With Focus on Healthy Products THE CHINESE
FOOD MARKET Please insert a suitable picture in this size
OFFICIAL PROGRAM PARTNER
THE CHINESE FOOD MARKET
This report provides a comprehensive reference for Swiss companies wanting to expand and/or develop in the Chinese food market. It contains market insights on the rapidly changing food market, for the general Food & Beverage as well as the Healthy Food Market.
Date: Language: English Number of pages: 66
Author: Fiducia Management Consultants Other sectorial Reports: Are you interested in other Reports for other sectors and countries? Please find more Reports here: s-ge.com/reports
DISCLAIMER The information in this report were gathered and researched from sources believed to be reliable and are written in good faith. Switzerland Global Enterprise and its network partners cannot be held liable for data, which might not be complete, accurate or up-to-date; nor for data which are from internet pages/sources on which Switzerland Global Enterprise or its network partners do not have any influence. The information in this report do not have a legal or juridical character, unless specifically noted.
Contents
4.5.1. Market Development ______29 1. FOREWORD______7 4.5.2. Main Players ______31 2. EXECUTIVE SUMMARY ______8 4.5.3. Distribution Channels ______32 4.5.4. Opportunities for Swiss Companies ______32 3. MARKET OVERVIEW ______9 3.1. Market Trends ______10 5. HEALTH FOOD MARKET ______34 3.2. Market Potential for Swiss Products ______11 5.1. Baby and Infant Food ______34 5.1.1. Market Development ______34 4. FOOD AND BEVERAGE MARKET ______12 5.1.2. Main Players ______35 4.1. Convenience Food ______12 5.1.3. Distribution Channels ______36 4.1.1. Market Development ______12 5.1.4. Opportunities for Swiss Companies ______36 4.1.2. Main Players ______14 5.2. Organic Food ______37 4.1.3. Distribution Channels ______15 5.2.1. Market Development ______37 4.1.4. Opportunities for Swiss Companies ______17 5.2.2. Main Players ______39 4.2. Dairy Products ______18 5.2.3. Distribution Channels ______41 4.2.1. Market Development ______18 5.2.4. Opportunities for Swiss Companies ______42 4.2.2. Main Players ______19 5.3. Dietary Supplements ______43 4.2.3. Distribution Channels ______20 5.3.1. Market Development ______43 4.2.4. Opportunities for Swiss Companies ______21 5.3.2. Main Players ______44 4.3. Soft Drinks ______21 5.3.3. Distribution Channels ______44 4.3.1. Market Development ______21 5.3.4. Opportunities for Swiss Companies ______45 4.3.2. Main Players ______23 5.4. Sports & Fitness ______46 4.3.3. Distribution Channels ______23 5.4.1. Market Development ______46 4.3.4. Opportunities for Swiss Companies ______24 5.4.2. Main Players ______47 4.4. Alcoholic Beverages ______25 5.4.3. Distribution Channels ______47 4.4.1. Market Development ______25 5.4.4. Opportunities for Swiss Companies ______48 4.4.2. Main Players ______26 4.4.3. Distribution Channels ______27 6. FAIRS AND ASSOCIATIONS ______49 4.4.4. Opportunities for Swiss Companies ______28 6.1. Food Fairs ______49 4.5. HoReCa (Hotel, Restaurant, café) ______29 6.2. Associations ______51
7. REGULATORY ENVIRONMENT ______52 9.3.3. Success story – SwissTaste ______59 7.1. Authorities ______52 9.3.4. Suggestions for market entrants – SwissTaste __ 59 7.2. Food Safety ______52 10. EXPORT CHECKLIST ______60 7.2.1. Regulation Specific to Healthy and Organic Food 53 7.2.2. Regulation Specific to Genetically Modified 11. APPENDIX ______62 Organism ______53 11.1. Cross-border e-commerce of Bonded Warehouses 62 7.3. Labeling Requirements ______53 11.2. Cross-border e-commerce in Bonded Logistics Parks 7.3.1. Mandatory Labelling Items of Pre-packaged Food 53 and Free Trade Zones ______62 7.3.2. Requirements Specific to Nutritional Labelling _ 54 11.3. Potential importing partners for China ______63 7.3.3. Requirements Specific to Baby Food Labelling __ 54 11.4. Local taxation and levies on alcoholic beverages in 7.3.4. Requirements Specific to Organic Labelling ____ 54 China ______64 11.5. Reference ______65 8. SINO- SWISS FTA ______55 8.1. Import Procedures ______55
8.2. Import Duties ______56
9. SWISS COMPANIES IN CHINA ______57 9.1. CHEERS Wines ______57 9.1.1. About CHEERS Wines ______57 9.1.2. Road to success – CHEERS Wines ______57 9.1.3. Success story – CHEERS Wines ______57 9.1.4. Suggestions for market entrants – CHEERS Wines57 9.2. Emmi ______58 9.2.1. About Emmi ______58 9.2.2. Road to success – Emmi ______58 9.2.3. Success story – Emmi ______58 9.2.4. Suggestions for market entrants – Emmi _____ 58 9.3. SwissTaste (Beijing)______59 9.3.1. About SwissTaste ______59 9.3.2. Road to success – SwissTaste ______59
THE CHINESE FOOD MARKET
4
List of figures
Figure 1. 1: Geographic distribution of disposable income of urban households ...... 10
Figure 4.1.1. 1: Convenience food market development in China 2009 – 2019E (in RMB bn) ...... 12 Figure 4.1.1. 2: Impulse and indulgence product market development in China 2009 – 2019E (in RMB bn)...... 13
Figure 4.1.3. 1: Convenience food distribution channel development in China 2012 – 2014 (in %) ...... 15
Figure 4.2.1. 1: Dairy products market development in China 2009 – 2019E (in RMB bn) ...... 18
Figure 4.2.3. 1: Dairy products distribution channel development in China 2012 – 2014 (in %) ...... 20
Figure 4.3.1. 1: Soft drinks market development in China 2009 -2019E (in RMB bn) – Off-trade ...... 22
Figure 4.3.3. 1: Soft drinks distribution channel development in China 2012 – 2014 (in %) ...... 23
Figure 4.4.1. 1: Alcoholic beverages market development in China 2009 - 2019E (in RMB bn)...... 25
Figure 4.4.3. 1: Alcoholic beverages distribution channel development in China 2012 – 2014 (in %) ...... 27
Figure 4.5.1. 1: Consumer foodservice sales by location 2009 - 2019E (in RMB bn) ...... 29 Figure 4.5.1. 2: Consumer expenditure on hotels and catering by income 2009 – 2019E (in RMB bn) ...... 30 Figure 4.5.1. 3: Hotel price platform - retail value breakdown 2011 – 2013 (in %) ...... 30
Figure 5.1.1. 1: Baby and infant food market development in China 2009 – 2019E (in RMB bn) ...... 34
Es konnten keine Einträge für ein Abbildungsverzeichnis gefunden werden. Figure 5.1.3. 1: Baby and infant food distribution channel development in China 2012 - 2014 (in %) ...... 36
Figure 5.2.1. 1: Organic packaged food market development in China 2009 – 2019E (in RMB bn) ...... 38 Figure 5.2.1. 2: Development of number of organic certifications in China 2004 - 2013 ...... 38
Figure 5.2.3. 1: Organic packaged food distribution channel development in China 2012-2014 (in %) ...... 42
Figure 5.3.1. 1: Dietary supplement market development in China 2009 – 2019E (in RMB bn) ...... 43
Figure 5.3.3. 1: Dietary supplements distribution channel development in China 2012-2014 (in %) ...... 44
Figure 5.4.1. 1: Sports nutrition market development in China 2009 – 2019E (in RMB bn) ...... 46
Figure 5.4.3. 1: Sport & fitness distribution channel development in China 2012-2014 (in %) ...... 47
Table 4.1.2. 1: Main players in the convenience food industry in China (excluding dairy players) ...... 14 Table 4.1.2. 2: Main foreign players in the impulse and indulgence market in China (excluding dairy players) ...... 15
Table 4.1.3. 1: Largest food retail stores in China in 2014 ...... 16
Table 4.2.2. 1: Largest domestic players in the dairy industry in China ...... 19 Table 4.2.2. 2: Largest foreign players in the dairy industry in China ...... 20
Table 4.3.2. 1: Largest players in the soft drinks industry in China ...... 23
Table 4.4.2. 1: Most popular alcoholic brands in China (according to volume) ...... 26 Table 4.4.2. 2: Most popular imported wines in China ...... 27
Table 4.5.2. 1: International enterprises in the hotel sector ...... 31 Table 4.5.2. 2: International enterprises in the chained consumer foodservice sector ...... 31
Table 4.5.3. 1: Consumer foodservice by independent vs chained: units/outlets 2013 ...... 32
Table 5.1.2. 1: Largest players in the baby and infant food industry in China ...... 35
Table 5.2.2. 1: Largest domestic players within the organic food industry in China ...... 40 Table 5.2.2. 2: Largest foreign players within the organic food industry in China ...... 40 Table 5.2.2. 3: Local producers of organic food products in China...... 41
Table 5.3.2. 1: Largest players in the dietary supplements industry in China ...... 44
Table 5.4.2. 1: Largest players in the sports and fitness nutrition industry in China ...... 47
Table 8.2. 1: Chinese customs duties on major food products (goods exported from Switzerland to China)...... 56
Table 11.3. 1: Local distributors and importers ...... 63
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1. Foreword
Dear Reader,
Thanks to its speedy growth in recent years, China has become the world’s largest consumer market for food and beverage (F&B). At the same time, the demand for imported food has also seen a remarkable development. As consumers increasingly turn towards higher-valued products, the Chinese food market offers excellent opportunities for foreign foodstuffs companies. Switzerland and Swiss products enjoy an excellent reputation in China as the Swiss brand stands for a high standard of quality and safety that is highly valued by a quickly growing number of middle class consumers.
Whereas China's affluent urban consumers appear to be the most inclined to pay premium prices for healthy food, even lower-income Chinese preferences are shifting. 84% of Chinese consumers are concerned about food safety according to a recent research. This is reflected in soaring demand for products such as imported fresh milk, and increasing awareness for healthy foreign foodstuffs. As a consequence, China's organic food market grew more than 10-fold in the past six years. While nutritious and safe food is the dominant theme today in China's F&B sector, other noteworthy trends include convenience food, online shopping, and lifestyle products.
This “Food Report with focus on healthy products” offers an overview of possibilities, be it for established Swiss brands or new niche products. For a successful entry into the market you will need to partner with local distributors. The Swiss Business Hub (SBH) is familiar with the market and has a well-established network in China. Are you looking East? Then let us discuss and evaluate the chances of your company’s success in the region.
Alain Graf Wolfgang Schanzenbach Head of Swiss Business Hub China Regional Director APAC
Swiss Embassy in the People’s Republic of China Switzerland Global Enterprise Sanlitun Dongwujie 3 Stampfenbachstrasse 85 100600 Beijing 8006 Zurich [email protected] [email protected] Phone +86 10 8532 7532 www.eda.admin.ch/beijing s-ge.com
THE CHINESE FOOD MARKET 7
2. Executive Summary
China has experienced remarkable economic growth in the last two to three decades, which has resulted in a steady increase in consumer’s income. China now ranks amongst the top 80 countries in the world in terms of GDP per capita. By 2016, 340 million Chinese are expected to belong to the middle class, more than the population of Western Europe, thus creating a huge market for all sorts of food and beverage products. Coupled with increasing urbanisation and internationalisation, this rising middle class will have a great impact on the changing food culture in China, mainly in terms of increased consumer spending, shift in dietary patterns and raised health awareness, and sophistication regarding food ingredients.
Seeing the vast opportunities in the China food market, this report aims to provide an overview of the current situation, as well as future trends for certain food categories, with a special focus on exploring potential opportunities for Swiss enterprises and entrepreneurs.
This report covers the following nine sectors of the China food market:
Food & Beverage Market Convenience Food Dairy Products Soft Drinks Alcoholic Beverages HoReCa Healthy Food Market Baby & Infant Food Organic Food Dietary Supplements Sports & Fitness
Each sector is structured according to the below four segments:
Market development Main players Distribution channels Opportunities for Swiss companies
The content of this report will provide Swiss companies with an overview of the Chinese food market and a basis to formulate a suitable entry and/or expansion strategy for, not only China, but the greater Asia-Pacific market.
THE CHINESE FOOD MARKET
8 3. Market overview
Increasing income and urbanisation have been the most significant drivers for change in China’s food system. China is nowadays considered one of the largest consumers of food and beverage, catering to more than 1.36 billion citizens and 117 million tourists in 2014, traveling to China from all over the world. Overall, food consumption in China is expected to continue growing at a compound annual average growth rate (CAGR) of 9.4% between 2013 and 2018.1 To fulfil the need of its people, China has naturally transformed into one of the largest producers of food and beverages worldwide.
Besides an increase in the sheer amount of food and beverages produced and consumed, the quality and range of products available in China are changing. The rising middle class, and hence increased disposable income and spending patterns are adding sophistication to the market with consumers’ appetite being whetted. In order to match consumer’s needs, retailers are using a greater number of purchasing channels and providing availability of a richer array of products. Nowadays, Chinese consumers have more choice than ever which has resulted in a general change of diet. Many Chinese are slowly moving away from their traditional diets of rice, noodles, vegetables, and small portions of meat, towards a more Western style of eating, including more meat and dairy products.
Along with a changing diet, Chinese consumers are placing more importance on healthy, nutritious, and higher quality food. This trend is seen for both rural and urban households, which are willing to buy products that are branded as “healthy” even if prices are higher. Recent food scandals have increased consumer awareness and have facilitated the popularity of healthy and functional foods, whereby consumer confidence is however only slowly recovering, since the Chinese government only recently increased its attention to food regulations and safety, and it may take some time before consumers will be able to fully trust the legal framework and the influence of the state.
In order to fulfil the growing consumer demands, China is still relying on importing food and beverage products from overseas, especially for sensitive and scandal-tainted categories, such as baby food, dairy, and meat. Besides food scandals, high levels of pollution in China have also fuelled the common belief to mistrust local brands. According to the Ministry of Environmental Protection, up to 40% of rivers and 20% of farmland in China are polluted. Until the country is able to tackle its environmental issues, the Chinese consumers that can afford it will keep favouring imported foods and rely on internationally recognised food standards. In addition, China is struggling to meet its domestic food demand as production is lagging and the supply of basic food is expected to be insufficient by 2050. The current situation of the Chinese food market can therefore offer many opportunities for international food producers, especially from Switzerland. On the one hand, Swiss companies are able to leverage on the benefits from the signed Free Trade Agreement (FTA) between Switzerland and China.2 On the other hand, increase in urban households and the rising middle class in China, based on their purchasing power and patterns (see Figure 1.1) , and food trends, like organic and gourmet foods, such as wine, coffee, cheese or chocolate, provide a lucrative market for many Swiss companies.
Even though there is demand for international companies and imported products, it should not be neglected that due to the projected slowdown of the Chinese economy, the food and beverages market in the country is expected to grow at a slower pace compared to its historical levels. Other factors that might have a relevant impact on the market development are: growing price pressure, saturated markets for many basic foods, more stringent regulations on imports, and the slow recovery of consumer confidence regarding food safety regulations.
