2 July 2014
China’s Kitchenware Market: Demand Grows for Style and Innovation
An interview with Frank Zhang, CEO, Beijing Sun Color Gift Co Ltd
To meet the demand of the younger generation for a trendy consumption style, products with innovative designs are set to become the driver of China’s kitchenware market. As the pace of urbanisation in the Chinese mainland gathers momentum, the interior decorations of people’s homes are getting more refined, the kitchenware that goes with them is getting more sophisticated and consumers are more inclined to choosing highly specialised products. The interplay of online and offline markets could be the future trend of sales channels.
Novel items sell like hot cakes
Beijing Sun Color Gift Co Ltd specialises in selling various types of household items including different kitchenware collections. It offers a broad range of products and acts as agents for imported brands such as Metier Atelier of Hong Kong, Lock & Lock of South Korea, Tiger Brand of Japan and Aladdin of the US.
According to Zhang’s observation, the Chinese kitchenware market has been booming in the last few years and novel products are being introduced continuously. Take cookware as an example, the sales of stainless steel cookware have been slowing down, but those of innovative cookware (such as glass pots and pans with non-stick coatings) are growing from strength to strength. Zhang predicts that in future the Chinese kitchenware market will witness two main trends. Firstly, products with innovative designs are set to drive the market which is dominated by the trendy consumption style of the younger generation.
“Though currently many young people of the post-80s and post-90s generations do not know how to cook, they still have the impulse to buy kitchenware. This is particularly true for young ladies: once they come to a certain age or have their own children, they will start doing some housework. But such housework is not the same as that in the traditional sense and is more of a relaxation or pursuit of fashion. Such a state of mind will encourage consumers to buy innovative kitchenware products with strong fashion sense,” said Zhang. Secondly, as the pace of urbanisation in the Chinese mainland gathers momentum, the interior decorations of people’s homes and kitchens are getting more refined, so the kitchenware that goes with them is getting more sophisticated while a lot of the old-style items previously used in homes are due for replacement. At this stage, Zhang wants to source more high-end products that support evolving lifestyles, particularly those of the healthy and eco-friendly types.
Bakeware: promising sector
Zhang says that, with changes in consumption concepts, there are also changes in the demand for products. Consumers are now more inclined to choosing specialised products. Take pots and pans as an example, in the past consumers preferred multi-purpose products, but now they like to have different pots and pans for specific purposes. Some new products may be keenly sought after in a short period of time. One example is a new-type food processor, the marked prices of which were usually on the high side when it was just launched. When it becomes more commonplace and the market gets increasingly mature, however, its prices will gradually become more rational. Zhang also predicts that bakeware will become popular in China due to two factors. First, consumers are wary of the ingredients used by bakeries given the frequent food safety scares in recent years. Second, consumers want to make the products themselves to enjoy the fun of making DIY Western pastry.
Value for money: key in tapping second- and third-tier cities
Zhang says that consumers from different parts of China have different demand for kitchenware. “The consumption concepts of consumers in Beijing and other first-tier cities are similar, whereas the consumption concepts of consumers in second- and third-tier cities and their knowledge of kitchenware are more or less at Beijing’s level five to 10 years ago. Consumers from second- and third-tier cities are more concerned with the value for money of products; they are more interested in the versatility and multi-functionality of products and do not care very much about brands.” Nevertheless, Zhang also points out that, for brands with distinctive features and competitive production techniques, their brand advantages are still obvious.
Retail channels for products of different grades
Currently Zhang’s products are mainly sold via dealers, online channels and gift channels. Dealers are mostly department stores and large and medium-sized supermarkets. The online channels deal mainly with wholesaling. Products sold through gift channels are used for bank bonus point redemption, business gifts, shopping mall promotions and promotions of large corporations. Sun Color has also started setting up physical stores recently, but the purpose of these stores is mostly for showcasing products.
Zhang says that products of different grades use different retail channels. Upmarket products will mainly use department stores for distribution; low- to mid-range products will mostly go into hypermarkets. Because of the limited shelf space in boutique supermarkets, they are more suitable for recommending products which are limited in selection but superior in quality or specific collections of products. For example, though there are only five types of Corning Ware glass pots, they are all very classic and are suitable for sale in this type of supermarkets.
