Fast-food fad creates opportunities in China
The rapid rollout of fast-food chains across China is driving a switch to frozen, convenience-style seafood judging by visits to KFC outlets in Beijing.
The U.S.-based chain is currently running a promotion on shrimp burgers and breaded shrimp balls in its north China stores. A KFC outlet in the city’s southern railway station, however, was sold out of the RMB 15 breaded burgers, which are advertised prominently in boarding and LED screens in the restaurant. A 30-minute ride on the high-speed railway line to the coastal city of Tianjin also hosts an increasing proliferation of fast-food chains, among them the Korean-owned Lotteria, which sells a shrimp burger at the same price as KFC as well as battered squid rings sold in groups of four for RMB 8.
Local seafood processors are starting to piggyback on the apparent success of KFC and others (like McDonald’s, which markets a RMB 13.50 fish burger in China) by making breaded, frozen product exclusively for the domestic market. While the country is a key processing-for-export hub, convenience-oriented frozen seafood has traditionally been out of favor in China, where consumers prefer to buy at wet markets and wet-market sections of local supermarkets.
Among this new breed of firms focused on domestic markets is Xian Mei Lai, a privately owned firm headquartered in the central China city of Zhengzhou, more farmland than seafood stronghold. One of the firm’s top selling products retails at RMB 13.50 in the frozen section of Tesco supermarket outlets nationwide, a 200-gram box of breaded “deep-sea cod” in colorful packaging remarkably similar to offerings in Western supermarkets.
Established in 2000, the firm’s production base is in Beihai, a seaport in the southern province of Guangxi. Xian Mei Lai has more than 1,000 employees spread between Zhengzhou and Guangxi, where production is both farmed and caught in the sea and river, according to a company sales manager surnamed Huang. He said of the firm’s 13,000 tons of annual production, shrimp meat, hairtail yellow croaker and codfish are the most popular products.
What’s most unique about the firm is its distribution network in China’s heavily populated central regions. The bulk of sales come from supermarket chains like Carefour, Tesco and Walmart, which have invested heavily in these regions in the past decade.
“Our ideal customers are mainly young workers and children who prefer fried foods,” explained Huang.
With more than 300 distribution points nationwide, Xian Mei Lai focuses on central and southwestern China, with sales staff working out of Zhengzhou. The firm has based another sales division in Shenyang city to focus on the northern provinces like Liaoning, Jilin and Inner Mongolia. Xian Mei Lai has also opened sub-offices in six central and northern cities.
Using a slogan that translates as “fresher and newer than you thought,” Xian Mei Lai (the company name translates roughly as “fresh and beautiful”) imports codfish and has hired Northern European consultants on cultivating Arctic shrimp and codfish but wouldn’t elaborate. Huang said the firm hadn’t secured any of the certifications required to ship to the European Union and United States, a processes that he said could take three years. He said the firm would like to export its best-selling products like frozen shrimp and codfish.
Other Chinese seafood processors feel they’ve been too slow in tapping the domestic market, particularly given the slowdown in key markets like the EU. A marketing manager surnamed Zheng in the sales department at Zhanjiang Guolian Aquatic Products Co. said while the firm has an established brand in frozen shrimp — “The Eastern King” — it will take several years to expand its portfolio of products in China because it lacks an adequate distribution system and will also struggle to compete on price in the domestic frozen seafood segment.
“We pay a lot attention to the quality of our products, therefore the cost of them is a little more expensive than other companies, which has made sales in domestic market very difficult,” said Zheng. In 2012, the firm will prioritize the domestic market by hiring brand consultants and working with major retailers like Walmart “as well as famous chain restaurant, seafood markets and wholesalers.”
In terms of distribution capabilities, Xian Mei Lai appears ahead of the pack. Aside from supplying Walmart, Carrefour and RT-Mart, the firm has 30 of its own stores in Henan province, China’s most populous region.
Interestingly, while not associated with seafood, Xian Mei Lai’s home city of Zhengzhou has a reputation for successful food processing firms. It’s home to some of China’s most successful meat processing and packaging firms, among them U.S.-listed Zhongpin, which has developed processing and cold-chain systems that are miles ahead of its peers. Huang sees Sino-Canadian owned Hainan Quebec Co. as a key competitor “but not the only one.”
“Remember, we each target different regions,” said Huang. “It is a very competitive business, but since we have cornered the markets in several cities, we will try very hard to expand our sales.”