Chairman's Choice

Loblaw Co. Ltd. extends its private-label reach into mainland China.

After three years of careful market research and intense negotiations, the first shipment of President's Choice and No Name products is scheduled to arrive at Shanghai's port on Nov. 24. By early December, many Loblaw Co. Ltd. food items Canadians have come to enjoy–such as deluxe real cheddar macaroni and cheese, salt and vinegar chips, honey dijon mustard and wild blueberry cocktail drink–will grace the shelves of the Lotus Supercenter grocery store in Shanghai's Pudong district. The expectation is that by March 2005, stores in several large Chinese cities will stock the items. As part of Loblaw's strategy to boost profits by building its brand overseas, the grocer is hoping the celebrated line of foods created by Dave Nichol will be a hit with China's growing middle class.

Getting into the Chinese market hasn't been simple, though. According to Daniel Zhou, founder of Shanghai-based imported food distributor Goodwell China, Loblaw initially tried to sell its products directly to retailers across the mainland, following the same business model it uses in Hong Kong with the supermarket chain Park'N Shop. But Loblaw management quickly discovered that strategy doesn't work in mainland China, where the volume of imported food sold by major grocery chains is still too small to make individual relationships with each one of them worthwhile. What's more, says Zhou, the retailers themselves were reluctant to deal with Loblaw, preferring to communicate with just one distribution company to fulfill all their imported food product needs.

To get the job done, Loblaw turned to Goodwell China, which represents brands like Post, Campbell's, Spam and Hershey's. Goodwell has national contracts with Wal-Mart, supermarket giants Carrefour, Metro and Auchan, and a number of hotels and foreign-owned restaurants. Zhou says Loblaw began discussions with Goodwell in March; by October, the grocer secured its first order.

The timing is excellent. Zhou, a Chinese entrepreneur who started Goodwell in 1993 after spending 15 years working in the financial services sector (including two years with Prudential in New York), explains that most imported foods in China were traditionally destined for the tiny expat community. But, over the past year, as opportunities for Chinese to learn about and sample western cuisine have increased, Zhou saw a dramatic upswing in local interest. Gaining rapid popularity are breakfast cereals, pastas and spreads, as well as dairy products like yogurt and soft cheeses. The proof is in the pudding: Zhou says Goodwell's 2003 revenues topped US$12 million, and sales are up more than 50% to date this year.

Loblaw's first order, worth just US$18,000, requests 80 different products, but in very small quantities: 12 jars of bolognese sauce and 24 single-servings of chicken pot pie, for example. Unlikely to serve up huge profits, but a necessary step for gaining a toehold in the market. Zhou recalls that when he started importing Post cereals seven years ago, the first order was for a mere 20 cases. This year, Post will sell 20 40-foot containers' worth of cereal in China. Loblaw's goal is to test 500 products, and then focus on selling the most promising.

Zhou, who is turning Goodwell into a food marketer as well as a distributor, thinks emphasizing the products' Canadian heritage–perceived as pure and natural by the Chinese–will be a boon to the Loblaw label. The opportunity is clearly tasty. It's just a question of China's appetite for packaged Canadian cuisine.