1 Compound annual growth rate (CAGR) is the average rate of an investment’s growth over a variable period of time. 2 Please refer to Chapter 8 “Sino-Swiss FTA” for more information on the Free Trade Agreement between Switzerland and China THE CHINESE FOOD MARKET
9 Figure 1. 1: Geographic distribution of disposable income of urban households
Note: Colour based on amount of disposable income 2013 per capita disposable income of urban households as % of national average (RMB 26,565 per capita in 2013) and proportion of urban population Source: China Yearbook 2014, Fiducia Analysis
3.1. MARKET TRENDS
Urbanisation and rising middle class: In the last 35 years the scale of urbanisation in China has been unprecedented with nearly 54% of the nation’s total population becoming urban residents. Despite a relatively stable total population of 1.36bn, urban population is steadily increasing with 3% annual growth. Supported by higher disposable incomes, this leads to increased prosperity and thus a change in the average consumers’ lifestyle, shopping habits and consumption patterns. Moreover, with the prevalence of more sedentary lifestyles, there is also a change in metabolic and nutrient requirements, forcing the market to adjust. Demand for convenience: Particularly urban citizens spend a larger portion of their income on buying processed and packaged food and beverages due to more stressful lifestyles that demand a higher level of convenience. This trend can also be witnessed in a rise in dining out based on the possibilities and urges to try new products and dishes and the demand for more variety. Food safety: The increasing regulatory scrutiny and new laws of China’s food market will on the one hand ensure better food quality and eliminate corrupt food producers but, on the other hand make it harder for foreign players to introduce new products into the market. A key challenge for the government will be to manage food safety across the entire supply chain while ensuring regulatory compliance and environmental sustainability. Health consciousness: Historically Chinese people have put much emphasis on healthy and nutritious food. The many recent incidents revolving around food safety and quality have only added to this health awareness. As a result, food manufacturers have increasingly capitalised on the trend towards healthier nutrition and the fact that Chinese consumers have become increasingly demanding in terms of product offerings. Nowadays, the average Chinese consumer has a very developed understanding of food ingredients. Therefore, food quality and selection of ingredients will have a great impact on the dietary choices of Chinese consumers. Growth of e-commerce: Internet retailing has been growing at a rapid pace, currently accounting for 6-7% of total retail sales in China, which is higher than in many European countries. This trend is supported by savvy online shoppers, successful online shopping drives, such as Singles Day, and rapid development of mobile applications and social media in China. The most well-known online food B2C marketplace is Yihaodian.com, which is majority owned by Walmart and also the first online supermarket in China established in 2008. Other e-commerce giants, such as T-mall, Dangdang, and Jingdong, have currently also included food products on their platforms. Online supermarkets are a major challenge to traditional retail outlets, with 60% of online sales already cannibalising traditional brick-and-mortar sales and taking up almost every aspect of the food and beverage sector including fresh produces and fruits. Moreover, online platforms often provide lower prices than many physical stores, convenient payment options, real-time online sales support, and home
THE CHINESE FOOD MARKET
10 delivery. In 2013, China already overtook the US as the world’s largest e-commerce market and is forecasted to become the largest retail market in the world by 2018.3 Adoption of Western foods: Chinese taste is changing and adopting more Western-style foods. With the success of international food chains like McDonalds or Starbucks, Chinese people developed a taste for Western products very early on. Through consumer education and sophistication, the trend is moving away from these fast food chains towards more “status” affiliated product groups, like imported wine, coffee, or confectionary. Chinese consumers are also more and more interested in lifestyle trends from around the world. Wine, for example, is already seen as a fashionable drink for China’s elite.
3.2. MARKET POTENTIAL FOR SWISS PRODUCTS
Private labels: As the market for imported food continues to grow, there will be new opportunities for new, mid-range brands, in addition to the well-known commercial brands. Switzerland especially has a wide range of private labels that are already well-established locally. Introducing these traditional, family-run businesses with a recognisable brand to the Chinese market could provide growth potential beyond their traditional markets. Gourmet foods: The niche segment of “gourmet” or speciality stores with imported products from Europe is expected to grow in the coming years. Upmarket supermarkets, like Ole or BHG, have already stocked many high-end specialty goods. There is however potential for smaller individual stores, catering to a small group of high-end customers with demand for imported and traditional speciality food, such as Swiss cheese or chocolate. Organics: Chinese place increased attention to health, whereby food produced organically is especially popular. Key words such as “eco-friendly”, “organic”, “natural”, or “healthy” are well-received by consumers. Launching products with different health elements, providing recognised official organic certifications and detailed information regarding nutritional value are expected to increase sales. Dairy: Not traditionally part of the diet in many regions in China, milk and yoghurt are increasingly considered essential to the diet of children. Domestic food safety scandals and continuing concern about the domestic dairy industry have created demand for high-quality, reliable dairy foods, particularly from overseas markets. Especially milk, milk powder, yoghurt, cheese and butter have seen a rise in demand in recent years. Also the newly introduced Sino-Swiss FTA has introduced beneficial regulatory environment for importing Swiss dairy. From July 1, 2014 onwards, import tariffs for most milk products exported to China will disappear within a decade. Cheese: Swiss cheese is famous worldwide and is reported to increase in demand over the next years. Chinese consumers are already slowly recognising the nutritional value of cheese and are also adjusting to the unfamiliar “pungent” smell. Coffee: Coffee, historically seen as a luxury food items, is already a part of the daily diet of most urban citizens. Starbucks or Costa Coffee have positioned themselves in the Chinese market as the go-to coffee provider. There is however still a niche market for premium coffee beans. Chocolate: While chocolate still lacks a retail dining culture, it is more naturally compatible with the Chinese taste and more suitable for gift giving compared to coffee. Even though the government has been cracking down on the gift giving culture amongst officials, nicely packaged chocolate will show future growth potential within the retail market. Also popular for social occasions, chocolate is already well-established and continues to be an essential part of the Chinese confectionary market. Especially a recognisable brand name, high quality and originality are the most efficient ways to set oneself apart from the competition, which serves Swiss chocolatiers well, since Swiss chocolate is already seen as a premium product worldwide. Beer: China has become the world’s largest beer consumer by volume. The market however is highly competitive, which makes it hard for international players to establish themselves. To compete with domestic players, foreign companies have built production sites in China and developed brands especially for the Chinese market. The microbrewery market has been growing recently making room for small beer companies to enter China. Wine: Wine in general plays a more important role in the Chinese diet, as it greatly represents Western drinking and eating habits. While there is still social status associated with drinking imported wine, local wine is gaining more attention. Domestic players however are no direct competition yet, as they still mostly cater to the lower price segment. In China, red wine is generally preferred, mainly due its broad choice and popularity, but also due to its proclaimed health benefits. It has been successfully marketed in China as a healthy alternative to Chinese white spirit (baijiu). Sparkling wine sales have increased amongst wealthy Chinese, especially served during special occasions. Market saturation is not yet considered a problem, as there is still significant potential in second and third-tier cities.
3 Please refer to Appendix 12.1 and 12.2 for more information on cross border e-commerce trade THE CHINESE FOOD MARKET
11 4. Food and Beverage Market
4.1. CONVENIENCE FOOD
4.1.1. Market Development
Urbanised lifestyle and rising income are fuelling the growth of China’s convenience food market, where Chinese consumers are searching for convenient food with an increasingly stronger focus on health. Main target groups for convenience foods are urban households and then especially the younger generation. With the advancement along the value chain of processed foods, such as improvement in packaging technology, cold chain logistics as well as growth of the retail industry, food producers are able to meet the trends and higher needs of these consumers. Nowadays, almost all sorts of food products can be safely transported and shipped throughout the world. Moreover, products are sold in a broad range of distribution channels, including typical supermarkets, convenience stores or on online platforms.
Figure 4.1.1. 1: Convenience food market development in China 2009 – 2019E (in RMB bn)
2,028
1,409 1,272 1,154 1,034 905 805
Notes: Meal Solutions include: Ready meals, canned/preserved food, dessert mixes, dinner mixes, chilled processed food, sauces and condiments and soup / Impulse and Indulgence include: Snack bars, ice cream, biscuits, pastries, cakes, sweet and savoury snacks and confectionary / Nutrition and Staples include: bread, breakfast cereals, dairy, meal replacement, oils and fats, baby food, spreads, pasta, noodles and rice Sources: Euromonitor (2015), Fiducia Analysis
According to estimates by Euromonitor International, the Chinese market for packaged and convenience food like ready-made meals, snacks and drinks, will surpass America’s by 2015. On a per capita basis, the average Chinese resident will however only eat about a quarter as much convenience food as an American citizen. Still, Chinese consumption of convenience food will have grown around 75% from 2009 figures.
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12
Figure 4.1.1. 2: Impulse and indulgence product market development in China 2009 – 2019E (in RMB bn)
506
388 353 322 293 260 234
Sources: Euromonitor (2015), Fiducia Analysis
Highlights: Meal Solutions Busy lifestyles have increased the demand for pre-prepared meals due to the need for more convenience. This trend is strongest among working adults, particularly those in single person households. Preferred foods are frozen Chinese-style products, such as dumplings, wontons or buns, in part due to improved cold chain logistics. For younger generations, ready meals, noodles and rice that are pre-cooked and only require reheating, are a good and cheap alternatives to home cooking or dining out, especially for single households. Western-style prepared meals are still less favoured but see an uptake with Chinese higher-income consumers. Cake mixes are still a novelty in China as most traditional households do not have a proper oven. Chinese are however slowly discovering home baked products and bakery or cake mixes and are interested in learning the art of baking, which will have a positive impact on prepared mixes in the future. For the time being, Chinese are still preferring cakes and bakery products from professional bakeries, either from small artisanal outlets or prepacked products from grocery stores. Impulse and Indulgence Products Chinese costumers are expected to reduce their consumption of impulse and indulgence products, like snack bars, pastries and ice cream, and shift more of their expenditure to essential goods. In addition, the growing interest in healthy eating and the rising concerns about being overweight and obesity-related diseases such as diabetes are also set to negatively impact growth for the future. Chocolate contributed revenues of USD 2.7 million in 2014, with foreign brands still dominating the market and the top 5 multinational companies (Mars, Cadbury, Nestlé, Hershey, and Ferrero Rocher), accounting for the majority of sales. Among those, Swiss giant Nestlé holds more than 10% share of retail value sales in 2014. As the current per capita consumption of chocolate in China is only a tenth of that in Switzerland and major chocolate giants are making an entry into China’s vast market, the chocolate confectionary market is expected to grow by two-thirds by 2019. Main players are projected to focus on increasing brand awareness in tier-one cities while also looking to expand into lower-tier cities where there is lower brand presence. Even though dark chocolate has widely being recognised as healthy and known to lower both blood pressure and cholesterol, many consumers still find its bitter flavour to be unpalatable, which is for now still constraining sales growth in this area but is expected to be adopted as well given the increased importance placed on healthy and Western foods.
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13
Nutrition and Staples Wheat-based products, such as breakfast cereals and muesli, are expected to gain share in the future. Especially products targeted at children with functional ingredients and attractive packaging are forecasted to gain high demands within the nutrition/staples category. For adults, single-cup packs will see growing popularity offering a convenient and healthy breakfast choice.
4.1.2. Main Players
Brands of multinational players are often more popular than those of domestic players for convenience food in first and second tier cities, supported by their strong penetration in modern grocery retailers as well as the increased demand for Western-style foods. The Chinese-style convenience food market is almost solely dominated by local players.
Table 4.1.2. 1: Main players in the convenience food industry in China (excluding dairy players)
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE 2014*
Wilmar International Singapore 3.5% Koufu, Arawana, Wonder Edible oils, palm oil, Ltd Farm, Golden Carp, Olivoila rice, flour, mixed grains, noodle
Ting Hsin International China / 2.8% Cheng I, Master Kong Instant noodles, oil & Group Taiwan fats
Nestlé SA Switzerland 2.7% KitKat, Maggi, Gerber, Water, chocolate Nespresso, Nescafe confectionary, baby food, coffee, ice cream Shineway Group China 2.3% Shuanghui Frozen meat, canned/ (Shuanghui) processed food
Want Want Holdings China 2.3% Want Want, Laoweng, Mr Rice crackers, dairy, Ltd Bond, Hot Kid, Snack bean coffee, milk, soft drinks, ice pop, candy, biscuit Hangzhou Wahaha China 1.9% Wahaha Milk drinks, soft drinks, Group bottled water, tea, porridge
Bright Food Group China 1.8% Bright, Big White rabbit, Dairy, candy, ice cream, Aquarius, Aiseng sugar, rice wine, cereals,
rice
COFCO China 1.4% Fortune, Lohas, Le Conte, Kitchen food, snacks,
Cereal Way, Great Wall beverages, instant food,
wine, dairy
Notes: *Global Brand Owner (GBO) retail value shares of packaged food Sources: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
14 Table 4.1.2. 2: Main foreign players in the impulse and indulgence market in China (excluding dairy players)
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE 2014*
Wrigley Confectionary USA 2.8% Extra Chewing gum Mondelez China USA 2.2% Oreo, Toblerone, Cadbury Cookies and crackers, chocolate
Mars Foods (China) USA 1.8% Dove, Skittles, M&M, Chocolate, gum, candy Snickers, Wrigley
Perfetti Van Melle Italy 1.0% Alpenliebe, Mentos, Chupa Gum and candy Confectionary Chups
Pepsi Co China USA 1.0% Lay’s Chips
Nestlé SA Switzerland 0.8% KitKat, Crunch Chocolate
Ferrero China Italy 0.5% Ferrero, Kinder Chocolate
Shanghai Hershey Food USA 0.5% Hershey’s Chocolate Co Ltd
Notes: * National Brand Owner (NBO) retail value shares of impulse and indulgence food Source: Euromonitor (2015), Fiducia Analysis
4.1.3. Distribution Channels
Supermarkets and hypermarkets are still the prime sales channels for convenience food, benefitting from providing a wider product range to their customers. Meanwhile, as more online shops emerge, consumers are also increasingly opting for online shopping due to heavy price competition and increased convenience, such as home delivery. However with Chinese consumers focusing on product quality, ingredients and origin, food, drink and tobacco specialty stores are gaining market share in certain product groups, especially for baked goods or ice cream.
For Impulse and Indulgence products, independent small groceries remain the main distributor channel, mainly due to its wide-spread presence across the country and convenient locations facilitating impulse purchases. By 2014, many independent small groceries however lost market share to larger modern grocery retailers such as hypermarkets or supermarkets because of their broader selection, volume expansion, low pricing, and increased promotions.
Figure 4.1.3. 1: Convenience food distribution channel development in China 2012 – 2014 (in %)
2014 39% 20% 18% 8% 7% 3% 3% 3% 1%
2013 39% 19% 19% 8% 6% 2% 3% 3% 1%
2012 39% 19% 20% 9% 6% 2%3% 2% 1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Supermarkets Hypermarkets Independent Small Grocers Other Grocery Retailers Food/ Drink / Tobacco Specialty Stores Internet Retailing Convenience Stores Non-Grocery Retailers Others
Sources: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
15
Table 4.1.3. 1: Largest food retail stores in China in 2014
NAME ORIGIN NO. OF SALES 2014 (YOY STORE BRANDS STORES SALES GROWTH)
DOMESTIC PLAYERS
China Resources Vanguard, Co. China 4,127 RMB 104.0bn (12.6%) Tesco (JV), Suguo, Ole, BLT,
Ltd. Voila, Pacific Coffee
Lianhua Supermarket Co., Ltd. China 4,325 RMB 61.7bn (-10.3%) Hualian Supermarket, Century (Bailian Group) Mart, Quik
Yonghui Superstores (Dairy China 337 RMB 43.0bn* (22.6%) Yonghui Superstores
Farm International 19.9% stake)
Dashang Group China 200 RMB 37.7bn* (-4.6%) Dalian Market, Xinmate
NSG (Group) Co., Ltd. China 2,566 RMB 29.4bn (-2.1%) NGS, Alldays, Kedi
Beijing Wumart Stores, Inc. China 565 RMB 22.0bn (11.3%) Wumart
Beijing Hualian Hypermarket China 145 RMB 16.6bn* (8.8%) BHG Lifestyle, Market Place Co., Ltd.
FOREIGN PLAYERS
Kang Cheng Investment (RT- Taiwan 304 RMB 85.7bn (6.9%) RT-Mart
Mart Shanghai)
Wal-Mart (China) Investment USA 411 RMB 72.4bn** (0.2%) Wal-Mart Co., Ltd.
Carrefour China Inc. France 237 RMB 45.7bn (-2.1%) Carrefour
Metro Jinjiang Cash& Carry USA 81 RMB 18.9bn (8.0%) Metro
Lotte Mart Korea 123 RMB 18.0bn* (16.1%) Lotte Mart
Auchan (China) Investment France 68 RMB 16.5bn (5.1%) Auchan hypermarket
A.S. Watsons & Co., Ltd. Hong Kong 2,088 RMB 16.4bn* (14.0%) Watsons
(Guangzhou)
C.P. Lotus Corporation Thailand 77 RMB 13.8bn (0.2%) Lotus Supermarket
Family Mart Co., Ltd. Japan 1,281 RMB 4.2bn (13.5%) Family Mart
Notes: *Estimated sales figures, **Wal-Mart sales figures not including Yihaodian.com Sources: China Chain Store and Franchise Association (CCFA), Fiducia Analysis
THE CHINESE FOOD MARKET
16 4.1.4. Opportunities for Swiss Companies
Focus on e-commerce shopping: As online shopping continues to gain popularity among Chinese consumers, companies that have previously relied solely on traditional retail channels will need to reconsider their strategies to promote their products online. Online shoppers are also mainly young urban and wealthy Chinese citizens, which is the target group for imported and premium products. Swissmooh, a Swiss dairy company, and CHEERS Wine, a Swiss import wine wholesaler, for example, are already successfully providing their products on Taobao.com or social media platforms, such as Wechat. Another benefit is that the online channel is highly attractive for start-up companies. In the early stages of development, many small independent brands choose online stores as their exclusive distribution channel because through online sales they can reach as many consumers as possible at the lowest cost.
