Shanghai Snack Market Geared to Young Buyers

Shanghai’s retail markets offer a remarkable variety of snack food products. U.S. exporters may be challenged by the complexity of the market, but opportunities prevail for producers who learn about and take advantage of established local tastes and distribution channels.

The relatively affluent Shanghainese live in low-cost, subsidized housing, are subject to China’s one-child policy and have a purchasing power parity annual income of US$10,000-$40,000. If China’s economic miracle continues for another decade, the growing middle class of China’s coastal urban provinces, including Shanghai, could reach 500 million persons by the year 2005.

China is also experiencing the "Little Emperor" phenomenon in which one child receives the exclusive care of two working parents, along with two sets of grandparents. These children spend, on average, more than $1 every week on snack foods.

Overall the Shanghainese spend 9 percent of their total grocery bill on snacks. In supermarkets, snack food spending increases considerably as most meats, vegetables and fruits are still purchased in traditional outdoor markets called "wet" markets.

Traditional Chinese snack foods were originally classified as either "wine accompaniments" or "food accompaniments" and included fried beans, nuts and tofu.

As China’s premier international city until 1949, Shanghai residents were exposed early to Western foods through trade and a large local expatriate population. After the re-opening of Chinese markets in the late 1970s, many new Western snacks began to trickle in to Shanghai.

Snack foods are available at virtually all Shanghai retail outlets. The large variety available includes dried fruits and nuts, cookies and crackers, chips and puffs, chocolate and candies, chewing gum and jellies and, in the summertime, a rainbow of Popsicle and ice-cream flavors.

The Chinese normally adhere to strict mealtimes, rarely skipping a meal. Snack foods are usually eaten on a whim or to satisfy an impulse, not to quench basic hunger.

Snack foods can be classified as either Eastern or Western. Eastern selections include dried and preserved fruits, seeds and nuts, dried meats, dried cuttlefish and shrimp. These foods are sold mainly by loose weight, but packaged sales are increasing.

Western-style snacks include chocolates, potato chips, crackers, cookies, popcorn, hard candy and ice cream. Japanese additions include prawn crackers and rice puffs.

Popular brands include Hershey’s Kisses, Pringles potato chips, Keebler crackers, Wrigley’s Doublemint gum, Britain’s Cadbury, France’s Prince and Japan’s Oishi.

Western snacks are most often purchased for impulse eating, where emphasis is placed on flavor over nutrition. Eastern snacks are often eaten at social occasions, such as Chinese tea.

Salty products, often targeted to adults, encompass both Eastern and Western snack categories. Salty snacks include chips, crackers, dried fish products, seeds and nuts.

Sweet snacks are usually targeted toward the children’s market. The Chinese palate generally prefers less sweet desserts, but continued exposure to Western-style snacks is expected to increase the demand for sweeter items.

While salty foods sell better in colder months, frozen snack consumption peaks during the summer months. Popular frozen snacks include Walls, San Marlo and Mountain Cream brands.

Walls was the first company to loan freezers to small shops so that the retailers could sell their ice cream products. Unfortunately, the retailers also used the freezers to sell other items.

The optimal distribution mode for snack foods usually depends on the size of the retail store that will be selling the products. Larger stores, such as supermarkets and state-run stores, tend to be their own distributors; smaller stores depend on other distributors.

Supermarkets and Mega Marts. Shanghai has more than 700 supermarkets. These stores devote a large amount of space to snack foods, which are their highest profit items.

Established chains such as Japan’s Yaohan, Shanghai’s Hualian and Lianhua and Hong Kong’s Park N’ Shop are opening large networks of stores in Shanghai. These stores provide U.S. snack food manufacturers with reliable and established distribution channels.

In these stores, consumers select products off the shelf. Frozen ice cream products are usually sold in individual portions, as they are eaten immediately. Larger sizes have recently been introduced, with moderate success.

State-Run Food Shops. Before the advent of Western-style supermarkets, China’s food retail sector was the domain of local wet markets and state-run food shops.

Wet markets provide fresh produce and meats via open-air stalls. State-run grocery stores stock packaged or processed foods, including snack foods, behind counters; salespeople pull products for customers. Today, state-run food shops coexist with Western-style supermarkets, but tend to attract consumers with more traditional tastes.

