Voluntary Report - public distribution

**Date:** 8/15/2006

**GAIN Report Number:** CH6414

**China, Peoples Republic of**

**Market Development Reports**

**Qingdao**

**2006**

**Approved by:**

![](media/image1.wmf)LaVerne E. Brabant

U.S. Embassy, Beijing

**Prepared by:**

Li Xueqing, Michael Jewison, Caleb O\'Kray

**Report Highlights:** The strong and vibrant Qingdao economy continues
to drive a number of food and agricultural product markets, that should
result in potentially significant growth over the next decade. As local
incomes expand, the mix of products is becoming more diverse, especially
in the High Value Product categories. Local and central government
efforts to develop Qingdao's economy, the co-hosting of the 2008
Olympics, and the ever-rising quality of life is providing excellent
market opportunities for many food and agricultural products. Increased
direct imports to the Port of Qingdao, an improved distribution system,
rapidly expanding middle-class, and increasing demand for high quality
foods will all continue to make Qingdao a market U.S. food and
agricultural product exporters cannot ignore.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[**Qingdao, an Emerging City Market (ECM)
3**](#qingdao-an-emerging-city-market-ecm)

[Qingdao, a Booming Economy 3](#qingdao-a-booming-economy)

[Graph 1: GDP and Wages for Emerging City Markets in Northern China
4](#graph-1-gdp-and-wages-for-emerging-city-markets-in-northern-china)

[A Transforming Retail Industry 4](#a-transforming-retail-industry)

[Table 1: Qingdao Retail Outlets at a Glance
5](#table-1-qingdao-retail-outlets-at-a-glance)

[Hotel Retail Institutional Sector (HRI) is on the Rise
6](#hotel-retail-institutional-sector-hri-on-the-rise)

[Seafood's the Rave 7](#seafoods-the-rave)

[Market Entry Tips 7](#market-entry-tips)

[Summary 8](#summary-1)

# Qingdao, an Emerging City Market (ECM)

Located at the southern tip of the Shandong Peninsula, Qingdao lies
directly on the Pacific Ocean. Identified as one of the fastest growing
cities in China, the medium-sized city of 7 million boasts the number
one ranking for quality of life in the nation.

Qingdao is the industrial heart of Shandong Province, and the regions
economic engine. This important Emerging City Market also ranks in the
top 5 ports in China, and more importantly is the country's largest
agricultural product import-export port by volume with more than 450
ports exchanges globally. Long recognized for its rich history and
natural beauty, the summer resort by the sea still reflects much of the
19^th^ Century German colonial flavor with its many European-style
buildings. Also famous for the beer bearing its name, Tsingdao Beer is
one of the most popular Chinese beers in the world. As co-host for the
2008 Beijing Olympics, Qingdao continues to benefit from a prolonged and
ambitious urban makeover in preparation for the games.

*Source: ATO Beijing*

# 

# Qingdao, a Booming Economy

Qingdao continues to experience rapid economic growth, and over the past
five years city GDP growth averaged about 17 percent reaching \$33
billion in 2005. Urban per capita income also increased nearly 14
percent in 2005 over 2004. With authority to administer the local
economy and investments, Qingdao has played an important role in the
development of not only its own economy, but also China's overall
economic well-being. As a result, foreign investment in the city is
estimated around \$6.0 billion and the city boasts an impressive
portfolio of international firms such as Coca-Cola, AT&T, L-G, Lucent
Technology, Nestle, Nike, and Mitsubishi.

Major industries in Qingdao include: textiles, railway equipment, rubber
goods, fertilizer, chemicals, and food processing (not to mention beer).
The Qingdao port is ranked second in China for container handling
capacity, and is a major international-regional sea route. In addition,
air routes and land transportation are all quite efficient, making
Qingdao one of the major transportation hubs in the Yellow River Valley.
Qingdao handles more agricultural trade (in and out) than any other
single port in China. China customs data indicates China's agricultural,
fish and forestry imports from the world via Qingdao reached \$20.87
million Jan-June 2006, with a 31.5 percent increase over 2005 for the
same period. Both imports and exports of agricultural products via the
Port of Qingdao are the largest among all ports in China. Qingdao
imports 20 percent of all China's agricultural products from the United
States. During the first six months of 2006 Qingdao imported 95 percent
of China's meat, 21 percent of its fish and seafood, 14 percent of
China's vegetables and 15 percent of its prepared meat and fish.

