Does The Future Of Chinese Retail Include Home Delivery Of N.B. Lobster By Drone?

Image: JD.com.

Huddle Editor Mark Leger travelled to China earlier this year with the Canada China Business Council, which sponsored a tour for journalists of major cities including Beijing and Shanghai. This is the first in a series of stories on business opportunities for New Brunswick companies in a country with 400-million middle-class consumers.

BEIJING, CHINA – I envisioned live New Brunswick lobsters being delivered by drone to remote rural Chinese villages, or by ricketty bicycles through crowded city streets.

But no, here they were in 7FRESH – a modern supermarket in Beijing owned by retail and e-commerce giant JD.com – piled one on top of the other in a glass tank much as they would be at a restaurant or grocery store in Canada.

“It can be cooked here, put in a bag and weighed. There are also a number of suggested cooking methods, and you can have it cooked on site or take it home live to cook yourself,” said Ella Kidron, senior communications officer for JD.com, as she led us through the seafood section on a tour of the store.

The supermarket itself is beyond what we have here in terms of the technological sophistication. The massive Amazon-like Chinese retailer, a private sector company that employs 170,000 people, does deliveries by drone (with less fragile goods than live lobsters).

The 7FRESH stores have facial recognition technology that can access account and payment information at the checkout so you don’t have to pull out a card or cash to pay for your groceries.

What’s even more impressive is the size of the middle class, which the Chinese government estimates to be as large as 400-million people, and they’re hungry for imported goods like live lobsters from places like New Brunswick.

Nathan Song, a Chinese immigrant to New Brunswick, recognized this opportunity was on the horizon when he emigrated here way back in 2008.

“When the immigration officer asked me what I wanted to do when I arrived in Canada, I said I wanted to [ship] lobster to China. He laughed because the lobster price was low at the time, maybe $3.50 a pound.”

Song got the last laugh, though, pivoting Back Bay-based Bayshore Lobster toward the Chinese market shortly after he purchased the company in 2015.

In July 2017, JD.com had a special promotion of Canadian products and Song was amongst a group of producers that sold 140,000 lobsters in a single day. During the recent Singles Day Shopping Festival, an annual shopping spree in early November popular amongst young Chinese consumers, JD.com sold 12 tons of Canadian lobster through its e-commerce platform and brick-and-mortar stores.

Over the course of a year, Song sold two-million pounds of lobster in China, a market that now accounts for 90 per cent of the company’s sales, and he says shipments there could be increased by 20 to 30 per cent if the airline shipping capacity is there.

The Chinese consumer is certainly willing to pay a high enough price to make it worthwhile. On the day I was at 7Fresh, a single Canadian lobster cost around 90 Yuan (nearly $20 Canadian at the time).

Chinese consumers focused on safety, freshness

I spoke to many business people and industry experts in China and they all gave similar reasons for why fresh Canadian food like lobster is popular there.

The number one concern they cited was health because the country has experienced so many scandals around tainted food.

“More people are concerned about food safety now,” said Song. “They’ll pay more if the food is clean and safe. The people trust the source of the lobster.”

Last year, Song hosted a Chinese TV crew that documented Bayshore’s process of catching lobster, packaging and storing them at the Back Bay facility, and sending them to the airport to be delivered to China by plane. “They wanted to show the Chinese people how JD.com buys the lobster right from the source,” he said.

Chinese consumers gravitate to premium, international products, say producers, shippers and retailers, because they are perceived to be higher quality and safer.

Cory Guo, international logistics director for JIUYE, a Chinese company that handles the transportation of goods through the supply chain, said there are a number of Canadian products that are popular in China: B.C. cherries and berries, Alberta beef, and Maritime seafood.

“They prefer the fresh food more than the frozen…the high-quality taste is very nice. The price is also competitive, which is why it’s so popular in the Chinese market,” said Guo in an interview in Shanghai.

Chinese consumers love lobster

Guo said lobster is the most popular of the seafood products, with snow crab and salmon close behind. JIUYE serves 20 Chinese cities and has 26 distribution centres. They are continuing to work on cutting down on the time it takes to get fresh food from the producer to the consumer, an especially critical issue with the delivery of live lobster.

“Customers can enjoy the lobster within 72 hours of it leaving a place like Halifax,” he said.

Chinese companies like Jiuye and JD.com are focused on international imports, but they’re also interested in developing reliable local supplies of fresh, high-quality food.

JD.com is currently helping local farmers raise free-range chickens that are sold through the company’s online platform and supermarkets. They are also helping them develop blockchain technology so customers can track the chicken’s progress through the supply chain.

The company is employing this technology to trace all of its food products through the supply chain. They have digital display boards called “Magic Mirrors” at produce display counters which show customers where the product comes from; how it was stored to keep it fresh; nutritional information; and how you prepare meals with it.

“Chinese consumers want to know where it was produced, how it was produced, how it arrived at the customer’s door. [The new technology] empowers customers to be able to trace that,” said Kidron, who has worked in innovation hubs like Los Angeles and New York but moved to China because there was much to be learned from the Chinese about innovative retail practices.

“The traceability of foods in China is hugely important. Food safety, food quality is a really high priority here because of the high-profile food safety scandals. It’s really top of mind. There is a high demand for imports as a result, but also a desire to know where your food comes from.”

Middle-class Chinese consumers are willing to pay higher prices for the security of knowing the quality and source of their food. But they are still price-conscious says Song, which gives Canadian exporters an advantage in the current trade war between the U.S. and China.

Earlier this year, China slapped a 25 per cent tariff on imports of U.S. lobster as part of a series of counter-measures in response to new tariffs imposed on a number of Chinese goods entering the U.S.

“This year will be very good for Canadian companies because of the tariffs,” said Song, who constructed a new facility in Back Bay earlier this year to handle increased export sales to China.

Guo said Jiuye is looking at companies in other countries, including Canada, because the tariffs are making the U.S. products more expensive to import.

“The new strategy will be to focus on developing foreign markets like Canada that can provide cheaper products that get around tariffs,” he said.

It remains to be seen if the recent arrests and detentions in both Canada and China ultimately has a negative impact on local companies that currently benefit from the increased trade with China.

Song currently ships by plane through Montreal, Toronto and Halifax, and he says it takes about 36 hours to reach China from the Back Bay facility. He could keep growing Bayshore’s exports because the consumer demand is there in China and increased supplies are also available through multiple sources in Atlantic Canada. But the shipping space on planes is somewhat limited, he says.

“The demand and supplies are there,” said Song. “The problem, for now, is not enough space on planes [going to China].”

Nonetheless, Song is optimistic about the opportunities to grow his company through increased exports to China. On the Canadian side, he needs to find more shipping capacity in airplanes. In China, companies are trying to grow rural, more remote markets with drone delivery, which could eventually include parcels of live lobster.

“Yeah,” he said, laughing. “That would be very good in the future.”

Given the speed at which retail developments are happening in China, that future may not be very far away.

This is the first in a series of articles on business opportunities for New Brunswick companies in China.

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