Voluntary Report - Public distribution

**Date:** 12/15/2007

**GAIN Report Number:** CH7815

CH7815

**China, Peoples Republic of**

**Market Development Reports**

**Wuhan: An Emerging City Market in Central China**

**2007**

**Approved by:**

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

U.S. Consulate

**Prepared by:**

Xu Min, Katherine Hanson

**Report Highlights:**

Sitting on the middle reaches of the Yangtze River in the heart of
China's interior, Wuhan is famous for its national transportation hub of
waterways, railways, highways and domestic airlines in Central China.
With a population of 8.7 million and a GDP growth rate of 14.8%,
combined with a rapidly evolving consumer culture, Wuhan reveals
considerable potential for U.S. food and agricultural products. The key
obstacle to market development continues to be lack of familiarity with
imported food among Wuhan's increasingly affluent consumers. U.S.
exporters considering Wuhan as a potential market should be careful to
take existing fragmented logistics and distribution into account. ATO
Shanghai organized a multilevel promotional event in Wuhan's HRI and
retail sectors this fall.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Shanghai ATO \[CH2\]

\[CH\]

Table of Contents

[**Introduction: 3**](#introduction)

[Sector Analysis: Food Processing, Cuisine, HRI and Retail
4](#sector-analysis-food-processing-cuisine-hri-and-retail)

[Food Processing 4](#food-processing)

[Hotel, Restaurant and Institutions
5](#hotel-restaurant-and-institutions)

[Retail 6](#retail)

[Prospects for the Future 8](#prospects-for-the-future)

[ATO Marketing Activity 9](#ato-marketing-activity)

[Contact Information and Useful Websites
9](#contact-information-and-useful-websites)

# 

# Introduction: 

Sitting on the middle reaches of the Yangtze River in the heart of
Central China, Wuhan has served as a commercial and communication hub
for Central China since the mid 19^th^ century. Today, people in Wuhan
can reach China's major cities like Beijing, Shanghai and Guangzhou
within 1.5 hours by air. A network of national waterways, railroads,
highways, and extensive airline coverage in the city makes it an
excellent distribution hub for regional markets. Wuhan claims to offer
the best living conditions and quality of life in Central China. The
combined strength of maturing industrial zones, state-level scientific
and technical institutions, universities and an educated labor pool lead
pundits to suggest that Wuhan will continue to lead sustainable economic
development in the Central China
region.![](media/image2.png){width="3.2604166666666665in"
height="1.8715277777777777in"}

The Yangtze River, the world's third longest river, and its tributary,
the Han River, divide Wuhan, the capital city of Hubei Province, into
three parts: Hankou - which local people view as the commercial center;
Wuchang, where China's Optical Valley and a dozen scientific research
institutions and universities are based; and Wuhan, where provincial and
municipal governmental organizations are located. These parts face each
other across the rivers and are linked by bridges, including the very
first bridge built across the Yangtze with the assistance of the then
Soviet Union in the 1950's. Because of its hot summer weather, Wuhan is
also well known as one of the "Four Furnaces" of China, along with
Nanjing, Chongqing and Nanchang. The average temperature in July and
August is 37.2 degrees C (99 degrees F), and the maximum often exceeds
40 degrees C (104 degrees F).

With a population of over 8.7 million and land area of 8,494 square
kilometers, (3,280 sq. miles) Wuhan has become one of China's
manufacturing platforms to the world. GDP reached RMB 2,590 billion (USD
34.5 billion) in 2006, an increase of 14.8% over 2005. Long a base for
heavy industry, Wuhan has developed as an important automobile assembly
and parts manufacturing base in central China both for domestic and
export markets. Other notable industries are optical fibers, steel,
textiles, packaging, paper manufacturing, chemicals and pharmaceuticals.
Foreign direct investments in the manufacturing industry, mainly from
France and Taiwan, have helped fuel the impressive rate of GDP growth.
In the past four years, Wuhan has attracted many foreign investment
projects. Among them, 160 projects each reached an investment value of
over USD 10 million. The American brand Budweiser, who is very popular
among China's urban beer consumers, has a large operation in Wuhan.
FedEx, the world largest express shipment company, is reportedly going
to set up its China Business Center in Wuhan for consumer service,
accounting and human resource
management.![](media/image3.png){width="3.142361111111111in"
height="3.0597222222222222in"}

Although the rural income per capita is still low, purchasing power is
centered in Wuhan urban residents whose disposable income climbed 14% in
2006 to RMB 12,360 (USD 1,648). Despite its rapid growth, however, Wuhan
still remains somewhat underexposed to Western food products, often
ignored by food importers and distributors based in China's coastal
cities, and underdeveloped as a market for imported foods. In its
current state, Wuhan is a viable emerging market for those committed to
building a client base through long-term market development, consumer
education, and other training programs.

