Chinese market undergoing drastic change through coronavirus crisis

Market research consultancies have been working hard to assess the actionable lifestyle trends and developments emerging in China in the wake of its coronavirus lockdown.

Even as home-bound Chinese turn to convenience cooking and take-out – which even before the coronavirus had been a popular option in major Chinese cities – market research consultants interviewed by SeafoodSource seem divided on the extent of the opportunity for frozen and processed seafood products in the Chinese marketplace.

Recent corporate financial reporting suggests major potential for the frozen and processed seafood sector in China. Fujian Anjoy Food Co Ltd, the leading player in the frozen and processed seafood space, saw earnings rise 17 percent in the first quarter of 2020 to CNY 1.2 billion (USD 168 million, EUR 156 million), while profits rose 35 percent to CNY 88 million (USD 12.3 million, EUR 11.4 million). Gross profit margin at Fujian Anjoy, at 28.6 percent, was up 2.8 percentage points year-on-year.

Anjoy topped the rankings of frozen processed seafood sales in China last year, followed by the Haixin brand, operated by Fujian Haixin Food Co. Ltd., with Hai Pa Wang, the mainland brand of Hai Pa Wang International Food Group, in third place, according to a ranking compiled by market research firm Euromonitor.

Fujian Anjoy “has a bright future,” according to a research note authored by Xi Ning Ling, who monitors the company for Everbright Securities. Anjoy saw the strongest growth in fish products, sales of which rose 20.8 percent, the fastest of any category. Meat products rose by 16 percent to CNY 336 million (USD 47 million, EUR 43.7 million), whereas fish product sales were worth CNY 497 million (USD 69.6 million, EUR 64.6 million).

Haixin, meanwhile, is projecting an increase of between 185 and 327 percent in net profit for the first half of the year. In the first quarter of 2020, its net profit rose by 66.4 percent to CNY 21.7 million (USD 3.03 million, EUR 2.82 million) on revenues of CNY 330 million (USD 46.2 million, EUR 42.9 million) – up by 5.29 percent year-on-year.

The coronavirus outbreak doesn’t appear to be having much impact on Chinese consumer tastes in seafood and won’t lead to a shift in buying from wet markets to frozen, processed product, according to Euromonitor’s analysts in mainland China and Hong Kong.

“Consumption of frozen processed seafood is mainly limited to hotpots,” Euromonitor International Senior Analyst Miranda Zhou said.

The fact that the virus was first reported at a seafood market in Wuhan is unlikely to have any negative long-term pact on consumers' views of wet markets, Zhou told SeafoodSource.

“The news is more about the host of the virus, that is, wild animals. It wasn’t necessarily linked to negative views towards wet markets,” Zhou said. “People are inclined to purchase fresh, unprocessed seafood instead of frozen unprocessed seafood, as the former is considered more nutritious. In addition, they can be easily accessed in wet markets, which are the main channel to purchase fresh food.”

The Chinese market is bifurcating into live sales at wet markets and branded, packaged sales in supermarkets, Zhou said, with that trend accelerated by the coronavirus.

“Strict lockdown and quarantine lasted for about a month since the burst of the epidemic in late January. Since March, things gradually returned to normal. People can still access to fresh seafood in offline channels like wet markets and supermarkets. In addition, online fresh food retailers like Hema and Miss Fresh have constantly supplied fresh seafood,” Zhou said. “Unbranded seafood is still the majority product sold in wet market and supermarket due to freshness and high value for money, whereas in recent years branded products are increasingly observed in hyper/supermarkets and O2O fresh food retailers.”

Another research consultancy, Mintel, forecasts the frozen ready-to-eat-meals market and the chilled ready-meals market will grow at value CAGRs of 9.9 percent and 14.6 percent, respectively, over the period 2018-2023. Three big players dominate China’s broader (i.e. not seafood-specific) frozen meals segment, though the bulk of their business is in meat products like pork dumplings.  Those companies are Sanquan Foods (12 percent market share), Synear Foods (six percent market share), and General Mills (4.5 percent market share), with lots of smaller players also in the mix, Mintel noted. Headquartered in the huge central Chinese city of Zhenzhou, Synear has bolstered its position with seafood offerings that include premium shrimp dumplings, which have been a major hit, allowing the firm to charge higher prices. The company has also launched sales in the U.S.

And Anjoy (2.1 percent of the frozen meals market) “has been quick at bringing foodservice trends to retail,” Mintel noted in a statement emailed to SeafoodSource.

According to the analysts, the future is upmarket. Seafood, as a premium product, looks set to play a bigger role in the offerings of the key players like Anjoy and Synear, which are shifting to premium and health-oriented products like self-heating hotpot, crayfish dishes, and use of healthier ingredients, Mintel said.

The utilization of new sales channels and greater product innovation are also new trends in China. Long associated with value-priced frozen snacks, Synear Food cooperated with online retailer Ele.me to introduce a new restaurant called “Synear Warm Kitchen,” while Wu Da Sao, another frozen foods specialist, opened a foodservice store inside Hema Fresh, the online/offline supermarket chain controlled by Alibaba.

Retailer Hema (it sells via Hema.com as well as its supermarkets), meanwhile, provides branded frozen seafood products that are “well-packaged, of higher quality, or better processed to people who look for convenience and quality life,” Euromonitor’s Miranda Zhou noted. Brands doing well in Hema stores include the latter’s own “Difresco” brand, as well as products from domestic crustacean giant Guolian, Thai Union’s premium brand King Oscar, and the Chinese brand Ocean Diary.

Yet it appears the most interesting developments are happening in China’s interior cities, while Hong Kong – often a trendsetter for the mainland – is proving a slow adapter for processed product.

“The total volume growth in fish and seafood is three to five percent in the past five years, being higher than the one to two percent in processed seafood,” noted Felix Wong, an analyst at Euromonitor International in Hong Kong. “The competitive advantage of processed seafood in Hong Kong is loose – for example, chilled and shelf-stable being too inferior and having too many additives. The need [for] buying frozen remains reserved. Meanwhile, foodservice [companies] of different positioning increasingly source fresh seafood as ingredients, boosting the volume consumption.”

Wong predicted that sales of fresh seafood will likely outpace that of frozen due to the well documented high cost of Hong Kong real estate.

“Because of Hong Kong’s limited [living] space, more and more consumers find it more convenient to buy fresh seafood when needed, [rather] than storing bulky frozen seafood at home for security. And this phenomenon still goes on during COVID-19 – to many consumers, fresh seafood is within the same basket as other fresh food which they consume daily, so processed seafood does not have a stronger edge.”

Perhaps for that reason, explained Wong, frozen processed seafood brands have been slow to emerge.

“The market is quite stagnant, with key players continuing to dominate the market, so not much disruption can be observed,” Wong said.

Given the damage caused to China’s economy by the coronavirus, it may be that, post-pandemic, Chinese consumers will look to save more for an uncertain future. A recent report by management consultancy McKinsey suggested Chinese household savings have rocketed – the country’s household deposit balance increased by eight percent over the first quarter, reversing a well-documented trend in recent years of accumulating household spending and debt. Meanwhile, 41 percent of consumers said they planned to increase sources of income through wealth management, investments, and mutual funds.

The virus has also forced purchasing trade-offs, with consumers seeking better quality and healthier food options. More than 70 percent of respondents in McKinsey’s COVID-19 consumer survey said they will continue to spend more time and money purchasing safe and eco-friendly products, while three-quarters want to eat healthier after the crisis. That could mean more fresh seafood, or price-conscious preferences for well-produced frozen processed product, the survey found.

Photo courtesy of Luis Angel Gomez Martinez/Shutterstock