Voluntary Report - Public distribution

**Date:** 8/16/2007

**GAIN Report Number:** CH7816

CH7816

**China, Peoples Republic of**

**Market Development Reports**

**Suzhou: An Emerging City Market in the Yangtze River Delta**

**2007**

**Approved by:**

![](media/image1.wmf)Wayne Batwin

U.S. Consulate

**Prepared by:**

Katherine Hanson and Sarah Wegmueller

**Report Highlights:**

Considered the ideal weekend getaway place for Shanghainese, peaceful
and secluded, Suzhou has long been regarded as Shanghai's backyard.
Today, with 113 Fortune 500 companies infusing their investment dollars
into this historic tourist city, Suzhou has become the leading economic
player and major international force of the entire Yangtze Delta (YRD)
region. Suzhou is not the backyard anymore; it is second only to
Shanghai in economic importance in the YRD, and has been named by Forbes
as the 6^th^ best commercial city in all of China.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Shanghai ATO \[CH2\]

\[CH\]

**City Profile**

![](media/image2.png){width="3.217361111111111in"
height="3.078472222222222in"}

With its surrounding towns and smaller cities such as Kunshan, Wujiang
and Changshu, the entire Suzhou municipality can be considered as one
economic unit.

Suzhou is situated in the south of Jiangsu Province, in the middle of
the Yangtze Delta. It is bordered on the east by Shanghai, Zhejiang
Province on the south, Taihu to the west and the Yangtze River to the
north. Suzhou enjoys a mild and humid climate.

A network of national highways, railway lines, and water routes converge
in the city, making it an excellent distribution hub for regional
markets. Located about 100 km from Shanghai, it is only about a 40
minute express train ride away. Trains run in both directions every 20
minutes from Shanghai and Suzhou. A shuttle bus comes to Shanghai Pudong
airport and Shanghai Hongqiao airport almost on an hourly basis, taking
about 2 hours and 1 hour 40 minutes one way to each of the airports
respectively. The well-developed water transportation system includes
the Yangtze River, Lake Taihu and the Beijing-Hangzhou Grand Canal.

Suzhou is one of China's wealthiest cities in the Yangtze River Delta
area and even all of China. As the largest economy in Jiangsu Province,
Suzhou's GDP accounts for 19.6% of the province's total GDP. The city
has taken two major strategic directions: to build the city as the
"leading destination of FDI" (foreign direct investment), and to become
the "base for new and high-tech industries." Suzhou has become an
externally oriented economy. Foreign investment and international trade
are playing an increasingly important role in its economic development.
At the end of 2006, 113 Fortune 500 companies had established a presence
in Suzhou. These companies are scattered in the 5 state level economic
development zones, namely Suzhou Industrial Park, Suzhou Hi-tech
Development Zone, Kunshan Hi-tech Development Zone, Zhangjiagang Bonded
Zone, and Taihu State Tourist and Resort Development Zone.

**Sector Analysis**

**[Hotels & Restaurants]{.underline}**

Hotels and restaurants are a very important part of Suzhou's commercial
activity, accounting for 10% of the total commercial industry income.
Presently there are many opportunities for food exporters. From French
fries to "authentic American steak", one can find imported goods at
almost every conceivable level. Authentic western-style food has a
remarkable market in Suzhou, driven by the large number of expatriates
who work there and their influence on local Chinese.

Suzhou's hotel sector continues to expand rapidly. It has always been a
city famous for tourism, so historically there has been a great demand
for quality hotels. With over 20% of the Fortune 500 companies having
set their stakes in Suzhou, more and more international conferences are
being held there. Higher quality lodging is also in great demand; 27 new
hotels were added just in 2006, making 134 hotels in total. Among them
are 37 four-star or five-star hotels.