In the view of Chinese consumers, Wuhan cuisine - a little bit heavy on
salt and mild in spice - is a combination of all styles and
characteristics from all over the country. Local chefs blend various
flavors in their dishes, and thus have left Wuhan cuisine no specific
distinguishable style.

## 

## 

# Sector Analysis: Food Processing, Cuisine, HRI and Retail

## Food Processing

Located in the Dongxi Hu District, Wuhan Food Processing Park is the
largest food processing platform in the Central China region. Since
beginning its operation, international and local brands like Pepsi,
Tongyi from Taiwan, Shuanghui and Jinyuan from Henan, and Ruyi from
Xiamen have set up processing plants in the park. Products include
yogurt, drinking water, beer, pork, instant noodles, fruits, vegetables,
edible oil and animal feed. In addition, China's state-owned food import
and export giant, COFCO, known as China National Cereals, Oils and
Foodstuffs Corp., has recently invested USD 100 million in the Jiangxia
District of Wuhan for a meat processing plant with a land area of 87
hectares (215 acres). Equipment and technology used in the plant are
from EU. The municipality plans to pour a USD \$5.3 million investment
to build up brands of local agricultural and food products. With the
Chinese government undertaking a strong campaign to improve the quality,
safety and scale of the domestic food processing industry, food
processing parks endorsed by the government are likely to play an
increasingly important role both as centers for monitoring food hygiene
and as sources of future leadership for the food industry.

###### 

## Hotel, Restaurant and Institutions

Wuhan is home to several 4 and 5-star hotels including Shangri-La,
Oriental, Best Western, Novotel, Ramada, Wuhan Lake View, East Lake and
Jinjiang. Hilton will soon open its first hotel in the capital city of
Hubei province. Wuhan's 4-5 star hotels are frequented by local and
international business people, government officials, expatriates working
for Wuhan's large international companies, and a small number of
students studying abroad. Catering to the increasing numbers of domestic
and international travelers visiting Wuhan for business, conferences,
and tourism, these high-end hotels reflect Wuhan's rising importance in
Central China. Although many high-end hotels would like to expand their
client base to include mid-range customers, high prices relative to
local options continue to slow their advance into the middle class
market. In an effort to lure more local customers, hotel restaurants
strive very hard to get their share of the market from the local
consumers by offering a unique dining experience. At the time of ATO's
visit, Shangri-La was offering a dinner table which typically
accommodates 10 people for anniversary or wedding parties for only RMB
888 (USD 119), a very competitive price. Just as with the chefs working
for restaurant chains, hotel chefs are under a great deal of pressure to
create new dishes with new ingredients, which provides opportunities for
the USDA marketing cooperators and U.S. food suppliers to introduce
their products that are not yet available in the local market.

Western kitchen/cuisine restaurants are the primary end-users of
imported food ingredients and condiments. Most of these western
restaurants are located in high-end hotels. Future expansion of
international luxury hotels implies more opportunities for American food
ingredients in Wuhan. However, the current market offers very few
imported food items for chefs to choose from even in the hotel
restaurants. A recent interview with one of the leading foodservice
distributors indicates that imported items available in the market are
restricted to salmon from Norway, scallops and mussels from Australia,
crab legs from Russia, and poultry offal, frozen potatoes, corn and
green beans from U.S. One of the reasons for the limited selection is
that restaurants and distributors face significant distribution
challenges in Wuhan. For example, distributors often require restaurants
to order very large quantities of a single item in order to guarantee
supply, but limited restaurant storage space and stocking cost make this
difficult. Poor communications channels between hotels and traders have
added barriers as well. One executive chef noted that his restaurant in
a 5-star hotel had to frequently seek out local suppliers of
new-to-market ingredients for developing new recipes because no supplier
of new U.S. food products from outside the province has ever approached
him. On the other hand, executive chefs and purchasing managers of
restaurants prefer to stick with their existing vendors due to concerns
about supply consistency, communication and after-sale service.

