When a global pandemic focuses attention on protecting business, it’s hard to think about growth. Managing director Asia Pacific for global food service company Compass Group Mark van Dyck says this is a time of massive opportunity. This article was first published in Food & Drink Business July/August magazine.
Australian food and beverage businesses risk missing critical Asian opportunities in post-COVID-19 bounce-back.
The most difficult time to think about growth is the same time it needs to be top of mind. Unless we do, all of us in the F&B business in Australia will miss out on one of the biggest opportunities in a very long time at a point when we really need to jump-start our economy.
China was the first country to go into lockdown and is the first country to come out. That’s not only good news for Australia but it’s equally good for Asian trade. While China’s economy is operating below capacity, food and drink are rebounding strongly, building on long-running trends.
Right now in China, McDonald’s, KFC and Starbucks are reporting up to 99 per cent of their stores open, some with limited services. Apple stores are open, Shanghai Disneyland has opened to limited numbers and due to swine flu, shipments of American pork to China more than quadrupled from mid-March.
More than 85 per cent of small – and medium-sized enterprises are back at work and more than 35 million students had returned to school by mid-April.
According to Shanghai-based IQC Insights, many local governments are releasing consumer vouchers by cooperating with retail, catering and tourism industries to stimulate economic recovery.
All these measures will boost domestic consumer demand, especially for meat and other foods in offline restaurants, schools and various agencies. So, in China, we are in recovery mode already.
Have we reached peak share in China?
There’s been talk suggesting Australia has hit peak market share in China so there’s a need to diversify to other Asian markets. And there are big opportunities in countries like Indonesia. For example, Australia’s two-way trade with Indonesia (population 273 million) is about $16.8 billion a year compared to $26.8 billion with New Zealand (population five million).
The International Monetary Fund sees emerging Asia as the only region in the world with a positive growth rate in 2020, at one per cent. But while taking advantage of demand in countries like India, Japan and Taiwan is important, the reality is Australian F&B companies have barely scraped the surface in China and in fact are losing overall share to New Zealand.
Despite the current political issues, China is, and will continue to be, our major trading partner.
In just three years, New Zealand has overtaken Australia and the United States as the number one exporter of food to China. New Zealand’s total food exports to China in 2018 were worth US$6.4 billion of which dairy accounted for 62 per cent.
The latest import results showed that in 2018, China imported food from 185 countries and regions, valued at US$73.6 billion – up 19.3 per cent on the previous year.
For all the talk about the Asian Century and years of government policy calling for closer economic ties with Asia, the reality is Australia invests relatively more in New Zealand than all of the Association of Southeast Asian Nations (ASEAN) members combined.
I chair the Asia taskforce set up between the Business Council of Australia and the Asia Society, which has a sole focus on making sure that Australia gets its fair share – or preferably unfair share – of Asian imports. But as the figures show we still have some stepping up to do.
In fact, apart from education, our historic pattern of exports hasn’t changed much. For the last 100 years Australia’s biggest exports have been out of the ground: wool, wheat, coal and iron ore. Today, Australia exports $470 billion of goods and services around the world. The top exports are still mineral and petroleum products now followed by education and tourism. We have made limited progress outside of selling commodities to Asia. There’s been even less success in establishing or growing Asian operations by Australian companies.
COVID-19, the changing Chinese F&B industry
Like all other economies, COVID-19 has changed how China’s consumers will buy their food and beverages. Online will double its share of the grocery market as many consumers were forced to try online during the lockdown and will keep on for the convenience.
Chinese consumers were becoming more health conscious before the pandemic and now are even more concerned about the quality and safety of their food.
A Direct China Chamber of Commerce report showed that imported premium fruits grew 30 per cent in 2018. The biggest supplier was not Australia but Vietnam, the Philippines, Thailand and Chile. In fact, Chile has become one of the fastest growing food exporters to China.
Trusted brands and trusted sources of food should now outperform.
What’s holding Australia back?
Investors and boards are very nervous about Asia. There’s too much focus on businesses that have failed or had unsustainable growth, and a lack of focus on successful businesses that
have built a significant franchise in Asia.
There is a general lack of deep Asia experience in corporate Australia, both at executive and board level.
Strategy development in Asia is difficult because there is no such thing as an “Asian market”. Asia is a group of very different economies at various stages of development, which offer unique opportunity sets depending upon your value proposition and competitive advantage.
But there are plenty of success stories: companies such as A2 Milk, Fonterra and Tassal have built very successful businesses in Asia.
Even before COVID-19, the case for deeper on-the-ground investment in Asia was clear. Asia has the world’s largest and fastest growing middle class. Forecasts predict 88 per cent
of the next billion middle class consumers will be in Asia.
These consumers demand premium goods and services and the Australian food and drink industry is perfectly positioned to supply food that is clean, green and has traceability.
For Australia, the opportunities include specialised dairy such as infant formula and nutritionals, fresh fruit, processed branded food, meat and seafood. The fastest growing non-alcoholic beverages are new versions of traditional drinks while Australia is China’s second largest supplier of wine.
I don’t believe Australia wants to be the food bowl of Asia. We produce food for a population of 75 million and Asia has 4.5 billion people. Both our cost structure and capacity suggests that we would be better to focus on being the delicatessen for Asia and focus on the added value and premium market.
But in a post-coronavirus crisis world, we need to move past an export mentality. The businesses that will thrive will be the ones to take the step of actually investing in Asia, putting feet on the ground and building infrastructure.
Our experience shows that to succeed in Asia, companies need a strategic approach that blends a broad strategy across the region with localised strategies country by country.
You need to pick your markets where you can build sustainable business through a differentiated value proposition and competitive advantage; get infrastructure and Asian expertise on the ground; adapt your business model but also consistently leverage your IP and best practice across every country.
