Ddma China Food Import Market

2014March 11th DATA DRIVEN MARKETING ASIA

W W W . D D M - A S I A . C O M

Data Driven Marketing Asia (DDMA) was founded in 2001 and is a full service market research company based in Shanghai, China

A DDMA China Market Snapshot Report

Which countries havean advantage in the China food

market and why

DongLong AIA Building, Office 401, 223 Xikang Road, Jing An District, Shanghai 200040 People's Republic of China www.ddm-asia.com E: [email protected]

March 11th, 2014Which countries have an advantage in the China food market and why

About this study and DDMA

About Data Driven Marketing Asia (DDMA)

Founded in 2002 Data Driven Marketing Asia (DDMA) is an

independent, full service agency providing qualitative and

quantitative market research. Headquartered in Shanghai

with coverage across 28 cities in China the company

conducts consumer market research across the Chinese

market for many leading food and beverage companies as

well as leading technology, fashion and financial brands. A

full list of our clients are provided for reference later in this

report.

Data collection and methodology

This DDMA report is based on quantitative market

research, qualitative market research and secondary

research. These are:

Eight qualitative focus groups with target consumers in

Shanghai. These focus groups were conducted by DDMA’s

qualitative market research team.

DDMA conducted an online survey of 500 respondents in

Shanghai, using its own propriety panel of respondents,

during Q4, 2013. The respondents selected are

representative of middle class consumers. They are aged

between 26 and 45, are employed in either a full or part

time capacity and earn a net income of at least RMB4,000

(US$ 680) per month.

Secondary re sea rch conducted by DDMA f rom

which a database of up to 3,000 media reports

on food safety incidents since mid-2004 has been

constructed. In general for one incident only one

media report i s se lected and mainta ined in the

database to avoid duplication.

DongLong AIA Building, Office 401, 223 Xikang Road, Jing An District, Shanghai 200040 People's Republic of China www.ddm-asia.com E: [email protected] 3


Data Driven Marketing Asia (DDMA) provides consumer

and trade market research to many international and

domestic companies in relation to China market. One area

of our business that has grown considerably over the past

24 months is with foreign food companies wishing to

market and sell their food produce to the rapidly developing

Chinese middle class. DDMA assists these companies

in identifying the most favorable brand positioning, in

establishing pricing, the development of complete marketing

strategies, retail evaluation and in assisting with product

launches, particularly via leading online sales platforms.

The opportunities for foreign food companies in China have

been boosted further by the recurring food scandals that have

plagued the domestic food producers. The result of these food

scandals has been a complete erosion of consumer confidence

in the credibility of domestic food companies.

The opportunities for foreign food companies in China are

vast.

The poor performance of the domestic food companies is

only one of the contributing factors to the opportunity for

foreign food companies in China. Other factors include:

A rapidly developing middle class that are more

internationally exposed than ever before. This

group tends to travel regularly overseas, are

exposed to foreign media and are gradually

becoming more knowledgeable on foreign food

brands.

A highly developed transport infrastructure has led

to increasingly efficient distribution of foreign foods.

More cities across China’s 650 cities are now easily

accessible, especially the developing second, third and

fourth tier cities that are driving much of the continued

retail expansion.

A developing quality to high end retail segment,

especially in the emergence of high end/boutique

supermarkets and the improvement of the domestic

retail experience.

The boom in online sales and changing consumer

purchase behavior. Online shopping in China

Foreword

continues to develop and it plays a very important

role in the sale of imported food.

A strong currency has meant that imported foods

are more affordable.

This report provides an overview of Chinese consumer

perceptions of domestic food companies and of foreign

food companies from ten pre-selected countries. The

perceptions of these countries are derived from consumer

interviews with 500 middle to high income respondents

in Shanghai.

The findings are relatively straightforward. Today, 48% of

this higher income Chinese consumer group actively seek

out foreign food brands when shopping. There are also

clear opportunities in the catering industry as this higher

income group displays a strong preference for

restaurants that serve foreign food

produce.

