Retail Industry Transforming
In 2003, the annual per capita income in Dalian stood at $1,027, and although less than southerners in Guangzhou and Shanghai, it’s well above national and urban averages. Like many cities in China, as the economy and consumers of Dalian have matured, traditional street markets are disappearing. Consumers increasingly shop at supermarkets, seeking higher quality, consistency, sanitation, and convenience. In the last few years, Dalian’s retail food sector has undergone a radical transformation with the rapid rise of supermarkets and hypermarkets that have extensive dry and frozen goods, fresh and frozen meats and seafood, fruits, vegetables, prepared foods, and food service sections. Many of these outlets are in malls, which are shopping destinations for the whole family, with restaurants, theatres, fashion boutiques, sporting goods stores, and other specialty shops.

Imported foods have a more significant presence in foreign-operated than domestic supermarkets and hypermarkets, even if imports account for no more than 3-4 percent of total store sales. However, local retailers should not be ignored: Dalian’s very own national retail food chain, Dashang, recorded the second highest sales for all of China in 2003, with a 42.4-percent gain over its 2002 sales and well ahead of Carrefour (in fourth place) and Wal-Mart (10th).

Most retailers state the main reason they do not stock more imports is the high prices. While Dalian residents consider U.S. products to be equal or superior to most other imports, high prices are the biggest constraint. Retailers have found consumers are willing to pay a 10- to 20-percent premium for U.S. foods, especially during the holidays, but won’t purchase them regularly.

Bangchui Island is representative of the beautiful vistas in the environs of Dalian.

However, growing demand for high-end food imports in the city and North China generally is increasing direct shipments via Dalian. Many distributors, no longer satisfied with bringing in small volumes from the south, are capitalizing on enhanced transportation and port facilities by importing products directly to supply Dalian and other northern cities. These traders enjoy the benefits of reduced costs, improved product delivery, and higher profit margins. As local authorities ease barriers, importers are able to pass part of the savings on to consumers, increasing their competitiveness in a price-sensitive market.

Dalian’s HRI Sector on the Rise
Business and recreational travelers flock to Dalian annually for its trade conferences and exhibitions, weather, beaches, gardens, and other amenities. Its coastal roads provide vistas of sandy beaches, crashing waves, and ragged cliffs; no wonder government leaders favor Dalian as a place to relax. In addition, the city has not one, but two, world-class aquariums and a seashell museum.

Thanks to the city’s tourism and exhibition industry, there is no shortage of first-class accommodation, and Dalian’s HRI (hotel, restaurant, and institutional) sector is growing. Domestic and foreign travelers continue to demand greater diversity in the local food mix. Very few imported food items can be found in Chinese restaurants, although most Dalian consumers have eaten at local KFC or McDonald’s restaurants, demonstrating a willingness to try Western foods. Western restaurants, located mostly in high-end hotels, are the primary end-users of imported foods. Dalian has several 5-star hotels, including the Shangri-La, Oriental Palace, Furama, Kempinski and Swissôtel. Internationally managed hotels like the Shangri-La, Kempinski, and Oriental are large users of food imports in their Western restaurants.

Zhong Shan Place shows the Dalian night life.

Major U.S. food imports have been restricted to poultry, frozen potatoes, and condiments, and there is good potential for value-added meat products such as pork. While Dalian imported $346 million worth of seafood in 2004, fresh, inexpensive local seafood is abundant.

Given their geographic proximity and influential expatriate populations, South Korea and Japan have long dominated Dalian’s HRI and retail imports. U.S. exporters must beware of stiff competition from established suppliers, local preferences, and less expensive domestic substitutes.

Market Entry Tips
ATO Beijing, the FAS Agricultural Trade Office, interviewed several local importers, distributors, and buyers, who offer the following advice for those interested in the Dalian market:

•  Education is key: A major reason some products (e.g., mustard, tortillas) fail is that consumers are unfamiliar with what they are and how to use them -- and sometimes the retailer or distributor doesn’t know either.
• Increasing product awareness a plus: Advertisements, product demonstrations, sales, and other marketing promotions help.
• Proper pricing a must: Like most other major emerging city markets, despite its economic growth and rising incomes, Dalian remains price-sensitive. On the other hand, care must be exercised in trying to sell or compete with similar local products based solely on price. Establishing a brand as premium quality is a must when selling products in a competitive environment.
• Research, another key: Take time to investigate the market and find a good, reputable distributor. Successful ventures require qualified, experienced distributors who know the local market.
• Baby steps: Take baby steps unless you are already supplying large quantities in the market. In the beginning, be prepared to offer limited quantities or mixed containers.
• Holiday hallmarks: Demand for imported products is increasing, particularly during holiday seasons when purchasing U.S. food products demonstrates status or prestige.

Li, Xueqing is an agricultural marketing assistant, and Norman Xiao a former intern, with ATO Beijing.