One Hour China | It’s a shame to let a China food scandal go to waste

Every month there’s another food scandal in China. Sewer oil. Lamb seasoned with rat. Exploding melons. And now tainted Western hamburgers and fast food is the latest. In our view, this is all to be expected. If you are in the food or restaurant business in China, you are almost certainly going to have a scandal. It’s practically inevitable. And it’s an opportunity you shouldn’t miss.

Food scandals are a major concern of Chinese consumers. In 2013, McKinsey research found Chinese residents are more concerned about food safety than healthcare, unemployment and even crime. For businesses, this means a food scandal can move market share quickly. If it is your company, that is a problem. If it is someone else, that is an opportunity. In both cases, the key is management that is fast and smart. A few key points on this:

Food scandals are inevitable

China has approximately 500,000 food production and processing companies, and approximately 70 percent of them have fewer than 10 employees. That compares to only 30,000 companies in the United States. Basically, the food supply chain in China is highly fragmented and bad products can easily be introduced by bad actors almost anywhere along it.

New regulations aren’t going to help

There are in China, paradoxically, a sea of regulations and laws about food standards. On paper, at least, the standards are often stricter than in the West. And there are at least ten departments in charge of monitoring food quality. The problem is that the market is too fragmented, the oversight is too complicated, the companies are too numerous, and selling fake or bad food is just too profitable. So food scandals keep happening. New regulations are not going to change this much.

Scandals that move market share are opportunities