The Asia-Pacific Journal | Japan Focus Volume 17 | Issue 11 | Number 2 | Article ID 5286 | Jun 01, 2019

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China Eats—Innovation, E-Commerce and Food Safety at theHangzhou Food Forum

Alicia E, Thomas David DuBois

Abstract: Since 2000, the driving force behindChina’s booming food industries has shiftedfrom state planning to consumer demand. Thisshift has powered the growing importance offood branding, as consumers rely increasinglyon known brands in the search for safe andwholesome food. While earlier eras of foodbranding strongly favored multinationals likeCoca Cola and Nestlé, Chinese brands appearto be gradually regaining the trust ofconsumers, who increasingly rely on onlineecosystems that seamlessly combine e-commerce, e-payment and home delivery into aself-contained purchasing environment. The2019 Food and Beverage Innovation Forumsuggests that future trends may includeincreasing reliance on data informatics, adomestic shift to focus on free spending GenZconsumers, and branded export of China’sunique strength in logistics.

Keywords: China, food industry, branding,multinationals, consumption

While news headlines focused on the ShanghaiAuto Show, something much tastier was takingplace nearby just nearby.

Held in Hangzhou from April 23-25, the 2019Food and Beverage Innovation Forum

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(食品饮料创新论坛) drew about 4,000 registeredattendees, and combined three days ofpresentations with displays by about 200exhibitors. Although small by Chinesestandards (the 2018 International Import

Expo2

was nearly 40 times larger) the FBIF wasalso more focused specifically on the topic ofinnovation and emerging trends, and provides aunique opportunity to reflect on the past andfuture of China’s rapidly changing foodindustries.

Scene before a breakout session at theFBIF speaker forums. Hangzhou, 2019

From state-planned to consumer-drivengrowth

China’s food industr ies have grownsignificantly. Total retail sales of food, cookingoil and beverages exceeded 1581.6 billion RMBin 2018, roughly doubling in value between2012 and 2017.

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Retail sales 2012-2018, trillion RMB(Source: China National Bureau of

Statistics)3

Two forces drive this steady growth. Decadesof investment by nat iona l and loca lgovernments, and business entities, especiallythe o f f ic ia l ly favored “dragon headenterprises”

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( longtou qiye), laid thedevelopmental foundation for a wide variety ofnew food production. At the same time,consumer spending on food has growndramatically. Since 2000, food has held steadyat around 20% of household spending, even asincomes have risen—growing by a factor ofseven since 1997. Over time, the rise inhousehold food spending has reshaped theindustry, as producers compete to attract andretain consumer loyalty and attention.

Household disposable income, 1992-2017(Source: China Statistical Yearbook)

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Urban diets, kg per capita, 1990 vs2012 (Source: China Statistical Yearbook)

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The growth of food spending has transformedwhat people eat and how they eat it. Since theearly 1900s, Chinese diets have reducedsignificantly consumption of basic grains,favoring instead higher value foods such asmeat, dairy and fresh fruit. Home cooks relyincreasingly on ready-made meals, or semi-prepared ingredients like bottled sauces, orfrozen foods (a sector that was worth over 14billion USD in 2016). Outside the home,traditional dining options such as work

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canteens and noodle stalls have been partiallyecl ipsed by a new trend of mid-rangefranchises.

Brand logos for food and other shoppingoptions, Hongqiao Train Station, Shanghai

Branding in China’s Food Industry

With this shift to higher value foods, Chineseconsumers have begun paying greater attentionto food origins, and especially food brands.

Food brands serve numerous purposes. Onceone leaves the intimate scale of the localfarmer’s market, a maker’s mark is the onlyindication of a food’s origin, production andwholesomeness. As food chains become longer,more complex and more anonymous, knownbrands increasingly stand in place of personaltrust , especial ly in products such asdairy, where food origins are unclear, or whereconsumers perceive regulation to be lax. Alongwith safety, food brands can connote a range ofassociations, such as comfort, tradition, safetyand prestige, that are especially meaningful toconsumers of food.

