Tiger Country: What it takes to earn a premium in Asia
Talk to most growers, producers, or food and beverage manufacturers across Australia and New Zealand and they’ll quickly tell you they don’t just want more, they need more. Many are just scraping by and they’re being worn down by commodifying markets and relentless downward pressure on pricing. Consistently delivering the best food and beverage in the world requires passion, dedication and hard work. The business owners behind these businesses also form the backbone of our economies, and for all of us to prosper, we need these guys to do well. Their efforts must be rewarded. So, what’s not working?
For starters, there is an imbalance between what our producers are selling for and the returns they are receiving. The world’s best brands don’t discount, why should our producers? Australian and New Zealand producers are way, way more than just a food bowl for Asia. Anyone can serve up calories and commodities, but these two countries serve up the world’s best everything. Asia isn’t queuing up for nothing. The problem, according to Wilkes and Hanlon from premiumization consultancy Troika GTM, is in too many cases our food champions are underpricing their offerings and giving their hard work away. They should be, could be, and ideally would be focusing on positioning their superior offerings in the premium and super premium market. That’s where the high returns are waiting.
“Reflecting 10,000 in-person interviews with people aged 18 to 56 across 44 cities, our 2016 China consumer report, The Modernization of the Chinese Consumer, found that the days of broad-based market growth are coming to an end. Consumers are becoming more selective about where they spend their money, shifting from products to services and from mass to premium segments.”
McKinsey & Co. 2016
Both Australia and New Zealand have the ability and products to target this Chinese consumer trend towards premium with precision, but mind sets need to change. Delivering premium products to wealthy Chinese consumers with unlimited choice requires every touch point to be perfectly aligned and perfectly executed. The higher the return, the higher the bar, and producers need to realize they must consciously step up to the next level. The mind-set is the first thing that needs to change. Many have spent too long relying on cooperatives to do the heavy lifting, and many also need to recognize they’ll need help to make the grade.
“Premium markets are not DIY, they will not respond to Number 8 wire mentality.”
It also needs to be recognized that the skill-set of an amazing producer is quite different to the skill-set of an amazing marketer, and the skill-set of a sales professional is different again. My father’s advice was always to use the right tool for the job. He was right and entering premium markets to achieve premium prices is no different. The problem facing producers now is the demand for premium and luxury has grown so much, many products have become commoditized, responding to demand. The over promise, under deliver scramble for a quick buck has impacted the authenticity of many offerings. Their cache and provenance has been over-leveraged and this has damaged consumer trust, making many wealthy consumers even more wary. This of course makes it harder for producers to gain traction.
“The Chinese consumer is evolving. Gone are the days of indiscriminate spending on products. The focus is shifting to prioritizing premium products and living a more balanced, healthy, and family-centric life.”
McKinsey & Co. 2016
As a result, international markets are strewn with the carcasses of ill prepared entrepreneurs and business owners who all thought China sounded like a great idea at the time. We keep hearing stories of channel owners (distributors, wholesalers, retailers) consistently winning the negotiation ‘war’. This often leaves the so called ‘premium’ exporter with a commercially flawed return. Another big problem identified in Wilkes’ current Doctoral research into ‘premiumization’ is the persistent (chronic) lack of ongoing market immersion.
Not being on-the-ground contributes to poor results and leaving it to government departments doesn’t work either. Austrade and NZTE are both wonderfully networked organizations, but they are not going to build your relationship for you. You simply have to be in-market and these days that is more important than ever. In China, relationships rule and you can’t have one of those if you’re not there. This strategic flaw often shows up when exporters realize they have made an incorrect choice about partnering, channel selection or market entry strategy. At its worst, this leads to inevitable failure, or a ”reset” button gets pushed…if they’re lucky. For many, the expensive foray into the unknown ends their export dream. It’s game over, the end, roll the credits.
Wilkes and Hanlon are well regarded for their pragmatic approach. Their applied methodology blends research, innovation, entrepreneurship and professional selling with a very disruptive mind-set. They suggest the same old approaches are not working so get rid of them. It’s just money down the drain. They say the opportunities are relatively well understood. It’s the obstacles standing in the way that need work. After watching all sorts of go-to-market initiatives fail to deliver they decided to work out what was really needed. They are currently pioneering a comprehensive 3-year export program designed to get their producer top dollar. The project is aimed at taking a select group of clients successfully into Singapore, Hong Kong, Taiwan and Shanghai from January, 2018. The two directors say their Value Proposition is pretty simple:
“Our clients, who have their eyes on Asia searching for better returns, demand results. For that to happen, someone, somewhere, somehow must sell something for more. That’s what we do.”
By Jim Wilkes