Claws out

A type of Chinese "luxury" crab became available online at unexpectedly affordable prices this autumn, which was welcomed by common consumers, but strongly opposed by an industry association who said this would hurt the reputation and long-term interests of the sector.

Fishing for the well-known Yangcheng Lake hairy crabs is expected to start around September 20 this year, but Gong Jinrong is one of 19 farmers at the lake who have already begun selling prepaid coupons for the crabs at much lower prices than the average seen last year in order to attract more customers on tmall.com, a business-to-consumer (B2C) website, which was spun off from taobao.com this January.

Gong, 48, is the general manager of Suzhou Yangcheng Lake Dongsheng Hairy Crab Farm in East China's Jiangsu Province. Together with 18 other large-scale hairy crab farms at the lake, he joined a group-buy sales promotion on tmall.com in the middle of August.

By August 27, the total sales volume of hairy crabs on tmall.com had reached a figure of above 20 million yuan ($3.14 million), according to the e-commerce site.

But the promotion triggered strong opposition from the Yangcheng Lake Hairy Crab Association. The chairman of the association, Yang Weilong, told the Global Times that "some farmers and firms sold the crabs at a price even lower than cost, which has seriously hurt the high-end brand image of Yangcheng Lake hairy crabs and the long-term interests of the sector."

All of the 19 farms and companies had to be members of the association, according to tmall.com's requirements.

Whose interests were hurt?

However, despite what Yang said, Gong told the Global Times that he was still able to make a profit via the online promotion.

The total cost of raising each 125 gram male hairy crab will be 11 yuan to 12 yuan this year, according to Gong. Gong is selling the crabs online at a price of around 15 yuan each.

The average retail sales price of 125 gram Yangcheng Lake crabs in off-line stores in Beijing last year was over 30 yuan.

"Our price is much lower than in brick-and-mortar stores, partly due to lower operating costs," said Gong.

In the traditional off-line sales channel, the crab dealers always squeezed the profits of the farmers. Farmers would sell crabs to dealers at low prices, and they would then be resold at much higher prices to large restaurants or other wealthy clients. "That is another cause of lower online sale prices," Gong explained.

This is the third year that Gong has sold crabs on tmall.com, but it is the first year that he has devoted so much effort to online sales.

"Some off-line dealers in Hangzhou, whose market share was squeezed by online retailers, submitted complaints to the association," Gong noted.

The association's leaders have already talked with Gong, enquiring about the motive of the online sales promotion.

The association was initiated by 15 companies including farmers and dealers in 2002 and has a total of 270 member companies at present. Gong's firm is also a member of the association.

The association aimed to regulate hairy crab prices when it was launched. Before 2008, it released guide prices for the crabs each year,

which the distributors needed to comply with. But after 2008, the association loosened its pricing guidance amid growing pressure from the media and the public, who suspected the association was manipulating the prices. The guide price has only been used for reference since then.

Dealers not happy

Yang Weilong of the crab association insisted that the Yangcheng Lake Hairy Crab brand is valuable and that the crabs should be sold at high-end prices.

"Our association has spent millions of yuan each year on brand building," Yang said.

Yangcheng Lake is not the only lake to specialize in rearing crabs in the country, but it has long been famous for its large crabs with tender meat and rich roe.

However, some crab farmers have complained that it is the large dealers who are the main beneficiaries from the valuable brand, rather than the farmers.

"The association only protects the interests of large dealers, who always buy the crabs at a low price from us but sell them at a high price to the consumers," Zheng Xiaohua, a 28-year-old Yangcheng Lake crab farmer who has sold crabs on tmall.com for three years, told the Global Times.

Zheng could not join the group-buy promotion on tmall.com, as his farm is too small and not qualified to be a member of the association. But his crabs are very popular and have won a good reputation online.

Zheng also sells the hairy crabs at a relatively low price. But "the profit margin from online sales is higher than from sales to the dealers. That is why more farmers prefer to sell online."

Currently there are over 400 crab retailers selling crabs on tmall.com, according to the e-commerce site.

But Yang Weilong warned of sales of fake Yangcheng Lake hairy crabs if too many retailers appear online without supervision.

One of the reasons for the launch of the association was to fend off hairy crab counterfeiters, who sold crabs from other lakes but branded them as Yangcheng Lake crabs. Only distributors and farmers who join the association can get tags attached to each crab to prove their authenticity.

To avoid faked products, staff members of tmall.com started on-the-spot investigations at the crab farms at Yangcheng Lake, and chose 19 of the members of the association to launch the group-buy promotion right before the crab harvest, a manager of the e-commerce site who wished to remain anonymous told the Global Times.

Price too low?

Yang of the association warned that some firms have neglected potential operation costs from risks like crab deaths. He also said they might be short of investment funds next year as a result of the small profits from selling online.

The farmers are already facing business problems this year. Zheng said the output of the crabs may decline as a result of the effects of the recent typhoon in the area. And costs have also risen as a result of rising prices of feed for the crabs.

However, in order to grab more market share, the retailers have no better choice than to reduce prices, despite the risks involved.

"Now that we have started the online promotion, we must try our best to expand sales and build a reputation among the online consumers, or we will suffer even larger losses," Gong said.

A sales strategy based on low prices normally requires deep pockets. Gong admitted that it's a dangerous choice, but it seems to be the best one so far.

Gong suggested that the association could set up reasonable pricing regulations for the booming online crab sales.