As seafood sector consolidates, China still struggles for brands
The last five years have seen the emergence of a handful of new seafood brands in China where before none existed. Seafood processing has been a low-margin business with some large companies, mostly in the northern provinces of Liaoning and Dalian, processing on contract for western consumers and farming out work to smaller, low-tech firms on an ad hoc basis.
Now brands like Hai Mai (also known as Buying Sea), Ayli and Guolian are appearing as packaged seafood brands targeting domestic consumers. These brands are being touted as success stories by local bodies like the China Aquaculture Products Promotion & Marketing Association (CAPPMA), which has bemoaned the lack of recognizable Chinese seafood brands as a weakness of the massive seafood processing industry.
Seafood accounts for more than 30 percent of China’s agricultural exports but China has no big name brands in the manner of Chicken of the Sea owned by Thai Union. Whereas Thailand’s giant food companies like Charoen Pokphand (CP) and Thai Union were born as private corporations, the seafood processing industry in China was a creation of government industrial policy, when Japanese and then Korean firms in the 1990s shifted processing across the narrow strait to Chinese cities like Yantai and Qingdao and (in Japan’s case) Dalian.
Production capacity certainly isn’t a problem. There are 1,450 companies in China that directly or indirectly control approximately 9,000 seafood processing factories here, according to data from the agriculture ministry. Total processing capacity has remained largely flat at about 24 million metric tons over the past two years.
As with most industries in China the state, rather than private, innovative companies were in control — and still have a say through companies like Liaoning Province Dalian Ocean Fishery Group Corp. (often known as Liaoyu) and China National Fisheries Corp. (CNFC), both state-owned catching and processing giants. The trouble with the big state giants is that they’ve traditionally been in the industry for low-hanging fruit in the form of profits that could be picked up easily through preferential access and rights to unload boats tax-free in some ports, leading to high margins on tuna and squid and sardines processed locally for overseas buyers.
The state giants invested little energy or funds in creating seafood brands — or products for the Chinese consumer. A look at the packaging and products offered in Beijing supermarkets by savvy multinational CP and the CNFC shows that remains the case, with the Chinese firm focusing on premium imported products like Argentinean red shrimp and the Thai conglomerate offering a range of ready meals and shrimp-flavored soups as well as frozen shrimp.
Some of the smaller private Chinese companies that subcontracted the processing jobs have grown into substantial enterprises. But most remain small, low-tech outfits struggling to cope with rising labor costs and tight margins, with little prospect of investing in marketing or product development.
A more promising firm is Xian Mei Lai, headquartered in the massive central city of Zhengzhou with an aquaculture subsidiary on the southern coast in Guangxi province. The firm has been able to use scale and funds from its established frozen meat and vegetable processing business to launch a range of packaged frozen fish and shrimp products, mostly for distribution through Walmart outlets across China. The company’s line of frozen breaded fish fingers and cod fillets is packaged in a manner familiar to western value-focused seafood processors.
Big brands have yet to emerge, though Guolian and Baiyang are feeling their way in shrimp and tilapia respectively. These two — and Zhangzidao and a handful of lesser known others like Xian Mei Lai, have at least got a decent integrated business model in place, with a presence in aquaculture, processing and distribution across China.
Many firms are kept going by the VAT tax rebate offered the sector by government. These firms will eventually disappear. The dilemma is finance. Establishing a brand with the variegated and vast nature of Chinese territory requires huge investment in logistics and marketing and there are very few Chinese companies able to finance that kind of expansion.
Compounding the challenge is the recent negative publicity surrounding the country’s largest capitalized seafood company, Zhangzidao, which continues to draw fire from the investment community over a collapse in earnings this year and questions around production data released by its listed arm.
The likelihood is that a few established giants like CP and perhaps a local brand will ultimately dominate a growing Chinese market for processed seafood, having the resources to pay for distribution and marketing — much in the way that Proctor & Gamble and Unilever completely dominate the personal hygiene market in China (through massive investment in distribution, marketing and product development).