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What Chinese Consumers Want from Fresh-Food Retailers

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What Chinese Consumers Want from Fresh-Food Retailers Retail Practice What Chinese consumers want from fresh-food retailers We surveyed nearly 5,000 consumers in China to discover how they buy fresh fruits, vegetables, and meats. Here’s what we learned. by Younghoon Kang, Dymfke Kuijpers, Alex Sawaya, and Kevin Wei Wang © Baona/Getty Images April 2019 Around the world, leading grocery retailers are least once during the previous three weeks. Only differentiating themselves and attracting shoppers 19 percent said they’d shopped at a supermarket to their stores by investing in their fresh-food depart- over the same period, and a mere 16 percent had ments. Fresh food, after all, has a high basket visited a hypermarket in that time frame. penetration and is a big driver of customer loyalty. It also has a strong halo effect: if shoppers are satisfied Our survey also revealed that none of the large with a retailer’s fresh offerings, their perception retailers in China stand out in consumers’ minds as of the retailer’s other departments improves as a fresh-food winner. (When we conducted similar well, resulting in more customer traffic and higher surveys in four European countries and the United overall sales for the retailer. And fresh winners have States, consumers recognized at least one modern outperformed the competition in profitability.1 retailer in each country as being exemplary in fresh food. That wasn’t the case in China, which means In China, however, most hypermarket and there’s vast opportunity in that market for a focused, supermarket chains haven’t gained much ground innovative retailer to rise above the competition.) in the battle for the fresh-food shopper. Most Chinese consumers still prefer to buy fresh food For China’s offline shoppers, product quality is from wet markets, where they can haggle over the biggest factor in their decisions about where prices—a beloved cultural practice that isn’t part to shop for fresh food. Quality is also the primary of the shopping experience at modern grocery factor that determines whether they’d recommend stores. Furthermore, Chinese shoppers perceive the a retailer’s fresh-food department to other people. products sold in wet markets as being truly fresh, But not all fresh products are equal in consumers’ straight from the farm or field. Wet markets’ share eyes: our survey brought to light the items that of wallet in fresh food was more than 50 percent in disproportionately influence Chinese consumers’ 2017, according to our analysis of Euromonitor data. quality perception. We call these products key quality items (KQIs). If a retailer improves the quality Do China’s hypermarkets and supermarkets stand of just these few items in its stores, it will boost a chance against wet markets? We certainly believe customer satisfaction significantly. so. Our survey of more than 4,900 urban Chinese consumers in 29 cities across the country (see Countrywide, in vegetables, the KQIs are leafy sidebar, “About our research”) reveals opportunities greens and tomatoes; in fruits, the KQIs are oranges, for modern retailers to compete more effectively apples, and bananas; and in meats, poultry and pork in China’s fresh-food retailing market. Specifically, are KQIs (Exhibit 1). we found that if modern retailers take a customer- centric approach to product quality, emphasize Quality is not only the most important buying factor their unique features, and seamlessly integrate their for most of the country’s fresh-food shoppers—it’s physical stores with digital capabilities, they’ll be also the biggest opportunity for China’s retailers. well positioned to win in fresh food. Our survey shows that only about half of retailers satisfy Chinese consumers when it comes to quality, whereas 69 percent of retailers already meet the bar Key buying factors in fresh food in assortment and 60 percent in convenience. In our 2018 survey of fresh-food shoppers in China, 85 percent of respondents said they buy all their That said, a growing percentage of consumers are fresh food offline. An even higher percentage— becoming omnichannel fresh-food shoppers, lured 88 percent—said they’d shopped at a wet market at by the broader assortments of online retailers and 1 Based on our analysis of the economic profit of 38 leading food retailers around the world from 2011 to 2016. 