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Producers promote brandsas a way to establish this sense of loyalty and

personal relationship with a product.

Historically, China’s food brands developed inwaves, only recently emerging as realchallengers to multinational enterprise (MNE)brands.

Chinese food makers (especially those of highvalue products like cured meats

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) have longfound ways to identify their products, but it wasthe legal recognition of trademarks asintellectual property that produced the modernbrand regime. China promulgated its firstTrademark Protection Law in 1923,

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openingthe door to a proliferation both of new foreignand Chinese brands, especially for everydayitems l ike cosmetics, c igarettes andfood.

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During this first phase, foreign brandsenjoyed a certain glamor, but also had tocontend with brand piracy, and a rising a waveof consumer nationalism that promoted nativegoods.

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The 1923 law was revoked after 1949,but reinstated with a new Trademark Law in1982,

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thus encouraging foreign brands, manyof them newly connected to local joint ventures,to begin returning to the Chinese market.

Branding in the reform era (late 1970s to1990s) strongly favored these multinationals.Early arrivals like Lee Kum Kee, Coca Cola andNestlé enjoyed not only the inbuilt prestige of aforeign enterprise, but also significantadvantages of expertise in market research,greater advertising budgets, and the ability topromote on a national scale. Even as Chinesefood brands (both revived and newly createdones) made inroads to domestic and exportmarkets, few could match the resources orsophistication that their internationalcounterparts brought to marketing.

WTO and International Food Brands

China’s 2001 WTO accession more fully openedthe country to global food trade. Oneimmediate result was the expansion of imports

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of raw commodities like grain and oilseedsfrom land-rich countries like Australia, Braziland the United States.

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Channeled throughstate agents such as COFCO, this commoditytrade is largely invisible to end consumers, whosee imports like soybeans and whey primarilyin the form of stable pork prices.

But WTO membership also accelerated thegrowth in branded food imports. Alongsidebranded foods that are produced in thec o u n t r y , a g r o w i n g r a n g e o f f o o dimports—high-end items like wine and distilledspirits, as well as such daily luxuries as teas,cakes, cereals, and nationally-branded infantformula—arrive already packaged for retailsale. Events like the Import Expo represent justa small fraction of the foreign consumer foodsa v a i l a b l e o n s i t e s l i k e t m a l l . c o m(http://tmall.com). Because these items arriveclearly labeled, sales depend directly on brandrecognition, which include consumerperception of the maker’s country of origin(COO). Imports from places associated withfood safety (such as New Zealand, Germany orJapan) will often command a premium,regardless of the maker.

Entry into the WTO also presented newopportunities for Chinese food companies toseek markets overseas. Despite the recognitionof Chinese brands like distiller Maotai orcanned foods producer Maling by consumersoutside of China, Chinese food exports arehampered by strong negative perceptions ofChina as a COO.

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Such perceptions bleedacross producers—the 2008 revelation ofwidespread adulteration of melamine (apoisonous plastic additive that mimics proteinin laboratory tests) in China’s milk supplyaffected all Chinese food exports, not only dairyproducts, but also of unrelated ones likeseafood.

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One result is that ten years later,Chinese food exports, especially those going tohigher value markets, are often repackagedunder a foreign brand. At the other end of thescale, ambitious producers like dairy giant

Mengniu have spent prodigiously to promotetheir brands overseas, despite a relatively smallexport volume.

Recent Food Trends

But the real transformation of Chinese foodbrands is at home.

The 2008 melamine scandal was the keymoment in the transformation of Chinese foodindustries. It prompted a massive regulatoryreaction from the Chinese state, including themandated concentration of the dairy industryinto a small number of well-known companies(a group known as the “big 20 enterprises” orD20)

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, and the implementation of the far-reaching Food Safety Law of 2015.

