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The international scramble for China’s massive online beef market

“You searched for ‘beef.’ Did you mean ‘beer?’” That was the suggestion the Costco Online website helpfully offered when we tapped in “beef” in the search bar. In total, we only hit on 11 items: six Kobe beef products, one vegan meat substitute, three dog foods, and an emergency food kit. For the Kobe beef, prices ranged from C$329 for 10 steaks to C$89.99 for 48 Kobe Classic Beef Mini Burgers. Deliveries are promised within five days.

Does it matter to Canadian beef producers that a major online seller in Canada has only six specialty unprocessed beef products that are going to be delivered next week? Probably not. The danger is that we assume that our key global markets work that way. Three hundred million Chinese have begun to shop online, ushering in a commercial era where speed and price dominate everything. In this new “lazy person’s economy,” consumers can reasonably expect to order it in the morning and get it in the afternoon. “Tmall supermarket,” an online food seller and part of the Tmall online platform owned by Alibaba, has been growing at 300 per cent per year. In 2015, the platform did 10 billion yuan (C$1.9 billion) in sales and expects to do 100 billion in 2017. “JD.com supermarket” (chaoshi.jd.com) not only expects to reach 100 billion in sales, it wants to help at least 10 brands do over 10 billion yuan (C$1.9 billion) in sales and to help another 100 brands do over 100 million (C$19 million). Our competitors are already selling significant amounts of country-branded beef on these e-commerce platforms in China. And this article is only talking about China; the online opportunities are truly global in scope.

Ziai Wu looking for Canadian beef products.

So let’s speculate about the potential size of China’s online retail market for beef. Beef is marketed in China as a nutritious high-protein, low-fat and low-cholesterol food. In 2016, Chinese consumed 5.9 million tons of beef and veal (Euromonitor numbers; some Chinese statistics put this number over seven million tons), a 24 per cent increase over the past five years. Consumption of retail beef was less, 1.9 million tons in 2016, but that number too represented an astronomical 24 per cent increase over the past five years. Let’s imagine that retail beef consumption continues to grow yearly at five per cent (as it did in 2016) until 2020, giving us consumption of about 2.4 million tons of store-sold beef. By 2020, online sales will likely account for 20 per cent of retail sales according to some projections. If online sales of fresh food continue apace with everything else, Chinese will be buying almost 500,000 tons of beef online in only a few years’ time. If on average a frozen kilogram of Canadian meat exported to China last year was $7.50, we are talking about a potential export market of almost four billion dollars.

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So how does it all work? At the present, there are three main established channels on the Internet to market quality Canadian beef to Chinese consumers. “Comprehensive” business-to-customer platforms like Tmall.com and JD.com allow businesses to deal directly with customers; they use third-party logistics companies for shipping. Next, online wholesale companies like 1688.com import overseas products and then sell to distributors. Companies like yhd.com and womai.com employ a “vertical” model and focus on fresh and frozen foods. These companies have their own distribution networks. Chinese consumers want access to high-quality beef imported directly from local production regions. Taken together, the three platforms are giving consumers the choice they demand.

It is no surprise that competition for this wave of savvy, internationally oriented Chinese consumers has picked up. How is Canada doing? The authors of this article chose to investigate beef sales on Tmall.com, the largest business-to-customer e-commerce platform. Inputting “country name” and “beef,” we found the following monthly country-specific sales figures for May 2017. The numbers are not encouraging.

The Canadian government has taken this challenge very seriously. In November 2014, Stephen Harper met with Jack Ma, owner of Alibaba and parent company of Tmall in China. Harper’s visit, perfectly timed for November 11, China’s “Double Eleven” deep discount day, helped sell 90,000 Nova Scotia lobsters in one day. On June 11, 2015, Agriculture and Agri-Food Canada signed a memorandum with yhd.com to establish a Canada pavilion on the site. In September 2016, Prime Minister Justin Trudeau visited Alibaba’s Xixi campus, met with Ma amidst great media fanfare, and announced the establishment of a Canadian pavilion on the Tmall website. The AAFC and the commercial section at the China mission are already dedicating staff to e-commerce markets for Canadian food products. But it would be a grave mistake to wait for our government to establish virtual Canadian pavilions on well-established e-commerce platforms so we can add our beef products to maple syrup, ice wine, and frozen lobster offerings already there. Instead, firms have to actively anticipate where the online beef market is going.

