International companies can sell anything in China, as long is the quality is good, the brand appealing and the price attractive. Except for on product category: fresh food. The market salesman, operating in what is called ‘the wet market’ dominates the category. Despite efforts by international hypermarkets in China, he always wins. McKinsey took a deep dive in the world of fresh food: how to beat the ‘wet market’?
Many consumers in big cities like Beijing, Shanghai, Shenzhen and Hangzhou buy cartloads of products at Carrefour and other hypermarkets. But when they are done, they make an extra stop at the ‘wet market’ before heading for home. “Most Chinese consumers still prefer to buy fresh food from wet markets, where they can haggle over prices—a beloved cultural practice that isn’t part of the shopping experience at modern grocery stores”, a recent study by McKinsey noticed.
Share of wallet
The small business around the corner or at the market has a large ‘share of wallet’ in fresh food. In 2017 it was more than 50 percent, according to an analysis of Euromonitor data. How is that? No matter how long the vegetables, fish and meat have been waiting for customers, Chinese shoppers perceive the products sold in wet markets as being truly fresh, straight from the farm or field. Period.
McKinsey’s experts took an interesting approach to the challenge. It sounds like: ‘He who sells fresh food to Chinese consumers, can drive customer loyalty.’ In other words: any hypermarket who can beat the ‘wet market’ in the fresh products department, is likely to sell more of the other stuff to the same consumer too.
Win in fresh food
McKinsey’s survey of more than 4,900 urban Chinese consumers in 29 cities across the country reveals answers, or at least opportunities. “Specifically, we found that if modern retailers take a customer-centric approach to product quality, emphasize their unique features, and seamlessly integrate their physical stores with digital capabilities, they’ll be well positioned to win in fresh food.”
How does that work? Not all fresh products are equal in consumers’ eyes: the survey brought to light the items that disproportionately influence Chinese consumers’ quality perception. McKinsey calls these products key quality items (KQIs). If a retailer improves the quality of just these few items in its stores, it will boost customer satisfaction significantly.
Leafy greens and potatoes
Countrywide, in vegetables, the KQIs are leafy greens and tomatoes; in fruits, the KQIs are oranges, apples, and bananas; and in meats, poultry and pork are KQIs. If you can control or clearly enhance the quality and the appeal of these products, you may have found the key to the heart and the wallet of the fresh food buyer.
The researchers found three must-dos for modern food retailers in China. The first: “A retailer should identify the KQIs in its fresh-food categories - keeping in mind that regional differences in consumption habits make for region-specific KQIs – and then focus its quality-improvement efforts on those products. It should determine not just which items are KQIs but which specific attributes are important to customers and how the retailer compares with its competitors on those attributes.”
For food retailers in China that choose to follow this methodology, the payoff will be well worth the investment. When a Chinese supermarket chain implemented this approach, it found that oranges were among its KQIs. It also discovered that its customers pay the most attention to the following attributes when buying oranges: “stays fresh long after purchase,” “great texture and consistency,” “smells nice,” and “good condition at time of purchase” (that is, no rot or bruises). The retailer therefore introduced a targeted set of actions to ensure that its oranges wouldn’t rot or get damaged during transport and handling. Within a year, the retailer saw a 7 percent increase in its fruit revenues.
Second: hypermarkets and supermarkets should play up their strengths. “Modern grocers carry a much larger assortment that includes imported goods and organic products, which are increasingly in demand as more Chinese consumers are looking to trade up and are willing to pay a premium for such products. Also, modern grocers are one-stop-shopping destinations, whereas wet markets sell only fresh foods.” “Hypermarkets and supermarkets should emphasize these features in their marketing and customer communications. They might, for example, highlight imported or organic products in their ads—and perhaps even tell interesting stories about the products’ origins and sources.”
Third: develop a distinctive online-to-offline offering. Hypermarkets and supermarkets must develop a compelling O2O offering. Because China’s e-commerce market is both the world’s largest and the world’s fastest growing, giving customers a seamless O2O experience is especially critical to retail success in China. The researchers point at how Hema handles this. Chinese consumers are drawn to Hema’s Daily Fresh program, whereby fresh produce and meat are taken off store shelves at the end of the day to be replaced with a new supply the following morning. Hema also has an attractive online-to-offline (O2O) value proposition: consumers can scan products with their mobile phones while in the store, order on the app, or shop on the website and have their orders delivered within an hour, provided they live within three kilometres of a Hema store.
McKinseys experts have some sound advice: “Hypermarkets and supermarkets must find ways to deliver what the Chinese fresh-food consumer increasingly wants: high-quality products, broad assortments, and a convenient O2O experience. And, given the pace of change in China’s retail landscape, there’s no time to lose.”