**Impact of Tourism**

  -------------------------------------------- ----------- --------------------
                                               **2006**    **% increase from
                                                           2005**

  **Number of domestic tourists (million)**    **41.4**    **13.0**

  **Income generated from domestic tourists    **6,159**   **21.5**
  (US\$million)**                                          

  **Number of international tourists           **1.8**     **16.3**
  (million)**                                              

  **Income generated from int'l tourists       **748**     **17.0**
  (US\$million)**                                          
  -------------------------------------------- ----------- --------------------

Source: Suzhou Statistical Yearbook, 2007

Suzhou's highest-end restaurants are located in four or five star
hotels. They favor western style cuisines, which makes the hotel
industry an ideal entry point for new-to-market imported food
ingredients. Local restaurants then follow their lead and further help
stimulate the consumption of imported food.

The two chefs ATO Shanghai interviewed from the Shangri-la and Sheraton
hotels both have a very strong preference for imported products. They
expressed the need to be introduced to a greater variety of imported
food products other than the ones that are available to them through
their distributors. They even showed interest in finding someone who
could supply them everything that is available in the foreign market, so
they can choose freely, bypassing the limitation of the local
distributor's knowledge of available products. The chef in the
Shangri-la hotel has recognized the demand for imported food products
from his local customers. He has sponsored many foreign food product
shows, including Italian, Thai and Malaysian. This year he is planning
an American barbeque cooking show in November to honor the American
Thanksgiving holiday, during which he will introduce new dining ideas to
his customers.

An owner of a local distributor-Eurofood-just returned from the United
States. He stated that the trip truly opened his eyes, and he thinks
many American food products would have a very good market in Suzhou. His
goal is to be the first one to introduce some unique American products
to Suzhou consumers. With more than 10 years service in the Suzhou area,
and being the leading local distributor, he knows the market for
high-end imported products is huge for such products as wine, beef,
fresh fruit, breakfast cereal, coffee and some condiments. ATO staff was
amazed to learn that this distributor has his own temperature-controlled
warehouse and delivery truck, which to our knowledge is the first cold
chain that is owned and used by a distributor in Suzhou.

**[Retail]{.underline}**

![](media/image5.wmf)Like supermarkets anywhere else in big cities
throughout China, several retail chain stores-Auchan, Carrefour,
RT-Mart, Lotus- show their success in Suzhou in many ways. They offer
broad lines of products, and they are always crowded with customers. In
all the stores there is a separate aisle labeled "Imported Goods" but we
noted there were fewer goods from America than from other countries.
Nanpu Food, another food distributor in Suzhou, stressed the huge market
in Suzhou for imported wines. The ones priced at 700-800 Yuan per bottle
are recognized as excellent gifts for holidays, while those costing
50-400 Yuan are consumed widely in households. Some of the supermarkets
in Suzhou have more than 10% of their total SKUs now in imported
products, and the projected percentage is expected to rapidly increase
in the next few years and could reach nearly 40% by 2010.

Metro is a wholesale cash and carry retailer, and has its niche in the
market. It is much like Sam's Club in America, where customers are
limited to members only. Most of these members are small businesses like
cafeterias, schools, factory canteens, and small local restaurants.
Individuals are not the key targets for Metro, but there are still a few
who shop there. Most of these individuals are high-income earners or
foreign expatriates. ATO observed that the store is cleaner, less
crowded, offers larger packages, and higher quality than other retail
outlets, yet it still maintains the necessary variety to satisfy
different customers\' needs. The GM of this Suzhou Metro did not show
any concern over competition from other supermarkets. He believes that
his customers in Suzhou have a much greater capacity to purchase higher
priced products. These customers are willing to pay higher prices to
shop in a more convenient and cleaner environment. Product availability
is their basic requirement; they want "one stop shopping" where they can
come to one store and be able to purchase everything they need. The
number of Metro's members has reached 130,000 in just one year since its
opening. American canned vegetables and fruit, spaghetti sauce, coffee
and fresh fruits sell very well here.

Most hypermarkets use Shanghai as a central buying and distribution
center for imported items. The cold chain between Suzhou and Shanghai is
well developed, and distributors are usually responsible for arranging
delivery of the items.

Small convenience chain stores, like Lianhua and Kedi, can be found on
almost every street. Small packaged, snack style imported products are
their primary stock items. Individual purchases may be small, but sales
are constant. In the first half of 2007 alone, there were 29 new stores
added to the total.