So how do we move ourselves up the rankings? First of all, when Canadians sell their products into the Chinese market, they must remember that online supermarkets like Tmall.com (chaoshi.tmall.com) and JD.com (chaoshi.jd.com) have already begun to displace and radically alter the way their brick-and-mortar counterparts do business. Prices at online supermarkets are more transparent than in their offline counterparts. Online brand loyalty for quality food products is high. Online supermarket customers are now exploring augmented reality features, visiting kiosks, writing on experience walls, and interacting with each other. Social showrooming is supplementing the offline supermarket experience with online activities and social media campaigns. Future beef brands that somehow exploit, say, health claims about iron, the pristine natural environment, or the specific tastes of the female demographic, will have to engage online supermarket consumers too. Just because online sales are somewhere between 10 and 20 per cent does not mean we only need to spend 10 per cent of our energy on online strategy.

Canadian firms selling beef will have to develop robust online relationships with young, discerning Chinese consumers via micro-blogging site Weibo, instant messaging app Wechat and other social media. Firms must learn to develop rich, original content about their products. In other words, they must gather, create, refine and disseminate information about nutrition, traceability and production conditions, then create events and activities where customers will interact with what they see.

 

Firms are going to find it is hard to do it all on their own. Effective firms will partner with social media platforms, engage thought leaders, and participate in virtual marketing campaigns like the country pavilion. In this information-rich environment, the Canada brand and the maple leaf symbol do not provide the kick they once did. Uruguay’s traceability system, Australia’s “grass-fed sustainability,” or even the Brazilian “bauru” sandwich all provide consumers with competing narratives that have to be countered with careful, thoughtful online brand development activities.

Meanwhile, Chinese consumers now buy beef products direct from overseas producer regions: information technology and improved logistical infrastructure have drastically reduced middleman segments of the supply chain. So “Farm–Cross-border e-commerce platform–consumer” transactions are now a reality through “Tmall International” (www.tmall.hk) and “JD.com Global.” These direct-to-consumer platforms may inspire us to look at our competitors and wonder “Who is getting online in China first?” “Whose government has managed to reduce the most Chinese red tape?” This would be a dangerous way to measure our success. The Chinese author of this article, director of an e-commerce research centre in a Chinese university, has provided training to Chinese farmers about how to directly market their agricultural products online to urban consumers. Chinese consumers increasingly expect to be able to deal directly with agriculture-producing regions, both domestic and international. We have to meet the expectations of Chinese consumers or someone else will.

“If you miss out on China, if you miss out on developing countries in Asia, if you miss out on e-commerce, you are missing out on the future.” That is what Jack Ma, executive chairman of the Alibaba Group, told 3,000 owners of small- and medium-sized business owners in the U.S. in June 2017. Ma went on to provide some statistics that stunned his audience. Each year, China consumes 600 million pigs and seven billion chickens. An online platform can sell 90,000 Canadian lobsters in a single day. And he added, “Those lobsters can be delivered from Canada to Chinese homes in 72 hours.”

Access to e-commerce markets in China may not be the only thing that the Canadian beef industry has to worry about. But the future of the world’s largest online market for food is certainly worth some thought.

Paul Sinclair is assistant professor at the University of Regina’s faculty of business. He currently works with his father on the family farm.

Ziai Wu is associate professor at the Chizhou University’s faculty of business in Anhui Province. He has spent the past year as visiting scholar at the faculty of business of the University of Regina. He teaches e-commerce and international business at Chizhou University and acts as professional consultant to the Anhui Provincial Online Business Association.

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