Direct sourcing: China’s fresh focus

For fresh fruit and vegetable marketing and distribution in Asia
John Hey

BY JOHN HEY

@john_asiafruit

Direct sourcing: China’s fresh focus

Fresh Produce Forum China discussed some of the direct sourcing models being developed to meet the demands of this multi-channel market

Direct sourcing: China’s fresh focus

Related Articles

Direct sourcing is nothing new in food retail, but novel models are developing in China to provide adequate coverage of this country’s diverse market channels.

Unlike many western economies, where modern supermarket retailers tend to control the market, no particular retail channel is dominating in China. Online channels are gaining ground with younger consumers, while specialist fruit store chains such as Pagoda and Xianfeng Fruit have been expanding apace. Traditional forms of food retailing, such as street vendors and wet markets, still handle a high percentage of overall sales volumes, while modern supermarket retailing remains a very important channel.

Direct sourcing is becoming a key focus for China’s retailers and suppliers, and the second general session at Fresh Produce Forum China in Hangzhou examined some of the key drivers of this trend, as well as the systems that are developing.

George Liu, CEO of B2B online fruit company Frutacloud, kicked off the session by outlining his company’s model as direct sourcing service provider. While supermarket retailers might undertake direct sourcing themselves to achieve lower prices and more programmed sales, Liu noted that the process is difficult to execute. “Often, the quality varies greatly between batches of products and the terminal retailers aren’t good at solving the problem of defective product,” said Liu. “With our database of suppliers and customers, Frutacloud adds more value and flexibility. We can use the huge wholesale markets to help terminal retailers deal with defective products for instance.”

Frutacloud uses its experience in procurement, logistics and marketing to provide integrated supply chains for high-quality fruit to all types of customers, aiming to minimise the number of brokers and steps in the chain. “We have a neutral position, so we can manage quality at key points in the supply chain and tell growers if there’s a problem with their goods,” said Liu. “We coordinate sourcing with growers to negotiate better freight rates or organise charter flights. We also design packaging to better suit consumer demands and implement this with producers.” 

Xianfeng Fruit, one of China’s leading fruit store chains with 800 outlets in eastern China and other parts of the country, is also pursuing more direct routes to suppliers in order to lower costs and improve efficiency.

“Direct sourcing helps us to make quicker decisions and become more responsive to our customers,” explained Xianfeng Fruit’s vice-president Catherine Gao. “We can offer better quality product at better prices, improving customer satisfaction as well as our margins.”

Xianfeng’s direct sourcing drive has been driven by the so-called “consumption upgrade” among Chinese consumers. “Previously, consumers’ purchasing was driven by large volumes at low prices,” she said. “Nowadays, they are very quality-focused – they’re looking for things like ready-to-eat, health, food safety, and products with personality.”

Sourcing through wholesale markets involved more intermediaries and made it hard to secure consistency in quality and volumes, Gao noted. “Direct sourcing gives us the opportunity to develop brands with the Xianfeng standard and smaller packaging formats more closely matched to consumer demands.”

Gao cited an example where Xianfeng had begun buying Australian grapes directly from producers this year. “Previously our Australian grape suppliers were packing grapes for China like they do for other markets, with bunches at the top and no stems showing, but actually our customers want to see the stems,” she said. “So our suppliers packed the fruit with the ‘stems up’ and we trained our store partners to ensure they removed the grapes carefully from the boxes to display them nicely. The direct communication has enabled us to manage the supply chain much more efficiently for Australian grapes, which are very popular in this market."

“Explosive growth“ for imports

Direct sourcing of imported fruits in China is being facilitated by the increase in the number of products and suppliers from around the world securing access to the market. Wayne Prowse of Fresh Intelligence Consulting said China has seen “explosive growth” in fresh fruit imports over the past decade, with volumes increasing more than 300 per cent since China joined the WTO in 2002 to top 3.5m tonnes in 2016. While bananas and tropical fruits from nearby South East Asian countries make up the majority of volumes, there has been strong growth in recent years from Southern Hemisphere suppliers, as well as from Ecuador and Europe, he noted. 

In addition to established products, Prowse singled out smaller categories such as avocados and western pears as ones that could grow significantly if marketed well, and would benefit from direct sourcing relations between retailer and supplier.

 

 

comments powered by Disqus

Keep informed...