Executive Summary

With rising standards of living, consumers on the Chinese mainland are more and more demanding on their food: they are progressing from simply eating to fill empty stomachs to enjoying the pleasures of dining. Yet, given the lack of cooking skills and less time to prepare meals among the younger generation, more and more mainland urban residents opt for packaged food[1] instead of fresh food to satisfy their palate. With packaged food, tasty dishes rich in local flavours can be made more easily and quickly. 

On the other hand, as supermarkets and hypermarkets are expanding continuously in China and as product types and product choices are diversifying, packaged food is getting more and more common. From 2000 to 2008, the average annual growth in retail sales of packaged food was 10.8% on the mainland, way above the average 4.2% in the Asian region as a whole, underscoring the huge demand of Chinese consumers for packaged food and the rapid growth of the market. 

A survey conducted by the Hong Kong Trade Development Council (HKTDC) reveals that mainland consumers are keen to try new tastes-they are increasingly receptive of food from different countries and of different distinctive flavours. Overall, 66% of those surveyed wish to have different culinary experiences while 63% are keen to sample food from other countries or of different flavours, indicating extensive potentials in China's packaged food market. When it comes to choosing packaged food, "mouth-feel and taste" and "hygiene and safety" are of equal importance to Chinese consumers, with 65% of those surveyed choosing each of these factors as the most important consideration. Price is not their main concern. As long as the food suits their taste, they would be willing to buy even if the price is a bit high. 

More than 90% of those mainlanders surveyed have the habit of taking breakfast. Among these, half of them prepare and take their breakfast at home. Although the majority of the respondents prefer traditional Chinese fare for breakfast, they are more and more in favour of convenient and fast packaged food such as instant noodles, instant oatmeal or microwave dim sum, etc. For their regular meals (including lunch and dinner), most of the respondents are still mainly sticking with fresh food, while frozen/chilled meat, instant noodles and canned food are kept for contingency purposes only. The different sauces/seasonings used for preparing dishes, however, are regular supplies in the homes of most of the respondents (77%). 

Besides the packaged food they consume in breakfast and regular meals, 98% of the respondents are in the habit of snacking. Other than snacking to kill time when they are surfing the Internet, watching TV, commuting or chatting with friends, they also like to eat snacks to satisfy their hunger. The respondents' average monthly household expenditure on snacks was Rmb326 and, in general, females are fonder of snacking than males. 

The majority of the respondents choose supermarkets/hypermarkets as the main channels for buying food for regular meals (98%) and their snacks (86%) because they believe that supermarkets/hypermarkets are selling genuine products with better quality assurances. In the survey, 78% of the respondents agree with the statement that "food sold at supermarkets/hypermarkets is safe/reliable". Overall, consumers are spending an average of Rmb777 per month on shopping in supermarkets/hypermarkets. Of this amount, approximately 52% is spent on food for regular meals and snacks. 

Because environmental pollution and damages to resources have become increasingly alarming in recent years, pollution-free, safe and quality green food and organic food are gaining favours among Chinese consumers. But currently, prices of "organic products" in China are three to five times the prices of the non-organic variety. Such prices are on the excessive side as far as daily consumption is concerned. The survey indicates that, for the same type of food, respondents are willing to pay a premium of up to 23% for "organic products". 

Chinese consumers are getting increasingly health-conscious nowadays, with 78% of the survey respondents saying that, when buying packaged food, they will read the information on the packaging carefully. Moreover, consumers believe that hygiene and quality are better maintained in packaged food than in bulk food, so almost half of the respondents agree that clean and secured packaging is indicative of hygienic and quality food, while 73% of them say that they prefer buying individually packed food. 

As to their impression of Hong Kong brands, 27% of the respondents say they like the food of Hong Kong brands and have confidence in foods from Hong Kong, so much so that they are willing to pay more for such food. These respondents have higher incomes and are concentrated in Shanghai and Guangzhou. Respondents who love Hong Kong brands generally tend to believe that quality management of food outside of the mainland is better than that in the mainland, so they are willing to pay more for imported food. They are also very conscious of food nutrient balance and believe that a full complement of nutrients can only be obtained through diversified food types. For food of the same type, they are willing to pay more for well-known brands. 

Summarising the results of the survey, the report suggests that, in their penetration of the mainland food market, Hong Kong companies can consider the following strategies:

• They should position their products in the high-end market: Mainland consumers who love Hong Kong brands have confidence in the quality of Hong Kong food and are also willing to pay a premium for Hong Kong products. So, to draw the attention of mainland consumers, Hong Kong companies should emphasise the reliability and advantages of Hong Kong brands in terms of food quality management, hygiene, food safety, taste as well as flavour.
  
  
• They should attract consumers keen on trying new products by emphasising uniqueness of flavour, local characteristics and top-quality packaging. Manufacturers should maintain and improve the quality of their products, and should use products which offer innovative flavours frequently as selling points to establish consumer loyalty to their products.
  
  
• Hong Kong companies should be aware that, since food is a daily necessity, mainland consumers are still very sensitive to food prices. Thus, in targeting the user market, they should not set the prices of their products too high. They can also use word-of-mouth marketing.
  
  
• If they are targeting the children's market, Hong Kong companies should pay attention to product safety. Since the preferences of children have much influence on their parents, Hong Kong companies can direct more of their advertising towards children. As for the gift market, Hong Kong companies can accentuate the elegant image of their products by using exquisite gift box packaging. Even though higher pricing is possible by targeting the children's market and the gift market, substantial investments in advertising have to be made for raising brand recognition.
  
  
• Supermarkets and hypermarkets are two main channels through which consumers buy food for their regular meals and get their snacks. But because there are so many types of food products, it would be difficult for SMEs from Hong Kong to get hold of prime shelf locations. To effectively establish a distinct and high-end brand image, Hong Kong companies can consider putting their products at the imported food zones of supermarkets to distinguish them from products of mainland manufacturers. They can also sell their products through specialty food stores. Since the survey respondents believe that products sold at specialty stores are more unique and more novel, Hong Kong companies can establish their high quality image through this channel.
  
  
• As to marketing strategy, Hong Kong food companies can enhance their brand recognisability through TV and radio commercials. If they do not have a huge advertising budget, they can cooperate with supermarkets/hypermarkets in conducting "experience marketing" and introduce their products to customers through on-site cooking of pre-made food or through offering free tasting. As for snacks, other than distributing small sample packs on the streets, Hong Kong companies can also target specific groups through "precision marketing". For example, they can carry out sample pack distribution in commercial districts to put their products directly into the hands of target consumers.

What is more, in opening up the mainland market, attention has to be paid on the restrictions and requirements imposed by the relevant laws and regulations. This is especially so for companies involved in the production, sales and importation of food products because such activities are subject to stringent laws and regulations on the mainland. Hong Kong companies interested in penetrating the mainland food market therefore must have an understanding and full grasp of the regulatory requirements. 

[1]  Packaged food refers to food pre-made or pre-loaded in definite quantities in containers and is directly available to consumers.