“Premiumisation”: Chinese consumers that can afford it are increasingly longing for premium, luxury, and specialty items, in terms of quality and taste but also packaging. There is a growing market in China for high quality products offering new and exciting flavours, which can be satisfied with imported products. Particularly within the chocolate industry, Swiss chocolatiers have an advantage over local ones due to the credibility and trust that foreign brands embody which local competitors cannot copy. Swiss chocolatiers especially pride themselves in their century-long experience that enabled them to arrive at the quality that consumers enjoy today. Chinese competitors will lack this expertise in the production process, as well as selection of raw materials. Nestlé once tried mass producing their KitKat bars at a local factory in Tianjin. As markets did not pick up as expected, Nestlé decided to lower their cost by using a cheaper substitute for cocoa butter. The resulting product however could not compete with the quality of their competitors which meant great loss of market share. Chinese consumers favour international brands because of their premium quality and are very well prepared to also pay a premium. It is therefore unrealistic for foreign companies with higher operating costs to compete with local companies on price.
“Localisation” and introduction of new “Chinese” flavours: In order to remain successful in a highly competitive market, companies need to constantly introduce new flavours and products to satisfy the changing needs of their customers. In China, this means understanding the Chinese culture and taking this into account when introducing new products. Foreign players are recommended to take inspiration from traditional and local ingredients, such as red dates, goji berries or sesame, by introducing products with a “Chinese twist”. Burger King’s black burgers, which was a local adaption of the Cheeseburger for the Asian market, is a good example for successful localisation. Swiss companies that are already in China have a chance to make use of the existing awareness and positive perception towards available products in China and translate those to new products, thus making it easier to offer new varieties and flavours.
Multitier market strategy: With advancing supply chains, logistics and infrastructure into lower-tier cities, companies have an opportunity to introduce their products to retail stores in emerging second- and third-tier cities. Successful companies are providing to China’s multitier market through selectively distributing their products according to the individual consumers’ taste and their ability to buy the product. Hence, one can provide product offerings based on size (small and large-sized packaging), as well as, of course, price. Especially for the vast chocolate market in China and the growing saturation of first-tier cities, a strategic multitier strategy will be a great value driver for international companies in the coming years.
THE CHINESE FOOD MARKET
17 4.2. DAIRY PRODUCTS
4.2.1. Market Development
Traditionally, dairy has not been a major component of the Chinese diet because of diverging cultural preferences and the prevalence of lactose intolerance among Chinese citizens. Over the years however, dairy consumption has shown an upward trend, as Chinese children are being raised on dairy, thereby changing their capability to digest lactose. The government’s efforts to promote dairy as a major source of calcium and protein has had a big influence on intake. Therefore, dairy consumption has become increasingly common in urban areas; in rural China it still remains relatively low. Milk production in China reached 40.7 million tonnes in 2014, growing by 5% from 2013, and is expected to surpass 47 million tonnes by 2019, placing China’s manufacturing market ahead of major European dairy producers such as France or Germany. But the country’s self-sufficiency has been declining over the years, with high milk consumption of approximately 12.2 kg per capita, which has led to an increase of China’s milk import, growing with 78% in 2014, and making it the world’s largest dairy importer. China’s dairy consumption on a per capita basis is, however, still modest with 19 kg per year in 2014, only half of the average in Asia and one third of the world average. Liquid milk represents the largest share with 70% of new dairy sales and posting the highest growth rate. Cheese on the other hand is still representing less than 1% of the total dairy market. As a reference, China’s cheese consumption per capita in 2014 is around 0.23kg compared to 2.3kg per capita in Japan and 17.6kg per capita in the EU.
Figure 4.2.1. 1: Dairy products market development in China 2009 – 2019E (in RMB bn)
514
348
302 263 232 196 170
Source: Euromonitor (2015), MarketLine, Fiducia Analysis
Highlights: Currently food quality control is still conducted in-house by the milk processing companies rather than by independent third parties. This means that the systems remains susceptible to corruption and processors themselves are able to set their desired price based on own statements of quality. End-consumer prices are thus rarely linked to the farmer‘s raw material prices, which forces the smaller and less powerful ones out of business. Chinese companies have also suggested to introduce the US- standardised “grade A milk system“ to China as a means to increase quality control. Ever-growing demand for milk products in China and the suspicion against locally produced milk both create opportunities for foreign brands. Many domestic farmers are already fearing a loss of their domestic market shares due to the recent removal of the EU milk quota system, which had restricted the milk output of European farmers for more
THE CHINESE FOOD MARKET
18 than 31 years. Additional factors that will have an effect on domestic production are higher labour costs and reduced supply of raw milk, as a result of small-scale farmers leaving the business, a drop in breeding efficiency and the potential spread of cattle diseases and epidemics due to less sanitary breeding environment and less efficient disease control in some parts of the country. Liquid milk still plays a fundamental role, accounting for more than 70% of China’s total dairy market. However, due to the economic downturn, sluggish demand was seen in the previous years. Chinese consumers are beginning to favour pasteurised milk for more nutritional value and perceived better flavour over Ultra Heat Treated milk (UHT). It is also a growing market for domestic milk producers, who are trying to promote pasteurised milk in order to keep the supply local. UHT products, however, are still expected to dominate the market for a number of years as, for example, raw milk safety standards in China are still less strict than the international norm and consumers are still afraid of food borne illnesses often associated with pasteurised milk. While Chinese consumers increasingly prefer products with nutritional value and perceived abilities to improve digestive and the immune systems, such as pro/pre biotic and wellness yoghurts, the impact on health through dairy consumption is still varied. Certain health benefits might be undermined by increasing consumption of fatty and processed dairy, such as cheese, butter, sugary milk drinks, and ice cream. Moreover indirect health problems might arise with increased greenhouse emissions and other forms of pollution during the dairy manufacturing process. Development of milk sources and cold chain logistics will have a positive impact on dairy sales throughout the country, and especially in lower tier areas. In these markets however, domestic players will for now retain an upper hand as they already have a distribution network in place or are already located within second and third tier markets. While China is home to only a few large dairy companies and entry barriers are high, they are better equipped to service these markets than new foreign players due their existing network and still insufficient infrastructure in these areas.
4.2.2. Main Players
During the last centuries, dairy output and fierce competition has increased among dairy companies. Major dairy farms started consolidating smaller dairy processors and the market was dominated by a couple of large dairy companies, like Yili, Mengniu and Bright, some of which rank among the top 20 largest milk producers in the world. In order to keep up with the increased price pressure, firms started to alter or add substances to keep up the volume sold, which ended up in nation-wide scandals, such as the infamous 2008 melamine scandal involving the Sanlu Group. In order to regain consumer confidence, the government demanded further consolidation of the market which was believed to enhance quality and balance pricing as well as provided strategic subsidies to increase output. Nowadays the top three Chinese dairy companies, Yili, Mengniu and Bright, take up more than 50% of the market share of liquid milk, whereby foreign brands are still popular within the powdered milk and infant formula market.
International companies are expected to start investing in JVs with Chinese players in order to leverage on domestic supply chains and distribution networks, whereas Chinese companies are increasingly investing in processing facilities abroad to secure their raw milk supply and benefit from overseas food safety reputation.
Table 4.2.2. 1: Largest domestic players in the dairy industry in China
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE 2014
Inner Mongolia Yili China 25.0% Yili, Satine, Ice Factory Milk, ice cream, milk Industrial Group powder, yoghurt China Mengniu Dairy China 21.6% Xin Yang Dao, Just Yoghurt, Milk, ice cream, milk Sui Bian, Merla powder Hangzhou Wahaha China 8.3% Wahaha Milk and yoghurt drinks Group Want Want Holdings China 6.6% Wang Cai (Flavoured) milk
THE CHINESE FOOD MARKET
19 Bright Dairy & Food China 3.4% Bright, Ubest, Abioo, Milk, Yoghurt, milk powder Momchilosky Wondersun Dairy China 2.1% Wondersun Milk, milk powder Beijing Sanyuan Food China 2.0% Sanyuan, Ilactou Milk, milk, coffee powder, infant milk powder
Source: Euromonitor (2015), Fiducia Analysis
Table 4.2.2. 2: Largest foreign players in the dairy industry in China
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE 2014
Nestlé Switzerland 0.9% Nestlé Milk, infant formula
Danone France 0.3% Activa, Mizone, Dumex Yoghurt, infant formula Fonterra New Zealand 0.3% Anchor Milk, baby food Lactalis France 0.04% President, Celia, Lactel Milk, cream, butter, cheese FrieslandCampina Netherlands N.A. Campina, Friso Milk, cheese, infant food
Source: Euromonitor (2015), Fiducia Analysis
4.2.3. Distribution Channels
Dairy products are also facing an increasingly fragmented retail channel with the rapid rise of online retailers, which have been consistently gaining market share over the years. Especially Independent Small Grocers and Other Grocery Stores have witnessed a drop in market share.
Figure 4.2.3. 1: Dairy products distribution channel development in China 2012 – 2014 (in %)
1% 2014 38% 20% 16% 16% 6% 3%
1% 2013 39% 21% 17% 16% 4% 3%
1% 2012 39% 22% 18% 15% 3% 3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Supermarkets Independent Small Grocers Other Grocery Retailers Hypermarkets Internet Retailing Convenience Stores Other
Source: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
20 4.2.4. Opportunities for Swiss Companies
Leveraging on the Swiss image to import milk: The domestic tainted milk scandals have created rapidly increasing demand for high-quality dairy products, particularly for products from overseas. Especially imported milk therefore is seen as a safe choice and will also enjoy popularity in the future. Swiss brands like Emmi and Nestlé, even though they operate manufacturing sites within China, have the benefit of being regarded as especially nutritious and safe given Switzerland’s reputation for quality products. The Swiss dairy industry owes a great deal of its success to alpine pastures and its clean environment. Therefore, Swiss companies should leverage on this image and maintain marketing efforts focusing its remarkable natural scenery, wildlife, and the beauty of the Swiss Alps.
Educating the Chinese consumers: Cheese is still a niche market in China, not being part of the traditional Chinese diet, and still relatively alien to Chinese consumers. It is however becoming more popular amongst Chinese children, as their parents are gaining awareness of its nutritious value. With the efforts of the government, cheese is nowadays widely believed to support vital functions such as growth of children and preventing osteoporosis due to its high calcium content. To leverage on this growing trend, Swiss cheese producers should seize this opportunity to market their products and, importantly, also educate the average Chinese consumers. As Swiss cheese production can be very complex and there is a wide variety of different end-products in terms of ingredients, aging processes and origins, it can be marketed as a status and connoisseur product similar to wine. In combination with food education, there is thus a viable chance to change the Chinese consumer’s taste. Moreover, it is wise to introduce Swiss cheese as representative of Swiss culture and familiarise Chinese with traditional Swiss dishes, such as Raclette or Fondue.
Collaboration with the right Chinese partner: For producers with high-quality products and a limited supply, it may be more appropriate to work with a selected high-end retailer that has its own import and distribution system. Especially for exporters with large supply volumes, it is advisable to work with Chinese importer-distributors, such as the Beijing Milkyway Trade Corporation or grocery stores such as City Supermarket, because many retailers depend on them to identify new products and organise logistics, such as bulk importing, repacking, labelling, and distribution. These importers usually understand market demand better and have wider distribution networks. Moreover, dairy farmers should consider teaming up with local farmers to exchange knowhow and share facilities. Nestlé, for example, has just inaugurated the world's first dairy farming institute in Shuangcheng, Heilongjiang province, which serves as a platform to share technical knowledge between China and Switzerland and to educate young farmers. 4
Exporting know-how to China: Besides increasing its imports of dairy products, ingredients necessary for the production of dairy products, dairy cattle genetics, and breeding cattle are highly sought after in China. Swiss milk farmers produce high quality milk with low somatic cell counts and advanced processing technologies. Moreover, the milk quota in Switzerland has been abolished in 2014 and European-wide abolition followed in March 2015, which is expected to imply overcapacity and increase of pricing pressure. The Swiss and European milk market is already relatively saturated. Therefore, exporting high-quality dairy and milk as well as its technology overseas and entering into partnership with Chinese dairy farms might be a long-term solution.
4.3. SOFT DRINKS
4.3.1. Market Development
The soft drinks market in China is highly mixed with domestic and foreign producers both playing a vital role. Bottled drinking water, fruit juice, and carbonated soft drinks make up the top three categories of bottled soft drinks in China, with the share of carbonated soft drinks declining since 2002. Currently, carbonated soft drinks only account for 12% of the total market, dropping from levels of 29.8% in 2002. The main reason for the decline is the renewed focus on health of many Chinese citizens, which has restrained the purchase of carbonated drinks. Generally, China’s soft drinks industry is expected to enter a relatively mature stage and maintain an annual growth rate of around 8% in the coming years, lower than the historical average of 14% between 2009 and 2014, mainly due to the uncertain economic climate and weak consumer confidence. Throughout the year, different seasons also have an impact on the sale of soft drinks with increased purchase of chilled drinks in the summer months.
4 Please further refer to Appendix 12.3 for a list of potential partners in China THE CHINESE FOOD MARKET
21 Figure 4.3.1. 1: Soft drinks market development in China 2009 -2019E (in RMB bn) – Off-trade
653
451 405 347 315 271 236
Note: Off trade sales figures = Sales to food retailers (On trade = sales to HORECA) Sources: Euromonitor (2015), Fiducia Analysis
Highlights: Consumers in China continue to purchase soft drinks, especially premium products, as they are perceived to contain higher-quality ingredients, especially in areas such as juice and bottled water. Added vitamins or nutritional supplements, as well as a growing demand for plant-based ingredients, such as blueberry or guava, are gaining popularity due to their claim for health benefits. The carbonated drinks market remained highly consolidated with Coca-Cola dominating the market in 2014, but its market share is slowly declining. Consumers are moving away from unhealthy and sugary carbonated drinks towards bottled water, ready-to-drink (RTD) tea, (fresh) juices and nectar drinks. The market also shows increased purchases of sport drinks and energy drinks, which was primarily driven by sales efforts of Red Bull and Wahaha. Moreover iced and RTD coffee in China reported strong market growth for consecutive years, with the main players being international manufacturers, Nestlé and Uni-President. Instant coffee on the other hand, such as Néscafe, is losing popularity with Chinese consumers mainly due to increased availability of freshly-brewed coffee at cafés, and a growing group of coffee connoisseurs in China. In 2014, particularly newly introduced lemon-flavoured products were purchased within China. Both Coca-Cola and Aquarius introduced drinks with new lemon flavours in 2014 that witnessed high popularity among Chinese consumers and thus demonstrated a growing trend of consumers’ preference for light and fresh-tasting soft drinks. With improved standards of living, consumers are increasingly starting to install tab water purifiers in their homes, which to some extent is expected to replace bottled still water in the near future. Small sized packaging was introduced by many manufacturers to induce impulse consumption. For example, Huiyuan Juice, one of the largest privately owned juice producers, started promoting its 20cl carton packs of juices to the urban market, with Wahaha and Qili following this trend providing their drinks in smaller packaging sizes.
THE CHINESE FOOD MARKET
22 4.3.2. Main Players
Table 4.3.2. 1: Largest players in the soft drinks industry in China
COMPANY ORIGIN COMPANY BRAND MAIN CATEGORIES SHARE 2014*
Coca Cola (China) USA 14.0% Coca Cola, Sprite, Soft drinks, carbonated drinks, Beverages Minute Maid water, RTD coffee and tea Ting Hsin International China/ 12.0% Master Kong, Ting Asian specialty drinks, water, Group Taiwan Hsin carbonated and concentrated drinks Hangzhou Wahaha China 7.3% Wahaha, Future Carbonated drinks, water, tea, Future Cola Beverages Cola fruit juice, yoghurt drinks Yangshengtang Co. China 5.6% Yangshengtang Water, health products, soup drinks China Resources Hong Kong 5.0% C’estbon, Kirin Water, RTD tea, milk drinks, Enterprise alcoholic beverages Uni-President Taiwan 4.4% President, Chai Li RTD tea, milk, coffee, water, Enterprises Corp. Won, Dr. Milker juices
Note: *Company Shares Off-trade Volume Source: Euromonitor (2015), Fiducia Analysis
4.3.3. Distribution Channels
Independent small grocers and supermarkets continue to contribute to the growth of soft drinks in China, even though they have been losing shares over the years. On the other hand, hypermarkets and convenience stores are gaining grounds, as many small soft drinks companies are willing to launch their new products through convenient stores, like 7-Eleven or Family Mart.