## Graph 1: GDP and Wages for Emerging City Markets in Northern China 

![](media/image2.wmf) *Source: China Statistical Yearbook 2005*

Qingdao ranks second in GDP among the ECMs in Northern China. Increasing
wages mean higher disposable incomes for high-end food products.
However, there is still room for expansion. As one of the largest and
most important aquatic products processing bases in China, Qingdao has
made large improvements in a variety of areas including cold storage
facilities and processing technologies meeting international standards.
Most of the processed seafood products are for overseas markets such as
South Korea and Japan but Europe is a significant market as well. In
2004, total processed seafood exports reached \$537 million, which made
this category the largest among Qingdao's agricultural product exports.
In recent years, Qingdao has also become an important center for poultry
product processing.

A growing economy and rising incomes are driving the imported food
market in Qingdao. Cultural factors influence many of the ways newly
affluent *Qingdaoese* spend and consume. Consumption or purchasing of
imported products as gifts provides "face" or status and is often
considered fashionable as well.

# A Transforming Retail Industry

During the past few years Qingdao's food retail sector has been
dramatically transformed by the rapid rise of supermarkets and
hypermarkets. Like many other cities in China, modern supermarkets and
hypermarkets have become destinations for the entire family. These
retail formats have extensive dry and frozen goods sections, fresh and
frozen meat and seafood, prepared foods, and food service counters. They
also include restaurants, fashion and sporting goods outlets, and other
specialty shops. ATO Beijing has organized a "Great American Food
In-Store Promotion" partnering with two Carrefour stores in Qingdao. An
encouraging factor is that local customers show curiosity as well as
great interest in U.S. food products. U.S. food products sales increased
45 percent during the 2004 promotion period.

![](media/image3.jpeg){width="4.170138888888889in"
height="1.929861111111111in"}

## 

## Table 1: Qingdao Retail Outlets at a Glance

  ----------------- ---------------- ----------------- -------------------
  **Type of         **Name of        **Ownership**     **Number of
  Retailer**        Retailer**                         Outlets**

  Hypermarkets      Carrefour        French JV         2

                    Jusco            Japan JV          2

                    K-Mart           U.S.              1

                    Wal-mart         U.S.              1

                    Metro            German JV         1

                    MaiKaile         Dalian Da-shang   1

  Supermarkets      RT Mart          Taiwan JV         1

                    Hualian          State- owned      6

                    Liqun            State-owned       10

  Convenience       Liqun            State-owned       20
  Stores                                               
  ----------------- ---------------- ----------------- -------------------

########  Source: ATO Beijing

Among all retail outlets, Carrefour and Jusco are the two major players
in terms of sales revenue and sheer volume of shoppers. Carrefour-Mingda
Qingdao has the highest sales revenue among all the Carrefour stores in
China and daily number of shoppers is near the top of the list for all
Carrefour stores worldwide (See North China Retail Update Report
CH6403).

Imported items are not widespread in domestic supermarkets and even less
common in smaller food retail outlets. Imports have a more substantial
presence in foreign supermarkets and hypermarkets, although even in
these stores imports constitute no more than 4 percent of inventory. As
the number of middle-class consumers expands, Qingdao retailers tend to
target the mid-to-high-end market. The Qingdao upscale Sunshine
Department Store will establish its supermarkets that carry imported
products only by September 2006. Most of these food imports have been
supplied via costal cities, such as Guangzhou and Shanghai. However,
increasing demand for high-end food imports in Qingdao and Shandong
Province has resulted in more direct imports via the Port of Qingdao.
Many distributors are no longer satisfied with bringing small volumes of
imported items from the South; instead, they choose to import products
directly to supply Qingdao and other Shandong cities. These importers
enjoy the benefits of reduced cost, improved product delivery times and
higher profit margins. "It will be much easier for me to import fruit
directly via Qingdao", said one trader who distributes U.S. fruit to
Carrefour, Jusco and RT Mart. This trader finally decided to import
directly as a result of participation in an ATO Beijing organized
Trader/Buyer Mission to the Produce Marketing Association (PMA).

In 2005 sales of the top 10 Qingdao retailers experienced growth of near
40 percent. According to one local trader in Qingdao, "in addition to
supplying big retailers such as Jusco and Carrefour, I decided to open
my own imported food store in 2006 due to the expanding numbers of
expatriates and the rising incomes of local consumers in Qingdao." This
trader was part of an ATO Beijing sponsored Buyer Mission to FMI in
2005, and has imported nearly \$5 million in food products from the U.S.
In March 2005, ATO Beijing partnered with Qingdao Jusco to organize an
American In-Store Food Promotion soon after Jusco's completion of a new
30,000 square meter store space expansion. Nearly 350 U.S. food and
beverage items including U.S. Pork, Alaska Seafood, Washington Apples,
Sunkist Citrus and processed products, including salsa, were featured
during the 2-week promotion. As a pleasant surprise, the majority of
U.S. food product shoppers turned out to be local consumers and not
expatriates.