Suzhou has two pedestrian malls known as Guanqian Street and Shilu
Center, with a third one being built near Nan Men. Guanqianjie is just
like Nanjing East Road in Shanghai. They have become another attraction
for tourists as well as local residents, and present a marketing
opportunity to a captive audience.

As mentioned previously, the uniqueness of Suzhou is the highly
centralized foreign expatriate resident population, whose high demand
for imported food products have made many locally operated convenience
stores thrive in the development areas. Some stores sell only imported
food products. This is definitely another selling and promotion platform
for imported goods distributors.

###### 

###### Cuisine 

As part of Huaiyang Cuisine, Suzhou style cooking is closely related to
the local culture and characterized by natural flavor, beautiful
presentation, and a light and palatable taste. The selection of
materials has much to do with the fish, shrimp, crabs and other aquatic
products available locally. Suzhou is one of the few cities that still
keeps its traditional local restaurants, which offer local dishes.
Almost every tourist will try the most famous dish in Suzhou: Squirrel
Mandarin Fish. ![](media/image6.jpeg){width="3.404861111111111in"
height="1.6319444444444444in"}

But just like other big cities in China's economically developed areas,
you can also find all 8 styles of Chinese cuisine in Suzhou. Other than
the western cuisine that is available from hotel restaurants, there are
the well-known American brand names like Pizza Hut, Papa Johns, KFC,
MacDonalds, TGI Friday, Macaroni & Cheese and even Chili's. There is
even a street completely covered by Japanese restaurants. Imagine the
demand for fresh seafood, especially salmon!

Suzhou is also the home of the famous Hairy crab. Hairy crabs originally
grew in the Yangtze River Delta area only. The ones from Yangcheng Lake,
which is in the Suzhou area, are regarded as the most prestigious and
delicious. They are also the priciest ones - top quality Yangcheng crabs
can cost up to \$100 per pound. People living in the Yangtze River Delta
area are crazy about these ugly looking creatures. They will spend
considerable sums of money to enjoy the Hairy crab several times a year.
More recently, these crabs are being sold all over China, as well as in
Hong Kong, the United States and Europe. They move along with the people
who love them as they relocate elsewhere.

**Trend and Prospects**

-   Due to the fact that most foreign invested companies are located in
    the surrounding towns of Suzhou municipality, economic development
    in those areas has grown tremendously too. There is a rapidly
    growing demand for retailing services. Supermarkets have noticed the
    trend and built their second or even their first outlets in areas
    surrounding Suzhou. There were 13 supermarkets under construction in
    2006, of which 11 are located in the surrounding towns.

-   Private car ownership is amazingly high in Suzhou, totaling around
    560,000. That makes one car for every 11 people in the Suzhou
    municipality, or one car for every 4 residents in urban Suzhou. This
    means almost every household in the city has a car! With the high
    volume of private cars in Suzhou, people tend to purchase their food
    in a supermarket that offers convenient parking and everything they
    need in one location. Metro definitely has an advantage in this
    respect.

-   Infrastructure - Even though Suzhou has always been easily
    accessible, either by car, by train or by water, its rapid
    development has required a more sophisticated transportation system.
    Suzhou has dedicated funds to improve its infrastructure for several
    years now. Several new highways have recently been built, as well as
    bridges across the Yangtze River, and a much larger and modern
    railway station is under construction. A light rail system and
    numerous roads have been scheduled for completion in 2008.
    Zhangjiagang, Changshu and Taicang are the three harbors along
    Yangze River. Four more container terminals have been put into use
    this year, increasing Suzhou's container loading ability to more
    than one million a year.

**Constraints**

-   Suzhou people, much like other Chinese, do not know how to consume
    certain American food products, like breakfast cereal. Cereal is
    widely available in the Suzhou market, and the younger generation
    appreciates the value of trying new products, but they do not know
    how to eat them. One distributor noted that most people eat cereal
    as a snack, like popcorn, while they are watching TV.