Figure 4.3.3. 1: Soft drinks distribution channel development in China 2012 – 2014 (in %)
1%1% 2014 39% 34% 12% 8% 5% 1%
1%1% 2013 40% 34% 12% 8% 4% 1%
1%1% 2012 40% 34% 11% 8% 4% 1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Independent Small Grocers Supermarket Hypermarkets Other Grocery Retailers Convenience Stores Vending Internet Retailing Others
Sources: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
23 4.3.4. Opportunities for Swiss Companies
Small exclusive labels: There is sufficient room and opportunities for small companies to develop into the Chinese soft drinks market, operating on a regional level and supplying small market niches. The rapid development of the soft drinks industry has made it very attractive to new players. Switzerland has a small selection of local soft drinks producers that are not yet exporting beyond their borders but that could have the potential to win over Chinese consumers. For example, Switzerland’s national drink Flauder could provide a “light” drink alternative for the health conscious Chinese consumers, offering special flavours such as elder flower, quince rhubarb, or lemon balm. However, brand awareness is an important entry barrier in this sector and should be tackled very early on.
Product innovation: Success within the soft drinks market in China will depend on product innovation and upgrading of existing product lines as consumers become increasingly sophisticated, which in turn gives opportunity to introduce new and innovative flavours. Soft drink manufacturers are expected to invest more heavily in advertising and new product development, putting more emphasis on healthy concepts, such as drinks with added vitamins or other fortified supplements. Concepts like Fiji water, which is water directly bottled on the island of Fiji and taking advantage of the image of an unspoiled island, is already a popular choice for high-end customers. Thus, there is a market for Swiss companies to develop similar products and selling points, for example water derived directly from the Swiss Alps.
Leveraging on traditional drinks: As chocolate being one of the most famous foods in Switzerland, there is potential to leverage on the traditional chocolate product and introduce chocolate drinks. Chinese consumers are already accustomed to chocolate and it is expected that they could develop a more widely accepted taste in chocolate drinks. Swiss chocolate drink producers, such as Caotina, could develop further into this market and establish cafés focusing on drinking chocolate, milkshakes with chocolate as base ingredient or chocolate coffees.
Consolidation: Through mergers and acquisitions, multinational players are able to acquire control over domestic brands to strongly penetrate the territory and capture share in tier-two and tier-three cities without repositioning their own premium brands. Within the soft drinks market, many players have followed this strategy to gain control over domestic manufacturers, thereby boosting their presence in these regions, growing sales, and widening their distribution network. On the other hand, acquiring domestic producers can also help international players to broaden their product portfolio with products tailored to the palates of Chinese consumers.
THE CHINESE FOOD MARKET
24 4.4. ALCOHOLIC BEVERAGES
4.4.1. Market Development
Figure 4.4.1. 1: Alcoholic beverages market development in China 2009 - 2019E (in RMB bn)
1,727
1,361 1,280 1,119 1,074 918 803
Source: Euromonitor (2015), Fiducia Analysis
China provides a huge and steady-growing market for alcoholic beverages, considering it is the largest beer consumer in the world in terms of volume. 2013 and 2014 brought along higher than usual temperatures nationwide which accelerated the sales growth of beer in particular. This growth will continue to be fuelled by the increasing demand amongst middle-income consumers, expatriates, and tourists. The entire market is expected to grow continually but slowly, due to supporting factors such as a growing middle class and their strong purchasing power, as well as an increasingly important social culture. Stricter government policies, such as the anti- extravagance campaign and healthy drinking habits, are forecasted to have a negative impact on growth.
Highlights: Spirits, such as baijiu (maize or white spirit), are seen as the traditional Chinese alcoholic beverage which accounts for around 1/3 of the total market share. It is expected that spirits will increase in market share, though high-end items will face less demand due to over-pricing and the further cut-down of government spending. Spirits are one of the most often purchased products for gift-giving and public gatherings. The government’s increased efforts to reduce bribery has had a significant impact on spirits sales. Therefore, traditional spirit manufacturer are shifting away from targeting government officials towards the younger generation. Some leading baijiu companies, like Jianjin Winery Group or Luzhou Lao Jiao, have introduced more fashionable products, coming mostly in smaller packaging of 100ml, 125ml or 300ml bottles. Moreover, new ways of drinking baijiu have been introduced, for example cocktails mixed with Red Bull or RTD tea. Generally, younger Chinese consumers prefer grape wine and foreign drinks, such as tequila and dark rum, over traditional rice wine or local spirits. The key consumer group for alcoholic beverages, young adults in first-tier and second- tier cities, are more prone to be influenced by Western culture and lifestyles, therefore moving away from traditional Chinese alcoholic beverages. Additionally, imported alcohol is seen as higher quality and better tasting putting even more pressure on domestic producers. 5 Beer is the most popular alcoholic beverage sold in terms of volume due to its relatively cheap pricing and consumption during social occasions by youngsters. Meanwhile, beer sales are not impacted by tight regulations, as it is not as widely served during official gatherings and thus does not fall under the same scrutiny as spirits, for example. Even though
5 Please refer to Appendix 13.4 for an overview of local taxation and levies on importing alcoholic beverages THE CHINESE FOOD MARKET
25 China’s domestic beer brands are very popular and dominating the beer market, imported beer has seen robust sales since 2011. The wine market, being the largest red wine market worldwide, is expected to record a healthy total volume CAGR of 6% until 2019. Two years ago, China became the world’s largest consumer of red wine with 155.4 million cases consumed annually, compared to 150 million cases in France and 141 million in Italy. The Chinese discovered the global wine market virtually overnight, importing top-end red Bordeaux early on. Over the past 15 years, its own wine industry has simultaneously expanded dramatically, occupying more than 3,000 square miles of land, the second largest after Spain and pushing France into third place. Nevertheless, the global appetite for Chinese wines is still very limited even though international wine critics are now giving favourable ratings to locally produced wines, suggesting that China is becoming a legitimate producer of quality wines. As of now however, high-end French wines with prestige names, are still the most popular and many French wine producers, for example renowned Rothschild and French luxury group LVMH Moet Hennessy, are also starting their own vineyards in China. With growing consumer understanding of wine and increased expertise of Chinese producers, as well as improved infrastructure in China, including proper storage facilities, lower import duties, and simplified paperwork, both imported and locally produced wines will see growing popularity in the future.
4.4.2. Main Players
Domestic companies continue to lead the alcoholic beverages market in beer, spirits and non-grape wine, with major state- owned enterprises, such as COFCO or Sichuan Yibin Wuliangye Distillery introducing standard and mid- to lower-end wine and spirits catering for the mass market. International players, on the contrary, are more and more focus on the premium market, leveraging on marketing events and targeting customers that want to trade up.
Table 4.4.2. 1: Most popular alcoholic brands in China (according to volume)
BRAND VOLUME ORIGIN PRODUCER MAIN (b litres)* CATEGORIES
Snow 10.3 China SABMiller and China Resources Beer Enterprise Tsingtao 5.2 China Tsingtao Brewery Company Limited Beer Budweiser 4.4 USA Anheuser-Busch InBev NV Beer Yanjing 3.8 China Beijing Yanjing Brewery Co Ltd Beer Harbin 2.8 China Harbin Brewery Beer Heineken 2.8 Netherlands Heineken International Beer Asahi 2.1 Japan Asahi Breweies Beer Wuliangye 0.15 China Wuliangye Yibin Company Limited Local Spirits Moutai 0.028 China Kweichow Moutai Co., Ltd Local Spirits Great Wall N.A. China COFCO Wine Changyu 0.0006 China Changyu Pioneer Wine Co. Inc. Wine
Notes: *2014 volumes Sources: Euromonitor (2015), Company Websites, Fiducia Analysis
THE CHINESE FOOD MARKET
26 Table 4.4.2. 2: Most popular imported wines in China
COUNTRY EXPORT GRAPE BRANDS VOLUME* France 129.5 Carbernet Sauvignon, Chateau Marjosse, Château La Freynelle, Château Merlot, Chardonnay Lagrange, Chateau Margaux, Chateau Jordi, Château Auguste, La Tour Carnet Chile 90.8 Cabernet Sauvignon Suran, Estrella Latina, El Sotillo, Andean winery, Casa Andes, Los Vascos and Casillerodel Diablo Spain 49.5 Tempranillo (Rioja) and Castillo de Manzanares, Carabaña, Torre Oria, Syrah Finca Almondo, Andimar, Viña Berceo
Australia 40 Cabernet Sauvignon , Jacob's Creek, Treasury Wine, Grosset Polish Hill, Merlot and Tempranillo Jim Barry, Tyrell’s Vat, Penfolds Forest Hill Italy 25 Trebbiano Toscano Morando Montepulciano d’Abruzzo, Primitivo Germany 4.4 Riesling, Müller-Thurgau, Weingut Joh. Jos. Prüm, Schloss Johannisberg and Spätburgunder Dr. Loosen Argentina 4.3 Malbec, Cabernet Carlos Gardel, Santa Julia, Altosur and La Sauvignon PequeñaVasija, Portillo, Salentein Reserva
Note: 2014 Export volume in million litres Source: Taobao, Wangjiu, Zhongguo Wine, Company Websites, Fiducia Analysis
4.4.3. Distribution Channels
In 2014 independent small grocers accounted for the largest share in the market regarding distribution channels, while supermarkets gradually made share gains as a result of the increased willingness to try out more options and novelties. Meanwhile, internet retailing is becoming popular amongst youngsters due to convenience, competitive prices, and many online discounts to encourage consumer trials, though still accounting for a relatively small share. Moreover online shops have become an important method of consumer education: manufacturers can now clearly demonstrate how to consume their products with pictures and detailed textual product descriptions. There are several specialist B2C alcoholic drinks retailers, most notably www.jiuxian.com and www.yesmywine.com, who have an advantage over small shops that are less supervised and occasionally sell counterfeit products. Additionally, along with the increasing popularity of travelling abroad and the high domestic taxes on imported products, Chinese consumers prefer purchasing alcoholic beverages through duty-free stores at international airports.
Figure 4.4.3. 1: Alcoholic beverages distribution channel development in China 2012 – 2014 (in %)
2012 39% 35% 11% 9% 4%1% 1%
2013 38% 36% 13% 7% 4% 1% 1%
2014 37% 37% 14% 5% 4% 2% 1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Independent Small Grocers Supermarkets Hypermarkets Other Grocery Retailers Food/drink/tobacco specialists Internet Retailing Convenience Stores
Source: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
27
4.4.4. Opportunities for Swiss Companies
In the context of Chinese culture, alcoholic beverages are essential for both public and private gatherings. With improving living standards and diversifying tastes towards alcoholic beverages, as well as the benefits from the signed FTA between Switzerland and China, the market potential for Swiss companies is huge.
Focus on younger consumers: Unlike the generation of their parents, younger consumers pursue a healthier life pattern and are willing to spend money on higher quality alcoholic beverages. This increased focus on health might negatively impact growth of alcoholic beverages and reduces the target market. Swiss companies therefore are better served to focus on a specific target group such as socially active, younger consumers. It is important to strengthen their brand-loyalty and develop a solid consumer base by finding out taste-met products for them.
Limited edition and premium products: As many local companies are focusing on the mass market, there is opportunity for international brands to cater to consumers who intent to trade up by providing limited edition products sold through specialist stores.
More diversified distribution channels including e-commerce: Compared to local enterprises, the disadvantage for Swiss companies lies within establishing a reliable distribution channel in China’s market where main channels are already occupied by local enterprises. Considering that younger consumers use e-commerce tools more frequently, there is great chance to attract the interest of this group in particular and to build up reputation outside traditional channels. We suggest Swiss companies to introduce their products through efficient marketing campaigns on leading online B2C channels, such as Yihaodian.com, Taobao, or Jingdong.com and social platforms, such as Wechat and Weibo.
THE CHINESE FOOD MARKET
28 4.5. HORECA (HOTEL, RESTAURANT, CAFÉ)
4.5.1. Market Development
Figure 4.5.1. 1: Consumer foodservice sales by location 2009 - 2019E (in RMB bn)
3,925
3,344 3,165 2,925 2,659 2,342 1,999
Source: Euromonitor (2015), Fiducia Analysis
Highlights: China has experienced steady growth in the foodservice market, which is expected to slow down in the near future. The slowing economic growth in China and growing concern about scandals have impacted this market negatively. With the rising cost of living and food prices, the preferred option is dining-in. In addition, the government has been reducing public funds on entertainment, such as expenditure restrictions on official banquets, as well as anti-waste and anti-extravagance measures, having an impact on high-end restaurants and hotels. In the future however, the foodservices market is expected to increase in growth due to higher consumer confidence and many high-end foodservice enterprises introducing new products targeting mass consumers.
Foodservices in non-standalone locations, such as in malls or leisure complexes, have increased in market share during the last 5 years, although stand-alone locations still play a dominant role in the overall market. Many independent operators shut down their outlets in stand-alone locations due to ever-rising rental costs. Non-standalone locations have gradually gained value share as a result of the rapid expansion of department stores and supermarkets in top-tier and lower-tier cities, a growing demand for hotel wedding ceremonies, as well as an increasing number of petrol stations around the country.
THE CHINESE FOOD MARKET
29 1,481.6
Figure 4.5.1. 2: Consumer expenditure on hotels and catering by income 2009 – 2019E (in RMB bn)
1,482
920 822 727 639 513 484
Source: Euromonitor (2015), Fiducia Analysis
When considering consumer expenditure on hotels and catering services categorised by income, the top 30% spend over 70% of the total value, while the middle class only covers a relatively small share. This is because the wealthiest group are usually made up of shareholders or management level executives of big group companies, who generally travel more for business or leisure and choose to stay in the most expensive hotels and apartments where they enjoy top-class services. Compared to these vast spending, the middle class in China only contributes a small share of the consumption. This scenario is not likely to change in the next 5 years as a result of stable working environment and lifestyles of different groups of people.
Figure 4.5.1. 3: Hotel price platform - retail value breakdown 2011 – 2013 (in %)
2011 21% 25% 24% 30%
2012 20% 25% 24% 31%
2013 20% 25% 23% 32%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Luxury Mid-Priced Unrated Budget
Note: 2014 figures not available yet Source: Euromonitor (2015), Fiducia Analysis
In general, unrated and budget hotels make up more than 50% of the total hotel retail value and have seen a growth in share. Potential in the luxury and mid-priced sector, however, could be leveraged in the future based on the rising middle class in China.
THE CHINESE FOOD MARKET
30 4.5.2. Main Players
Table 4.5.2. 1: International enterprises in the hotel sector
COMPANY ORIGIN BRAND
UK HUALUXE, Crowne Plaza, InterContinental Hotels Group plc Hotel Indigo, Holiday Inn Marriott International USA JW Marriott Shanghai, Walla Hotel, Conrad Hilton Worldwide USA Hilton Shangri-La Hotels and Resorts HK Shangri-La Swissôtel Hotels and Resorts Switzerland Swissôtel Accor Hotels Switzerland Sofitel, Ibis, Novotel Starwood USA Sheraton, Westin
Source: Euromonitor (2015), Fiducia Analysis
Compared to the international hotel investment wave in China, local hotel management is marginalised to some extent, especially for local high-end brands. Even though investment from foreign companies into the Chinese hotel sectors has not exceeded 5%, the management of newly-built hotels is usually commissioned to multinational hotel management groups in recent years. The pattern of “local property development plus multinational hotel management brand” is relatively popular with a 40% annual growth rate.