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Equallyimportant was consumer change. For years,buyers boycotted domestically produced infantformula, aided in part by the constant flow offoreign formula imported tin-by-tin by friendsand family returning from overseas. Seeking torecapture consumer confidence, major dairycompanies like Yili and Feihe responded byoffshoring production of premium lines.Chinese-branded milk thus comes to be soldwith a flag of Australia, Canada or NewZealand.

At the same time, the online revolution haschanged people’s relationship with brands.

Over the past decade, Internet giants Alibabaand Tencent have built up entire ecosystemsthat seamlessly integrate e-commerce, e-payment and home delivery. Within these self-contained purchasing environments, individualfood retailers provide consumers with a rangeof possibilities, from the purchase of rawingredients or meal-based kits (JD.com(http://JD.com), compare to Blue Apron, HelloFresh), to 24/7 delivery service of restaurantorders (Ele.me, Meituan dianping, compare toGrubhub, Uber Eats).

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The online frontier favors closely targetedinteraction with consumers.

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When possible,producers try to cultivate loyalty and containbrand response (comments and ratings) withintheir own online events, phone apps, andWeChat groups. In contrast, buyers in moreopen environments such as the popularrestaurant app Dazhong dianping are muchharder to predict or control—because fewcustomers will look past the top few rankedhits, even a small number of bad reviews cancrater online sales.

E-commerce has also allowed the rise of a newwave of boutique and niche food products.Long gone are the days in which a handful ofproducers could effectively dominate an entiresector (e.g., the once ubiquitous gift sets ofNescafé and CoffeeMate creamer). Whiletraditional food giants—both foreign ones likeCoca Cola or Yum! foods, and domestic oneslike Mengniu or water bottler NongfuSpring—retain a strong retail presence, thecombination of low overhead, cheap delivery,and integrated online purchasing all favorsmaller producers, who can cater to specificneeds and tastes.

New sectors such as organic producedelivery

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rely on e-commerce to overcomebarriers of both distance and trust. Based inthe far north of Inner Mongolia, or Yuanguzhuangyuan uses its WeChat platform toconnect to users, allowing them to buy organicproduce, as well as a membership in a farmthat they will likely never visit in person. E-commerce also creates a national market forlocal producers like Beijing-based cheese-maker Fromager de Pékin, or local producersof fresh milk delicacies such as Mongolian naidofu or Yunnan-style rushan. Without the needto maintain large inventories or deliver large-scale orders to retailers, producers havegreater freedom to innovate into new orseasonal recipes.

Screenshot of Yuangu zhuang organic farmcatalogue. This order form is a mini-program embedded in the WeChat phoneapp.

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Owner of Handmade Rushan store in herDali workshop. Most of the shop’s sales aremade online.

TRENDS AT THE FOOD AND BEVERAGEINNOVATION FORUM

The FBIF provides a glimpse into where someof these trends may be headed.

Now in its sixth year, the FBIF is less a tradefair than a showcase of new ideas. Exhibitors atthe 2019 event included makers of packagingand filtration systems, manufacturers ofsauces, dyes and sweeteners, as well asemerging product categories like protein barsand probiotics, as well as occasional consumeroriented gimmicks such as a drinking strawthat contains its own flavoring agent (heads up

to potential investors, it didn’t work).Unsurprisingly, the longest lines were at thetwo coffee franchises and two craft beermakers, each strategically placed at a differentside of the massive exhibition hall.

Scenes of exhibits at the FBIF

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This focus on innovation extended to newtrends in marketing such as the extensive useof data-driven informatics and targeted marketresearch. Companies like Dutch Innova MarketInsights

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and Singapore-based Trax22

createpackages that tailor detailed consumer insightand product data to the specific needs ofretailers. Data collection has expanded frombig cities down to tier five and six locations,and increasingly looks beyond spendingpatterns and consumer trends to incorporate anew generation of services, such as facialrecognition software and eye-tracking onadvertisements. (This new frontier wasdiscussed in the forum, but was not on displayin the exhibition hall).