# Hotel Retail Institutional Sector (HRI) on the Rise

Like most people in North China, Qingdao residents have traditionally
eaten most meals at home. However, due to increasing disposable incomes,
more and more *Qingdaoese* are dining out for family gatherings, special
occasions or just for fun. Local residents especially appreciate and
favor fresh seafood consumption. Seafood restaurants such as Yiqinglou
and Haimengyuan operate highly successful chains in Qingdao.

Currently, very few imported food items can be found in Chinese
restaurants. Western Kitchen (Cuisine) restaurants are the main users of
imported food, most of which are located in high-end hotels. Qingdao has
many five-star hotels, including the Shangri-la, Crown Plaza Holiday
Inn, Hai Tian Hotel, Surf Plaza Resort Hotel, and Huiquan Dynasty.
Internationally managed hotels, such as the Shangri-la and Crown Plaza,
are some of Qingdao's largest users of imported food, acquired for their
western restaurants. The Alaska Seafood Marketing Institute organizes
menu promotions at the Shangri-la Qingdao periodically, and even though
Qingdao is a major seafood processing center for China, Alaska seafood
drew much interest and excitement from hotel patrons. According to the
Deputy General Manager of the state-run Huiquan Dynasty Hotel, Qingdao's
hotels are trying to modernize management and develop new restaurants
and food services to meet market demand. Hotels are considering using
imported food products as part of their regular menu offerings to
improve food quality and attract more up-scale customers.

Local taste and food import preferences reflect the strong presence of
Japanese and Korean expatriates in Qingdao. It is estimated that the
Korean population in Qingdao reached 100,000 in 2006. These increasing
populations have helped both support an internal market for
Western-international cuisine food as well as introduce new foods and
tastes to the indigenous population of Qingdao and Shandong Province.
Korean cuisines are the vogue in Qingdao; various well-decorated,
authentic Korean restaurants have become popular dining areas for the
locals.

Travel is also a significant driver of imported food consumption in
Qingdao. The increasing flow of international and domestic travelers
continues to add diversity to the local food mix. Every day, the famous
"Yunxiaolu" and "Mingjianglu" food streets are packed with both tourists
and locals looking for fine dining experiences. In 2004, for example,
Qingdao experienced a sudden boom in Western-style pubs and cafes.
Domestic tourism in China is booming, and Qingdao is ranked as one of
the top Chinese tourist destinations, fueling growth in new hotel and
restaurant development. The 2008 Olympics are expected to provide a
large boost to China's tourism and Qingdao appears well positioned to
expand its tourism into the international arena.

# Seafood's the Rave

A positive future for Qingdao and its seafood industry stems from the
role of seafood in modern China. China views seafood consumption as an
important source of protein; seafood constitutes an essential part of
the traditional Chinese diet. Per capita seafood consumption has been
increasing yearly across the country and Qingdao residents themselves
spend as much as 5 percent of their disposable income on seafood
products. Growing incomes and easier accessibility are driving the
seafood market boom and according to recent surveys, quality is more
important than price for seafood consumers along the coast. The majority
of *Qingdaoese* consumers eat their seafood at restaurants, although
home consumption trends are increasing. Norwegian and Alaskan salmon are
two of Qingdao's favorite fish products.

# 

# Market Entry Tips

ATO Beijing interviewed local importers, distributors and buyers, and
they offer the following tips for those interested entering the Qingdao
market:

-   Take time to investigate the market, and partner with a good
    distributor. Successful ventures require qualified and experienced
    distributors who know the local market.

-   Take baby steps in the beginning, unless you are already supplying

-   Target Quick Service Restaurants, hotel groups do not ship large
    volumes of product.

-   Be very careful about selling products that may drive up the price
    of similar local products. Despite increasing income, Qingdao is
    still a highly price-sensitive market.

-   Play the health, nutrition, and fashion angle to the hilt, since
    many Qingdao consumers believe that it is both safer and fashionable
    to consume imported products.

# Summary {#summary-1}

The strong and vibrant Qingdao economy should continue to drive a number
of food and agricultural product markets, resulting in potentially
significant growth over the next decade. As local incomes expand, the
mix of products should become more diverse, especially in the High Value
Product categories. Local and central government efforts to develop
Qingdao's economy, the co-hosting of the 2008 Olympics, and the
ever-rising quality of life should provide excellent opportunities for
many food and agricultural products. Increased direct imports to the
Port of Qingdao, an improved distribution system, a rapidly expanding
middle-class, and an increasing demand for high quality food products
will all continue to make Qingdao a market U.S. food and agricultural
product exporters cannot ignore.

![](media/image6.jpeg){width="4.534722222222222in"
height="2.4097222222222223in"}

**The Qingdao Nightscape**