Table 4.5.2. 2: International enterprises in the chained consumer foodservice sector
COMPANY ORIGIN BRAND
Yum! Brands Inc America KFC, Pizza Hut McDonald's Corp America McDonald’s Ting Hsin International Group Taiwan, China Kang Shi Fu Instant Noodle Inner Mongolia Xiao Wei Yang Chained Food China Little Lamb Hot Pot Service Co Ltd Starbucks Corp America Starbucks Coffee
Source: Euromonitor (2015), Fiducia Analysis
The average Chinese eats out relatively often at all meal times. For the busy working group, lunch at fast food chains is a good alternative to regular restaurants, as the service is quick and efficient. Nevertheless the glamour of Western fast food chains is slowly diminishing, also due to recent food scandals involving spoiled meat at big international fast food chains. As small private restaurants and kiosks are also tainted with food scandals, such as nationwide usage of swill-cooked dirty cooking oil, consumer confidence is low and more and more resume to preparing home-cooked meals. As for now, franchised fast food chains are still major players due to their coverage. Within the coffee scene however, local privately-owned coffee shops have been popular with consumers and coffee enthusiasts. In general, Chinese have quickly accepted the coffee culture, moving away from tea, especially by the younger middle class. They have made coffee part of their daily lifestyles and consider it a status symbol showing acceptance of the Western culture. With a growing group of coffee lovers, more and more Chinese also value freshly brewed quality coffee over instant coffee. Nestlé, for example, disposed of a large quantity of instant coffee close to its expiry date in 2015 because of their incorrect predictions of the instant coffee market. Coffee venues, be it Starbucks or small private coffee shops, also offer a comfortable, alternative “living room” environment to the urban Chinese outside of their often relatively small apartments.
THE CHINESE FOOD MARKET
31 4.5.3. Distribution Channels
Table 4.5.3. 1: Consumer foodservice by independent vs chained: units/outlets 2013
COMPANY INDEPENDENT CHAINED TOTAL
100% Home Delivery/Takeaway - 212 212 Cafés/Bars 19,149 8,459 27,608 Full-Service Restaurants 5,452,151 14,056 5,466,207 Fast Food 1,411,060 44,844 1,455,904 Self-Service Cafeterias 428 1,398 1,826 Street Stalls/Kiosks 323,702 38,708 362,410 Pizza Consumer Foodservice - 2,295 2,295 Consumer Foodservice 7,206,490 107,677 7,314,167
Note: 2014 figures not available yet Source: Euromonitor (2015), Fiducia Analysis
In China, franchising is a key operating model for the majority of food service companies. Especially franchises of traditional Chinese hot pot restaurants, restaurants focusing on regional specialties (f.e. Southern Beauty), cafés, or general fast food restaurants are expanding rapidly. Lowered franchising fees and discounts are applied to attract individual investors’ attention with multinationals also willing to engage in the franchising model due to clear guidelines, support and a more familiar working environment.
The Chinese eating culture is formed by a rapid pace of life and busy work schedule. Full-service restaurants remain the dominant channel for family gatherings and socialising with friends and enjoying meals, at home or dining out, is still the most popular activity for Chinese. Due to their intensive work schedule, white collar workers favour fast food service restaurants, as well as street stalls/kiosks and self-service cafeterias because of the convenience and faster service at breakfast and lunch time.
4.5.4. Opportunities for Swiss Companies
High-end hotel and catering service: Though the overall market is huge given the China’s population, the most profitable market remains within the rising middle class who particularly place importance on health and wellness concepts, as well as high-end bespoke services. Swiss companies are able to enjoy advantages over domestic players due to their good reputation worldwide. China’s growing purchasing power, increasingly sophisticated taste, and surging tourist arrivals are still an attractive market for high-end restaurants and hotels.
Healthy organic options: Organic restaurants and cafes catering to the health conscious middle class will see a rise in demand in the future. Swiss businesses that are already operating in China should consider introducing health and wellness dishes to their menus and operations, and new entrants could leverage on this trend by providing full concept stores or vegetarian or vegan venues.
Opportunities with home delivery: The popularity of home delivery originates from the need for convenience and fast paced lifestyles, which speaks to the rising middle class in China. This type of foodservice is becoming more and more popular and could be a platform for Swiss companies to develop their services. Professional teams could be established in China to meet this demand. New concepts like a home delivery culinary team that cooks according to customers’ requirements directly in their homes can be considered. Wealthy Chinese see these sorts of services as a new means of showing off their status, especially if they involve foreign dishes and cooks.
THE CHINESE FOOD MARKET
32 Work with online channel providers for marketing and advertising. Lacking established channels for marketing and advertising could be a bottleneck for the success of Swiss companies. Online platforms offer an opportunity for cost- efficient and fast promotion of products and services without the need to invest in own channels. Social media tools, such as Wechat or Weibo, or cooperation with home delivery apps, such as Sherpas.com or waimai.baidu.com, can be an effective means to access younger consumers, the prime target group for offering modern and potentially unfamiliar Swiss cuisine.
THE CHINESE FOOD MARKET
33 5. Health Food Market
5.1. BABY AND INFANT FOOD
5.1.1. Market Development
One of the largest trend drivers are health-conscious parents, who are naturally much more concerned about the quality of ingredients and food additives than their childless counterparts. Due to the one-child policy, China is dealing with a growing aging population. In an attempt to counteract the aging trend, the government relaxed its one-child policy in January 2014, allowing a second child if one of the parents is a single child themselves. This new policy is expected to benefit many food groups relating to babies or infants and will especially have a positive impact on baby food. Given that the policy has only been introduced a year ago, the direct impact on sales has been limited thus far. Additionally, many parents are still reluctant to have a second child due to the rising cost of raising children in China.
Nevertheless, consumer spending on baby food has historically been high, with parents being especially conscious of the quality of their children’s diet. With the contaminated milk formula scandal in 2008 and other food related issues, parents are even more so choosing better quality products, which in many cases translates into imported products from overseas. Baby food is expected to see a value CAGR of 16% in the forecast period, seeing a dip from the CAGR of 21.2% between 2009 and 2014. Both multinational and domestic milk formula brands are expected to benefit from this trend, with the former mainly targeting higher-tier cities, while the latter will continue to expand sales in lower-tier cities and rural areas.
Figure 5.1.1. 1: Baby and infant food market development in China 2009 – 2019E (in RMB bn)
249
120 99 82 68 56 46
Sources: Euromonitor (2015), Fiducia Analysis
Highlights: In November 2013, the Chinese government started introducing the two-child policy which will have an impact on baby and infant food sales in the coming years due to an increase in new-borns. This new policy is supposed to have an effect on young couples, especially in tier-three and tier-four cities, mainly due to the comparatively low cost of raising
THE CHINESE FOOD MARKET
34 children in these areas. The Chinese Academy of Social Sciences (CASS) estimated that the policy will add one million babies in China annually, which will increase the demand for baby and infant food significantly in the future. Foreign companies are also facing food safety scandals: Recent years saw a number of food scandals involving imported baby food, such as in 2013, when New Zealand dairy producer Fonterra faced reports that botulism causing bacteria were found in their baby food during safety tests. While Fonterra did not have a significant share in the national baby food market, this scandal greatly impacted its milk powder sales with a current value decline of 20% in 2013 and a further 10% decline in 2014, dropping below 5% in national market share. Moreover, Xile Li'er Import and Export Co., the sub distributor of Swiss company Hero Group, was accused of illegally repackaging Chinese baby formula with the Hero Nutradefense label, also partially changing production and expiration dates. Although Hero Group was not actively involved, this scandal had an impact on their reputation and consumer confidence in foreign imported baby products. Nonetheless, for many Chinese consumers buying foreign products is the “lesser of two evils” with imported products still being preferred over domestic brands, leading many Chinese enterprises to adopt “foreign” names for their local products. Chinese enterprise He Shengyuan increased its net profits greatly since introducing its French brands Biostime and ADIMIL. Others produce their raw milk overseas, have even set up shop in countries like New Zealand, or are repacking bulk formula in order to be able to brand their products as imported and “foreign”. In an effort to restore the market share of local baby food producers, the government has been clamping down on international importers of infant formula. Rules now include that foreign importers need to register with the Chinese quality authority or else they are barred from entry at China’s ports. Moreover, the government has been trying to subsidies domestic producers by either injecting capital or taking over some private companies as in the case of the COFCO - Mengniu acquisition. Due to lower consumer confidence in baby formula, Chinese women also started to show more interest in breastfeeding. Health experts in China are further promoting breastfeeding and advertising its benefits for both baby and mother even though numbers are still very low at 28% compared to the worldwide breastfeeding rate of 40% among mothers. Special baby milk formula showed largest growth potential in 2014 with 31% current value growth, due to the increased demand for allergy treatment and allergy prevention for new-born babies. Especially, hypoallergenic formula and lactose-free powder products remain popular in China. In addition to offering a full range of specialised milk formula, many larger producers are also providing professional advice and education.
5.1.2. Main Players
After the scandals involving baby powder formulas, the government has launched the “Action Plan for Increasing Milk Powder Quality and Strengthening Consumer Confidence” to weed out unqualified producers and regulate the milk powder industry, resulting in further consolidation of the market. Furthermore, officials have also started encouraging M&A activities in this industry to increase the production share of the top ten domestic infant formula enterprises from 43% to 70% within five years. As of now, international players still hold a strong share in baby food, especially for the premium category. For 2014, Nestlé and Mead Johnson led the market with combined more than 20% retail value market share.
Table 5.1.2. 1: Largest players in the baby and infant food industry in China
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE 2014 Nestlé SA (Wyeth) Switzerland 13.1% S-26, Illuma, Nestlé Baby formula, Specialty baby Infant Cereal formula
Mead Johnson Nutrition USA 10.1% Enfagrow, Enfamil, Baby formula, Children Enfapro nutrition, dietary and allergy foods Hangzhou Beingmate China 8.7% Beingmate Baby formula Group Biostime International China 7.2% Biostime Baby formula, functional Holdings foods, pregnant mothers
THE CHINESE FOOD MARKET
35 Inner Mongolia Yili China 5.9% Yili Baby formula Industrial Group Danone Group France 5.4% Dumex, Nutricia Baby formula FrieslandCampina Netherlands 4.3% Frisogrow, Frisolac Baby formula Abbott Laboratories USA 3.9% Gain, Similac Baby formula, new mothers and children nutrition
Source: Euromonitor (2015), Fiducia Analysis
5.1.3. Distribution Channels
Supermarkets and hypermarkets will remain the main source for consumers to purchase baby foods, with internet sales and non-grocery retailers growing over the years. Mother and baby specialist retailers fall under the category of non-grocery retailers and are becoming a popular platform to purchase baby food as they offer a larger and usually more specialised range of baby products, including baby food and baby care products. Additionally, these specialist retailers provide professional shop assistance and guidance which can be especially helpful for first-time mothers.
Internet retailing saw a large increase from 2012 to 2014 and accounted for more than 11.7% of baby food retail sales in 2014. Even though there are still regulatory issues and persistent consumer concerns over the safety of baby food sold via the internet, stronger regulations and higher convenience are projected to increase sales. Overdue expiry dates, high breakage rates, and lack of after-sales support are the main concerns for buying baby food online.
Figure 5.1.3. 1: Baby and infant food distribution channel development in China 2012 - 2014 (in %)
2014 41% 24% 18% 12% 2%3%
2013 43% 24% 18% 10% 2%3%
2012 46% 24% 18% 7% 2% 4%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Supermarkets Non-Grocery Retailers Hypermarkets Internet Retailing Health and Beauty Retailers Others
Sources: Euromonitor (2015), Fiducia Analysis
5.1.4. Opportunities for Swiss Companies
Especially the baby food category is highly sensitive, promotions and sales promises regarding nutritional value, ingredients, and even origin are regarded with scepticism. Due to the severity of recent scandals leading to deaths and diseases among infants, consumer confidence is at a nationwide low point. Considering the current situation, we suggest Swiss companies that want to enter the Chinese baby and infant food market, to not only make promises on paper but to demonstrate the high quality and standard of their product, by, for example:
Partnering up with local and international health authorities: One way to provide some sort of verification would be to partner with local or, more importantly, international health authorities. Since Chinese consumers still have low confidence in local authorities, it is wise to provide backup from internationally accepted standards. Being a valued,
THE CHINESE FOOD MARKET
36 official partner of health authorities or organisations could increase awareness and trust, as well as enable access to health institutions, which are necessary for selling baby food especially in emerging countries.
Offering fairs and parental classes: Providing education and promotional activities during baby food fairs or parental classes can have a significant impact on future sales, as it directly targets the right audience and can ensure customer retention. Especially first-time mothers will attend these classes and fairs to educate themselves and once companies have gained trust and loyalty, these mothers tend to rarely change products. Therefore, with the right promotion strategy, fairs and parental classes are a great platform to access this customer base early on and develop a long-term relationship.
Giving out promotional gifts: Many Chinese choose to protect themselves as they feel less and less confident with government measures, and have been implementing home safety tests as a means to detect fake and contaminated baby food. Some companies, originally selling instant food safety tests to only companies and government agencies, have seen a rise in sale for individual customers using these tests at home. Promotional gifts, such as free home testing devices with the purchase of instant formulas could be a way to regain customer trust and convince consumers of the quality of the products.
Focus more on organic baby food: With increased awareness on health within an already relatively sensitive market, organic baby food is seen to have growth potential even though it currently only takes up a small part of the entire organic food market. Therefore, we suggest Swiss baby food producers to provide more products in this category to leverage on this trend and service the high-income target audience with imported, organic, and, thus, safer baby food.
5.2. ORGANIC FOOD
5.2.1. Market Development
Organic food is becoming more and more popular amongst Chinese consumers, especially the young urban population, white collar families, and expats, as food scandals and healthier living are at the centre of attention. So far however, the penetration of organic food is still relatively small, amounting to approx. 1.01% of total food consumption, mainly due to the lack of consumer trust in products completely free of pesticides and synthetic fertilisers. China is one of the world’s worst safety violators because of its poor food regulations. In order to improve supervision of food quality nationwide, China has been implementing very stringent certification rules and has been strict on importing foreign organic products. Importers into China typically have to undergo lengthy certification processes and cannot be labelled “organic” if they have only been certified by an overseas organic certifying body and not by Chinese officials. China’s certification systems and foreign organic certification systems are not mutually recognised.
The government recently has been promoting publicly recognised “organic” certifications, which has spurred the market to grow by 35% of the current value from 2013, reaching RMB 8.1 billion in 2014, and is expected to continue to grow with a CAGR of 19.4% until 2019. Therefore, growth potentials are immense and more promising than other food groups, also due to widening distribution and growing consumer awareness, especially within the organic milk segment. The overall organic packaged food market in China is being dominated by only a few food products, organic milk accounting for 95% of total sales value. The remaining value sales is claimed for by organic vegetable and seed oil and organic prepared baby food, while organic rice only makes a small contribution.
THE CHINESE FOOD MARKET
37 Figure 5.2.1. 1: Organic packaged food market development in China 2009 – 2019E (in RMB bn)
19.5
8.1
6.0
4.1 2.9 1.7 0.9
Source: Euromonitor (2015), Fiducia Analysis
Figure 5.2.1. 2: Development of number of organic certifications in China 2004 - 2013
9,957
7,387
4,810 4,009 3,104 2,688 2,370
999 192
Note: Among the organic certificates in 2013, 68% were awarded to plant products, such as grains, seeds, vegetables and fruits, 30% processed food, rest to animal husbandry aquaculture Source: Organic and Beyond (2014), Fiducia Analysis
Highlights: Even though organic farming land currently only covers around 0.95% of total farming land in China, organic products had an estimated total sale of RMB 30 billion in 2014. An investigation by the China Certification and Accreditation Administration (CNCA), however, showed that among those organic products, 4.4% did not have proper certification or their certification was already expired. The government’s goal is thus to engage more interaction between local village
THE CHINESE FOOD MARKET
38 and county-level in order to achieve a modern market mechanism, thereby creating fair competition and more transparency. Organic standard milk dominated the organic packaged food market and showed the greatest value gains of 36% in 2014 mainly due to widening concerns over the impact of pesticides or chemical fertilisers during milk production processes. Besides being purchased for self-consumption, organic milk also became widely popular as gifts for relatives and friends. Some market saturation can be seen in organic product groups, such as rice, fresh vegetables, fruit, meat, and green tea. Unless the products can provide unique health benefits, superior quality, or product innovation, these products are expected to have low growth potential. The growth of the organic packaged food market is expected to be hindered by tightening regulations from the Chinese government in the future. In 2014 for example, the government introduced new regulations for organic baby food, stating that more than 95% of the content has to be organic. These new regulations, as well as the insecurity on how the regulatory framework is going to look in the future, have generated high entry barriers, especially for foreign firms. However, stringent rules in China seem necessary to rebuild consumer confidence and ensure control of the organic market. Despite these new regulations introduced by the government, consumer confidence is still low in China regarding organic food. Many consumers are still hesitant to buy organic products as prices tend to be higher and the quality not certain. Consumers are still concerned about potential counterfeit or tainted products, especially in light of many recent scandals. Despite the increased health awareness and urge to trade-up with baby food products, there is still limited demand for organic milk formula. Low consumer confidence and trust was seen as one of the main reasons for low demand. Nevertheless, organic baby food saw a y-o-y 13% current value growth in 2014, whereby the main customer focus is middle- to high-income urban citizens, pushing the unit prices to rise above inflation levels in 2014. In 2013, 246,000 tonnes of Chinese organic goods were exported to 23 countries worldwide, mostly to the USA, Germany, Great Britain, the Netherlands, Switzerland, and France. Organic soy beans and agricultural products, such as organic tea, fruits, nuts and vegetables were mainly sought after from China. Unfortunately, reliable data about the value and volume of the organic import market in China is not available because many imported organic food are sold as conventional products due to the stringent certification requirements. Current rough estimates peg the value of organic imports at around USD 20m, whereby half of the imported materials are used for manufacturing (of which most are exported) and the other half is provided to the domestic consumer market. Organic baby food, sugar, dried fruits, nuts and honey, dairy products, and processed food are the main imported products. 54 foreign companies are already selling their organic products to or are about to enter the Chinese market. Among them, 34 were from Europe, mainly Italy, Spain, and Denmark.