The perceptions of food

brands from the countries

included in this study

provide an insight into

how Chinese consumers

access foreign food

brands. New Zealand

and Aust ra l ian food

brands are considered very

appealing, with much of this

appeal being driven by positive

impressions of the clean, natural

environment in each country. However,

smaller countries, such as Norway, have more positive

perceptions among the respondents that are familiar with

that country. Food brands from other countries, such as

Germany, are also considered highly favorable but the

dynamic and the preference is driven by different factors.

I hope that you find this report of interest. If there

are any questions on this report or on services that

we could provide to your company, please do not

hesitate to contact us.



Repeated food scandals in China have undermined

t h e c o n f i d e n c e t h a t C h i n e s e c o n s u m e r s

have i n Ch ine se food compan i e s . Th i s r epo r t

i n t r o d u c e s h o w C h i n e s e f o o d c o m p a n i e s a r e

currently perceived relative to their international

compet i to r s . I t a l so in t roduces the ca tegor i e s

t ha t a r e o f g r ea t e s t conce rn , t he pe r c ep t i on

of food from a wide se lect ion of countr ies and

the growing acceptance of imported food as a

hea l th ie r and sa fe r a l te rnat i ve to domest i ca l l y

produced food.

The history of food scandals in China is relatively well

documented. These scandals have played a key role in

undermining the confidence in local food production. The

key areas of mistrust revolves around poor legislation and

corporate governance. The lack of trust in Chinese food

producers is being driven by the perception that these

companies do not get punished when they break food

laws, are not strictly supervised and are only interested in

1. The impact of Chinese food scandals and the resulting opportunity for foreign food brands and producers in China

What are the biggest concernsin your life?

94%Food safety in China

Air quality where I live

Water quality

Healthcare protection

The outlook for theChinese economy

74%

46%

42%

21%

Base: Shanghai: All respondents : n= 500

Top ranked concern2nd ranked concern3nd ranked concern

profits. Growing concerns about the levels of pollution

in the Chinese environment are also fueling mistrust and

concerns.

Major food scandals reported in Chinese media

2004 – Q4, 2013

Source: DDMA Secondary Research. Q4 - 2013

65

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

425390

290

180 180 170210

710

190

Why are there so many foodscandals in China?

Source: DDMA Secondary Research. Q4 - 2013

Dishonest companiesare not punished

Companies are notstrictly supervised

Companies are dishonest& only care about profit

Food standardsare too low

Environment is pollutedso food is unsafe

Do not have advancedtechnology

Not experienced atproducing quality food

94%

92%

92%

77%

69%

34%

20%



2. China’s growing middle class and the growing preference for foreign food brands

The opportunity for foreign food producers is very clear. This study, while only conducted in Shanghai, highlights

the shift in preference for foreign food produce, almost 50% of consumers interviewed state that when they shop,

they actively seek out foreign food brands. With a rapidly developing middle class in China, the opportunity is vast.

The most favorable attitudes are held among higher income producers.

1. Food from foreign countries is perceived to be of

higher quality than Chinese food. This belief is very much

ingrained in the minds of Chinese consumers, in particular

the wealthier consumers from higher income groups. The

perceptions of food from different countries is introduced

later in this report.

2. A clear opportunity for restaurants in China to promote

the foreign food on their menus. There is a developing

preference for restaurants that serve foreign food, the

chart shows that 60% of respondents of this survey stated

that they frequent restaurants that serve imported food.

3. Chinese consumers actively research and collect

information on foreign foods and brands. The importance

of a strong online presence is clear with almost 50% of

consumers stating that they actively collect data on foreign

food brands. The incidence of this data collection increases

as income rises with wealthier consumers being the most

prolific in their research activities.

4. The result: 46% of consumers actively seek out foreign

food brands when shopping. The preference for foreign

food brands grows with income with almost 60% of the

highest income group stating that their preference is for

foreign food brands when shopping.