-   Packaging is not suitable for local consumers. Two points need to be
    mentioned: first, a lot of consumers buy imported goods as a status
    symbol. They also give them as gifts, so they want the packaging to
    look as attractive and luxurious as possible. Many American exports
    do not meet this requirement. In this respect, U.S. products lose
    market opportunity to European products. Second, for imported
    goods - especially new products - consumers want to be able to try
    them first, so if the only available product in the market is a
    2-pound package, most of them will say no.

####### Recommendations

-   **Promotions.** A promotion in a high-end chain hotel with a
    celebrity chef would be a good approach in a city like Suzhou.
    Supermarket promotions, particularly holiday-themed promotions to
    familiarize local consumers with American products and how they can
    be used are also recommended.

-   **Distribution.** Identify the best distribution channel for
    products. Also, help develop more diversified food distributors.
    Local hotels and high-end restaurants are starving for new products
    and new recipes to create, but the supply is very limited. Someone
    who is very familiar with U.S. products could help to identify the
    market need.

-   **Image.** High quality American food products with an emphatic
    American image and appealing packaging would be very attractive to
    local customers.

-   **Advertising.** Target advertising through magazines and other
    media, like TV. These channels have great influence on consumer
    choices, and are especially effective among young children, who will
    ask their parents to buy anything they have learned from the media.
    As most Chinese families have just one child, parents want to give
    them what they want.

-   **Education.** Educate consumers, teach them how to use American
    products, teach them why American food is healthier and beneficial
    to them.

-   **Convenience.** Working consumers have a huge demand for
    easy-to-prepare foods, frozen or microwaveable meals. This would be
    a great niche for American exporters.

  ------------- --------------- -----------------------------------------
  **Suzhou:                     
  Best Product                  
  Prospects**                   

  **Product**   **Market**      **Notes**

  Cheese        retail and      Although this market is very competitive,
                restaurant      there is a demand for Edam, Gouda, Swiss,
                                Cheddar and Parmesan cheeses. In Suzhou,
                                these products are found mainly in hotels
                                and buffets.

  Beef          restaurant      Imports of U.S. beef are currently
                                suspended; however, traditional beef
                                dishes available on \"a la carte\" menus
                                are very popular. The majority of
                                Suzhou\'s beef is from Beijing and Hubei,
                                or imported from Australia.

  Breakfast     retail and      Growing demand for breakfast cereal in
  Cereal        restaurant      large retail chain stores. High end
                                hotels have cereals available in
                                breakfast buffets.

  Lamb          retail and      Lamb dishes are particularly appealing.
                restaurant      The majority of imports come from
                                Australia and New Zealand, as well as
                                China\'s remote provinces Xinjiang and
                                Inner Mongolia. Lamb dishes are found in
                                high end restaurants as well as local
                                cafes. Local cafes use domestic lamb in
                                order to save money.

  Flour         restaurant      Small demand for flour in pastry cooking;
                                some flour is already imported from the
                                U.S.

  Chocolate     retail and      Swiss chocolates are used in pastries
                restaurant      sold in hotels and bakeries. The product
                                is usually mixed with chocolate flavoring
                                in Beijing, and is sometimes marketed as
                                \"not real chocolate product\".

  Butter        retail and      Growing demand primarily for use in
                restaurant      pastries. Local F&B managers see a
                                growing demand for butter, although
                                competition exists from sources such as
                                Australia and New Zealand.

  Wine          retail and      Imported wine is extremely popular and
                restaurant      there is great potential for growth in
                                restaurants and retail outlets.
  ------------- --------------- -----------------------------------------

**Join Us!**

Contact ATO/Shanghai to obtain up-to-date information on demographics,
infrastructure, policies, distribution channels and market trends in
Suzhou as well as other Emerging City Markets in eastern China.

U.S. Agricultural Trade Office, Shanghai

Shanghai Center, Suite 331

1376 Nanjing West Road

Shanghai 200040, China

Phone: (86-21) 6279-8622

Fax: (86-21) 6279-8336

E-mail: <ATOshanghai@fas.usda.gov>

Website: [www.USDAChina.org](http://www.USDAChina.org/)