O2O: model of the future
Zhang points out that distribution channels are evolving. At present many e-commerce companies are adjusting their business models towards that of O2O (online to offline), and a considerable number of them have already set up physical stores to offer offline experiences. In fact, in the market, there are an increasing number of supplier-led experiential retail outlets. On the one hand, these suppliers allow consumers to experience their products first-hand at this type of specialty stores. On the other hand, they are also advertising for themselves and can save on advertising expenses. The positioning of physical stores is more on generating advertising effects while sales are mainly conducted online because online shopping is much more convenient. Moreover, many supermarkets are now transforming themselves into shopping malls. In future, experience stores can be set up in these places so that they can attract more consumers to come and experience, Zhang adds.
The way to select suitable distributors also takes some learning. Zhang says he will give priorities to companies that have involved in household items for a long time or to those with good distribution channels. He will also draw up specific cooperation terms according to the characteristics of the respective cities in which the distributors are located as well as to the characteristics of the distributors themselves. He will also lay down requirements on shipment volumes for the distributors and will carry out assessment from time to time. For new distributors, he will first assess the shipment volumes of the distributors in the previous three months and will usually require them to buy certain quantities of goods outright and settle by cash. “We will not ask our distributors to overstock because we don’t want to see them cutting prices to dump the goods and disrupt the local market, otherwise the next distributor will not be able to operate in the local market,” he says.
Close ties with agents crucial
Zhang points out that there are three main ways of getting to know new products: related magazines, houseware fairs and specialised online platforms. Before launching a new product, he will usually examine it first and judge from his own experience whether it is suitable for the mainland market. At the same time, customer feedback on the product is also crucial, so sometimes he will take the initiative to contact customers so as to get hold of first-hand information.
Zhang has cooperated with many overseas suppliers including ones from South Korea, Hong Kong, UK, US, Taiwan and Thailand. Some of them are contacts he made at trade fairs, others have come to Sun Color on their own initiation. Before a product is imported into the mainland market, it is necessary to get a trademark registration certificate, a quality inspection report, a food safety inspection report for food containers and a valid proof of appointment. As to customs clearance procedures required for imported products, if the supplier concerned can carry them out by itself, the agent’s operation will be much simplified. But if a supplier is not familiar with the customs clearance process, its agent can also help in handling the related procedures or entrust the job to a specialised customs clearance company.
Most of Sun Color’s suppliers have committed to minimum shipment volumes which are usually determined through negotiation between the two parties. The usual model adopted is as follows: the agent will buy the first shipment of goods from the new supplier and the supplier will support the agent’s marketing expenses in the first year. After cooperating for half a year, the sales schedule for the second year will be drawn up and the agent will take shipments according to the schedule and the payment for the goods will be settled in cash. If the sales target is overachieved, the supplier will give the agent different rates of rebate according to the sales volume. If the sales target is not met, usually one of two solutions is adopted. The first is that the agent will actively help the supplier identify a new partner with the provision that the new agent agrees to take on the unsold stock. The second is that the supplier will change agent directly and the original agent will have to “digest” the remaining stock itself. With long-standing agents, a supplier may also agree to settle payments on a monthly or quarterly basis. Selling prices are mainly determined by the agent, but sometimes the supplier’s suggestions will also be heeded.
Information from suppliers: useful for marketing
In choosing suppliers to work with, Zhang prefers those with a rich selection of products so that it is easier for him as an agent to pick suitable products for marketing. If the product range is too narrow, the products can be easily substituted by new innovations. This is not conducive to long-term development. In addition, Zhang will also be concerned with the design and versatility of the products, the breadth of the customer base and the suitability of the products for the mainland market.
Zhang suggests that, before entering the mainland market, a supplier should gain better understanding of the current status and operation modes of the mainland market and should coordinate and support the marketing efforts of its agent. This support is not limited to marketing expenses, but also includes trusting and understanding the agent. It takes time for consumers to embrace an imported product, so a supplier has to consider long-term benefits for the healthy development of a brand.
He also hopes that a supplier can provide adequate advertising material, marketing data, and information on previous successful marketing models. It will be ideal to provide special training either in the form of briefing by knowledgeable instructors or video by the supplier. All these can help an agent in marketing products more effectively.
It is worth noting that if a supplier wants to market a product and enter the market more quickly by appointing too many agents, it may lead to excessive competition among the agents and a price war may ensue. This will damage the positioning of the product and the long-term development of the brand. “A supplier should focus on the big picture and do a good job of planning an overall deployment for the China market. It should appoint a reasonable number of agents, manage and control sales channels well, and give sufficient support and trust to its business partners.” Zhang concedes candidly that the relationship between an agent and a supplier is a close-knit, long-standing one, and both should focus on long-term interests and the future value of the brand concerned.
Special correspondent, Vantage Marketing & Research in Guangzhou