Foreign food brands are better

% Strongly Agree


69%

Total Sample Low lncome Medium lncome High lncome

65% 70% 80%

I prefer restaurants that serve foreign food

% Strongly Agree

Base: Shanghai: All respondents: n= 500

60%


57% 59%71%

% Strongly Agree


48%


41% 51%63%

I actively research foreign food brands before purchase

% Strongly Agree


46%


43% 45%59%

I seek out foreign food brandswhen shopping



3. Most favored food producing countries for Chinese consumers and the power of perception

New Zealand and Australia top the list of most favored

food producing countries with Chinese consumers.

Germany follows in third place. The preference for

Australia and New Zealand is not surprising. These two

countries are perceived in a very favorable light by Chinese

consumers due to the perceptions of wide open spaces

and both having a clean, unpolluted environment. In many

ways, New Zealand and Australia are the exact opposite of

living in China.

The power of the “Food from New Zealand” and “Food

from Australia” brands is evident in the adjacent charts.

While only 33% of respondents claim to be familiar or

very familiar with Australia, 72% of all respondents are

very comfortable and will consider buying food and food

brands from Australia. This indicates that in the general

population both countries are strongly associated with very

high food quality. Countries that respondents are more

familiar with, such as Japan and the USA, do not score as

highly in terms of favorability for food purchase.

Level of familiarity with the following countries – Top ten countries

Japan

Korea

USA

Australia

England

New Zealand

Germary

France

Sweden

Norway

46%

39%

38%

33%

27%

24%

24%

24%

15%

11%


Somewhat familiar Very familiar

Which country are you mostcomfortable buying food from?

Japan

Korea

USA

Australia

England

New Zealand

Germary

France

Sweden

Norway

73%

72%

64%

55%

48%

40%

38%

38%

30%

19%




4. Perceptions of selected food producing countries

Correspondence analysis of which food producing

attributes are associated with which countries has

generated the perceptual map below. This map introduces

how Chinese consumers perceive the foreign food

producers. What it indicates is as follows:

That over 80% of perceptions are expressed on the

horizontal x-axis. This access runs between natural

clean environment at one extreme and advanced

technology at the other extreme.

The vertical y-axis ranges does not express much of

the data but reflects relative differences between

perceived levels of corporate governance of food

companies and food safety standards.

The countries that are most associated with clean

environment and high quality foodstuffs are Norway,

New Zealand and Australia. Norway is also strongly

associated with having high food safety standards.

The countries most associated with strong corporate

governance and advanced food technology are Japan

and Germany. These countries are not associated

with having a particularly clean environment.

The United States is more closely associated with

having advanced food technology as opposed to

having strong corporate governance strong food

safety regulations.

Sweden is not clearly defined on this map, but as all

positions are relative to the strengths and weaknesses

o f o the r count r i e s , the fo l lowing s l ides w i l l

demonstrate that Sweden is perceived as being very

similar to Germany but with a cleaner environment.

Perceptions of selected food producing countries Based onresponses of respondents that are familiar or very familiar with each country

Advanced foodtechnology

USA

Japan

Strong Govt. Supervision

Germany High standardsin food safety

Norway

Food producers valuequality over profit

High quality foodstuff

Sweden

AustraliaNew Zealand

Clean & naturalenvironment

F1 (92.84%)

F2 (3

.99%

)

Symmetric plot(axes F1 and F2: 96.82%)

Weaker governance

Strong governance

Environment

Advanced Technology




4. Perceived strengths and weaknesses of food brands from ten most preferred countries – 1

1. New Zealand

New Zealand tops the list and the strength of the New

Zealand brand is reflected in the high level of purchase

preference for foods from New Zealand versus the

relatively low levels of familiarity about the country. The

appeal for New Zealand food brands is being driven

primarily by above average ratings on the cleanliness of

the environment. New Zealand companies are considered

to be slightly below average on governance and are

not strongly associated with having advanced food

technology.

Will consider to buy food brands from this country

High familiarity with country overall

Base for ratings: All Shanghai respondents: n= 500

81%

High standardsin food safety

Strong GovtSupervision

High qualityfoodstuff


Trustworthyfood producers

Food producersvalue qualityover profit


81% 84% 78%70% 67%

75%

73%Rank 1

24%Rank 6

Governance Environment Trust Technology

Base for ratings: All consumers that are familiar/very familiar with New Zealand: n= 105 Average rating for each attribute across all countries



Base for ratings: All consumers that are familiar/very familiar with Australia: n= 130 Average rating for each attribute across all countries

74%








78%80% 76%

66% 62%73%

72%Rank 4

33%Rank 4



2. Australia

Foreign food brands and food produce from Australia

have a very similar perception to those from New Zealand.

