Trade in China: How Atlantic Canadian food and drink exporters are catering to Asian markets

Trade in China: How Atlantic Canadian food and drink exporters are catering to Asian markets

A booming middle class in China means big dollars are on the table and Atlantic Canadian exporters are vying for a piece of the pie—while selling the blueberries inside it. Last year, associate editor Gabby Peyton travelled to China on a sponsored media trip with the Canada China Business Council to follow the stories of Atlantic Canadians selling food and drink to Chinese consumers.

As the automatic glass doors open at 7Fresh supermarket in Beijing’s Yizhuang neighbourhood, impeccably cellophaned avocados from Chile are snatched up by the half dozen. The 4,000 sq. ft. storefront in Dazu Plaza Shopping Centre has a Whole Foods vibe with modern light fixtures, beige brick facades and light wood vegetable stands—and the signage marking the departments is English. Sleek reusable bags monogrammed with the 7Fresh logo whiz overhead, destined for shoppers who ordered online, while storefront consumers pay for their Iberico ham with facial recognition. It’s all part of the experience at JD.com’s first endeavour into brick-and-mortar stores.

The e-commerce giant (one of the biggest online retailers in China) opened the store in December 2017, the first of a thousand set to open across China in the next five years. Taking big data analytics into account when deciding what to put on the shelves and using blockchain to personalize the shopping experience, these stores represent the future of food retail in China. And what do the customers want? Canadian food, of course.

In the seafood section, customers can point at a live Nova Scotia lobster—plucked from cold Atlantic waters and settled into 7Fresh’s tank within 48 hours—to take home for a dinner party (or have it cooked on the spot). They can also grab a box of frozen surf clams adorned with Clearwater Seafoods’ red-white-and-blue logo to start off that supper. The market’s vegetable section takes up half of the store and with magic mirrors that utilize RFID technology, shoppers can read about the health benefits of those 340-gram bags of frozen Oxford Wild Canadian blueberries.

On this side of the world it’s easy to underestimate the impact of the digital revolution of China’s ever-growing consumer base on the Atlantic Canadian food manufacturer, but with flash sales for Canadian lobster on JD.com selling more than 140,000 crustaceans in 24 hours, it’s worth taking notice. Right now, there are more than 100 drones flying through several Chinese provinces delivering everything from baby formula (made in Australia) to sausages (imported from Germany) right to the buyer’s front door—within 30 minutes if they live close to a 7Fresh. Understanding the Chinese consumer and their massive buying power is paramount to a successful export business to China.

Shifting red
The churning tides of cultural and societal norms in China have drastically changed consumerism over the past decade. The rise of the middle class has seen a group of 400 million consumers grow to covet premiumization: the availability of, and demand for, premium global brands. According to the McKinsey Global Institute, in 2010 only nine per cent of Chinese households (13 million) could be classified as middle class, taking home 12,500 RMB to 18,000 RMB annually (RMB, short for Ren Min Bi, is China’s official currency). In 2018, 54 per cent of households (135 million households) made it to the middle class.

With more access to disposable income, consumer confidence is at an all-time high. China’s middle class are ready to spend money on high-end gym memberships, health food and are more and more concerned about spending leisure time with family. The centrepiece of any good family get-together? Food.

Canada’s reputation for clear crisp lakes and fresh mountain air is well known in China and consumers are eager to devour fresh lobster, dairy products and meats from our well-regulated factories and farms. Within this marketable feast, there is lots of room at the table for Atlantic Canadian food and beverage makers in China and many recipes for success.

True north strong and free trade
In an open letter published in the Globe and Mail on July 13, 2017, the CEO of JD.com, Richard Liu, enthusiastically encouraged Canadian companies to come to China. “Chinese consumers associate Canada with a pristine environment and top-quality products. Some of the bestselling Canadian products in China currently include lobster and ice wine. But we believe the potential is enormous for everything from coats to fresh produce.”

All four Atlantic provinces have put a push on increasing exports of East Coast food and beverages over the past few years. In 2018, Nova Scotia Business Inc. reported that the value of Nova Scotia exports to China has grown by 331 per cent to make it the province’s second-largest trading partner (after the U.S.-New England export market).

There is no question seafood is the biggest Atlantic Canadian export to China. More than half a billion dollars’ worth of seafood—everything from lobster, oysters and caviar to flounder, halibut and cod—was exported to mainland China in 2017. The scale of seafood companies ranges drastically from small sea cucumber plants in Hackett’s Cove, where Atlantic Sea Cucumber employs around 50 people, to mammoth fish monger Clearwater.

