies have forced these stores to compete with other outlets in the price and quality of the goods they offer. Many of these stores have attempted to counter the competition by joining forces with international supermarket chains such as Carrefour, Yaohan, Park'N Shop and Metro.

Supermarkets have reportedly become so popular that the municipal government of Shanghai is constructing or renovating 100 stores each year as part of its 5-year economic plan.

In its effort to move Shanghai into the 21st century, the city government also plans to phase out wet markets and establish the more sanitary supermarkets as the city's primary retail food outlets. The government requires new stores to include produce and meat sections and refrigerator and freezer cases.

Supermarket Hit Parade

At the supermarket, Shanghai consumers favor frozen foods (Chinese dumplings and chicken) and dry foods (snacks, crackers, candy and instant noodles). Retail sales of frozen products, though small, are growing rapidly.

About two-thirds of the freezer space contains imported and domestic ice cream and locally produced frozen desserts. The remaining third is devoted to domestic pastries, meat, fish and seafood and very small quantities of frozen vegetables. Many supermarkets now have refrigerator cases selling cheeses, fruits, meats in packaged trays, vegetables and other items.

About 96 percent of Chinese living in major cities have refrigerators, compared with 67 percent of those living in areas surrounding cities and 25 percent of those in rural areas. But many Chinese who own refrigerators still prefer to shop daily to satisfy their passion for fresh foods. This habit, combined with higher prices for most frozen foods, continues to constrain demand. However, young professional couples have begun following a pattern common in more affluent Asian countries: purchasing more frozen foods at supermarkets because of their greater convenience and cleanliness.

Purchase Persuaders

As in any other market, a variety of factors influences Shanghai consumers' food choices. Food sanitation and quality rank as the most important factors; manufacturers, distributors and exporters must therefore emphasize these characteristics in marketing their products. Nutritional value, taste, price and value for money also exert considerable influence on purchases.

Many shoppers surveyed said that advertising and packaging have comparatively little influence on their purchases. But as more packaged products enter the Shanghai market and competition intensifies, packaging and brand advertising will become increasingly important factors in shaping consumers' choices. Indeed, they are already highly effective tools for educating potential buyers and expanding sales.

Country of origin appears to have surprisingly little influence on food purchases, perhaps because most food shopping still occurs in wet markets, where products typically have neither packaging nor labels. However, shoppers in these markets often assume that they are buying local foods - such as poultry parts - when they are in fact purchasing imported items.

Chinese Labels Aid Consumers

In China, some imported food products such as almonds and pistachios are imported in bulk and repackaged with Chinese labels. Beginning on Sept. 1, 1996, however, Chinese law requires that all food products, including imports, must bear labels in Chinese clearly stating the type of food, brand name, trademark (if any), manufacturer's name and address, country of origin, ingredients, production date and sell-by date. One or more foreign languages may appear on the label. Specific labeling requirements apply to various types of foods for retail sale but not to products shipped in bulk.

The new law is a step forward in protecting consumers, producers and retailers because it attempts to keep falsely identified, inferior and old food products off the market. Although adapting to the new law may require considerable investments of money, time and energy, exporters could earn significant rewards down the road.

Chinese consumers prefer that both Chinese and the predominant country-of-origin language appear on imported food labels: the Chinese informs them about the product, while the foreign language symbolizes high quality.

Dining Pleasures

These days Shanghai consumers dine out more for leisure and relaxation than for any other reason. About half of them go out once a month or more; about 25 percent dine out six or more times a month. Men aged 25 to 36 eat out more frequently than any other demographic group, largely because they engage in business dinners.

Mid-sized restaurants serving local fare are the most popular with Shanghai consumers. Many consumers shy away from Western-style restaurants because they prefer more familiar foods and because they believe (albeit sometimes inaccurately) that Western restaurants are more expensive.

Yet fast-food outlets such as Kentucky Fried Chicken, McDonald's and Pizza Hut are quickly becoming popular in Shanghai. Fried chicken and hamburgers are Shanghai consumers' favorite Western foods and they are developing a penchant for pizza as well. KFC and McDonald's are tremendously popular with children while Pizza Hut, with its less crowded atmosphere, attracts young adults on dates.

As the number of retail outlets stocking Western foods increases and the variety of the foods they offer expands, Shanghai consumers will likely become eager for new taste sensations and more responsive to different types of foods.

With the city's economic growth continuing at a spectacular double-digit rate, Shanghai consumers' incomes will enable them to gratify these tastes. For U.S. food and beverage manufacturers and exporters with the right products, marketing strategies and stamina, Shanghai presents an excellent opportunity to "get their feet wet" in China's consumer market.

Scott Reynolds and Alcinda Hatfield are the agricultural trade officer and the marketing specialist at the U.S. Agricultural Trade Office in Shanghai, China. Tel.: 011 (86-21) 6279-8622. Fax: 011 (86-21) 6279-8336.

COPYRIGHT 1996 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group