Strategies for success: How food and nutrition firms can reap the rewards of China's $125bn cross-border e-commerce market

In China, cross-border online shopping is growing strongly with 63% of Chinese shoppers planning to increase spending in 2018 compared to 2017, according to new research by consulting firm Frost & Sullivan, in partnership with China retail strategy expert Azoya Consulting.

"The research revealed the strong interest and expenditure amongst Chinese consumers in buying online from overseas retailers, with the average online shopper in China spending almost US$850 per year on purchases from overseas retailers,"​ said Mark Dougan, consulting director, Asia Pacific, Frost & Sullivan.

Among online shoppers in China, 20% buy grocery products through haitao at least once a month, Dougan told FoodNavigator-Asia.

This is separate from nutritional products such as supplements and baby milk, which belong in the “Mum & Baby" (15%) and "Healthcare & Nutrition" (13%) categories.

The report, The Cross-border eCommerce (Haitao) Opportunity in China​, also showed China's online shopping market is the largest in the world, with over 500 million online shoppers set to spend over US$1tn in 2018.

The study encompassed over 1,000 online shoppers in China, as well as findings from interviews with over 100 international retailers and brand owners.

Chinese trust and preferences​

The study also revealed that Japan is the overseas country of origin that Chinese online shoppers have most confidence in (72%), followed by South Korea (60%), the US (55%), Australia (37%), France and Germany (both 26%) and the UK (23%).

"Our research indicated that Chinese consumers are significantly motivated by the perceived higher quality and lower risk of buying fake goods that overseas retailers offer," ​said Dougan.

For food products, including baby milk and supplements, the US, Germany and Australia are the most popular countries of origin.

The top-three most popular food items for cross-border e-commerce in China currently are milk powder (including infant formula), vitamins and supplements, and wine.

In fact, daigou​ shoppers — who buy commodities overseas to sell in China — have been snapping up tins of infant formula in bulk from Australia, resulting in shortages​ at retail stores and pharmacies despite manufacturer efforts to increase production.

Furthermore, daigou shoppers are believed to have accounted for $800m of ‘unofficial’ supplement exports from Australia to China​ in the past year, dwarfing the $320m figure for official exports.

The study found women are higher cross-border online shoppers than men, spending US$976 on average per year — 20% more than men. They are also more likely to buy grocery products through haitao than men — 21% of females purchase at least monthly, compared to 18% of men.

Men tend to seek fast delivery, while women seek Chinese language customer support and relevant content on the supplier's website. Women are also more likely (21%) to use an overseas supplier's standalone direct-to-consumer website than men (18%).

Challenges and successful strategy​

Despite Chinese consumers significantly increasing their cross-border online shopping, international retailers often report challenges in successfully utilising the market opportunity in China.

Frost & Sullivan said over 80% of global retailers now see China as an attractive market opportunity. However, only 30% of online retailers are satisfied with their current level of sales in China.

This is particularly the case for those using Chinese marketplaces as their online channel, where only 21% of retailers are satisfied with their current level of sales.

The research reveals that the challenges of these marketplaces include the plethora of competing brands, intense price competition, margin-eroding commissions and high upfront costs.

Consequently, retailers are increasingly looking to set up their own standalone web stores for the Chinese market. Global retailers need to think carefully about the right approach and their strategy for the market.

"To build a brand that Chinese consumers trust, which commands a healthy profit margin and repeat buyers, retailers need to approach customers through multiple touchpoints. The key (sales) channel (hosted in China) should be within retailers' control, accompanied by supplementary platforms ​(such as online marketplaces Tmall, Rakuten, and so on)," ​said Don Zhao, co-founder of Azoya International.

"More and more retailers are establishing standalone websites as the core of their strategies, as these sites directly connect retailers with Chinese consumers who desire foreign brands, while empowering retailers with flexibility and control over their business."​

“They need to create an image of authenticity and history for their brand. Chinese online consumers are interested in understanding the story and heritage behind a brand, and want to establish a connection with the company behind the brand,” ​added Dougan.

Successful implementation of the appropriate market strategy will also depend on offering the right products through the right channels, and with the appropriate brand communications to the half-a-billion online shoppers in China.

Rules change​

Food and nutrition firms also need to be aware that e-commerce rules are due to expire at the end of this year.

“Hence, companies selling into China need to maintain good insight on how the Chinese authorities are proposing to change regulations,”​ Dougan advised.

He added that there will be an implementation of the “Positive List” in end-2018 that is likely to create “a major change”​. This is a list of product categories that can be imported into one of 15 approved bonded warehouse zones across China or shipped from an overseas distribution centre linked to Chinese customs authorities.