The appeal of Australian food brands is driven by positive

perceptions of the Australian environment. The Australian

food industry is considered to be slightly below average in

terms of corporate governance, average in terms of trust

and below average in terms of the use of advanced food

technology.




3. Germany

The attraction and appeal of German food brands is

not driven by perceptions of a clean environment,

rather, appeal is driven by perceptions of strong

corporate governance, advanced technology and

trustworthy food producers that are honest and

have integrity. The “Made in Germany” brand is

we l l es tab l i shed in China and Chinese-German

commercial co-operation has a longer history than

with most other non-Asian countries. The familiarity

with Germany is relatively low, but the perceptions

of the made in Germany brand creates very positive

perceptions of German food producers.

4. USA

The familiarity with the USA is relatively high. For those

that are familiar with the USA, the country is perceived to

be average for food safety, not strong in terms of having

a clean environment, slightly below average in terms

of trust and integrity of producers but strong in terms

of advanced food technology. America is probably the

non-Asian country that Chinese consumers have most

exposure to, America has always been strong associated

with lifestyle, freedom and wealth. American food

producers need to tell a stronger story on the quality of

their environment to win over more Chinese consumers

to American food brands.



Base for ratings: All consumers that are familiar/very familiar with Germany: n= 92 Average rating for each attribute across all countries

85%








76%56%

83%68%

82%83%

64%Rank 3

24%Rank 7





Base for ratings: All consumers that are familiar/very familiar with USA: n= 123

76%








72%

51%69%

59%

79%72%

55%Rank 4

38%Rank 3


Average rating for each attribute across all countries





5. Japan

Japan is the country which Chinese consumers are most

familiar with. Aside from current and historical geo-political

tensions, Japan is widely seen as an attractive destination and

an appealing society. Food brands from Japan are strongly

6. England

England is also a country which Chinese consumers

are relatively familiar with. However, the perceptions

of England do not currently play a strong role in

supporting the appeal of “Made in England” food

brands. England is rated below average on governance,

environment and technology. The outcome is not

surprising as England is more closely associated with

being an attractive holiday destination, a country that

is suitable to conduct third level studies in or as a

shopping trip location.

associated with strong governance, high levels of food safety

and advanced food technology. The ongoing nuclear issue

at Fukushima is playing a role in undermining ratings for the

perceptions of the Japanese environment. Japanese food

brands are already well established in China, but they can

grow further if they can allay fears over the environment.



Base for ratings: All consumers that are familiar/very familiar with Japan: n= 133 Average rating for each attribute across all countries

81%








75%

57%

76%66%

85%87%

48%Rank 5

46%Rank 1





Base for ratings: All consumers that are familiar/very familiar with England: n= 70 Average rating for each attribute across all countries

66%








68%

48%

73%61% 67%70%

40%Rank 6

27%Rank 5






7. France

The profile of France and food brands from France is

interesting in that it is relatively weak, especially when

considered in the context of the relative popularity and positive

perceptions of French wine in China. Currently the perceptions

of France do not strongly support French food brands. The

country is perceived as being slightly below average on all core

dimensions measured with respondents that are familiar with

the country. This fits with the general perception of France

that is held by Chinese consumers. That is, a country that is a

good holiday destination and strongly associated with fashion.

8. Sweden

Overall preference and purchase consideration for Swedish

food brands is undermined by a lack of familiarity with the

country. However, among the respondents of this survey that

are familiar with Sweden, the country is perceived as having

strong corporate governance, a very clean environment, above

average levels of trust and integrity within the food industry

and a food industry that has advanced technology. In many

ways, the perceptions of Sweden are very similar to those of

Germany, with the difference being much stronger ratings on

the cleanliness of the environment.