The entire event—both forum discussions andexhibits—was focused on the spending habitsand curiosity of mil lennial and GenZconsumers. According to Kantar

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, Chineseretail spending in the age group 15-32 hasalready reached 150 billion RMB. By 2020GenZ, will account for 40% of the total retailspending. The same generations that are mostaccustomed to online retail are also the onesthat are spending on daily items, and show asense of adventure that allows them to quicklyadapt to new food trends and habits. Just as insectors like smart phones or computers, thespace between generations in food tastes growsprogressively shorter. Forum talks revolvedaround the problem of how to attract and keep

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the attention of these new, but easily distractedconsumers—not only constant invention of newproducts, but also increasing attention to anintegrated strategy of movie product tie-ups,search engine optimization, and Internet“influencers.”

Celebrity spokesperson cutout at aChengdu retail location of Luckin Coffee.Despite posting massive losses ahead of itsIPO, Luckin has bet heav i l y on acombination of online and traditionalretail in its quest to surpass Starbucks inChina.

Finally, the FBIF anticipate the multifacetedresurgence of China’s own food brands. Even indairy, the sector most devastated by food safetyscandals, there are signs that confidenceamong consumers in domestic producers isreturning, with Chinese makers recoveringtheir share of a quickly expanding market.Even as major Chinese dairy brands investoverseas, the main market is for domestic milk.Despite lingering outrage at the 2008poisonings, Chinese consumers are graduallyreturning to view the domestic product as anacceptable substitute. Even as dairyconsumption continues to expand, Chinese milk

powder in 2018 achieved just under 50% ofnational market share

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—a level that it had notseen for a decade.

The willingness of Chinese consumers to returnto domestic dairy products no doubt has manyspecific causes, including the Food Safety Lawand state-mandated reforms in milk productionand processing, expansive advertising by themajor companies, and a steady increase indemand for dairy in all forms. But it also speaksmore broadly to the changing nature ofconsumption: the ability of online productreviews to act as a shadow regulatoryapparatus, and changing perceptions amongyounger consumers, many of whom would notpersonally remember events like the 2008melamine scandal. Beyond consumers, Chinesefood brands are also selling services byleveraging their unique logistical capabilities asthey continue to look overseas for tie-ups.Companies like Yili—listed by brand equitydatabase BrandZ

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as one of China’s mostrecognizable—are increasingly selling theirbrand as providers of cutting-edge services, asmuch as food producers.

This final point brings us to the heart ofinnovation. Chinese food industries aredeveloping at a blistering pace. While trendslike the expansion of dairy and meat farmingseem to go against the tide of ecological foodproduction, others like plant-based dairy andurban-adjacent hydroponics represent aforward step to better sustainability, lowertransport costs and better nutrition. Less thantwo years old, Beijing-based Luckin Coffee hasalready opened over 2,300 retail outlets, andhas plans for 2,500 more this year alone.Despite never having earned a profit, LuckinCoffee has attracted investor attention becauseof its model of online and retail sales, andbased its recent IPO

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solely on the promise thatselling coffee in a different way would allow thechain to eclipse Starbucks in China.

As trade relations between the US and China

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continue to worsen, it is worth rememberingthat the frontier of value is not simply a matterof making more, better or cheaper products.Ultimately, China’s next food export might notbe what sits on the plate, but the logisticalchain that got it there.

Note: The authors are grateful to Mark Seldenand Linda Grove for comments made on earlierdrafts, and to organizers of the FBIF forproviding information regarding the event, andpermission to use photos taken at the site. Allimages are by authors.

