26 June 2014
China’s Kitchenware Market: Quality Products at a Premium
An interview with Wang Caochi, Online Sales Manager, Shanghai Jobo Merchant Co Ltd
In recent years, China’s kitchenware market has maintained a good growth momentum amid increasingly fierce competition. Product category has become more diverse, along with emerging market segments. In the past, customers paid more attention to the price of products. Similar products selling at lower price fared better. In recent years, however, it is apparent that customers increasingly look for higher-quality products. Market demand for niche high-end products is on the rise.
Increasingly fierce market competition
Shanghai Jobo Merchant Co Ltd is a stainless steel kitchen supplies company integrating the various functions of product development, design, production and marketing. Its products cover collections of kitchen utensils, particularly catering to hotels. Main products are stainless steel chafing dish, electric chafing dish, soup chafer, stainless steel western tableware, stainless steel kitchenware / cutlery and stainless steel tea sets. Apart from marketing its own brands, the company is also agent of Sunnex of Hong Kong, San Neng of Taiwan and other kitchen appliances brands.
Wang reckons that the kitchenware market in China in recent years has maintained good growth momentum. Product category has become increasingly diverse and new market segments are emerging, offering a comprehensive range from high to low-end. Competition, however, is getting fiercer. "Kitchenware industry is not a high-tech sector. The products are easy to replicate. The market is flooded with homogeneous products, making it so competitive," said Wang.
Increasingly demanding about product quality
As the market for kitchenware in China matures, consumer demand for products is evolving as well. In the past, customers paid more attention to the price of products. Similar products of lower price have greater advantage. But in recent years, it is apparent that customers increasingly look for higher product quality. "Nowadays, customers’ primary concern for stainless steel products, for example, is the material of the product. The material requirement is higher than in the past."
"Of kitchenware products, commonly used stainless steel is of three main types: 430, 410 and 201. Type 430 and 410 are cheaper, but will get rust after use for some time. Today hardly any customers will buy items made of these two types of steel. They generally opt for Type 201 or above. Some upmarket clubs will even buy Type 304 products which are of a safer material. Their price is much more expensive though. This kind of customers is not much concerned with price," Wang adds. Besides, some high-end users like branded products. Some of them, in particular, use leading brands.
More diverse product categories
According to Wang's analysis, accompanied by changes in consumer demand is the polarisation of kitchenware prices. For ordinary mass-produced products, plenty of supply means intense competition, so prices are actually lower than in the past. High-quality high-end products are more expensive. Some manufacturers even offer made-to-order services to cater for the actual needs of customers. These products are naturally more expensive.
Diverse product category is important given that in most cases customers not only purchase a single product but tend to buy different categories of products in the same shop at the same time. Suppliers, therefore, should be able to offer diverse product categories and complete product ranges.
Wang points out that the price of a product may vary from one sales region to another. In Shanghai, for example, the price of high-end products are often higher than in other areas because of Shanghai's advanced economic development, backed by strong spending power. There is a wealth of high-end customer resources with a strong capacity to absorb high-end products. Marketing of high-end new products in Shanghai is also easier.
Online channels trending up
Shanghai Jobo Merchant has been mainly operating as a physical store, with Shanghai as the distribution centre, serving surrounding areas of Zhejiang and Jiangsu. Customers are basically hotels, restaurants and upscale clubs. "Our products are high-quality, high-end goods. The prices are also more expensive," Wang says. Their existing four outlets in Shanghai are located in the country’s well-known hotel supplies wholesale markets, namely Jiuxing market, Wanrun market and Jinsheng market.
The company’s online presence began with the launch of its online shop on Alibaba.com in 2013. Being a new store, it has yet to make a significant contribution to sales. Wang, however, is optimistic about the future development of the online channels. He reckons that the current rapid development of online shopping has led more and more of his peers to develop online shops. In building up its sales channels, the company will give equal emphasis to both physical and online stores. Online channels are expected to take up a higher share in sales in the future.
Weighing the respective strengths and weaknesses of online and offline channels, Wang points out that a physical store is subject to high rents and high staffing costs and coverage is limited. But high-end customers when purchasing important products are more willing to shop in a real store. For expensive high-end products, customers need to physically touch the products in order to make a choice. On top of this, the long-standing habits of hotel clients also determine that they will shop in brick-and-mortar shops. Relatively speaking, online stores offer price transparency, have lower operating costs and extensive nationwide coverage.
Cooperation mode with suppliers
Wang points out that new products are sourced in three ways: first, participation in exhibitions. Industry players observe new product and market trends at trade shows. Second, based on customer enquiries, the company will look for products that can satisfy the specific requirements of customers. Third, the company will obtain new product information through trade associations.
In selecting suppliers, Wang usually considers the following factors: First, product quality should be guaranteed. Usually product quality is determined by observing the sample. "It is relatively easy to tell the quality … after all I have been in the business for more than 10 years," says Wang. Second, competitive pricing. Even the best product quality cannot justify exorbitant prices. Given like products of same quality, those with price advantages are certainly easier to market. And agents are also more willing to market products given reasonable profit margins. Besides, suppliers’ after-sale service should be in place. Problems with product quality have to be communicated and resolved promptly.
The current mode of cooperation with suppliers is relatively simple. Suppliers provide merchandise while agents are responsible for sales and marketing. Settlement is mostly on a monthly basis. Suppliers require minimum volume commitment from agents. Under normal circumstances, when an agent over-fulfills a quota, the supplier will give rebate incentives, the degree of which is usually based on annual sales and turnover, varying with the level of sales and the type of products. In addition, popularity of the product will also affect how much the rebate is, the quicker the sales the smaller the rebate rate. The retail price of the product is determined by the agents, but the supplier, in order to prevent vicious competition among agents, will give a suggested retail price. The supplier will also disallow market price disruption and commodities fleeing among agents of different regions. Matters related to import clearance are dealt with by suppliers or customs brokers.
Tapping the niche high-end segment
Wang reckons that if imported products want to break into the China market, special product features are crucial. These products are usually sold to high-end customers. The volume is not necessarily large, but the price can be higher and profit margin substantial. Citing an example, Wang says, "We are now an agent of a Taiwan brand product which is quite distinctive. Mainly a bread making machine, it comes with a full set of accessories like bread mould and baking tray and is selling well."
As to products for future cooperation, Wang intends to introduce onto the market scarce and distinctive products. In addition to product quality, dealer profit margins will be an important consideration. Scarce and unique products can often offer higher profit margins. To seize the Chinese market, Wang suggests Hong Kong companies to produce high-end products with distinctive features. With demand outstripping supply for such high-quality products in the market, if Hong Kong companies can supply such products at a slightly lower price, they will certainly be very popular.
Wang also says that if Hong Kong companies are to enter the mainland market, Shanghai would be a good entry point thanks to its advanced economic development, strong spending power and discerning consumers who increasingly look for high-quality products. These well-informed consumers know how to pick and buy genuinely good quality products. Since Shanghai has a huge pool of big-spending customers, many high-end products are first marketed in Shanghai, and so is kitchenware.
Special correspondent, Vantage Marketing & Research in Guangzhou