###### 

According to the Wuhan Statistic Bureau, the sales revenue of the Wuhan
catering industry reached RMB 17.7 billion (USD 2.36 billion) in 2006,
ranking 8^th^ in China. The growth rate is on a rapid rise of 17% in the
first half of 2007. Urban food expenditures account for 38.8 % of the
total per capita consumption expenses. During the discussions with the
local culinary association and restaurant managers, ATO noted that the
Wuhan restaurant industry has over 40,000 restaurants with about 170,000
employees. For Wuhan people, the cost of a meal in the restaurant is not
much different from the cost of food they prepare at home. The prices of
dishes served in the restaurants are much cheaper than those in the
first tier cities like Shanghai, Guangzhou and Beijing. "With RMB 400
(USD 53) in Wuhan, you can enjoy such fancy food that you would
typically need to pay five times more for in Beijing or Shanghai,"
commented the head of the local culinary association.

To meet the demands of different consumer groups, many restaurants offer
their customers 3 levels of service prices: in the range of USD 10--13
per person, customers can receive "enough food" service; in the middle
range of USD 15-25 per person, customers can host a respectable dinner
for their friends, relatives and business contacts; and with USD 28 per
person and above, consumers can enjoy luxury dining and wine service.
The following example might not be typical, but this is a snapshot of
what Wuhan's high-profile chain restaurants are like. When ATO staff
were provided a guided tour of a premium chain restaurant, they were
amazed by the luxurious decorations and facilities, from an electronic
piano made of crystals, digital golf game to double shower rooms, all
within a single dining suite. The cost of a dinner party for 20 guests
in the banquet room is minimum RMB 20,000 (USD 2,666), which does not
include the cost for beverages. The owner of the restaurant told ATO
that this is one of 30 private rooms in the banquet hall, and these
private rooms are frequented by customers from local highly profitable
enterprises and private sector business people. The same is true with
table occupancy in the public area of the restaurant. Table reservations
for dinner parties of large scale events like weddings and anniversaries
in the restaurant are full throughout the end of the Lunar Year
(mid-February in 2008). The crowds seen in high-end chain restaurants
can also be found at lower profile restaurants during lunchtime even on
working days.

However, the overall restaurant business in Wuhan is still price driven.
Very few imported food items are available in the chain restaurants.
Chefs at chain restaurants take the prices of incoming material into
serious consideration when vendors approach them with new ingredients.
But, under the pressure to renew their menus with newly developed dishes
on a monthly or weekly basis, chefs are eager to receive information
about new ingredients from distributors, which implies there may be
opportunities for U.S. food suppliers who are based mainly in first tier
cities via the local distributors to bring their products to the market.

## Retail

In contrast to most of China's coastal cities, local retailers like
Zhongbei, Zhongshang and Wushang are very strong in Wuhan's retail
business. They are in a better position for store locations, have good
product assortment, and thus attract much more consumer traffic and
enjoy higher sales revenue when compared to foreign retailers. That is
because Wuhan has a hundred-year history of being the economic and
transportation hub for Central China, and local businessmen have taken
root with a solid foundation in the market. Foreign retailers only
started entering the Wuhan market after the year 2000.

Similar to many metropolis cities in China, as the economy has grown and
consumers have matured, traditional wet markets are disappearing. Today,
consumers shop at supermarkets seeking higher quality, consistency,
sanitation and convenience. During

the last few years, Wuhan's food retail sector has undergone a radical
transformation with the rapid rise of supermarkets, hypermarkets,
convenience stores and premium stores. These retail formats have
extensive dry and frozen goods, fresh and frozen meat and seafood,
fruit, vegetables, prepared foods, and food service sections. Many of
these outlets are located in mall settings or a shopping destination for
the whole family to enjoy with restaurants, movie theatres, fashion
boutiques, sporting goods stores, and other specialty shops.

In general, the Wuhan market still remains very price sensitive and
domestic substitutes for many imported products are available at
substantially lower prices. A recent visit to an outlet of a foreign
operated retailer found that U.S. food products are restricted to just a
few products: frozen potatoes, apples, oranges, nut snacks and three
varieties of wine. Other retailers may sell more U.S. products, but the
variety of imports clearly falls far short of more developed interior
cities such as Chengdu. A merchandising manager for one of the local
supermarkets in Wuhan noted that U.S. frozen vegetables, fruits and
snack foods might sell well and consumers are often willing to pay a
10-20% premium for U.S. foods during Chinese holidays like mid-Autumn
Festival and Lunar New Year, so there appears to be interest among some
outlets for more international products. To retain their position in the
increasingly competitive market, the leading local retailers are
planning to open high profile food stores similar to the SOGO premium
food store in the Shanghai Ongoing Department Store. Branded products,
particularly imported items, will be their primary choice of assortment.