2 What Chinese consumers want from fresh-food retailers GES 2019 What Chinese consumers want from fresh-food retailers Exhibit 1 of 3 Exhibit 1 Fresh-food shoppers in China pay the most attention to the quality of leafy greens and oranges. Importance of quality for retailer1 Top score in category Vegetable Fruit Protein Leafy greens 0.9 Orange 0.9 Chicken and duck 0.7 Tomato 0.8 Apple 0.7 Pork 0.70.7 Beans 0.3 Banana 0.7 Egg 0.4 0.7 Cucumber 0.3 Strawberry 0.5 Shrimp 0.4 Potato 0.3 Pear 0.2 Fish 0.4 Seminished 0.2 Pomelo 0.2 Beef and mutton 0.3 vegetable Seminished meat 0.2 1 Combined score of correlation of perceived product quality with the perceived department quality, adjusted for share of customers buying the product. Source: McKinsey China Fresh Market Survey, 2018 (n = 4,993) the convenience of buying online. Assortment and Identify key quality items and improve the quality convenience take precedence over quality for these of each one omnichannel shoppers, who tend to be relatively A retailer should identify the KQIs in its fresh- young (in their early thirties or younger) and live in food categories—keeping in mind that regional higher-income households in tier-one cities. differences in consumption habits make for region-specific KQIs—and then focus its quality- Indeed, the primary buying factors for fresh improvement efforts on those products. It should food appear to vary by life stage. The youngest determine not just which items are KQIs but which consumers are most interested in convenience, specific attributes are important to customers and while consumers 25 to 34 years of age are the most how the retailer compares with its competitors on price sensitive (Exhibit 2). those attributes. In an October 2016 article, our colleagues describe How to win in fresh-food retail a proven methodology for identifying KQIs and What are the implications of these survey findings improving the quality of each one.2 The approach for hypermarkets and supermarkets? In our view, consists of three main phases: modern food retailers in China should focus on three “must-dos.” — Conduct structured consumer research. Through in-depth dynamic surveys, understand 2 Raphael Buck, Daniel Läubli, and Nora Ottink, “The quest for quality in fresh-food retailing,” Perspectives on retail and consumer goods, October 2016, McKinsey.com. What Chinese consumers want from fresh-food retailers 3 GES 2019 What Chinese consumers want from fresh-food retailers Exhibit 2 of 3 Exhibit 2 The key buying factors vary by life stage, but assortment and quality are in the top three across all age groups in China. Importance of customer-satisfaction score for whole store, by age group, indexed Ranked number 1 Ranked number 2 Ranked number 3 Overall 1824 years 2534 years 3544 years 4554 years 5565 years Assortment 100 95 100 99 95 100 Assortment Quality 100 92 98 100 100 98 Quality Convenience 96 100 88 98 90 88 Convenience Service 92 86 92 94 90 88 Service Experience 92 89 89 95 88 84 Experience Price 92 76 99 93 89 89 Price Source: McKinsey China Fresh Market Survey, 2018 (n = 4,993) which products and attributes truly matter to after purchase,” “great texture and consistency,” your customers. Benchmark your performance “smells nice,” and “good condition at time of against competitors. purchase” (that is, no rot or bruises). Shoppers gave the retailer’s oranges high scores against — Pinpoint the root causes of poor quality. Hold competitors in the first three attributes, but poor intensive workshops dedicated to root-cause scores on the fourth. analysis. Collaborate with suppliers to develop concrete action plans to address the root causes. The retailer therefore introduced a targeted set of Identify quality-improvement levers across the actions to ensure that its oranges wouldn’t rot or value chain, including in sourcing, forecasting, get damaged during transport and handling. For and in-store operations. example, it redefined its product specifications, stopped placing orders at the end of the season — Foster a quality-focused organizational (when the fruit tended to be overripe), and tightened culture. Embed the KQI approach into commer- its inspection guidelines. Within a year, the retailer cial processes to instill a mind-set of continuous saw a 7 percent increase in its fruit revenues. improvement. Incorporate quality metrics into your performance-management systems. Play up your strengths Wet markets are no match for hypermarkets and For food retailers in China that choose to follow supermarkets when it comes to certain aspects this methodology, the payoff will be well worth the of assortment and experience (Exhibit 3). For one, investment. When a Chinese supermarket chain modern grocers carry a much larger assortment implemented this approach, it found that oranges that includes imported goods and organic products, were among its KQIs. It also discovered that its which are increasingly in demand as more Chinese customers pay the most attention to the following consumers are looking to trade up and are willing attributes when buying oranges: “stays fresh long to pay a premium for such products. Also, modern 4 What Chinese consumers want from fresh-food retailers GES 2019 What Chinese consumers want from fresh-food retailers Exhibit 3 of 3 Exhibit 3 Hypermarkets have advantages over wet markets when it comes to assortment and shopping experience.
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