Cold chain logistics in China

2006-02-06 From Shanghai Daily

When China revised its reported GDP figures a few weeks ago, the country suddenly became the world's seventh largest economy.

There are more than 80,000 'modern' food retail outlets in China, with the sector experiencing continued and dramatic growth. Catering and foodservice (an estimated 90,000 outlets in China) has also grown an average of 16 percent a year over the past five years.

Fresh, prepared, ready-to-eat foods will become a key growth driver in China's food-retailing industry because it has been the key growth and profit driver for many years in Europe and the United States and there is evidence of the same thing beginning to occur in China.

This is driven by evolving consumer buying habits, retailers' understanding of higher growth and margin potential and the opportunity to build consumer loyalty, and government's food-safety efforts. No doubt, China is the growth platform for those who offer fresh, prepared, and ready-to-eat foods and, more broadly, those who offer products that require temperature-controlled delivery.

A.T. Kearney's recent research, conducted with more than 1,500 consumers in China, indicated that consumers are influencing the growth of temperature-controlled food products. The following are the key findings from their research:

1) Consumers believe improved food safety is becoming increasingly important.

2) Consumers emphasize food safety during purchase decisions.

3) They are willing to pay a price premium for 'safe' foods.

4) Supermarkets and hypermarkets are the preferred purchase location (because of relatively better food-safety control).

5)Consumers view current government standards and policies for food safety as lacking.

6) Across the supply chain, improved cold-chain logistics is required to meet increasing consumer expectations and expected future standards and policies.

Following the rapid expansion by retailers into the second-tier cities and consumers demanding higher quality products, modern cold-chain logistics is rapidly emerging as a critical need in China.

Today, all across China, suppliers are primarily responsible for getting their product to retail outlets. Both retailers and suppliers have specific cold-chain issues and needs. Retailers desire improved cold-chain reliability and cost-effective distribution (through consolidation warehouses) to retail stores.

Suppliers are primarily responsible for source-to-retail-outlet cold-chain reliability and integrity but lack scale and are thus very inefficient.

Consequently the cost to provide logistics services in China is extraordinarily high. China's current cold-chain warehousing infrastructure is inadequate to handle its burgeoning consumer economy.

For example, per capita, cold-storage capacity for China is only about 12 percent of that for the United States. The shortage of cold-chain supply capability, in contrast with high demand growth, has thus created enormous opportunities for cold-chain service providers.