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Thomas David DuBois and Alisha Gao,Big Meat: The rise and impact of mega-farming in China’s beef, sheep and dairyi n d u s t r i e s(https://apjjf.org/2017/17/DuBois.html)Martin J.Frid, Food Safety in Japan: OneYear After the Nuclear Disaster(https://apjjf.org/2012/10/12/Martin-J.-Frid/3722/article.html)Vaclav Smil , On Meat , Fish andStatistics: The Global Food Regime andAnimal Consumption in the United Statesa n d J a p a n(https://apjjf.org/-Vaclav-Smil/2927/article.html)Motegi Yoshinobu, China, Japan andW o r l d F o o d I n s e c u r i t y(https://apjjf.org/-Motegi-Yoshinobu/2635/article.html)

Thomas David DuBois (https://independent.academia.edu/ThomasDavidDuBois) is ahistorian of modern China, and was most recently a research fellow at the Fudan UniversityDevelopment Institute (FDDI) in Shanghai. He has written three books and over thirty articleson Chinese law and religion, and is currently researching China’s beef and dairy industries.His article “Many Roads from Pasture to Plate: A Commodity Chain approach to China’s BeefTrade, 1732-1931(https://www.academia.edu/32686497/_2019_Many_Roads_from_Pasture_to_Plate_A_Commodity_Chain_approach_to_China_s_Beef_Trade_1732-1931_article_access_via_Cambridge_Core_Share_)” appears in the latest issue of the Journal of Global History.

Alicia E (峨嵋) (https://www.linkedin.com/in/mei-e-25188137/) is Head of China MarketInsights at Hewlett-Packard in Beijing. She holds a Master of Science in Global Finance fromFordham University, and MBA from the Peking University National School of Development(NSD). She seeks to create value for the public through a human approach to technology andcommerce.

Notes1 See here (http://www.foodforum.cn/enhome.html).2 See here (http://www.ciie.org).3 The National Bureau of Statistics of China produces monthly reports on the total retail sales

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of consumer Goods Data from the NBS are used by all levels of government and are generallyfelt to be reliable. Before 2015, statistics for food, edible oils, beverages and tobaccocombined into a single category. See here(http://www.stats.gov.cn/tjsj/zxfb/201301/t20130118_12928.html) See here(http://www.stats.gov.cn/tjsj/zxfb/201401/t20140120_502174.html) See here(http://www.stats.gov.cn/tjsj/zxfb/201501/t20150120_671071.html) See here(http://www.stats.gov.cn/tjsj/zxfb/201601/t20160119_1306103.html) See here(http://www.stats.gov.cn/tjsj/zxfb/201701/t20170120_1455968.html) See here(http://www.stats.gov.cn/tjsj/zxfb/201801/t20180118_1574935.html) See here(http://www.stats.gov.cn/tjsj/zxfb/201901/t20190121_1645784.html)4 On dragonhead enterprises, see Qian Forrest Zhang and John Andrew Donaldson. “The Riseof Agrarian Capitalism with Chinese Characteristics: Agricultural Modernization,Agribusiness and Collective Land Rights.” The China Journal (2008) 60: 25-47, and ThomasDavid DuBois and Alisha Gao, Big Meat: The rise and impact of mega-farming in China’s beef,sheep and dairy industries [source (https://apjjf.org/2017/17/DuBois.html)]. DuBois iscurrently examining dragon head enterprises in local dairy development.5 Twenty years of the China Statistical Yearbook (中国统计年鉴) are available online here(http://www.stats.gov.cn/english/Statisticaldata/AnnualData/). China Statistical Yearbook2013: 11-2 Per Capita Annual Income and Engel’s Coefficient of Urban and Rural Households;China Statistical Yearbook 2018: 6-6 Per Capita Income and Consumption Expenditure ofUrban Households6 China Statistical Yearbook 2013, 11-8 Per Capita Annual Purchases of Major Commodities ofUrban Households. The drop in fresh vegetable consumption may derive from risingconsumption of cooked meals, or decreased consumption of low value vegetables such ascabbage.7 On safety perceptions in dairy, see Thomas David DuBois, “Borden and Nestlé in East Asia,1870-1929: Branding and retail strategy in the condensed milk trade” forthcoming inBusiness History.8 Teresa da Silva Lopes. Global Brands: The Growth of Multinationals in the Alcoholic DrinksIndustry (New York: Cambridge University Press, 2007). Jones, G. (1994). Brands andMarketing. In Geoffrey G. Jones, G., & Nicholas J. Morgan, (Eds.). Adding value: brands andmarketing in food and drink. London: Routledge. Wilkins, M. (1994). When and why brandnames in food and drink? In Jones & Morgan, Adding value. Eva Fernandez, Unsuccessfulresponses to quality uncertainty: Brands in Spain’s sherry industry, 1920–1990, BusinessHistory, 52:1, 100–119.9 On the marketing of Jinhua cured ham, see Chung-Hao (Pio) Kuo, Pigs, Pork, and Ham: FromFarm to Table in Early Modern China. Honolulu: University of Hawai’i Press, forthcoming. Anearlier tradition of scholarship emphasized the unique social value of brands in late ImperialChina. Gary Hamilton and C. Lai (1989), “Consumerism Without Capitalism: Consumption andBrand Names in Late Imperial China,” in The Social Economy of Consumption: Monographs inEconomic Anthropology, 6, Henry Rutz and Benjamin Orlove, eds. Lanham, MD: UniversityPress of America, 253-79.10 William C. Kirby. (1995). China Unincorporated: Company Law and Business Enterprise inTwentieth- Century China. The Journal of Asian Studies, 54:1, 43-63.11 On the effect of branding on product differentiation, see John Mercer, (2010). A mark of

