The potential of cross-border e-commerce for sales of seafood to China
Cross-border commerce is a rapidly growing segment of China’s massive online commerce sector – and it’s not just Korean and Japanese cosmetics that are driving sales. There’s also a place for seafood.
Imported flounder, salmon and halibut appear to be key categories for China’s biggest online retailers, which have been testing imports of seafood on new cross-border platforms that allow Chinese consumers to purchase seafood abroad and have it shipped to their doors.
Chinese cross-border e-commerce sales (separate from the existing online commerce sales on other business-to-consumer sites like Tmall.com and JD.com) will be worth USD 86 billion (EUR 77.8 billion) in 2016, three times as much as they were worth in 2014, according to a new research report on the sector by eMarketer, a research consultancy. The firm projects spending in China on cross-border e-commerce sites will rise to USD 110 billion (EUR 100 billion) in 2017 and USD 160 billion (EUR 145 billion) in 2020, as online goods become increasingly affordable to a Chinese middle class that has incomes rise steadily over the past decade.
Tmall Global and JD.com Global, a pair of e-commerce operations seeking to satisfy Chinese consumers’ hunger for imported goods, are particularly interesting objects of study. Part of the Alibaba conglomerate which dominates online commerce in China, Tmall Global has opened offices in Europe and the United States to recruit suppliers of seafood and other products in demand among China’s middle class consumers.
To put this in context, with USD 630 billion (EUR 570 billion) of sales in 2015, China’s online retail market is the world’s largest, nearly 80 percent bigger than online sales in the U.S., according to research by McKinsey. E-commerce accounts for 13.5 percent of all retail spending, far higher than the U.S. equivalent figure.
China counts as the world's largest grocery market at USD 1.1 trillion (EUR 995 billion) per year but China still only represents a mere three percent of Walmart's global sales of USD 478.6 billion (EUR 432.8 billion), according to estimates from IBISWorld, a research firm. Granted, Walmart has 400 stores in China compared with more than 5,000 in the U.S. But getting the food business right is critical for Walmart given that Chinese grocery sales are expected to grow to nearly USD 1.5 trillion (EUR 1.36 trillion) in just the next four years, according to IGD, a global consumer products research firm.
Obviously, online commerce sales are well-suited to non-perishable goods like cosmetics –which Chinese ecommerce consumers buy in huge quantities from Japan and South Korea. But on the seafood front, in response to growing demand, Chinese online retailers have been upgrading their cold-chain logistics capabilities to the level needed to handle food.
Aside from Tmall Global, Alibaba also has Mr Fresh (miao.tmall.com), a service that helps foreign food companies enter the Chinese marketplace (without the cost of opening an official store on Tmall), with Alibaba taking care of customs, sales, logistics and customer service – for a commission, of course.
Remarkably, half of China’s 400 million e-commerce consumers are already buying goods through cross-border channels, spending an average of USD 473 (EUR 428) per person, per year. Initially, China promoted cross-border commerce through a pilot program naming eight cities “hubs, giving them the right to handle packages and allowing them to waive import duty taxes for individual purchases less worth than CNY 2,000 (USD 300, EUR 271), up to a maximum of CNY 20,000 (USD 3,000, EUR 2,710) per year, while VAT and consumption tax were charged at 70 percent of the tax payable.
But recently, Chinese authorities have backed off a bit from their initial enthusiasm, expressing concern about how online purchases of food and dairy enter the country – and how to collect taxes from them. It appears the government is worried the channel was being used to evade taxes by traders bringing in large amounts of goods through private parcels. Likewise, government has been lobbied by domestic retailers and companies complaining that cross border e-commerce sites have an unfair advantage and undercut them. Now, from January 2018, companies bringing in food products will have to register with regulators to be able to import products through the specially designated ports.
China’s about-face will have some consequences for online platforms such as Tmall Global, which has opened the door to overseas retailers like Costco and South Korea’s Lotte Mart, which now have their own portals on the platform. Ultimately, however, the new measures will simply add to the price tags of online purchases.
That won’t stop online and cross-border sales from continuing to grow. China’s booming middle-class, determined as those earning more than USD 20,000 (EUR 18,078) per year, increased from five million people in 2001 to 300 million in 2015, was the major reason why China took the top spot in this year’s IESE Food and Beverage Attractiveness Index, an annual ranking of markets for food and beverages by Deloitte and IESE Business School Munich. The annual report for 2016 measures countries' attractiveness and potential according to six indicators including food and beverage import volumes, population and incomes.
With such a rapid increase in the number of global pot of consumers ready and able to buy seafood, there is much at stake for the world’s large seafood suppliers, given the long-term outlook for growth in Chinese food imports. Being able to target sales online is especially important due to the rapid changes in China’s grocery and broader retail markets, now becoming more complex as traditional retailers lose sales to online vendors like the market leaders Tmall and JD.com. Such sites claim to be more efficient at targeting internet-savvy, wealthy consumers who value food safety and quality, which are seen as the chief characteristics of imported products in the eMarketer research. Which is why being aware of how cross-border online sales work in China is vital to seafood suppliers globally.