Base for ratings: All consumers that are familiar/very familiar with France: n= 60 Average rating for each attribute across all countries

67%








64% 60% 61% 62% 66%71%

38%Rank 7

24%Rank 8





Base for ratings: All consumers that are familiar/very familiar with Sweden: n= 46 Average rating for each attribute across all countries

85%








89%81% 76% 76%

82%82%

38%Rank 7

24%Rank 8






9. Norway

Norway is another country where overall preference

as a source fo r food brands i s undermined by

low levels of familiarity with the country. Among

respondents in this study that are fami l iar with

N o r w a y , t h e c o u n t r y i s r a t e d v e r y h i g h l y o n

pe rce i ved co rpora te gove rnance , env i ronment

and trust. The relative weakness is in an average

rating on advanced food technology in the food

industry. Overall, Norway holds similar perceptions

to Germany and Sweden, except that it is stronger in

terms of corporate governance and environment and

weaker in terms of use of advanced technology.

10. Korea

The levels of familiarity with Korea are naturally very high,

however, this does not convert into high levels of consideration

of purchase for Korean food brands. Korea as a food producing

nation does not score strongly on any of the key dimensions

measured in this study. The image of Korea in China is relatively

positive. It is closely associated with fashion and young,

contemporary Asian fashion, style and popular culture. It is also

a very popular location for holidays and shopping.



Base for ratings: All consumers that are familiar/very familiar with Norway: n= 30 Average rating for each attribute across all countries

93%








90% 87% 80% 77% 70%84%

30%Rank 9

11%Rank 10





Base for ratings: All consumers that are familiar/very familiar with Korea: n= 58 Average rating for each attribute across all countries

66%








59%47%

67%53% 55%60%

19%Rank 10

39%Rank 2





5. The vast gaps between perceptions of Chinese food companies and foreign food companies

T h e v a s t g a p b e t w e e n t h e p e r c e p t i o n s t h a t

respondents held of Chinese food brands versus their

foreign counterparts is revealed in the table below.

The lack of confidence in Chinese food standards

and extreme doubts as to the capabi l i ty of the

government to regulate and supervise the Chinese

food industry are clearly seen in the survey results.

The damage of poor environmental protection over

the years in China and the mistrust of Chinese food

companies is also reflected.

In contrast, the table also highlights the positive

perceptions of Norway and food brands from Norway

that are held by those famil iar with the country.

Difference in perceptions of Chinese food companies and foreignfood companies based on responses of respondents that are familiar

or very familiar with each country

Attribute

Score for Chinese

Food Companies

% strongly agree

(n=500)

Average score for

top 10 foreign

countries(n=500)

Difference between

Chinese companies

and foreign

companies

Highest rated country

with those familiar

with each country

Familiar with

country & strongly

agree %

T h e c o u n t r y h a s a h i g h

standard of food safety6% 77% 71% Norway 93%

The gove rnment s t r i c t l y

supervises the food industry4% 76% 72% Japan 87%

The country has high quality

raw materials to produce food3% 75% 72% Norway 90%

The food from this country is

trustworthy3% 74% 71% Germany 83%

Advanced food technology 11% 72% 61% Japan 85%

Food producers put priority in

quality as opposed to profit3% 66% 63% Norway 77%

Has a natural and clean

environment4% 65% 61% Norway 87%

Overa l l , Norway , Japan and Germany a t ta ined

the highest ratings on the core image dimensions

measured.



Conclusions & Future Reports

This report has outlined the opportunities for foreign food companies in the China market, how food brands from

selected countries are perceived by higher income Chinese consumers and the key reasons why these opportunities

exist. Future reports on the opportunities in the food market in China will introduce the following:

Most suitable retail channels for foreign food companies and brands in China

The online sales opportunity for foreign food brands in China

An overview of the opportunities in specific food categories, such as meat, dairy, seafood, fruit and beverages. These

reports will be released in the near future.

These reports will be released in the near future.

About DDMA

DDMA is a full service market research company based in Shanghai, China.

Our clients include:

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Ddma China Food Import Market