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distinction: Branding and trade mark law in the UK from the 1860s. Business History, 52: 1,17–42.12 Kazuko Furuta, K. (2017). Imitation, Counterfeiting, and the Market in Early TwentiethCentury Japan and China: Intra-Asian Trade in Modern Small Sundry Goods. In Kazuko Furuta& Linda Grove, (Eds.) Imitation, Counterfeiting and the Quality of Goods in Modern AsianHistory. Singapore: Springer. Karl Gerth, (2003). China Made: Consumer Culture and theCreation of the Nation. Cambridge, MA: Harvard University Press; Frank Dikotter. ThingsModern: Material Culture and Everyday Life in China. London: Hurst, 2006.13 See here (https://www.rupin.org/htm/chanye/2019/0322/2867.html)14 Data available here (https://comtrade.un.org)15 On the importance of COO, see Chung Koo Kim, Jay Young Chung, (1997). Brand popularity,country image and market share: An empirical study. Journal of International BusinessStudies, 28, 361-386. Francesca Checchinato, Marta Disegna & Tiziano Vescovi (2013): Doescountry of origin affect brand associations? The case of Italian brands in China, Journal ofGlobal Scholars of Marketing Science (2013); Felicity Barnes, & David M. Higgins. (2017).Brand image, cultural association and marketing: ‘New Zealand’ butter and lamb exports toBritain, c. 1920–1938, Business History.16 Changbai Xiu, K.K. Klein, “Melamine in milk products in China: Examining the factors thatled to deliberate use of the contaminant? Food Policy 35 (2010) 463–470.17 See here (http://www.dac.com.cn/Actions/hdzt-16022210001610610745.jhtm)18 See here (http://www.law-lib.com/law/law_view.asp?id=496672)19 For the effect of an earlier retail revolution, see Fernando Collantes, (2016) Food chainsand the retailing revolution: supermarkets, dairy processors and consumers in Spain (1960 tothe present). Business History, 58: 7, 1055–107620 List of 139 organic farms available here (http://www.yogeev.com/article/ugccity/allfarms).21 See here (https://www.innovamarketinsights.com/)22 See here (http://www.traxmarkets.com/)23 See here (https://www.kantarworldpanel.com/global)24 See here (https://www.rupin.org/htm/zixun/guonei/2019/0313/2817.html)25 See here (https://brandz.com/charting/69)26 See here (https://www.cnbc.com/2019/04/22/luckin-coffee-files-for-us-ipo.html)