5.2.2. Main Players
China’s two largest dairy producers, Inner Mongolia Mengniu and Inner Mongolia Yili, dominated the organic packaged food market with 67% of value share in 2014, mainly due to the popularity of organic milk. These dairy giants demonstrated their strength in wide-reaching distribution networks, strong sales and marketing, and frequent launches of new products. Niche players, such as Inner Mongolia Shengmu Organic who solely focuses on organic products, were able to show market share gains, as they were credited by consumers for their product commitment and expertise.
Besides organic milk, some foreign players have a foothold in the organic food market. Minerva Agricola, which focuses on organic vegetable and seed oil, has experienced the weakest current value performance among leading players in 2014 with declining sales of 14%, mainly due to a lack of advertising and marketing efforts and limited distribution coverage. Local players have an advantage when it comes to wider distribution networks and lower pricing, which has increased competition in this product area. Tony’s farm, for example, is one of the largest farm-direct businesses, which has seen its customer base grow from 20 to 50% since 2009. More than 100,000 subscribers use their online platform, with products being delivered within 24 to 48 hours.
Thus, domestic manufacturers still dominate the organic packaged food market, with the largest dairy producers accounting for a combined 83% of the total market in 2014. These players are better positioned to distribute their premium organic products by utilising their standard brands’ existing networks. Moreover, it is easier for domestic producers to receive the
THE CHINESE FOOD MARKET
39 Chinese organic certification, whereas international brands often have to suffer through a lengthy and expensive approval process.
Table 5.2.2. 1: Largest domestic players within the organic food industry in China
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE
Inner Mongolia Yili China 33.7% Mengniu Organic milk Industrial Group China Mengniu Dairy China 33.4% Yili Organic milk Inner Mongolia Shengmu China 15.6% Shengmu Organic milk Organic Milk Qiangdao Changshou China 0.6% Diyifang Organic vegetables and fats Foods Zhejiang Choisun Tea China 0.2% Choisun Organic tea saponin, camellia oil Development
Sources: Euromonitor (2015), Fiducia Analysis
Table 5.2.2. 2: Largest foreign players within the organic food industry in China
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARE Hain Celestial Group USA 0.3% Earth’s Best Organic cereals, biscuits, juice Minerva Agricola Italy 0.1% Minerva Organic vegetables and fats
HiPP GmbH Germany N.A. HiPP Organic baby food
Bellamy’s Organic Australia N.A. Bellamy’s Organic Organic infant formula and baby food Arla Foods Denmark N.A. Arla Organic, Organic dairy products Castello, Lurpak Organic Valley Family of USA N.A. Organic Valley Organic milk Farms New Zealand Organic Milk New Zealand N.A. Ogni Organic milk Ltd Family owned by the Spain N.A. Soler Romero Organic olive oil Soler-Romero family
Sources: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
40 Table 5.2.2. 3: Local producers of organic food products in China
COMPANY CEO/OWNER FARM LAND CONTACT MAIN CATEGORIES Tony’s Farm Mr. (Tony) Datuan Base 117 hectares www.tonysfarm.com Organic staples, delicacies, Zhang and Chongming Island meat, eggs, oils, grains, Tonggui Base 108 hectares and pantry items Mahota Farm Mr. Tan Hong 43-hectare farmland on www.themahota.com Organic vegetables, grains, Khoon Chongming Island with free-range pork, poultry pig farm and eggs but also wellness and eco-resorts Tootoo Ninetown 70- hectare farmland www.tootoo.cn Organic vegetables, fruits, Group outside Beijing eggs, meats, milk, yoghurt, tofu, as well as grains, fruit juices, teas, wines, cosmetics Organic and Mr. Organic farms in Beijing, www.oabc.cc Works with contracted Beyond Xiangdong Shandong, Shanxi, organic farms, main Zhang Jiangxi, Jiangsu, organic products are Heilongjiang and Inner vegetables, fruits, milk, Mongolia dairy products, dry nuts, edible oil, snacks, textiles, and cleaning agents BIOFarm Ms. Tian 100-acre farm near www.biofarm.cn 180 organic products and Yuejiao (also Pudong International import of organic food but founder of Airport also focuses on awareness organic store for sustainable farming Ostore) methods Noah Organic Mr. Zhu Xun Beijing www.noahorganic.com 1,500 members can visit the farm and buy organic vegetables, eggs
Sources: Company websites, Fiducia Analysis
5.2.3. Distribution Channels
Both hypermarkets and supermarkets dominated the organic food distribution channels in 2014 with overall 29% share, mainly due to the higher convenience, trust in product origin, attractive promotions, and wide product ranges. Domestic retailers with a strong presence in this channel include China Resources Vanguard’s Ole stores, City Shop Supermarket, Beijing Hualian Supermarket (BHG), and Hisense Plaza. The internet retailing channel reported the strongest share gain, as online purchases increased throughout the food industry, particularly organic foods, due to lower prices offered online, as well as reachability, wide range of product choices, and promotion of organic online stores. Two popular online platforms for organic foods particularly catering to expatriates, are kateandkimi.com and fieldschina.com. In addition, specialised organic stores, such as LohaoCity, and farmer’s markets have increased in popularity in recent years. Especially farmers markets, such as wet and local markets, provide an attractive platform for organic farmers to promote and sell their products directly to customers. New trade modes have also emerged which include ecotourism, direct sales in organic farms, and direct sales through hotels, or at events, activities, and organic fairs.
In general, prices for most organic products are two to four-times higher than those of conventional products. For individual specialist products, prices can go up to eight to ten times higher than conventional products.
THE CHINESE FOOD MARKET
41 Figure 5.2.3. 1: Organic packaged food distribution channel development in China 2012-2014 (in %)
1% 2014 29% 29% 24% 12% 3% 3%
1% 2013 29% 28% 25% 12% 2%3%
1% 2012 28% 28% 27% 12% 1%3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Hypermarkets Supermarkets Other Grocery Retailers Independent Small Grocers Internet Retailing Direct Selling Forecourt Retailers
Sources: Euromonitor (2015), Fiducia Analysis
5.2.4. Opportunities for Swiss Companies
Follow the market trends: In line with the current market trend of healthy foods, consumers are more and more focused on the transparency of ingredients, raw materials, and the manufacturing process. Chinese consumers still have serious concerns about the integrity of domestic products and local certification bodies. Therefore, exporting products into China should be done with a seal of internationally recognised certification bodies, such as IFOAM Accreditation Program, EU, USDA and JAS, in addition to the Chinese certifications. These seals should be placed on visible parts of the product, and ideally also translated into Chinese, to help consumers identify them.
Promoting Switzerland’s efforts on environmental protection: Marketing efforts should include a portrayal of a clean environment and sustainable ecosystem of the place of origin with attractive packaging with the exporting country’s characters. This does not necessary need to be luxurious, but should be clear and aesthetic. Focusing on Switzerland’s landscape, its efforts to preserve the environment beyond their borders, and educating Chinese on their ambitions and achievements regarding environmental protection, are effective means to boost sales and consumer confidence.
Marketing to the right target audience: Unlike the US or many European countries, organic food very often is associated with only the elite in China, as most organic products are two to four times the price of their non-organic counterparts. Targeting the Chinese audience might differ from marketing efforts in Switzerland and Europe. Therefore, it is essential to first understand the social and behavioural background of Chinese citizens before introducing organic products. Additionally, there is opportunity to reach out to second and third tier cities, that are not yet as familiar with the term “organic” and educate these consumers early on to increase customer retention with Swiss brands.
Focus on packaged organic foods: As parts of the market are relatively saturated with local produces, such as vegetables, rice, grain and herbs, and are freshly available locally, Swiss companies should focus on organic products with longer shelf lives, such as organic milk formula and other packaged organic products. In order to provide organic products with the highest quality, the duration for import and distribution might have a critical impact.
Cooperation on organic farming: Besides exporting organic products, Swiss companies could also leverage on its existing expertise in organic farming and provide related services, in form of training, R&D, eco-education, consulting services etc., to the Chinese organic market. With China developing more and more organic farmland, there is ample room for cooperation and knowledge exchange. China is currently still lacking the know-how and skills to deal with new technologies, for example biological pesticides, and relies on foreign experts to jointly develop sustainable organic agriculture in China. In order to preserve or regenerate a healthy ecosystem in the long-term, Swiss companies can further promote social responsibility in China, such as reducing the carbon footprint, helping local organic farmers, preserving more farm land and local culture, and improving biodiversity.
THE CHINESE FOOD MARKET
42 Matching organic food and eco-tourism: Luckily, some of China’s countryside are blessed with beautiful untouched nature. Especially the regions around Heilongjiang, Jilin, and Yunnan already have resorts that cater to sustainable tourism, promoting responsible travel that conserves the environment and increases the living conditions of local people. Along with ecotourism, there is opportunity to further sponsor organic local food and educate people on organic raw materials, as well as the manufacturing environment of Chinese green farmers. In this regard, Swiss farmers and HoReCa have the chance to cooperate with Chinese hotels or associations, or even attract Chinese tourists to travel to Switzerland for eco holidays. These eco-tourists are usually high-income Chinese that are already open to the organic lifestyle, hence the same target group for organic food.
5.3. DIETARY SUPPLEMENTS
5.3.1. Market Development
Figure 5.3.1. 1: Dietary supplement market development in China 2009 – 2019E (in RMB bn)
127
100 89 77 70 63 58
Source: Euromonitor (2015), Fiducia Analysis
As a consequence of improving living standards and growing concerns about work-life balance, dietary supplements to enhance health and support body functions are in demand by Chinese consumers. Thanks to the vast selection of different dietary supplements catering to various needs, from insufficient or imbalanced nutritional intake to building a healthier body, these products speak to a broad range of consumer groups.
Highlights: The registration procedure for the active ingredients of dietary supplements can be long and very costly. Even the same active ingredient used for different products must be registered separately and be approved by the Chinese authority every 2 to 3 years. The approval system can be a heavy financial burden on an enterprise. Over RMB 5 billion was spent by enterprises to get permissions for products in this category within the last 15 years. Improving their bone health and immune system were the top two reasons for Chinese consumers to start taking dietary supplements in the past 5 years. These products are targeted especially at working professionals and senior citizens who have intensive or tiring daily schedules. Dietary supplements to enhance beauty show high potential growth in the forecasted period, as women are increasingly concerned about their appearance and want to slow down the aging process. The beauty and cosmetics market is a highly
THE CHINESE FOOD MARKET
43 attractive market for dietary supplement providers and companies invest great resources in marketing and advertising to women.
5.3.2. Main Players
Table 5.3.2. 1: Largest players in the dietary supplements industry in China
COMPANY ORIGIN COMPANY BRAND MAIN CATEGORIES SHARES*
Amway Corp America 10.9% Nutrilite Health supplements Infinitus (China) Co Ltd Hong Kong, China 10.2% Infinitus Chinese herbal health products Tianjin Tianshi Biological China 6.0% Tiens Pharmaceutical, nutrition, Development Co Ltd dietary supplement
Perfect (China) Co Ltd Malaysia 5.0% Perfect Health food, household, beauty and skin care products Guangzhou By-health British Virgin 3.7% By-Health Health products, nutritional Biological Engineering Co Islands supplement, OTC, skin care Ltd products
Notes: * National Brand Ownership shares 2014 Source: Euromonitor (2015), Fiducia Analysis
5.3.3. Distribution Channels
Figure 5.3.3. 1: Dietary supplements distribution channel development in China 2012-2014 (in %)
2012 53.4% 34.3% 8.6% 3.4%0.3%
0.3% 2013 56.5% 30.5% 9.7% 3.0%
0.2% 2014 58.9% 27.6% 10.7% 2.6%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Direct Selling Health and Beauty Specialist Retailers Internet Retailing Grocery Retailers Homeshopping
Source: Euromonitor (2015), Fiducia Analysis
Direct selling has played and will continue to play the most vital role in distribution, especially for cultivating new customers through one-on-one personal services despite its bad reputation of pushy sales persons. Internet retailing thrived with the expansion of e-commerce. Health and beauty specialist retailers, however, focused more on offering personal advisory services to the upper and middle class sector. Overall, competition will be more intense as a growing number of market players provide similar products.
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44
5.3.4. Opportunities for Swiss Companies
Although the dietary supplements market in China is only at its initial stage, competition is already fierce. Focusing on high- quality products and services is expected to be the success factor for entering the Chinese market for Swiss companies.
Professionalism and good reputation: Brand recognition is essential for Swiss companies that decide to enter the market, whereby it is wise to provide for the mass- and high-end markets with age- or gender-specific products. Switzerland has highly sophisticated foodstuff laboratories, like UFAG Laboratorien, which is ISO 17025 accredited, GMP certified, and FDA approved. Marketing dietary supplements in combination with reliable analysis and certifications from these sort of companies can further enhance consumer confidence.
Maintaining and promoting product quality: Best-selling brands are usually from overseas entities while recent scandals and unmet requirements for national standards damaged their image to some extent. Good reputation is hard to build and easy to ruin in this industry and until now, brands from European countries are still seen as above-average. Target groups will pay more attention to quality rather than pricing, as they do not want to take the risk of consuming products of inferior quality.
Close collaboration with distributors: Direct-selling requires a strong sales team on the ground with an existing network and consumer base to lower the threat of market fluctuation. Because Swiss companies usually lack resources and an extensive network in China, finding reliable and cooperative partners is essential. Special one-to-one personal service offered by direct selling, which is especially effective for dietary supplement sales, is also a good tool for cultivating new customers.6
6 Please refer to Appendix 11.3 for a list of local distributors and importers THE CHINESE FOOD MARKET
45
5.4. SPORTS & FITNESS
5.4.1. Market Development
Figure 5.4.1. 1: Sports nutrition market development in China 2009 – 2019E (in RMB bn)
0.6
0.4
0.4 0.3 0.3 0.2 0.2
Source: Euromonitor (2015), Fiducia Analysis
In 2014, sports nutrition experienced the highest value growth amongst consumer health products, surpassing the growth rates of vitamins and dietary supplements, mainly due to the growing awareness of appearance, beauty, and health, and the rising popularity of muscle building. Sports nutrition is mainly used to effectively build muscle, reduce body fat, and generally maximise the effects of exercise, therefore popular amongst gym enthusiasts and athletes. The entire market is still in its initial stage, providing great potential for further growth given the huge consumer base in China.
Highlights: The biggest consumers of sports and fitness nutrition are usually sports lovers and professional athletes, who tend to belong to the middle income class in China. Non-professional consumers are typically young males who exercise to increase muscle mass and appearance. Professional athletes are seeking products of higher quality, minimising the chances of injuries in daily training and improving their performance. The growing acceptance of self-medication has also played a role in this rapid growth, with more international players with a high reputation and mature technology trying to enter the Chinese market. Leading companies in vitamins and dietary supplements are likely to introduce new products in this category, as both product groups feature similar benefits towards health. Powder is the most popular item in this category because of its early entry into the China market and its broad product offerings. Sports nutrition in the form of powder is favoured by consumers due to its ease of consumption and convenience of transporting. Protein bars, on the other hand, only account for a small share, partly because of a limited choice of products.
