With distributors across Southeast Asia having to adjust to slowing economies and consumer demand, Kiwi F&B exporters must now be even more diligent in how they approach markets.
By Nada Young.
According to a recent paper by Citigroup Inc economist Willem Buiter, “the chances of a China-led global slowdown” are precariously high. It seems China is not immune to the ills of advanced economies, with over capacity, personal debt and inflated asset markets resulting in a downturn”.
The slowdown in demand in China has had a ripple effect across the globe, but amongst the first to feel the pinch have been commodity exporters across Southeast Asia.
In the same way that New Zealand’s dairy exports play a key role in our economic growth, the supply of agricultural exports such as rice and palm oil to China has helped stimulate many Southeast Asian economies.
With a slackening demand for commodities from China, some of the major economies of Southeast Asia are experiencing a slowdown of their own.
For example, the 2015 annual growth rate in Malaysia (Southeast Asia’s third largest economy) was the weakest in two and a half years at five percent compared with six percent the previous year and the government’s 2016 forecast has dropped to four to 4.5 percent.
In Indonesia, the 2015 annual growth rate of 4.79 percent in 2015 marked the fifth consecutive year of slowing growth and analyst predictions for 2016 are 4.7 percent (source: www.tradingeconomics.com).
How this plays out in the food and beverage (F&B) sector across Southeast Asia is just starting to be felt now.
Sentiment from the F&B distributors Incite works with suggests that business confidence is low as would be trade partners shy away from new opportunities and trim down
their current portfolios in an effort to avoid exposure.
What this means for New Zealand F&B exporters is that demand for premium products in niche categories such as condiments, boutique olive oil and fine cheese is down.
Instead, distributors are searching for safe bets, such as global brands and competitively priced products that complement their existing sales channels and meet the demands of the mass market.
For new F&B exporters, now is not a good time to ‘wing it’, as the saying goes, and enter new markets without fully understanding the size of the opportunity and the costs associated with establishing sales.
Indeed, this is what we are seeing from experienced players who are busy formulating Asia export strategies that involve a careful process of market validation before committing to market entry.
How to go about the exercise of market validation can be quite daunting for some, but once all the terminology and macro economic data is stripped away, it comes down to answering some simple questions; what is the demand for the product and what is the category price tier?
Quantifying demand can be difficult to ascertain without the assistance of market experts and local insights, but there are some common trends across Asia that are easy to recognise.
For example, sectors where New Zealand is particularly strong, such as commodity dairy, fruit and vegetables will find steady demand in markets throughout Asia from food manufacturers and food service customers.
In retail, well branded and funded, competitively priced breakfast cereals and snack bars are gaining traction and the same can be said for yoghurt and block cheese.
Distributors, widely regarded as the gate keepers of the F&B sector in Asia, are also looking for products that meet market constraints such as the limitations on managing temperature fluctuations, packaging durability and, most important of all, shelf life. Unless it’s a fresh food item such as fresh seafood or chilled prime cuts which are flown in by air, most ambient products need to have a shelf life of 12 months or more to allow for sufficient selling time once the goods have been received in the distributor’s warehouse.
Quantifying the cost of entry is relatively easy to establish, provided you have access to this information either from a potential distribution partner you are negotiating with or from industry experts. Suffice to say that it is not cheap to get listed into international supermarket chains in Asia as Listing Fees and compulsory Advertising and Promotion (A&P) costs are payable, usually on a per SKU, per store basis.
Retail entry costs are further exacerbated by the fact that retail buyers are financially incentivised on collecting listing fees and will therefore move quickly to delete brands that are not performing, as this means they can list a new brand – thus raking in more fees.
The lifespan for a non-performing product at the major supermarket chain in Singapore can be as short as three to six months.
In summary, to succeed in Asian F&B economies in 2016, New Zealand exporters need to take a serious look at where the opportunities are and confirm that their products meet the demand and expectations of the market in its current state.