• Working with Food Distributors in China: By ADN Imports

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    Do you plan to sell food products in China and want to find local distributors?

    In this article, Anthony Johnson from ADN Imports explains what food products that are in demand, how you can find distributors, the process when working with distributors, about packaging and labeling requirements, and more.

    Let’s get started and review some of the most popular food products in China.

    What kind of food products are in demand in China?

    China’s huge population means many niche markets can do well if you find the right routes, most likely through eCommerce platforms.

    With that said, there are several categories and types of products in high demand, including the following:

    1. Gifting with beautiful packaging

    China has a strong gifting culture and it’s common to give more luxury and indulgent foods, drinks, and alcohol in gift sets. Gifting season in China is from mid-autumn festival (around mid-September) to Chinese New Year (in February).

    2. Health food

    In line with global health trends, we see a great demand for health food, which is consumed by China’s youngest and oldest population.

    3. Products with a strong heritage and provenance

    These attract buyers in abundance and if packaged correctly are also fantastic for gifting.

    4. Unique products with a strong point of difference

    China is a competitive market and having a strong point of difference is helpful to gain traction. This is especially true if you are looking to enter first-tier cities such as Shanghai, Beijing, Guangzhou, and Shenzhen.

    5. Kids and Baby products

    This ties in with the product being healthy, but goes beyond that to incorporate the general environmental conditions and food safety standards.

    Following several food safety scandals in China it’s strongly perceived that foreign countries have fantastic food safety standards and a food supply chain that is safer than those domestically in China.

    This is especially important for products for China’s infants.

    6. Large volume categories

    Products that are especially fast-moving are attractive to buyers, as for the right products sales volumes can be huge.

    Examples of these kinds of products include soft drinks, sweet, and savory snacks.

    7. Products where consumers collectively buy large volumes of imported food

    An Example of this would be females in 1st and 2nd tier cities that are aged between 18-35.

    This group is responsible for a huge amount of imported food and drink sales and being positioned to target a specific group such as this will help set you up to be successful.

    8.Visually unique products

    An example of this is Pepsi Blue, which in the last few years sold in massive volumes across China. Anything that is unique and aesthetically interesting to be share-worthy across China’s social media and has the potential to go viral.

    What are the benefits of selling via distributors compared to cross-border eCommerce?

    Strong distributors will give your brand much more exposure in the market, putting you on the shelves across China and on local eCommerce platforms.

    These have much higher traffic than the cross border alternatives, like Tmall Global. This will get you discovered and is where the majority of all volumes goes into the market.

    However, cross border routes are very beneficial for brands who have high barriers legislatively to enter China, for example, supplements, organic products, or those that don’t have a recognized food standard.

    How can foreign companies find food distributors in China?

    You may have to take steps to be discovered by Chinese buyers.

    This can be done through trade shows, visit buyer events, or digitally. We have a bespoke, China hosted, Chinese language, B2B platform for buyers to discover international brands.

    For brands that list with us, we then hold sample stock in our China office and can send samples to interested and qualified buyers to arrive within 24 hours of receiving their interest.

    This is a good place to start as you can instantly leverage our network.

    How is the process when working with food distributors?

    Distributors that want to work with you will expect a contract that offers them some protection, which is fair enough.

    It’s not easy or cheap for that matter to grow a brand properly in China and for them to invest behind a new brand entering the market they will need written guarantees that there is a benefit for them in the long run.

    This is best done through exclusivity tied to increasing volumes.

    Although it is possible to have multiple importers and divide the market by geography, channel or even your different product ranges this can cause issues and lead distributors into a pricing war.

    This will put your brand into a spiraling discount race down to the bottom, where there is not enough margin for any party to want to actively sell it anymore.

    Once it’s been down at one price it can be really difficult to get it back up and you are dead in the water before you get started. Be cautious with the approach, there is no one best way as it does depends on many variables.

    You know your brand and products resonate with an international market when you have an unending stream of inquiries from that country. For China however, it’s a little different.

    You might have the perfect product for the market, but because of the ‘great firewall of China’ Google, Instagram, Youtube and Facebook are blocked, and normal foreign websites load slowly and are not indexed by Baidu (China’s version of Google Search).

    This means unless buyers are using a VPN it will be really hard for them to find you. This is why we help our partner brands create a strong digital footprint hosted within Mainland China, so they can be discovered easily through Baidu search and Chinese social media.

    How do I ensure that distributors are serious?

    If a distributor is serious about your product they will ask the right questions and negotiate hard on price and terms of contract.

    The other piece to consider is not just if a distributor is serious, but is this a serious distributor? This can be hard to tell, there are some fantastic distributors we work with that come across as though they are not a real business.