Mom and Pop Stores. These small retailers still dominate the impulse and late-night retail food sector. These stores are pervasive, usually with direct sidewalk access; stock snacks, beverages, beer, cigarettes and other sundry items; are open for longer hours than supermarkets; and have a limited and seasonal snack selection.

Popular U.S. brands stocked in these small outlets include M&M’S, Skittles, Kraft Hollywood gum, Pringles potato chips and San Marlo ice cream. Retailers call a warehousing company to place orders.

Convenience Stores. Hong Kong’s Basics chain leads this recent retail innovation with 25 stores. They resemble their U.S. counterparts, offering a wider variety of products than mom and pop stores and allowing customers to select products off the shelf. They are well-lit, well-organized and often open 24 hours a day.

Specialty Snack Shops. These shops offer a wide variety of loose Eastern-style snacks, along with a limited selection of packaged snacks. Specialties include dried sugared prunes, bayberries, Chinese sweet olives, watermelon seeds, pumpkin seeds and similar products.

Other Retail Options. Movie theaters, bars and karaoke clubs provide other retail channels. Vending machines are nonexistent, but might be an interesting option worthy of investigation.

The U.S. snack food presence in Shanghai can be divided between products imported through joint ventures and those imported directly from the United States. The first category is the largest, occupying about 15 percent of the total snack food market.

Large U.S. food manufacturers such as Nabisco, Kraft, M&M/Mars and Quaker have invested in local manufacturing facilities. Local production uses less expensive labor and avoids high tariffs, making the products more affordable. These products also tend to be tailored to local market needs in terms of packaging, marketing and price.

Imported U.S. snack foods include a wide assortment of products, dominated by Pringles potato chips. Pringles gained a loyal following at a price considerably higher than local brands. This is surprising, given that Pringles dedicated its marketing effort to in-store displays and gaining a presence in every retail outlet, with no print or television advertising.

Other recent entries into this market are Del Monte raisins, Pez candy, Nature’s Favorite apple chips, Bazooka bubble gum, Hershey’s Kisses, U.S. pistachios, almonds and prunes.

Price is a critical sales factor for these items. In addition, imported products have historically lacked packaging and labeling designed for the Shanghai market. This is changing, however, with the advent of China’s labeling law.

As of Sept. 1, 1996, a new food labeling law requires that food packaging include ingredients, expiration date and manufacturer’s address in standard (simplified) Chinese characters.

Although a big financial commitment, labeling and packaging influence snack purchases. Products with locally tailored packaging are purchased more quickly. In addition, as labeling laws are revised, companies that market the nutritional value of their products may have a distinct advantage. As China’s living standards continue to improve, so will a trend toward health consciousness, including a focus on the fat content of foods.

China’s domestic snack food products cover the entire spectrum of snacks and are characterized by low prices. A few brands have established quality images, but most are generally less attractively packaged and less aggressively marketed due to budgetary constraints and limited experience.

Snack foods from Taiwan and Japan are more competitive. Brands such as Mamee, Wangwang, Khongyuen and Oishi occupy significant shares of the chips and cracker segments.

These companies have the advantage of familiarity with dietary and cultural preferences along with sophisticated, locally tailored marketing and packaging. They see the Chinese market as their future sales growth area, and often have made large capital commitments there.

European brands occupy a significant market presence in the joint venture as well as imported categories. France’s Dannone group is competitive in the yogurt and cracker and cookie market.

The easiest way to enter Shanghai’s market is through an import/export company, usually via Hong Kong or Guangzhou. The importer pays any tariff, transports the products to Shanghai by truck, train or ship, and sells the products to stores via their representative.

This method, requiring little direct investment, has few problems with prompt shipping or spoilage, but often has problems with price and product awareness.

Chinese managers consider personal visits by company representatives a vital part of building a good business relationship. Also, because U.S. manufacturers often have no local office, they can be unaware of market needs.

A preferred option is to get a local representative or agent to market your products. This offers a physical presence in the local market. The local agent can address ongoing needs, manage promotions, organize consumer education, maintain in-store promotions and develop sales.