Retailers also expressed a willingness to participate in promotions and
expand their list of U.S. products. With proper promotion of a product's
premium quality or safety benefits, the all-important consumer price
sensitivity of many consumers can be sacrificed.

# Prospects for the Future

Under the traditional impression that the interior markets like Wuhan
lag behind China's coastal cities and therefore is immature for imported
goods, distributors and USDA cooperators arranging promotional
activities in China often overlook Wuhan, focusing on more developed
markets. But the market situation in Wuhan is changing rapidly. As the
established first tier markets of Beijing, Shanghai and Guangzhou
develop stronger linkages with suppliers for increasing quantities of
imported food products, U.S. exporters and U.S. food distributors should
look into emerging city markets (ECM) for new growth opportunities.
China's inland ECMs are the new frontier and offer great untapped
opportunities for American products.

As in most other large Chinese cities, Wuhan is home to a rising group
of middle- and upper-income consumers. The municipality is ambitious to
bring the disposable income of its urban inhabitants up to RMB 20,000
(USD 2,666) within the next five years. The expatriate community is also
expected to grow as international companies build up their operations in
Wuhan. The population of domestic business people traveling through and
living in Wuhan is already climbing, and massive new upscale housing for
Wuhan's elite are being built in and outside the city center. These
high-income domestic and international residents could potentially
develop into a sizable market for U.S.-made goods, much like their
counterparts in other major cities.

  ------------------- --------------- --------------------------------------
  **Wuhan: Best                       
  Product Prospects**                 

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

  Baking ingredients, Hotel/Premium   Baked goods are an important staple
  bread bases         Retail Stores   for Western hotels, so demand for
                                      baking ingredients should increase as
                                      more 5-star hotels and high profile
                                      bakery stores open in the city.

  Dried fruit and     Hotel/Retail    Common as snacks and as ingredients in
  nuts                                Western pastries and other dishes,
                                      dried fruit and nuts have excellent
                                      potential. Local substitutes are
                                      available but usually have a
                                      significantly different texture and
                                      taste than U.S. products.

  Frozen vegetable    Hotel/Retail    Consumers are using more frozen
  products                            vegetables like corn, green bean and
                                      potato products both at restaurants
                                      and supermarkets. U.S. products
                                      currently selling well with
                                      competitive prices in coastal cities
                                      like Shanghai and Hangzhou are limited
                                      in variety in Wuhan market.

  Seafood             Hotel           Several hotels and traders are already
                                      importing fish, including Norwegian
                                      salmon. U.S. seafood producers will
                                      need to differentiate their products
                                      from local and import competitors.

  Wine and distilled  Hotel/Retail    Demands for imported wines are growing
  spirits                             rapidly at hotels, restaurant chains,
                                      wine stores and supermarkets. High
                                      value wines and spirits have great
                                      potential in 5-star hotels, bar and
                                      night clubs.

  Condiments & sauces Hotel           International hotels frequently use
                                      imported condiments and sauces to
                                      offer international guests a flavor
                                      from home, so growth in the hotel
                                      sector could benefit U.S. producers of
                                      condiments and sauces. Consumers also
                                      shop for imported condiments and
                                      sauces for house kitchens with retail
                                      packages at premium stores.

  Meat                                Logistics remains the primary barrier
                                      for these sensitive products. U.S.
                                      poultry and pork products are popular
                                      throughout China and are likely to do
                                      well in Wuhan.
  ------------------- --------------- --------------------------------------

# ATO Marketing Activity

From September--October 2007, ATO Shanghai led a multilevel promotional
campaign for U.S. food products in Wuhan, in cooperation with the Hubei
Culinary Association and Wuhan Wushang Bulksale Chain Co. Ltd.
Activities included a seminar, cooking demo, cooking contest, tabletop
shows, food tasting receptions, one-on-one meetings with local traders,
and in-store promotions for 2 weeks. The event was designed to assist
U.S. companies/American food importers/suppliers generate direct trade
contacts with local distributors, restaurants and retailers; expose
local consumers to a variety of American high-value food products;
introduce some new-to-market U.S. food products; launch a positive PR
campaign to build consumer confidence in and demand for U.S. food
products; and encourage deeper geographic penetration of U.S. food
products in Central China. ATO Shanghai will continue its market
development efforts in Wuhan in 2008.

# Contact Information and Useful Websites

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/)