Kiwi businessmen making inroads to China

Alexander Speirs talks to three New Zealanders with different interests making inroads into China.

The economic growth of China and the opportunities that came with it were what drew Marianas director Alex Worker to Beijing. "China is the hot market - there's phenomenal growth here. With a population of 1.35 billion people and a young generation striving to lead a better life than the generation before them, opportunities abound."

The Brew's Leon Mickelson agrees. "With the scale here in China, anything can be achieved. The longer you spend here, the more you come to appreciate the potential for the Western world getting involved with China."

Says China Skinny's Mark Tanner, "By 2020, there are forecast to be 280 million affluent consumers in China, up from 120 million today. There are more than 700 cities larger than Wellington."

All three believe New Zealand has strong recognition among consumers in China. "China knows about New Zealand - they know that we're clean, they know that we're green and our dairy products in particular have a great reputation," says Worker. But a strong reputation is not enough in a market like China.

"It's the most hotly contested market in the world right now" says Tanner. "It's not just a case of launching a product and relying on the strong NZ brand to sell it for us." Most New Zealand businesses don't have the budget or scale to compete right across mass markets, so building demand in the growing market for premium products makes sense.

How to brew up business

Leon Mickelson came to Shanghai two years ago to carve a niche for craft beers in the notoriously competitive Chinese beer market.

Mickelson - who began his brewing career 15 years ago in Hawkes Bay. - had already notched up more than 30 international brewing awards when he was recruited to Shanghai by Kerry Hotels to set up craft brewery The Brew smack in the middle of its Pudong hotel. "Before coming here I researched the Chinese beer market and they account for a quarter of the world's total consumption," says Mickelson. "But when I looked at the craft brewing industry, its market share was virtually nil."

In the United States the craft brewing industry sported sales of US$10.2 billion in 2012, accounting for a significant share of the US$99 billion beer industry. Importantly, craft beers reach higher prices than mainstream beer products. The 10.3 per cent market share (by value) was captured with only a 7 per cent share of total consumption.

Mickelson believed with global trends set by the US there were exciting prospects in China. "I saw that there was a huge market to be taken and a great opportunity. Beer here has a reputation as a working man's drink, so we want to follow the wine industry's example [of establishing wine as a premium product]."

Kerry was initially cautious about operating a brewery in the middle of a five-star hotel, but the concept has become a big drawcard, increasing custom for the hotel from both locals and tourists.

The success of the business has Kerry expanding the operation to other locations.
"Similar concepts are being designed for new locations that are opening up around Asia," says Mickelson.

Three more brewery projects have been confirmed for new hotel locations over the next three years.

Brew targets the very high-end demographic through serving unique beers crafted in-house by a globally renowned brewmaster. The bar is an excellent way for Kerry Hotels to capture a share of a booming market, Mickelson says.

Beer consumption in China is more than 50 billion litres per year, more than double the 24 billion litres drunk in the United States. For China the 50 billion litre figure marks a 29 per cent growth rate achieved over the previous five years.

Strict food safety regulations controlling manufacturing plants prohibit Mickelson from producing the beer on a larger commercial scale and attempting a shot at a more significant market share.

"These standards are more lenient if you are not going to distribute your product, giving opportunity for craft brewery restaurants."

Working to grow great partnerships

Alex Worker and two friends set up Marianas Group a year ago. "We're three New Zealanders with a vision to represent the world's best natural products across the Pacific Rim," says Worker. "Our focus has to be about developing the brands - our goal over the next two years is to position them, to promote them, to protect them and to grow great channel partnerships within China."

The three all have backgrounds in the financial sector.Worker, who is Marianas' director of China is a former corporate manager for Fonterra and GlobalDairyTrade. International, director Ollie Farnsworth was a consultant for three years at Deloitte specialising in supply chain management. New Zealand director, Jake Vermunt formerly worked in corporate finance at Ernst & Young.

In the short term, the company are working towards clear targets while maintaining its slow-build philosophy. They have a number of notable clients including Whittaker's Chocolate, Hubbards Foods and Rabbit Ranch Wineries - partnerships which are essential if Marianas is to be competitive in the high-end food and beverage market.

"Competition is everywhere, but our biggest competitors are other countries nailing the high-end food and beverage branding," says Worker, singling out France in wines, Australia in meats and Belgium in chocolates as examples.

"Our partners understand the importance of marketing and branding, and they all must have a long-term orientation to building brands."

The ever-changing Chinese regulatory environment is a challenge. With food safety a primary concern, guaranteeing country of origin and security of supply chains for their products are priority. Accomplishing this is about "finding the right distributors and developing relationships with China ports and Customs."

Marianas remains self-funded and is forecast to be cash flow positive by year-end. "Our revenue growth is staged year on year to ensure our partnerships are developed at the right speed." Longer-term, Worker expects the firm to need outside funding. "When we hit a certain level of business operation, we must seek external capital to achieve five-year growth targets.

Ahead of the crowd

Mark Tanner's business China Skinny works with Western businesses to develop and deliver marketing strategies for China with a particular focus in online and social media. It was Tanner's international marketing experience - he specialised in the internet and telecommunications sectors - that led him to set up China Skinny. He worked with large corporate like Vodafone and Telecom, as well as small businesses and NGOs.

"Market intelligence has always played a big part in my decision process, especially in China," he says. "I didn't consider this area well covered for Western businesses so I set out to develop a product."

That product became China Skinny, a full-service market consulting firm with the ability to deliver both traditional and specialised products to help businesses better understand the Chinese market and consumers. To complement these activities, a social media monitor is being developed so businesses can oversee their own presence as well as their competitors'.

The end package that China Skinny delivers is predicated upon delivering relevant information - a key component of which is timeliness and relevance. "China is changing weekly so we focus much of our resources on research to understand those changes," says Tanner.

The business is run lean with the majority of resources re-invested into the company to fund ongoing R&D.

"It is slow and costly setting up a Chinese-based company," says Tanner who has China Skinny registered outside China to service international clients. "In the meantime, we work with a local company to service Chinese customers."

THE PLAYERS

* Leon Mickelson is in charge of The Brew - a craft brewery and restaurant operating out of the magnificent Kerry Hotel in Pudong, Shanghai.

* Alex Worker is a director of Marianas Group, a New Zealand company representing high-end food and beverage products across the Pacific Rim.

* Mark Tanner is the founder of China Skinny, a Shanghai-based business developing marketing strategies for Western businesses in China.