The local agent decides the best way to transport a product into the country, weighing transport costs vs. tariff rates for each item.

A last option is to hire a major international agent such as Inchcape, Simms Trading or EAC. These companies focus on public relations, advertising and in-store promotions. They also keep a good eye on the distributor. But they only work with companies that have budgeted money for promotional activities.

Unique to China are "converters," state-run enterprises in southern China with import/export authority that allows them to bring products into the country on behalf of Chinese wholesalers and distributors. Converters basically get foreign products across the border into China and then turn them back to wholesalers for distribution. Depending on their connections at a given port of entry, converters may pay little or no tariff to Central Government customs authorities. Other advantages of converters include financial services: converters can accept Chinese currency from Chinese distributors for goods and then pay exporters in U.S. or Hong Kong dollars.

High tariffs are a major impediment to the competitiveness of U.S. products compared with locally produced products. Variable tariff charges are common and a good reason to explore different distribution channels. In China, it is not unusual for different importers at different ports to pay different tariffs.

It’s very important that U.S. manufacturers keep a close watch on distribution. Competing distribution systems lacking organization can pass a product back and forth, raising costs.

The following factors, in order of importance, affect purchases of imported U.S. snack foods: price, brand recognition, labeling, packaging and flavoring.

Shanghainese are noted for being cost-conscious. If they pay a higher price, they want value for their money and brand familiarity.

Shanghai consumers also want attractive, informative labeling that identifies contents and brand name. Smaller size packaging is preferred; the one exception is large gift packages, which are especially popular over the Chinese New Year.

Perceptions of quality, sanitation and familiarity are very important. Traditional flavors are more readily accepted. Pork-, chicken- and shrimp-flavored snacks outsell beef flavors; dried plums outsell chocolate; prawn crackers are more accepted than corn chips.

In-store sampling is particularly important for Western-style snack foods that are unfamiliar to Chinese consumers. Shanghai retailers generally have no problem with in-store promotions ranging from flyers and banners to women dressed in product sashes and company costumes.

Shanghai hosts a wide variety of exhibitions and trade shows each year. Interested companies can set up a booth to introduce or promote their products, or visit and meet with other key industry contacts.

Television offers many possibilities for advertising. Snack food ads cater mainly to children and are usually simple, cartoon-like segments that repeat the brand’s name and slogans. However, effective TV advertising requires blanketing and can be quite expensive.

Chinese managers believe that U.S. snack food manufacturers should conduct more market research before putting their products on the shelves. Market research and testing can be done by many international and domestic agents that make their home in Shanghai.

The Shanghai market is saturated with diverse products, and new product entry can be expensive. It is very important that marketers understand that Shanghainese usually try snack foods based on a whim.

U.S. products can readily sell here. Pringles and Hershey’s have used marketing and promotional techniques to achieve the sales they have today. Through good use of distributors, Wrigley’s Doublemint gum is now available through many mom and pop stores.

These companies conducted careful market research and provided a brand that appeals to local consumers.

Marketers who want their product to stand out must appeal to the consumer with a properly packaged and marketed product. Consumers are very open-minded about trying new snack items, but positioning is essential to be successful in this competitive market.

Marketers who want their product to stand out must appeal to the consumer with a properly packaged and marketed product.

U.S. exporters wanting to enter the Shanghai market need to do their homework. Cultural and language education contribute to an overall understanding of market forces.

daili import/export representative
dongfangzhilei "Eastern" snacks
fushipindian state-run
(guoyingdian) (food shops)
fuwuyuan service people
guanxi reality based on relationships
jiechan satisfy an impulse

jin half-kilo
ke gram
weidao flavor
xiaomaibu mom and pop stores
yingyang nutrition
zhushipin staple foods
zuocanshipin food accompaniments
zuojiushipin wine accompaniments

Jack Marr is a freelance marketing consultant working in the People’s Republic of China and Alcinda Hatfield is a marketing specialist with the Foreign Agricultural Service’s Agricultural Trade Office in Shanghai, China. Tel. (011-86-21) 6279-8622; Fax (011-86-21) 6279-8336.