China: market with huge potential

Just as in all other countries in the world, the organic movement in China has its own pioneers and supporters motivated by conviction. Compared to the development of the organic industry in the west, where the first whole food stores opened more than thirty years ago, the People’s Republic has the benefit of being able to join the industry after it has reached a much higher and more professional level. A variety of marketing channels are already up and running and demand is growing all the time. And yet the organic scene in China is experiencing teething troubles, an example being the definition of the word organic itself.

Picture: Friendly reception at BioFach China

Inspired by western business models, the industry is in the process of developing its marketing structures. In the big cities organics are well established in a range of outlets. A shopper’s guide on the internet pages of BioFach China lists about 20 addresses in Shanghai, comprising everything from the retail giant Carrefour, Chinese supermarket chains, organic shops, health shops and farmers’ markets to subscription services. The list also includes restaurants that use organic ingredients. There are currently three supermarkets in Shanghai that have created a name for themselves based on organic products. These are Lohao City, City Shop and an ambitious project called O-Store which, surprisingly, had to close after just one year. The store that was planned as a franchise by the entrepreneur Sherrie Tien (50) is, however, going to be re-launched on a different basis. The brief interlude is explained by the extremely high costs and conditions associated with importing organic products.

Together with her daughter Alice, Sherrie Tien (picture above) is a committed player in the organic scene in China. Both of them are heavily involved both in the production side on the O-Store farm and in marketing. Not only does O-Store package goods itself (grain, seeds, herbs, shoots and leaf vegetables), it also imports organics from, for example, Germany (Rapunzel, Beutelsbacher, etc.). The sprightly Mrs Tien, who was born in Taiwan, is full of enthusiasm and conviction, has creative ideas and also experience of the organic business and will no doubt play a prominent role in the organic scene in the future. (Picture: O-Store stand at BioFach China)

Alongside her work with the store’s own farm, Mrs Tien is also currently involved in a farm just outside Shanghai. On the model farm Huating Renjia 100 farmers cultivate several hundred hectares and of the total area around 90 ha have been converted to organic production. With the support of the government a research and development centre for organic agriculture and a training garden for trying out new methods have been set up. In total, the government has invested the equivalent of a good three million euros in the project. On the site, Sherrie Tien is creating a small demonstration tofu making facility (picture below) because, as well as producing fruit and vegetables that are sold under the label Xia Xi Yang via a box scheme (picture), the farm also functions as a local health resort for the people of Shanghai. With fish ponds, a botanical garden, an extensive network of paths, a 200 year old tea house and weekend houses the model farm Huating attracts town dwellers into the countryside, where they can experience nature and agriculture first hand. The fact is that the state is involving itself on a grand scale at the level of organic production and is also focusing on marketing, while at the same time trying to demonstrate to people the benefits of organics by offering facilities for tourists.

It is pleasing to be able to report that, in contrast to the perception of China from abroad, it is a country not only producing organic goods but also developing a really impressive internal market, with business models that without a doubt are on a par with some in Europe and the USA. Admittedly, you find these model businesses only in the big cities but these are initiatives that could be emulated and developed elsewhere in the future.

At this point, we will examine some organic outlets in Shanghai:

The French company Carrefour is well established in China and has several hypermarkets in Shanghai. Working together with the Chinese company Organic Farm, Carrefour has been selling organic produce for quite a few years. However, the choice and quality of presentation vary considerably. Whereas a well presented, reasonable organic range was available five years ago in a hypermarket in Peking, the results of a store check in Shanghai were rather disappointing. Even though signs on every pillar in the big fruit and vegetable department provided information about the benefits of organic production and advertised organic products, there was only a minimal supply of vegetables available. The search for organics on the dairy products shelves and in the packaged goods range produced no results at all. (Picture: Very limited organic produce on sale in the vegetable department)

A much more competent impression is made by the chain Lohao City, a relative newcomer with two stores in Peking and another one in Shanghai that opened in June 2007. The company, which has its roots in Taiwan and is obviously backed by sufficient capital and also owns a farm about 200 km from Peking, has ambitious plans to conquer the health-conscious market in the People’s Republic (Lohao: lifestyle of health and organic). The company’s Organic Shop in Shanghai has a prestigious location in the new, up-and-coming Pudong district. The store, that occupies three floors in a new building in a recently completed street with high standard detached houses, will appeal primarily to high-income foreigners and well-off Chinese. (Picture: Lohao City, store entrance)

The supermarket chain City Shop is another player in the quality-oriented retail trade in Shanghai. Since it was founded in 1995, City Shop (picture) has become one of the leading retailers selling imported goods and it now has five stores in prestigious locations throughout the city. Its stores stock around 10,000 items, of which 80 % are imported. Imported brands, its own strict quality standards, fresh produce from its own farm and good customer service are the special features that constitute the company’s business concept, and large display boards make customers aware of them all the time.

The company’s quality concept also embraces organics. According to City Shop, as well as conventional vegetables 90 kinds of vegetables and herbs are grown organically on the company’s own farm City Garden (approximately 70 ha.) Practically all the vegetables are packaged and look very fresh but there is no label of control number to identify them as organic. It may be that the company does not go through any process of organic certification but simply relies on its good name as a guarantee of quality.

It is easier to find organic products on the first floor because here the shelves are largely reserved for imported goods (picture above). At a rough guess, 300 - 400 articles are certified organic and are mainly brands from the USA and Germany. Here you see, for example, Bio-Wertkost produced by Edeka, Hipp, Vitam R and Gut & Gerne from Bio-Zentrale GmbH.  As well as the most prominently displayed organic range, you can find other organic products in secondary placing on the shelves, such as cheese on the chilled shelves and other classic retail brands. A year ago, a café-restaurant with 30 seats opened at the back on this floor. Freshly pressed juices, some of which are organic, dishes prepared fresh in the adjoining kitchen and a salad bar bring in the customers, of whom 80 % are foreigners. City Shop also operates as a wholesaler and supplies, for example, 5-star hotels and high-end restaurants in Shanghai.

The impression created by Living Shop (picture) is rather like that of German whole food shops in the 1980s. The 40 m² shop in the Gubei district is one of a number of shops like this in Shanghai. A small range of fruit and vegetables, some of which are described as organic or pesticide-free, is displayed in front of the open shop in a shopping centre. Inside, about 80 % of the space is devoted to the packaged goods range that consists mainly of basic foods: grains, cereals, legumes, seeds and dried fruits. Here you find health products, food supplements, some cosmetics, body care products and cleaning materials as well. The fridges contain packaged salads, herbs, tofu and dairy products. To judge by the general appearance of the shop, Living Shop appeals more to the regular purchasers of whole foods and health products who know what they want or, on account of illness, are looking for the right food for their situation and for advice. The combination of the shop and a well known and well run vegetarian restaurant in the upper storey keeps customers coming in. Some of the food prepared in the kitchen is of organic origin.

02.08.2007