THE CHINESE FOOD MARKET
46 5.4.2. Main Players
Beijing Competitor Sports Technology JSC Ltd accounted for over 40% of the market share in China, especially because they heavily invested in marketing and advertising. They are also enjoying good cooperative relationships with Chinese national and regional sports teams, which facilitated their strong market presence.
Table 5.4.2. 1: Largest players in the sports and fitness nutrition industry in China
COMPANY ORIGIN RETAIL VALUE BRAND MAIN CATEGORIES SHARES 2014
Beijing Competitor Sports China 44.2% Competitor Food additives, dairy, soft Technology JSC Ltd drinks, technical support
NBTY Inc America 8.5% Nature's Bounty, Vitamin, mineral, herb and MET-Rx supplement product Shenzhen UN Sports China 7.7% UN Protein, powder, formula Nutrition Co Ltd General Nutrition Centers America 3.2% GNC Health and nutrition related Inc products Iovate Health Sciences Inc Canada 0.8% EPIQ, Weight management, active MUSCLETECH, SIX nutrition STAR
Source: Euromonitor (2015), Fiducia Analysis
5.4.3. Distribution Channels
Distribution channels are expected to shift from health centres and gyms to online sales platforms thanks to the rapid development of e-commerce and online shopping and the changing purchasing habits of the younger generation. Companies are increasingly focusing on online services and real-time professional consultations about products and training plans.
Figure 5.4.3. 1: Sport & fitness distribution channel development in China 2012-2014 (in %)
2012 80% 15% 5%
2013 76% 19% 5%
2014 73% 23% 4%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Non-Grocery Retailers Internet Retailing Hypermarkets
Source: Euromonitor (2015), Fiducia Analysis
THE CHINESE FOOD MARKET
47 5.4.4. Opportunities for Swiss Companies
Widening the consumer base: The growth of the sports nutrition market might be limited due to the misguided perception that products in this category are exclusively prepared for professional athletes and body builders. Domestic players have not yet focused on widening their customer base and educating consumers on sports nutrition also serving the function of improving health, especially bone health, helping middle aged and elderly consumers maximise the results of physical exercise. Swiss companies therefore have the chance to target a wider consumer base beyond professional athletes and male sports enthusiasts, such as females, children or the elderly.
Targeting the right audience: As the current sports nutrition consumer base is dominated by sports enthusiasts and professional athletes, Swiss companies should provide products for each of the groups, promoting benefits that meet individual demands. Especially for professional athletes, product quality is important in addition to the actual effect of usage. European products have the added benefit of their reputation, quality ingredients, and higher R&D and expertise compared to domestic brands.
Sponsoring and partnerships: Marketing and advertising are key drivers for sports nutrition sales, leading to rising attention to brand building and increased marketing investments. Leading companies such as NBTY and Beijing Competitor sponsored campaigns including aerobics and marathon competitions to build a healthy and energetic brand image and to increase consumer awareness. Even though Swiss companies will have a hard time competing with local players, especially in cooperation with national sports events or endorsements of local athletes, they are able to promote their products using the Swiss angle. Roger Federer endorsing Rolex is a great example for successfully promoting both Swiss quality, sportsmanship, and the product itself.
THE CHINESE FOOD MARKET
48 6. Fairs and Associations
6.1. FOOD FAIRS
Trade fairs for the health food industry:
TRADE SHOW DESCRIPTION PLACE TIME WEBSITE
Biofach China Daughter show of BIOFACH in Shanghai 26-28 May www.biofachchina.com
Germany and one of the most 2016
influential organic trade fair in China
Healthplex & Largest and the most valuable Shanghai 21-23 June www.hncexpo.com Nutraceutical China exhibition of health products 2016
Natural & Organic Promoting natural, sustainable and Hong Kong 26-28 August www.naturalproducts.c
Products Asia healthy lifestyles, natural and organic 2015 om.hk
products
China International Global brand trade event in organic- Beijing 11-13 www.cifeb.com Organic Food Expo food industry November (CIOE) 2015
Vitafoods Asia The only nutraceutical and functional Hong Kong 2-3 www.vitafoodsasia.com
foods focusing trade show in Hong September
Kong 2015
International Organic & Biggest and the most influential Shanghai / 17-19 www.en.gnfexpo.com Green Food Industry organic food industry event in Asia Beijing September / Expo 6-8 Nov. 2015
Trade fairs for the food & beverage industry:
TRADE SHOW DESCRIPTION PLACE TIME WEBSITE
Expo Finefood One-stop purchasing platform that Shanghai 29 March – www.finefood.hotelex.cn features high-quality imported food 1 April 2016 products and food ingredients
SIAL Asian Food Leading Asian meeting point for the Shanghai 5-7 May www.sialchina.com Marketplace food and beverage industry 2016
China International Assisting oversea companies to find Guangzhou 29 June – 1 www.ifechina.com Food Exhibition the distributors and agents to expand July 2016 the food & beverage market in China Coffee Expo Promoting the coffee industry, the Guangzhou 29 June – 1 www.coffeexpo.org coffee culture as well as the coffee July 2016 brand in the exchanges and cooperation
THE CHINESE FOOD MARKET
49 Top Wine China Marketplace for new vintage wines Beijing 15-17 June www.topwinechina.com and product innovations 2016
Guangzhou Most international food trade show in Guangzhou June 2017 www.gifms.com International Food & South China Ingredient Fair (GIFMS) Beijing International The only national-level pure import Beijing 3-5 July www.cipfe.com Import Food Expo food expo 2015 (CIPFE)
China International Largest brand trade banquet in the Beijing 11-13 www.cilfe.com Leisure Food and global food industry November Imported Food Expo 2015 (CILFE) Shanghai International Featuring all condiments associations Shanghai 26-28 www.cfi-expo.com Condiments and Food throughout China August 2015 Ingredients Exhibition
China Food and Drinks Longest, largest and most influential Nanjing 29-31 www.qgtjh.com Fair (CFDF) exhibition and trade platform in October China’s alcohol and food industry 2015 China International All hotspots of global food sector with Beijing 30 Oct- 1 www.fcechina.com Food and Beverage the effort of food manufacturers and Nov 2015 Expo (FCE) suppliers from domestic and overseas food enterprises
ProWine China Leading wine & spirits trade show Shanghai 11-13 www.prowinechina.com November 2015 China’s global food and Exhibition of equipment for retail, Shanghai 11-13 www.fhcchina.com hospitality trade show hospitality & foodservice, and meat, November (FHC) tea, coffee, and beer 2015
World Food of Beijing International trade fair for food retail Beijing 18-20 www.worldoffoodbeijing. and hospitality mainly from the region November com of North China 2015
Shanghai Private Label Fastest growing private label show in Shanghai 25-27 www.plma.com/shangha
Fair the world November i/
2015
Import and Export Comprehensive platform for Shanghai 04-06 www.importfoodfair.com Food and Beverage worldwide food & beverages December Exhibition (FBIE) professionals 2015
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50 6.2. ASSOCIATIONS
Food related: o China National Food Industry Association - www.cnfia.cn o China Grain Association - www.chinagrains.org.cn o China Animal Agriculture Association - www.caaa.cn o China Tea Marketing Association - www.ctma.com.cn o China Sugar Association - www.cas.gov.cn o China Alcoholic Drinks Association - www.cada.cc o China Aquatic Products Processing and Marketing Association - www.cappma.org o China Edible Fungi Association - www.cefa.org.cn o China Fruit Marketing Association - www.china-fruit.com.cn o China Vegetable Marketing Association - www.cvma.org.cn o China National Seed Association - www.natesc.gov.cn o China Crop Protection Industry Association - www.ccpia.org.cn o China Grocery Products for Daily Use Marketing Society - www.chinariza.org o China Beverage Industry Association - www.chinabeverage.org o China Food and Packing Machinery Industry Association - www.chinafpma.org o China Bakery and Confectionery Industry Association - www.china-bakery.com.cn o China Dairy Industry Association - www.cdia.org.cn o Dairy Association of China - www.dac.org.cn o China Meat Association – www.chinameat.org o China Feed Industry Association - www.chinafeed.org.cn o China Cereals and Oils Association - www.ccoa.info o China Canned Food Industry Association - www.cncfi.com o China Candy & Confectionary Association – www.tangguo.cfiin.com
Health related: o China Green Food Association - www.greenfood.org.cn o China Association for Quality - www.caq.org.cn o China Chamber of Commerce for Import & Export of Medicines & Health Products - www.cccmhpie.org.cn o China Health Care Association - www.cs.chc.org.cn o U.S.-China Health Products Association - www.uschinahpa.org o Organic Food Development and Certification Centre of China - www.ofdc.org.cn
THE CHINESE FOOD MARKET
51 7. Regulatory Environment
7.1. AUTHORITIES
Within China, approximately ten government departments and ministries under the State Council monitor food safety, in addition to local or regional bureaus. Nonetheless, there is no single unified administrative organ that is responsible for all food safety regulations and enforcement, and overseeing local agencies. Due to the complicated food safety regulations, the Chinese government decided to introduce the State Food and Drug Administration (SFDA) to supervise and serve as the main authority. Local and national agencies however continue to regulate and monitor food safety independently.
The National People’s Congress (NPC), the highest institution of state power, together with its permanent body - the Standing Committee of the NPC, exercise the legislative power of the state, and are primarily responsible for implementing food safety laws.
Government departments: Ministry of Health (MOH) - www.moh.gov.sg China Food and Drug Administration (CFDA) – www.eng.sfda.gov.cn Ministry of Agriculture (MOA) - www.moa.gov.cn Ministry of Commerce (MOC) - www.mofcom.gov.cn The General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) - www.aqsiq.gov.cn The State Administration for Industry and Commerce (SAIC) - www.saic.gov.cn The State Environmental Protection Administration (SEPA) - www.sepa.gov.cn National Health and Family Planning Commission (NHFPC) - ww.nhfpc.gov.cn The State Grain Administration - www.chinagrain.gov.cn Ministry of Science and Technology - www.most.gov.cn Certification and Accreditation Administration of the People’s Republic of China (CNCA) - www.cnca.gov.cn
Auxillary: National Food Quality Supervision and Inspection Centre China Green Food Development Centre (affiliated with MoA) - www.greenfood.org.cn Centre of Organic Food (affiliated with State Environmental Protection Administration) China Academy of Safety Science and Technology - www.casted.org.cn Chinese Centre of Disease Control and Prevention - www.chinacdc.cn State Food and Nutrition Consultant Committee Chinese Institute of Food Science and Technology - www.cifst.org.cn Food and Agriculture Organization of the United Nations - www.fao.org
7.2. FOOD SAFETY
Over the last two years, the Chinese government has reached out three times for comments on the revision of the comprehensive Food Safety Law (FSL), which was first passed on February 28, 2009 by the China’s National People’s Congress (NPC) Standing Committee. The last amendment was introduced in December 2014, coming into effect on 1 October 2015, and, compared to previous drafts, also incorporates views and comments by the public. Besides basic frameworks, such as the strengthening of the supervision system, particularly for baby food, health food, and genetically modified foods, the government has once again increased sanctions for companies not conforming to food safety standards, supporting the government’s determination to establish the “strictest food safety system” in the world.
THE CHINESE FOOD MARKET
52 A second law mentioned in food safety discussions is the Agricultural Product Quality and Safety Law (APQSL). The purpose of the APQSL is to 1) guarantee the quality and safety of agricultural products, 2) maintain the health of the general public, and 3) promote the development of agriculture and the rural economy.
7.2.1. Regulation Specific to Healthy and Organic Food
Two of the most important organic food regulations are the Regulatory Measures on Organic Product Certification Management and Rules for Implementing the Certification of Organic Products. The first defines rules on organic certification, including the scope and requirements for certification bodies and inspectors. It also sets principles for organic certification, national organic labelling, import requirements, principles for international cooperation, and supervision measures. The latter regulates organic certification activities of the certification body. It defines organic certification objectives, scope of application, standards, certification procedures, administration after certification, certificates, marks and logos, as well as certification fees. The China National Organic Standard is GB/T 19630.
7.2.2. Regulation Specific to Genetically Modified Organism
In China, restrictions on genetically modified organisms (GMOs) are primarily covered by the agricultural GMO regulations enacted by the State Council in 2001 and relevant administrative rules. Few adjustments have been made to its first promulgation, which does not only refer to crops, but also animals, microorganisms, and products derived from these sources. Government approval has to be granted to testing, production, and marketing of GMOs in China and foreign companies that export GMOs into Chain, including GMOs as raw materials, must apply to the MoA and obtain GMO Safety Certificates. GMO in general is an important field for China, since it has devoted considerable resources for research and development and is also seen as a cost-effective solution to feed China’s growing population.
7.3. LABELING REQUIREMENTS
In China, pre-packaged food products are subject to many regulations and national standards in China. Compliant food labels, in Chinese are very important for customs inspection and clearance when it comes to imported food products.
Main authorities: CNCA - The Certification and Accreditation Administration of the People’s Republic of China (CNCA) is the national administrative body overseeing all types of certification and accreditation within China. The CNCA's scope stretches beyond food and agricultural products to cover both quality systems and product certifications. For food and agricultural products, the CNCA covers food safety and food quality, including “Green Food”, good agricultural practices (GAP), good manufacturing practices (GMP), feed production, hazard analysis and critical control points (HACCP), green market, and organic products. CNAS - The China National Accreditation Service for Conformity Assessment (CNAS), the national accreditation body, provides technical conformity assessments. CNAS conducts assessment and accreditation for inspection bodies, laboratories, as well as certification bodies, and sets technical rules, such as the certification criteria for all certification bodies.
7.3.1. Mandatory Labelling Items of Pre-packaged Food
Original labelling in Chinese Name of the product (every word, image, brand or description that identifies the product) List of ingredients - Any substance used in the manufacture or preparation of a food and present in the final product (including in a modified form), including food additives Net weight and configuration Date marking – date of manufacture and indication of “best before” or “use by” date Name, address, and contact information of the manufacturer and distributing importer Conditions for the storage Food production license number
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53 Storage dates and instructions Country of origin Code of the product standard
7.3.2. Requirements Specific to Nutritional Labelling
The Nutrition Labelling of Repackaged Food Regulation was implemented in January 2013 and states that energy, core nutrients content value, such as levels of protein, fat, carbohydrate and sodium, and percentage in the nutrient reference values (NRV) are mandatory labelling items on a nutrition label of pre-packaged foods. Declaration of other nutrients, such as vitamins and minerals, is only applicable in the presence of nutritional claims; otherwise, it is on a voluntarily base.
7.3.3. Requirements Specific to Baby Food Labelling
Starting April 1, 2014, all imported milk powder products are required to attach Chinese labels on their unit packaging before entering China. Since May 1, 2014, all overseas milk powder manufacturers had to register within China to be able to import their products into China. As of December 31, 2014, 255 companies have registered in China and thus were able to import milk powder into China. Starting July 1st, 2015, stricter regulations on the labelling of milk powder is going to come into effect (GB 13432- 2013), which will include more stringent regulations regarding components, storage, etc. These new regulations will also cover baby food, in addition to milk powder.
7.3.4. Requirements Specific to Organic Labelling
Local governments first introduced organic food-labelling schemes in the mid-1980s, which were later taken up by the central agency, the Ministry of Agriculture (MoA). Pollution-free products must comply with basic food safety standards, while “green” foods must follow stricter standards. The MoA established the China Green Food Development Centre (CGFDC) in 1992 as a public certification body. Initially, CGFDC focused on food safety certifications but it later extended its scope to include organic certification.
Additionally, in April 2005 the China National Organic Product Standard (CNOPS) was established, according to which all certification bodies have to be registered with the CNCA. The supervision of the certification bodies and the administration of organic certification at the local level is under the responsibility of the AQSIQ. In compliance with Rules for Implementing the Certification of Organic Products, the CNOPS hands out organic product certification seals in China.
Organic product certification Organic product certification seal for “fully organic” seal for “In conversion”
Besides the seal of the CNCA, 23 organizations are authorized to certify products next to the CNCA's organic seals. Most of these 23 organizations have their own unique seal, which means that most organic products from China would have at least two different seals.
