China’s ‘digital journey’ into high value markets

Anne Laurie

The 2018 Australian Farm Institute mid-year conference (Digital Farmers: Bringing AgTech to Life) featured an impressive talk on the rich digital ecosystem in China and the power of the Chinese consumer. Sharing insights from their own experiences in the Chinese market, James Hutchinson and Tyler Ye (founders and operators of distribution business James Tyler Fine Foods) gave a fascinating insight into the incredible opportunity for Australian agriculture in China.

James and Tyler impressed upon the audience that fresh food is becoming the ‘new luxury item in China’, however in order for Australian agriculture to become a supplier of luxury goods, there needs to be a deep understanding of the consumer market and the unique digital opportunities to connect to the consumer in China.

China has a very segmented consumer market, and the opportunities that James and Tyler highlighted all exist at the high end or ‘high speed’ part of the market. The ‘high speed’ consumer market consists of upper middle-class and affluent households, and makes up the bulk of active online shoppers. It is projected that the number of ‘high speed’ households will rise from 81 million today to 142 million in 2020 and be responsible for 90% of the increase in consumption over this period.

Demand has also been sparked by the move to a more digital lifestyle, with the shopping experience and buying habits of the Chinese consumer characterised by exploration and discovery. A range of digital consumer trends have emerged as a result – from mobile and social media use to new e-commerce and online payment services – creating a seamless and convenient shopping experience. Online channels, unlike traditional sales channels have their own demands including instantaneous, smartphone friendly, 24/7 customer service.

In 2017 there were 724 million mobile phone users in China with 524 million Chinese consumers making day-to-day purchases via mobile payment and 84% of consumers using their mobile to shop (up from 71% in 2015). Widespread adoption of mobile systems such as Alipay and WeChat Wallet have facilitated stronger uptake of mobile shopping.

The Chinese consumer is searching for a unique and convenient online shopping experience by taking a ‘digital journey’. The journey begins when a customer enters an online marketplace where they research and discover products and make transactions. It continues through to post-purchase, where the satisfied customer can share their experience online, effectively becoming an advocate for the brand or retailer.

Fresh food e-commerce is completely reshaping the Chinese retail sector. Customers purchase fresh food online, with consumers in tier 1 and tier 2 (highly populated) cities expecting delivery of the product within 30 minutes in some cases. China’s fresh food e-commerce industry was worth US$22 billion in 2017. E-commerce is supported by significant developments in China’s logistics infrastructure which will help extend reach to lower tier cities as 46 million of the total 81 million ‘high speed’ households are in these areas.

There are no signs of slowing demand for premium Australian meats, wine, dairy, fruit and vegetables in China. A major selling point for Australian goods is traceability, with an increasing desire for the quality and safety associated with Australian producers. Often, the impeding factor for Australian food exporters is that SMEs (small to medium enterprises) lack the resources, experience, and market knowledge (particularly of appropriate online platforms) required for doing business in China.

A mix of well-established and new digital platforms have a stronghold in China. Big players in the e-commerce market such as Alibaba and WeChat have completely revolutionised the online shopping experience. This is positive news for Australian brands, with Tmall announcing that Australian brands are now the third most popular import on the Alibaba platform, trailing Japan and the United States.

Other newer start-ups are emerging out of China, taking advantage of a more connected Chinese consumer. Growing and trading your own meat is one novel concept with a number of platforms such as Yangyangla, Borderless Cattle and Emubao, offering Chinese meat consumers ownership of their own animal. Participants on these platforms have the option of receiving the meat from their own animal or trading the meat or animal for cash.

The livestreaming craze is also big business in China. Livestreaming has been sparked by a growing ‘celebrity worship’ culture. Successful examples of livestreaming platforms include the likes of Youku, IQiYi and Taobao. Alibaba’s Taobao Live, one of China’s largest e-commerce giants, has been particularly successful in using livestreaming to promote products and generate sales. Credit Suisse data reveals that in 2016 China’s livestreaming more than doubled in size, with revenue of almost $3 billion. From the Chinese consumer point of view, considerable attention is placed on product safety, quality and authenticity. Livestreaming provides the perfect means to validate products.

The presentation made by James and Tyler and their first-hand experience of operating in the Chinese market left no doubt about the opportunities for Australian agriculture. The time is certainly ripe for agriculture to profit from the enormous appetite China has for fresh Australian produce and from the digital lifestyle that many Chinese consumers so eagerly embrace. Although China’s digital environment is foreign to most and may seem complicated to navigate, there is plenty of room for Australian agriculture to observe, appreciate and learn from the unique digital dynamics in China today.

Image:  Atonio Silveira