Clearwater remains one of the most successful companies in the Atlantic provinces to sell directly to China with its relationship with JD.com and other online retailers as well as experiments with business-to-consumer selling and their expertise in cold supply chain management.

In Newfoundland, 14 per cent of the total value of the province’s exports is shipped to Asia, with almost $800 million worth of product sold to the Chinese market annually. While forestry and petroleum products are New Brunswick’s largest exports to Asia, $232 million in agri-food exports is not exactly small potatoes. McCain Foods, for example, established a state-of-the-art french fry manufacturing facility in Harbin, Heilongjiang, China’s most northeastern province, in 2004. Prince Edward Island exports $40 million worth of live, frozen and prepared lobster to China as well as $600,000 in frozen potato products and $400,000 in frozen beef—there’s even a little honey tossed in there for good measure.
While seafood remains king crab so to speak, there is plenty of room in the Chinese market for other Atlantic Canadian tastes. With China accounting for 40 per cent of the world’s total e-commerce spending, everything from wild blueberries to wine to ice cream is fair game.

Trade runner
Some Atlantic Canadian companies have transitioned from using third parties to access the Chinese market to directly supplying the region. Oxford Frozen Foods, the world’s largest supplier of frozen Canadian wild blueberries, has been selling to China indirectly for a decade, but have recently chosen to increase their presence there with a three-pronged approach: selling to distributors; through e-commerce sites like JD.com; and, through retail grocery stores.

Founded in 1968, the company has been selling blueberries to multinational companies like Danon or other U.S. and European companies who in turn sell to China. Matthew Bragg, the vice president of sales for the Oxford Food Group, has been working at the company his whole life—his father John founded the company the year he was born.

“In the past three years, we have put more of a focus on expansion into China because we have had some large crops and we are growing our business and that is a new big market to get into,” says Bragg. For him, the market has more potential than anywhere else in the world simply because of its size. With a population of 1.5 billion and growing, it’s the biggest market for just about any product with sizeable profitability. “When people are talking dollars and cents, I say ‘just keep adding zeroes.’ It’s not millions, it’s billions.”

The timing couldn’t be better for the wild blueberry industry which has had record crops in the past few years. Oxford blueberries and the industry on the whole has been on the upswing, increasing both yield and acreage. “As the crops have expanded, we have the responsibility to grow the market,” says Bragg. “Canada is a small market—we sell a lot per capita in Canada—but we are essentially an exporter, we sell 80 per cent as exports.”

“For the size of the China market, we were undeserving that China market, and I targeted that as a project to say let’s start travelling and working with the provincial and federal markets on developing that market.” The majority of Bragg’s efforts lie in the marketing, research and development of large scale dairy and bakery manufacturers. “Whether it’s in Canada, the U.S., France, Germany, Poland—if you are buying blueberry yoghurt, odds are it’s our blueberries in any blueberry yogurt you eat in the world, except for China.”

On JD.com, anyone can buy a bag of blueberries and have it delivered in a cooler box along with their groceries. This coincides well with the uptick in health awareness in China and their appreciation for the reputation of Canadian foods. “A lot of the middle class in China are not buying Chinese-manufactured food because they are nervous about the food safety risks.”

Oxford Frozen Foods also sell bags of blueberries in brick-and-mortar stores like JD’s 7Fresh supermarkets, as well as Metro and Direct Import Goods, or DIG for short, which focuses on non-Chinese high-end imported goods—“You can get a $1,000-bottle of French wine or a bag of blueberries,” says Bragg. While he is positive about the Chinese expansion of the company, taxes and duties are a concern with 30 per cent duty and another 15 per cent import tax on top of that, making the cost of blueberries rise by 50 per cent. “A two-dollar blueberry becomes a three-dollar blueberry which is very prohibitive.”

Quenching the Chinese appetite for wine
Benjamin Bridge on the other hand is taking a singular approach with their penetration of the Chinese wine market. Whereas Oxford is trying to appeal to a broad demographic, Benjamin Bridge is attempting a modest entrance into the high-end wine scene. For the three years they’ve been in the Chinese market, they’ve focused on selling their Nova 7 wine.

While Gillian Mainguy has only been head of sales at Benjamin Bridge since 2017, the former manager of the Wineries Association of Nova Scotia is well experienced in marketing the Nova Scotia wine region. Benjamin Bridge’s first introduction to China was during a federal agricultural mission where they were introduced to a variety of companies. The most beneficial connection was when Mainguy attended the Food & Hotel China (FHC) mega trade show in Shanghai. Amongst the 90,000 visitors and 3,000 exhibitors from 48 countries, Mainguy met their current distributor, Right Source Food International Inc. These types of personal relations and human connections are important when breaking into the Chinese market.

