8 May 2013
Tips for working with distribution agents (4): Novelty, healthiness and freshness: ingredients of success for prepared food
An interview with Deng Zhiyong, manager of Guangzhou Yin Tai Hang
As people's income increases and preference of a healthier and more leisurely life grows in China, their choice of food also becomes more diversified. Imported food becomes a lifestyle of mainland consumers keen on sampling delicacies from different parts of the world. Deng Zhiyong, manager of Guangzhou-based Yin Tai Hang which specialises in imported condiments, wheat foods and drink mixes, shares his views on the market demand and changing trends for imported prepared food on the mainland.
Characteristics of market demand: novelty, healthiness and freshness
Yin Tai Hang mainly deals in imported prepared food of three major categories, including condiments, wheat foods (spaghetti, Chinese noodles and oatmeal) and drink mixes (fruit juice, honey citrus tea, coffee and nutritious drink mixes). Deng Zhiyong has been in this business for many years. Speaking from his experience, he summed up the demand characteristics and changing trends of the mainland imported prepared food market in three points: Novelty, healthiness and freshness.
Novelty refers to people's strong desire to try out new products and new tastes. "Every time distributors came for replenishments, they would ask whether we have any new products, new varieties and new tastes to offer," said Deng. "Distributors face the end-users and their expectation for new products is led by end-users. Since consumers are always looking for new varieties, distributors are also more than happy to give new varieties a try," he said.
As people become more health-conscious, the health factor continues to set new trends in product development. Health elements are played up in condiments, wheat foods and drink mixes. For example, low-sodium, low-sugar and high-fibre products, products with less additives, colouring, flavoring essence and oil and with vitamin added are now available. This development reflects consumers' consideration for their own health on the one hand and the trends of product development on the other. For products of the same category, those underscoring the health concept are usually more popular and sell better. "Although health is the prevailing trend, we are very cautious about food that claims to be organic. Due to frequent reports of fake organic food, consumers have little confidence in organic food. Moreover, the price of imported organic food is very high, often several times more expensive than similar local varieties. Lack of demand means few end-users."
Freshness finds expression in greater attention to the date of production and the best before date. People are increasingly concerned about the freshness of their food. "Distributors pay attention to the best before date when receiving their supplies and would demand at least two-thirds of the best before date left because end-users would also look at the best before date when they make purchases. Retailers would have difficulty selling products with a best before date of less than six months," said Deng. "Imported food has to go through customs clearance and delay is possible. Generally speaking, goods may be held up for at least three months going through all kinds of customs clearance procedures. Thus, as far as food importers are concerned, speedy customs clearance is crucial for ensuring the freshness of the products. This is particularly important for festival food because this type of food is time sensitive. If customs clearance is delayed and the peak season is missed, there will be a major problem."
Mainland consumers are now more willing to spend more for goods of better quality as their income increases and their living standard improves. Take condiments for instance. XO sauce, abalone sauce and other sauces of better quality and higher price are selling hot in recent years. Prepared food of Chinese and Southeast Asian styles dominate the mainland market because of people's dietary preferences.
“Cash and carry” reduces cash flow pressure
Yin Tai Hang mainly deals in the import of prepared foods and its cooperation with Hong Kong companies mainly centres on condiments, including leading Hong Kong brands like Amoy, Lee Kum Kee and Yummy House. According to Deng Zhiyong, these Hong Kong brands usually market their products on the mainland in two ways: On the one hand, they cooperate with the key accounts and deal with them directly. On the other hand, they choose suitable distributors and deal with them on a cash basis by supplying goods to them at ex-factory price. Yin Tai Hang's current distribution system has wholesalers as its mainstay. Its clients include small and medium-sized supermarkets, individually-owned small businesses, restaurants and online stores. In principle, the distributors also work on a cash and carry basis to reduce liquidity pressure.
Deng Zhiyong frankly admitted that the biggest difference between dealing in imported food and local products lies in the return of goods. Local products basically have return guarantees, but this is not the case with imported food because tariffs are involved. A company has to be cautious when choosing products and suppliers.
Cooperation necessary to win market
On the issue of contacting and choosing suppliers and products, Deng Zhiyong said Yin Tai Hang mainly relies on food fairs and market observation to collect information on suppliers. After collecting the information and making initial contact, it will decide whether a supplier is a suitable partner for cooperation based on five considerations: First, it will make a net search to find out how the products of that brand are selling locally. Second, it will try to find out the reputation of that brand on the mainland (Yin Tai Hang is inclined to choose brands of considerable fame). Third, give the products a try to see what they taste like and judge according to its experience whether they are suitable for the mainland market. Fourth, understand the price situation and compare the suppliers' price with the market price for similar products to judge whether there is sufficient profit margin. Fifth, understand the supplying channel to ensure the stability of supplies.
As a distribution agent familiar with the mainland market, Yin Tai Hang is mainly responsible for selling goods but will also make proposals to suppliers on marketing and promotion based on its own experience, including conducting suitable brand publicity and printing relevant product catalogues and pamphlets for distribution to clients. Suppliers are mainly responsible for handling the documentation required for the marketing of relevant products on the mainland, customs clearance procedures (this may be entrusted to relevant service providers), delivery and replenishment of goods, and brand and product marketing and promotion. "We have come across some good products with great marketing potential, but their suppliers lacked the motivation to get to know the mainland market themselves and wanted to leave everything to their agents, which gave us the impression that they lacked long-term commitment in expanding the mainland market," said Deng. "In my view, cooperation is necessary to win the market. Doing business is like raising a kid, not raising pigs. You have to come to see the mainland market to fully understand this market and this is the only way to gain consensus for marketing and future development," he said.
"Suppliers must have a clear system for the management of distributors. Without a proper system, chaotic management will result in a chaotic market," said Deng. "A good supplier will always have a clearly-defined system that covers two respects: First its distributors must have clearly-defined regional dealerships. This will prevent competitive pricing among distributors, which will disrupt market order. Second, concessions to and protection of the interests of distributors. Suppliers usually have requirements on the amount of goods ordered by distributors and those with big orders are eligible for concessions. Suppliers cannot set targets for orders at random and must have a full understanding of the market. They cannot compel distributors to hold large stocks or frequently change distributors. They also must deliver and replenish supplies in a timely manner." Suppliers and distributors must work closely together to achieve win-win results.
Special correspondent, Vantage Marketing & Research in Guangzhou