The view from China: AAAA rating of Australian foods

There are four purchasing trends that have emerged as critical to Chinese consumers in the market for food products:

• Authenticity
• Affordability
• Access
• Awareness

The Authenticity of a product’s source has emerged as the number one priority for Chinese consumers buying food products. Recent examples of local Chinese processing operations contaminating overseas-sourced produce (blueberries, for example), coupled with a general loss of faith in the ethics and controls within Chinese domestic production, has heralded a shift in Chinese consumer preference towards foreign-produced foods delivered to China in a final, individually packaged, shelf-ready form.

Bulk food product integrity can be easily compromised at any stage of the production and packaging process: inappropriate handling during washing, cutting and packing, suboptimal temperature control in storage and transportation – the list goes on. In the worst cases, inferior local Chinese or foreign products are mixed with Australian produce before being labelled and marketed as ‘made in Australia’. This has created mistrust in the eyes of consumers, who have started to address this concern by seeking reliable and trusted distributors.

In China, a ‘trusted distributor’ business model known as ‘daigou’ (pronounced ‘di-go’) has developed in recent years. Essentially, Chinese nationals living overseas ‘buy on behalf of’ their Chinese relatives, friends and customers and offer a personal, reputation-based guarantee of authenticity. Daigou originally began within the European luxury goods market, where profits were made from differential import duties placed on the items. In the context of Australian produce, daigou shopping lists usually include items like infant formula, vitamins, Manuka honey, skincare products and organic baby foods.

Some brands have become very popular among Chinese consumers solely by being sold by daigou service providers!

Whilst daigou may represent a disrupting force in both markets, it also offers trustworthiness to consumers through product authenticity and proof of purchase (with infant formula, for example, Chinese consumers can be sure it is the same product that Australian mothers are using) as well as timeliness of delivery to the consumer. That is why Chinese consumers do not seem to mind paying a premium to buy Australian foods via daigou.

When it comes to affordability, products labelled ‘Australian made’ are by no means a cheap option. Higher production costs can put Australia’s high-quality products at considerable risk of losing market share to competitors, namely Brazilian and Uruguayan beef, wines from Spain, Italy and Chile, and infant formula from New Zealand.

For commercial customers, it has always been price that drives purchasing decisions. In general, products at lower price points are much preferred to higher value, premium products that cost more. For consumers, given the very short history of educated consumption of imported foods, the benefits of Australian beef (being disease and hormone free and having a better taste) can easily be undervalued in light of the better packaging and aesthetics of beef produced in other countries.

Those who are able to afford Australian foods can be classified into 3 groups:

1. The ‘must have’ market, mostly comprising parents buying infant formula and red meats for their growing children. This segment has the lowest elasticity of demand; that is, buying propensity is not very highly correlated with levels of disposable income;
2. The ‘nice to have’ market, comprised mostly of wealthy middle-class buyers seeking nutritional supplements and health foods not only for themselves but also for their families and elderly relatives; and
3. The ‘gift givers’, who are motivated by reputational injury arising from adverse impacts of any poor quality products they provide to others. This group is also motivated by the desire to differentiate their presents from traditional gift giving standards.

High quality food products from Australia are very popular within China’s gift market when presented in premium packaging, which is seen as signalling quality. This is quite a challenge, as Australia’s ‘low key’, environmentally friendly packaging often requires a considerable face-lift to appeal to Chinese gift givers. It is not uncommon for the cost of re-packaging to significantly exceed the cost of the product itself.
To be able to afford authentic Australian foods is one thing; getting access to these foods is another. Currently, consumers in China find Australian foods through a variety of convenient channels, including:

• Department stores and supermarkets (most have areas dedicated to imported foods)
• Australian specialty stores
• Online stores
• Daigou suppliers

In an environment where intimate product knowledge is sparse and unsafe food has become the norm, consumers place huge trust in their choice of channels when purchasing imported foods. As a result, the credibility and track record of the point of sale is vitally important for consumer decision-making, which directly translates to revenue growth for the Australian product owner. Whether it is through the traditional way (such as supermarkets), the new way (specialty stores), the popular way (online) or the trendy way (daigou), ultimately accessible and authentic products at affordable prices will win the heart of consumers.

Public awareness of Australian brands has evolved and continues to do so. There are different levels of brand perception in China: the general ‘Australia’ brand for bulk products like beef and canola, state brands such as Tasmania’s (known for its cherries and seafood), regional brands associated with product categories like wine, and individual brands like Penfolds.

With continued education of the consumer market over time, there is no doubt that more and more successful individual brands will continue to emerge. As with all success stories of international products in China, it will be the individual brands of Australian food produce that ultimately govern loyalty and guide consumers’ purchasing decisions.


About the author: Hui Li is the co-Founder and Executive Director of VC Group, a specialist advisory firm that helps Australasian and Chinese businesses with bilateral trade and investment in food and agriculture. She has over 18 years’ experience advising foreign companies making direct investments in China and Australia, including seven years in China’s Ministry of Commerce and 3 years as Senior Manager of China Practice at PricewaterhouseCoopers.