“You have to be present in that market, you cannot just be here. There has to be a commitment to actually visit. Have someone in your company go in person to China whether it is for a specific show or for a business meeting,” says Mainguy. While taking that long flight to Shanghai might seem like a stretch, even going once or twice a year makes a big impact. Having someone from the company to tell the story of the brand and of the winery is important to Benjamin Bridge.

Spreading awareness is essential for the Annapolis Valley winery. There’s not a lot of Canadian wine out there, so creating hype around Nova 7, and then introducing more product is their long-term strategy. “We are creating a brand, creating the demand and telling the story.” The hopes of Benjamin Bridge in China will rise on the bubbles of Nova 7.

Right Source Food International Inc. is run by Chinese Canadian Jim Zhang and is based in Dartmouth, Nova Scotia. After striking up a conversation with Mainguy at FHC in Shanghai, he went to the Wolfville winery to chat about how he could market and sell Benjamin Bridge in China. He is actually a seafood distributor who started selling high-end seafood like sea cucumber in 2011 but Mainguy and Zhang saw this as a unique opportunity to hone in on the high-end direct-to-consumer market. “It’s serendipitous because it worked out well, the pairing of Nova Scotia wine with seafood.”

Zhang is able to sell direct-to-consumer to a discerning clientele who want high-end imports. Without a brick-and-mortar store, the sales team sells the wine by promoting it with videos on WeChat, which Benjamin Bridge helps to create. “It’s a great way to create demand because you have some people who are getting this product, and other people being like ‘where did you get that.’”

The distribution partnership with Right Source Food also comes with tariff benefits. Benjamin Bridge only ships a modest amount of product, about 1,000 bottles at a time to the Guangdong free trade zone. The importer pays a 40 per cent import tax and buyers then pay the Chinese-imposed duty on the product before it lands in your glass at the hotel lobby or at an exclusive dinner party.

I scream, you scream, China screams for P.E.I. ice cream
Strolling in the trendy Sanlitun neighbourhood where Mercedes has a concept restaurant and Moleskin notebook stores has a coffee shop, you might be surprised to come across a Cows Creamery. That’s right, Cows ice cream—made in Prince Edward Island. Their entrance into the Chinese market was about bringing a truly unique Canadian experience to Beijing. The brightly coloured shop is filled with Anne of Green Gables books, Cows’ iconic punny t-shirts and general Canadian paraphernalia like maple syrup.

Frank Zhou immigrated to Canada almost 15 years ago and fell in love with the iconic frozen treat as he was settling into his new home of Prince Edward Island. In 2014 he decided to take Cows Creamery back to China with him and open a storefront in Beijing. More than 12,000 tubs of Cows ice cream were exported from Prince Edward Island for the opening of the store, and the company continues to ship its creamy delights across the world to supply the store with authentic Island product. The only difference? The ice cream served in Beijing is half as sweet as the product they sell in Canada to ascribe to different tastes in Asia. Zhou understood the importance of the disposable income of the middle class in China and their appreciation for international brands, even if they don’t know much about them. Two years later, another Cows opened in Beijing and the creamery landed a deal with the Yintai Group to open more ice cream shops in their line of high-end shopping malls.

Foreign affairs
Political tensions between China and Canada ebb and flow, but the current tensions seem to have a different flavour. It had to be asked whether or not this affects the day-to-day groundbreaking into the Chinese food and beverage markets, a path which has been pretty well sown by seafood exporters over the past few decades.

Most producers remain optimistic about the commercial relationships between the countries.
Bragg says customers of Oxford Frozen Foods remain unaffected by changing political climates: “The consumer in China is not boycotting. The Chinese middle class are not thinking about that, they aren’t buying things based on Trump or Trudeau.” For him, a scandal on food safety has more impact on the everyday consumer or the dairy manufacturer than a political one.

If there is political instability in China or the almost certain periods of friction between China and western nations, it doesn’t matter in the short term. Most of the regional companies exporting to China are in it for the long haul—there is an undeniable trend of successful trade between the two nations. It would be naive to think that Canadian companies won’t find a way to enter such a lucrative and huge market. As long as 400 million people want blueberries, someone is going to find a way to package and ship them 400 million blueberries. Why not us?

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