In 2017, The Silk Initiative worked with Simplot Australia to build a China strategy. Since then, the company has overseen the launch of its John West ambient seafood brand, in addition to its Leggos pasta sauce, through several unique channels. The Silk Initiative CEO Andrew Kuiler sat down with Jennifer Jiang, the China Country Manager, and David Malone, International Sales & Marketing Manager, to hear about their insights for other China food importers.
How long has Simplot Australia been in China, and what’s driven the flurry of recent activity?
Jennifer Jiang: We’ve been here for 10 years with certain brands, like Leggos pasta sauce, but it wasn’t until last year that we really ramped things up. It was our gut feeling that with the upgrade in consumption, the increase in exposure to foreign habits, and the spread of e-commerce, the time was right to look at some other products in our portfolio.
TSI helped with this.
David Malone: Right. We are consumer-driven, and wanted to start from a consumer insight study. We were happy to see that TSI’s report validated our gut feeling, which Jennifer mentioned above, but also laid out which products to start with, and which products would be best as second and third priorities. That helped us identify ambient seafood brand John West as the one to start with.
One of the most interesting strategies you have taken is with special trade channels. Could you talk us through that?
Jennifer Jiang: We identified special trade as an empty battleground, where we could really be the first movers and build the category. With that in mind, we explored an opportunity to work with a distributor who has a relationship with a state-owned logistics company. Through that relationship, we’ve been able to access the state-owned government channels, which are usually closed to private companies, like Easyjoy (the convenience store that operates at Sinopec gas stations), and even a restaurant within the Forbidden City, in the former ice cellar where President Trump dined when he was in China.
Some companies might be wary of state-owned enterprises, given their large, bureaucratic decision-making processes. What’s your experience been?
Jennifer Jiang: Once you get in, it’s different. State-owned enterprises (SOE’s) are constantly looking for ways to work together, and because they ultimately have the same owner, the government, cooperation is usually quite smooth and fast. The thing that we needed to pay attention to was that we could do what we promised. That took the support of our HQ in Australia, because once an SOE green-lights you to provide a product, you have to deliver, no questions. If you don’t, you won’t get that opportunity again. But the benefits are worth it. For example, our first shipment of John West product into the China market was in September 2017, for a distributor to offline retail. The products weren’t listed by retailers until December. That’s normal. It took three months. But our second shipment, through the distributor with the state-owned partner, arrived a week ahead of the 12/12 shopping festival, and it was listed in stores in three to five days.
Talk me through the cooperation with Easyjoy.
David Malone: We sat for talks with them and found that there was room for cooperation in their points redemption program. All of their other products were from domestic producers, and they didn’t necessarily know what foreign product would be suitable or how to contact overseas manufacturers. John West turned out to be a good fit – an imported product that you can eat-on-the-go. So, we designed a six-can gift pack that can be redeemed for about the price of filling up your tank just one time. That allows us to get in front of consumers who already have a certain level of income – they own a car – and it gives the consumer a chance to try a variety of different flavors. From there, we will progress from their redemption program to the convenience stores for the repeat purchase.
Is Easyjoy your biggest special trade channel?
Jennifer Jiang: That’s a new channel, so not yet. To date, we’ve had the most success with ICBC, the country’s biggest bank, and getting into their online rewards program.
What have been some of the differences in selling to the Chinese consumer, compared to your market back home?
David Malone: For either our John West brand or our Leggos pasta sauce brand, it’s been consumer behaviour. In Australia, I don’t need to teach my consumer how and when to use pasta sauce. In many cases, people have been buying the brand for more than one generation. It’s just second nature. In the seafood category, Chinese consumers come with preconceived notions about quality. The other difference is amount of consumer choice — there are number of brands available in each category. This is why we like to develop the ‘special trade channels’ as they allow us a chance to stand out, away from competitors.
Jennifer Jiang: Some consumers hear “canned seafood” and immediately think ‘oh, there must be so many additives, if it can last for three years’ and ‘the quality of the seafood used for canning is low; if it were good quality, it would be eaten fresh’. But at the same time, they are beginning to eat tuna sandwiches at cafés and restaurants, and they may not be connecting the two ideas. So, consumer education is important, along with opportunities like the points redemption program we put in place.
Is there any synergy between the two brands?
Jennifer Jiang: The markets are quite different. In China, with Leggos, we are a premium brand in a small category with many western brands, and the pasta sauce category is relatively small, about RMB 57 million (USD 8.1 million) in 2016, though it’s growing. So we strategized for Leggos to compete on pricing. For John West, we are pricing the product at a premium, and we believe the brand credentials along with the fact we are the only major western brand in the category, will make us the category leader in the coming year. Once that happens, we may do a tie-in, where we put a Leggos pasta sauce together with John West seafood and sell it as a one-meal package, but to manage distributors expectation to coordinate and excel in execution is another challenge, hence that’s still a little while off. One step at a time.
Five Key Insights
- Find an empty battleground
Simplot identified special trade as an empty battleground and expanded into that space through the strategic use of relationships.
- Use your relationships
Simplot picked a distributor that we knew had a close working relationship with a state-owned logistics company, thereby opening up the SOE world to them.
- Keep costs low by outsourcing
Simplot recognized that the added layers of distributors in China, compared to Australia, meant they had to keep costs low. A cost-benefit analysis found that outsourcing sales, marketing and many other functions made financial sense.
- Price in discounts
Simplot set a shelf price that would position them as the premium brand, but also allow for discounts to drive volume.
- When you aren’t the category leader, compete on price
When they had to compete with a market leader in the pasta sauce category, Simplot chose to sell at a lower price to gain market share.