    They barely have a website, will email in broken English from free email accounts (for example QQ – Similar to Hotmail). But they have mature channels across all of China.

    Likewise, there are a plethora of new importers and distributors, perhaps the founder studied abroad, speaks fantastic English and has a flash looking website, company email, and even Linkedin page. However, they may not have the actual know-how and maturity in the industry to deliver proper results.

    Good distributors will openly video chat with you via WeChat (China’s version of Whatsapp – well worth downloading!) and show you their logistics operation, stock in their warehouse, and even put you in touch with other brands they are importing for reference.

    They will show you photos of their products on the shelf, promotions they have done, customs documents and company registration certificates with registered capital. Due diligence is key and ensuring the partner is the right one is perhaps the most crucial step.

    How can foreigners communicate with Chinese distributors?

    In the case where your Chinese importer/distributor doesn’t have English speaking staff, it’s important to have someone that understands not just the Chinese language but also the business culture nuances.

    A small difference or miscommunication can cost you a relationship and potentially a fortune in sales. The Chinese are understanding when working with Western businesses that there are differences in business culture, the trouble is they don’t always know where these differences are.

    What are common pitfalls when working with distributors?

    Always use common sense, signing overextended exclusivity for your brand without it being tied to decent volume can block you in the market for a significant period.

    Also, bigger doesn’t always mean better. Being lost in the catalog of a large distributor doesn’t mean you’ll have large volumes going into the market.

    Make sure you also protect yourself with payment terms, this probably sounds obvious, but it’s amazing how many businesses transfer ownership of stock before receiving payment in full on the promise of huge sales in China.

    If you can’t get full payment upfront you can sell on CIF incoterms with 30-50% upfront and the remainder once the goods reach the Chinese port, but before handing over the Bill of Lading.

    What should companies do before they decide to sell food products in China?

    Always protect your brand in China by registering your trademark. China IP works on a first to file basis, which means if someone else registers your brand name first it can be a very difficult and expensive process to get it back.

    Trademark squatters cause problems by purposefully registering trademarks to sell them for a profit, but this can also happen by chance.

    Remember China has 1.4 billion people under one national IP system where foreign, and especially English names, are popular.

    Important to add to the consensus is that the Madrid Protocol doesn’t quite cover the detail needed for applications within China so it’s best to look at this territory separately for IP.

    How can I check the market and product demand?

    The cheapest way to do this would be to look through domestic platforms such as Tmall, JD.com or Taobao and see how many similar and competing products are selling.

    With some help from a Chinese speaking person or Google Translate, you may also be able to see the monthly sales rates.

    The next best way is to walk around stores in China and see what shelf space and number of facings are dedicated to what type of category, product or brand.

    How can I ensure that my food products comply with Chinese regulations?

    The labeling process as a whole is best worked through with the appropriate government body in China. Whenever we do this for our partner brands, we do it at the National level to ensure all the bases are covered and we don’t leave it up to the importer/distributors.

    The reason for this is that not only does Chinese regulation change quickly and is strict on each detail, but also importers can fall into problems. Especially when using different ports for import, or if they have connections at customs that change position or leave.

    For being ready to sell through normal channels, your ingredients will need to be checked against standards. There is not a readily available database of compliant ingredients and different factors can have an impact on compliance, including the % level of an ingredient, the country of origin, the category the product is in (HS Code) and even the way it is written.

    For example salt is fine, but if written as pink salt would cause problems.

    Following ingredients, you also need the claims on pack checked against Chinese regulation, sometimes these need to be covered or removed, marketing claims that are not true such as ‘Red Bull gives you wings’ are not normally allowed, unless backed up with evidence.

    A translation of your pack must be submitted to customs so they know what is coming into the market and you will need to be registered as a manufacturer.

    Finally, you will need a compliant Chinese nutritional label, which is most commonly stuck on as a white over-label at a bonded warehouse in customs at the China port by your importer.

    How do I manage the labeling and packaging of the products?

    This will depend slightly on the type of food product you are exporting and also your intended market positioning in China.

    Typically imported products from most countries are perceived to be of better quality and therefore more premium, especially if they have a country of origin from countries such as the UK, USA, Canada, Australia, New Zealand or countries in Europe.

    Therefore, you want the product to be recognized easily by consumers as imported. This is achieved through your English language (or non-Chinese) packaging and also the white nutritional over label that’s stuck on the back. For this reason, it’s good to stay with this label even when the volumes make sense to print Chinese directly onto your pack.

    In terms of design of packaging, we generally advise businesses to initially keep the packaging exactly as it is in your domestic market. Unless labor is cheap in your domestic country or you have advanced labeling capabilities, have your importer stick on the Chinese nutritional over label in the bonded warehouses at the Customs in the Chinese ports.

