With 20% of the world’s population residing within its borders, China and its retail sector have long been the Holy Grail for American meat producers. Frozen product is well-represented in China’s wholesale sector, widely used by processors, hotels and restaurants in China’s first- and second-tier cities, but getting American meat on many retail shelves and directly onto Chinese kitchen tables has been problematic. However, that situation is changing rapidly.
The rise of the Chinese Internet is altering the way many of that nation’s 1.35 billion people eat. For the first time, consumers all over the country can purchase a variety of products – including food such as U.S. pork – from the comfort of their homes.
There are 600 million Chinese Internet users (up from 45 million in 2002), and the online population is growing 4% every year. According to the McKinsey Global Institute, 46% of those Internet users have shopped online, and between 2003 and 2011, China’s online retail (or “e-tailing”) has grown at a remarkable compound annual rate of 120% (See Figure 1, below). For an Internet sales market that is currently estimated to be about $200 billion, that level of growth is unprecedented. McKinsey estimates that e-tailing will account for between 10 and 16 % of all Chinese purchases by 2020.
Technological challenges may still make shipping chilled pork directly from the U.S. a risky proposition, but for the first time the phenomenal growth of Chinese e-commerce, improved logistics and the ambition of a Chinese entrepreneurs like Lisa Fang from the Shanghai-based 5hao Premier Food have opened up a whole new service channel for American food companies, making it possible for Chinese consumers to get high-quality frozen U.S. pork delivered directly to their homes in first- and second-tier cities all across the country. Considering that China has more than 160 cities with more than 1 million people each, that is a large target.
This development comes as some U.S. frozen pork has also found its way onto the shelves of mainstream brick and mortar retailers including Metro and Walmart, but the online sales potential remains vast and the performance to date encouraging.
Online Food Sales Top $8 Billion
Due to concerns in China about food quality, direct sales of food to consumers through the internet are a natural next step in a society whose citizens are increasingly going online to do virtually everything.
Currently, food sales account for only 4 % of all online sales (still a robust $8 billion) and online food sales account for only 1 % of all food sales, but those numbers are growing. Online food sales may have been slow to catch on in the United States, but growing urbanization and the relative dearth of private vehicles in China may make shoppers there even better-suited to online food shopping than their American counterparts.
Another factor we take for granted in the United State is the presence of credit cards and nationwide online payment systems. These systems are still relatively new and rare in China, but this hasn’t stopped online retailers or customers from buying online. Most online shops offer the option to pay “C.O.D.” or, as your mother may have called it, “cash on delivery.”
Online food sales are becoming a strategic target for China’s forward-looking retail food giants as improvements in infrastructure, logistics and internet usage make possible what only a few years ago would have been unthinkable. Recently, Walmart, which operates 396 brick and mortar stores in Mainland China, invested in Yihao Dian (Number 1 Shop), one of China’s largest online retail sites, as part of its online retail expansion. Muribeni, the Japanese commodities and food conglomerate, is getting into the business too, recently announcing it would start an online food sales enterprise on the Mainland to sell Japanese food products directly to Chinese consumers.
But while Japanese products will have to wait for Muribeni to set up shop next year, for American pork and Australian beef the future is already here. China, alas, remains closed to U.S. beef.
In January of this year, 5hao Premier Food went online selling frozen U.S. pork, seafood and other imported food products directly to Chinese consumers in the Shanghai area and, according to Lisa Fang, CEO of this online food sales startup, demand has been strong. Previously a conventional food importer and distributor, she and her colleagues identified the online food trend last year and realized it was where the market was going. They quickly changed their entire business model to be on the cutting edge.
Fang and her team travelled to the United States (San Francisco, Seattle and Washington, D.C.) to study best practices and in January of this year re-launched their trading company as Shanghai’s and possibly China’s first dedicated online retailer of imported meat. With 26 employees, 5hao is expanding quickly, opening up online storefronts on all of China’s main marketplaces (including mobile). In July, Fang took her company national, opening up deliveries to all first- and most second-tier cities around the country, and created partnerships with many financial firms’ rewards programs and China’s TV shopping channels.
Recently, 5hao teamed with USMEF to sample and sell U.S. pork at the week-long Shanghai Book Fair, which draws in excess of one million book lovers to a single location. USMEF was the only non-book vendor present, and the U.S. pork booth was center-stage for four of the five days as culinary master Mr. Lai offered cooking demonstrations and samples of U.S. pork bone-in-butt, spareribs, belly, boneless butts, boneless loins and sausages to the hungry shoppers. The response, both to the products and 5hao’s online sales option, was outstanding.
5hao already sells several brands of U.S. pork, and has been testing processed meat lines derived from U.S. raw material. For example, partnering with a local meat processor using imported U.S. product, Fang has started to produce her own American-style hot dogs with U.S. pork and will come out with other branded processed pork products with “U.S. inside” later this year. To help develop this exciting new sales channel for U.S. product, USMEF has assisted with finding suitable raw materials and meat items to enrich 5hao’s U.S.-sourced offerings.
With online demand brisk and growing, Fang’s biggest limitations, she says, are technical. Currently, 5hao ships product frozen, using ice packs to keep it that way for up to 36 hours.
“If we can improve our packaging so that we can keep the product frozen for 72 hours in transit, then we can ship to anywhere in China that has an airport and get to many places by land freight, which would reduce product shipping costs significantly,” she said.
USMEF has put 5hao in touch with providers of packaging technologies in the hopes of extending the frozen shelf life of its online offerings. Improvements in the infrastructure for shipping meat and perishables are not far off. E-tailing giant Alibaba recently announced plans to invest $16.3 billion in delivery logistics infrastructure toward its goal of achieving 24-hour delivery times for all products sold through its platform.
Right now, Fang’s company delivers to an area with a combined population of more than 100 million, but with better technology and 300 million Chinese internet shoppers ready to eat, online retail looks to be another promising channel for putting U.S. meat on China’s table.
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