    This keeps your initial investment down while you begin your journey into China. Down the line it is important to remember that China does have very different consumption and buying habits to the rest of the World, so if you have the time and funds to invest into China for the long run then it’s best to have proper research done in-market and develop your products with Chinese consumers in mind.

    The actual Chinese label will need to meet with various standards to be compliant and must contain information such as; Chinese brand name with the product name, list of ingredients, date of production, best before date, Country of origin, Chinese importer/distributor name and contact details, storage conditions, and net weight. Date format in China is YYYY/MM/DD.

    It’s crucial that when your label is generated you have to have the date format printed correctly each time, being a day off the expiry date or writing the date in an incorrect order can lead to refund claims of 10x the retail price for the product back from the registered importer.

    Some categories don’t need Chinese nutritional labeling, these include unpackaged fresh food, very small packaged products, alcoholic drinks, and bottled water.

    When do I need to register the Chinese labels?

    It’s worth having the labels set up before finding a distributor so you know you are in place to enter the market. It should be done straight after or alongside applying for your trademark it’s worth looking at the entire labeling process.

    This is because if you have key ingredients across your range that are not compliant for China, or claims on pack that would need to be removed or covered you’ll be in an informed position on what to do next.

    We have seen too many businesses invest thousands in trade shows in China and endless hours into buyer meetings and follow up, only to discover down the line that their products are not compliant.

    How much does it cost to translate and register labels in Chinese?

    You can speak to your local government about the support they offer for export growth. We can also help with the setup, including trademarking within China and the entire labeling and registration process.

    The cost depends on how many trademarks and classes you want to register under, and if you also want a Chinese name – which is highly recommended.

    For the labels, it depends on your product category and the number of ingredients, but typically we can set up trademarks and complete the entire labeling and registration process for a range of SKUs for under GBP 3,000.

    What are the best shipping and fulfillment solutions when exporting food to China?

    For most pre-packaged goods imported into China, you ideally need a minimum 12-month shelf life. After shipping times, clearance at customs and then onward distribution the products have often lost 2 to 3 months of their shelf life.

    Retailers in China start to discount products at half their shelf life which is why products with 9 months are difficult and will affect your volumes, and 6 months or less are almost impossible.

    There are of course exceptions to this, fresh milk, for example, is air freighted in good volumes from New Zealand and live SeaFood can be on a plate in China just a few days after swimming in Australian waters.

    Unless you have a high value to weight/size ratio for your product (such Manuka honey) you will normally be shipping by Sea. China can be very hot, and many shipping routes pass the equator, so unless your product is ambient with a good resistance to temperature fluctuations this is best done in Reefers.

    How much money should I set aside for the first year?

    It depends on what approach you want to take. At the minimum, you would need a couple of thousands of GBP to protect your IP, work out feasibility/compliance and get your product in front of potential buyers. That’s enough if you are looking to dip your toes, test the market for feedback and ideally get some initial trade going.

    On the opposite side of the spectrum, you can go full out, customizing products specifically for China and setting up a local office which means you might need to allow up to and over GBP 100,000. Often we see brands investing about GBP 5,000 to GBP 25,000 the first year to get things going.

    How does it work with VAT and import taxes?

    As you are exporting your goods you can sell them exempt from VAT. China’s standard VAT, which has recently come down to 13%, will be paid by the importer along with the tariff which is calculated on the product category or HS Code and country of origin.

    This can vary greatly from 0% to 30% and above so it’s also worth checking to see how it might affect your value chain. To keep things simple you can give buyers a quote using incoterms EXW, FOB or CIF

    Because China still manufactures so many goods for the world, a lot of containers go back to China empty, meaning you can get very competitive pricing for shipping. In the UK it’s not uncommon to pay more to get the goods to the port than it costs to take them from the port to China.

    Thanks Anthony. How can you help foreign companies that want to sell food products in China?

    We are always happy to talk to businesses that are serious about exporting to China. They can get in touch through our website www.adnimports.com.

    We work specifically in food and drink and only for Mainland China so our sole aim is to make the process of entering the market as smooth and efficient as possible, removing as much risk as we can for brands, while maximizing the potential upside that a market as large as China can offer.

    We help brands with three steps for China:

    1. Setting up in the market, including trademarking and labeling and setting up digitally in China with China hosted websites and Social Media.

    2. Finding your importer/distributor partner(s) through our network and events that we run throughout the year and.

    3. Assisting with growth and brand management from our local China offices which has a wealth of experience and knowledge in the food and drink sector in China.

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