THE CHINESE FOOD MARKET
54 8. Sino- Swiss FTA
On 6 July 2013, China and Switzerland signed the first Sino-continental European and bilateral free trade agreement (FTA) which came into effect on July 2014. The goal is mainly for China to pursue liberalised bilateral trade agreements with selected overseas countries. Switzerland is the first country within continental Europe that was able to sign a FTA with China. Given China’s importance in the world and being Switzerland’s third-largest trading partner after the EU and the US, it is seen as the most important deal since the FTA with the EU in 1972, supporting further growth and the importance of Swiss corporations. Since signing this deal, Swiss firms have enjoyed easier access to the Chinese market, as well as a competitive advantage in business with China over their European competitors. The FTA with China grants Swiss companies more legal certainty, mutual recognition of quality standards, better protection of intellectual property rights, and generally higher legal security. In more practical terms, the FTA is expected to stimulate an increase in trade flows and will enable Swiss export companies to enjoy significant savings in customs duties, while consumers benefit from lower priced products, as well as a wider choice.
The FTA generally covers the following subjects: Trade in goods (industrial and agricultural products), rules of origin, customs procedures and trade facilitation, trade remedies, technical regulations, sanitary and phytosanitary measures, trade in services, protection for intellectual property, competition, investment promotion, transparency in government procurement, trade- related environmental and labour issues, economic and technical cooperation, institutional provisions (Joint Committee, consultation process, dispute settlement).
8.1. IMPORT PROCEDURES
As Chinese consumers are relatively price sensitive and the market is competitive, the cost of importing should not be neglected. Most importantly, importers need to be familiar with relevant procedures, certifications, and regulations. 1) Registration: Since 1 October 2012, all exporters or agricultural products and wine to China are required to register on the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) site via http://ire.eciq.cn/ (also in English). If importing themselves, all importers of food products must be established in China with a registered business scope that includes the business activities of (a) importing and (b) distributing food products (even if the importer does not intend to commercially distribute the products). Importers must also be registered as a foreign trade operator with the Ministry of Commerce (MOFCOM), the State Certification and Accreditation Administration if the food product in question is on the “List of Food Imports Subject to Enterprise Registration”, and the AQSIQ for tracking purposes. 2) Pre-import licensing: The three most common licensing structures are a. “License-free” – For packaged food where no license required and free of import restrictions b. “Automatic import license” - For unprocessed food, such as dairy, which is automatically issued, free of import restrictions but tracked by MOFCOM c. “Tariff rate quota license” – For commodities, such as sugar or rice, which is limited by a quota set by the MOFCOM 3) Customs approval: Customs reviews the commercial invoice, packing list, and bill of lading, and inspects the food products, in order to confirm their declared value. Customs then issues a corresponding duty memo, which must be paid to Customs within 15 days (subject to fines after deadline). It is important that all documentations show the full country name as in “People’s Republic of China”. 4) First-Time Import Review: Products imported into China for the first time underlie import reviews by the AQSIQ, including document review, label verification, and sample inspection. After the products are being shipped more regularly, the review process becomes more straightforward. The AQSIQ, however, will keep randomly inspecting labels and samples.
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55 8.2. IMPORT DUTIES
Regarding agricultural products, the FTA enables many Swiss products to be exported to China tariff-free or at reduced tariffs and almost all Chinese products to be imported tariff-free into Switzerland. While Switzerland agreed to immediately remove tariffs on up to 99.7% of goods imported from China, Chinese import tariffs on 96.5% of Swiss products will only be reduced gradually. The vast majority of Swiss products will have to deal with a tariff dismantling period of 5 to 15 years thereafter. Dismantling periods have been introduced for products where China has claimed to have specific needs for adjustments due to substantially higher level of tariffs, e.g. for selected products in the watchmaking, machinery, and chemical sectors.
Table 8.2. 1: Chinese customs duties on major food products (goods exported from Switzerland to China)
Tariff Line (HS Code) Product Description Import customs duty Before FTA After entry into force of FTA Chapter 4: Dairy products Milk & cream with different 15% Gradual tariff elimination fat rates, not concentrated or within 10 years sweetened Yoghurt 10% Gradual tariff elimination within 12 years Butter and dairy spreads 10% Gradual tariff elimination within 5 years Fresh grated / powdered or 12% Gradual tariff reduction processed cheese (except within 10 years to 4.8% blue cheese) Chapter 9: Coffee Coffee (not roasted or 8% Gradual tariff elimination decaffeinated) within 5 years Coffee (roasted, not 15% Gradual tariff reduction decaffeinated) within 10 years to 6% Chapter 18: Cocoa Chocolate, etc. in blocks, 10% 0% as from entry into force slabs or bars, not filled Chocolate, etc. in blocks, 8% Gradual tariff elimination slabs or bars, filled within 5 years Chapter 19: Staples Prepared cereal 30% Gradual tariff elimination within 5 years Sweet biscuits 15% Gradual tariff elimination within 12 years Waffles and wafers 15% 0% as from entry into force Chapter 20: Preparation of Jam, fruit jellies, 30% Gradual tariff elimination fruit, etc. marmelades, etc. within 5 years Juice of a citrus fruit (f.e. 15-20% Gradual tariff elimination Lemon, Grapefruit), Grape, within 10 years Apple and Mango Chapter 22: Drinks Mineral Waters, 20% Gradual tariff elimination unsweetened and within 10 years unflavoured Beer made from malt 0% 0% Champagne, sparkling wine 14-20% Gradual tariff elimination and wine within 10 years
Source: SECO, Fiducia Analysis
THE CHINESE FOOD MARKET
56 9. Swiss Companies in China
9.1. CHEERS WINES
9.1.1. About CHEERS Wines
CHEERS Wines is a wine retail chain store, founded in April 2011 in Beijing, during which time most wines in the market were still overpriced and the choice limited. CHEERS Wines was one of the first retailers in China that provided imported wines at fair prices. Their selection includes wine, sparkling wine, and wine cocktails imported from over 17 countries and currently available at 13 stores in Beijing and 7 franchisees in different cities around China. Recently they also started to offer a small selection of beer, spirits, and some food products. In August 2015, CHEERS also started a co-promotion with Swiss and Chinese wines. All products can be tasted and enjoyed in their physical stores but as a supplementary service CHEERS Wines also offers them via Taobao (on-line) and WeChat (mobile store).
9.1.2. Road to success – CHEERS Wines
Ms. Claudia Masueger, the founder and CEO of CHEERS Wines, arrived in China in January 2008 and first established a wine wholesale business called MQ Wines. When their main warehouse burned down in November 2011, they were out of business for four months they had the opportunity to develop a new brand, CHEERS Wines. Ms. Masueger was always highly fascinated with the big potential of the Chinese wine market. So she arrived in China one day with two suitcases of wine samples and travelled from city to city to visit wine importers, retail stores, restaurants, and exhibitions in order to get to know the market. She provided spontaneous wine tastings on the streets and realised that especially the younger generation showed a big interest in wines but no reliable sales channels were provided. CHEERS Wines saw this gap in the market and started selling and educating young Chinese consumers about imported wines. During the process of setting up CHEERS Wines, however, Ms. Masueger had to overcome many hurdles. The language barrier and cultural differences were one of the main difficulties but the biggest challenge for CHEERS Wines was always government-related. Receiving all proper licenses for the business and especially for the stores was one of the biggest issue and most tedious task.
9.1.3. Success story – CHEERS Wines
The main reason behind CHEERS was the lack of fair-priced imported wines in the market. Back then most of the wines were sold to the government or through business channels but no one had paid much attention to the younger generation and rising middle class. Ms. Masueger was one of the first to offer imported wine at reasonable prices, as low as RMB 28.80 per bottle and their concept was successful from the beginning. CHEERS Wines developed into a trustful brand with a unique character and a great trademark. Because they were the first mover they were able to set a benchmark that nowadays many competitors are trying to copy. The ultimate goal is to become the most famous and most trusted wine retail brand in China, reaching up to 888 stores. For 2018, CHEERS Wines will also expand their concept to other Asian countries.
9.1.4. Suggestions for market entrants – CHEERS Wines
One of the most important steps before entering the market is to research intensively in order to fully understand the target market with all its complexity. This is especially important for China as the markets are changing fast. Strategies should be observed and aligned frequently as planning can prove to be invalid or obsolete even after six months. It is also essential to leverage on existing knowledge and ask experienced business people for advice. The Chinese culture and business environment takes time to adapt. It is important to stay flexible and open-minded when dealing with employees. The education system in China is still relatively poor and employers need to put much emphasis on training and educating their staff even though there is a high chance that they will leave again soon. Additionally, Chinese consumers are increasingly sophisticated and demanding, focusing more and more on good service. CHEERS Wines for example has built an early education system for their staff and implemented strong internal core values from the beginning, which prove to be very successful. And finally, always follow the
THE CHINESE FOOD MARKET
57 law even though it might seem that one can only be successful when finding loopholes in the Chinese systems and your Chinese colleagues or competitors might know an easier and faster way. Not adhering to local laws, especially for foreign companies, can very quickly lead to severe consequences.
“For every foreigner who plans to live in China, first, learn the language (if possible), second, enjoy China with all its differences. It’s not going to be easy but it if you are open minded and ready to adapt, there is so much to learn and to enjoy!”
– Ms. Claudia Masueger (CEO and founder of CHEERS Wines)
9.2. EMMI
9.2.1. About Emmi
Emmi entered the Chinese market in 1995 with establishing first presence in Hong Kong, mainly with commodity products at prestigious airlines and hotel chains like Swissôtel. Since 2003, they have carefully expanded into the retail industry with specialty products, such as premium yoghurts or high-end cheese. Emmi entered the Chinese market in 2007 and is nowadays among the top three dairy brands in Hong Kong and responsible for the majority share of Swiss milk exports to China. Its product offering include yoghurt, milk mix drinks, milk and cream, cheese and ice cream and can be bought via distributors and various retail channels, including high-end supermarkets, like BHG or City Super, as well as online shops, such as online grocery store www.fieldschina.com.
9.2.2. Road to success – Emmi
The size of the Chinese food and beverage market, supported by the growing population, rising middle class and general fast economic development, has been the deciding factor for Emmi to enter the Chinese market. Their market entry success in China can be based on two factors, according to Mr. Dirk Wang, Emmi’s Sales and Marketing Manager in China: 1) Swiss products, such as Swiss luxury watches or the “Schweizer Armeemesser”, are worldwide known for their high quality, which creates a positive image for Swiss manufacturers throughout the industry. Emmi has been able to leverage on this perception and is marketing its products as high quality, healthy, and safe which are the most important attributes for the Chinese consumers nowadays. 2) Also through the influx of more and more Chinese tourists in Europe and Switzerland, having come in contact with local specialties like cheese fondue and other dairy products, made it easier for Emmi to convince the Chinese consumers to try their products or to introduce new flavours. However, integrating cheese or other exotic dairy products as a main element of the traditional Chinese diet was far more complicated. Emmi, as well as other dairy manufacturers, face this particular challenge and focus on a niche market rather than targeting China as a whole. Emmi tries to sell their products based on the story of the brand, the safety of the production base, or targeting the younger generation. So far, the biggest challenge however has been the different Chinese GB (guobiao) standards. For example, Emmi’s yoghurt products can only be called “Fermented Milk” according to the Chinese GB- standards while Emmi defines it as yoghurt. Due to this difference in labelling, Emmi has to spend a lot of effort and time on consumer education.
9.2.3. Success story – Emmi
Emmi’s success in China is predominantly anchored in their already existing international recognised brand. Emmi is known throughout the world for good quality dairy products. Further, their direct regional market approach, strong distribution networks within China, and a clear brand positioning leveraging their Swiss image have additionally facilitate Emmi’s success in China. According to Mr. Wang, especially quality and taste are the two main reasons why Emmi was able to gain so many Chinese consumers in a relatively short time. Chinese customers are nowadays putting much more attention towards healthy choices and food safety and since Emmi built their products and image predominantly on quality, origin, reliability and safety, it quickly developed into a safe and reliable choice for many Chinese.
9.2.4. Suggestions for market entrants – Emmi
While the Chinese market is huge and attractive for many foreign companies, they should thoroughly evaluate the suitability and actual market demand of their products in the Chinese market. Companies usually tend to get overly excited about the
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58 possibilities, sheer market size and simply the number of potential customers, often thinking that even if they can only reach 1% of the market it is more than they will be able to cover in their home countries. However, this is not always the case as many foreign companies forget to consider the different Chinese diet and eating habits. Cheese, for example, only covered a small market and had been introduced to the Chinese diet just recently. So far, it has slowly gained popularity among children who grew up with a higher lactose tolerance due to a changing diet but can nowhere reach the entire Chinese population.
“Foreign companies, especially within the F&B industry, need to know that they typically can only target a small amount of consumers in the Chinese market. They need to be aware of the diet and actual needs of the Chinese consumers before they decide to enter the market.” -Mr. Dirk Wang (Manager Marketing and Sales of Emmi China)
9.3. SWISSTASTE (BEIJING)
9.3.1. About SwissTaste
Mr Peter Troesch, owner and founder of the restaurant SwissTaste in Beijing, has been in China for more than 13 years and first opened his consulting firm Peach International before moving into gastronomy. The idea for a Swiss restaurant already came up 10 years ago but because of many consulting projects over the years, Mr. Troesch was only able to open SwissTaste in April 2015. SwissTaste is located at the heart of the business district in Beijing within a high-end residential compound and offers traditional Swiss dishes, such as Cheese Fondue, Raclette or Zurich veal ragout, and deli produces as well as more than 30 different Swiss wines.
9.3.2. Road to success – SwissTaste
Based on the success of Mr. Troesch’s consulting firm Peach International within the Chinese hospitality industry and focusing on project development for luxury resorts, health and wellness projects, elderly care project and hospitality education, Mr. Troesch was able to leverage on his existing expertise and knowledge when opening SwissTaste. Besides knowing customers’ taste and the industry however, it was important to be fully aware of China’s bureaucratic requirements, such as receiving the necessary hygiene, fire and all other foodservice related certificates in time. The unpredictable legal situation in the foodservice industry is therefore one of the biggest issues in China, as there are already many laws and regulations but the implementation or enforcement of those laws is highly unpredictable and on top of this the legal situation can change from one day to another without clear reasons. Additionally for foodservice providers, location is key and rental prices for top locations are high and on the rise. Cost for rent are, for example, much higher in China than for comparable locations in Switzerland.
9.3.3. Success story – SwissTaste
SwissTaste has successfully opened in April 2015 and business has been good but with the fast changing restaurant scene especially in first-tier cities like Shanghai or Beijing it will take some time before restaurants, like SwissTaste, will gain a more reliable customer base. Being the only Swiss restaurant in Beijing is however already a unique selling point and its concept is working so far: Customers love the interior design and atmosphere and the consistent high quality food at affordable prices. Being located in the central business area of Beijing, surrounded by many similar restaurants also catering for business people and expats, competition might be high but the great choice of different restaurant options draws many customers to this area. In the future, SwissTaste will launch two delivery services, a SwissTaste home cooking school and will look for opportunities to open more locations in Beijing and all over China. The clear goal is to have SwissTaste outlets all over China first, and then potentially also cover Asia Pacific and the rest of the world.
9.3.4. Suggestions for market entrants – SwissTaste
“When starting a new restaurant or business in China, it is important to focus on both international as well as Chinese customers and to involve a Chinese partner. It will make the application process easier and faster if a Chinese partner is involved.”
-Mr. Peter Troesch (Owner and Founder of SwissTaste in Beijing)
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59 10. Export Checklist
In order for Swiss companies to export their products into China, it makes sense to be aware of the following steps. This export checklist supports you in tracking the general progress of your exported products, and in having an overview of the entire process.
1. Planning and Preparation Research the Chinese market using the resources described in this report. Visit or call the Swiss embassy or consulate for information on trade opportunities and market intelligence for China. The Swiss consulate and embassy in your target market can help you in assessing your market prospects and to provide you with a list of qualified contacts. Visit your target cities and surrounding areas and talk to potential buyers and intermediaries. Develop a network of contacts and potential partners. Find out who your competitors and potential allies are, and who are the key importers, distributors and agents for your product or service. Develop a profile of the ideal agents and distributors; then make a short list of the ones whose skills and experience best complement your export objectives. If exporting a service, consider the possibility of finding a local partner to represent your interests. Put together a promotional package describing your company and its products or services. Attend a regional trade fair to do preliminary promotion and establish contacts with potential buyers and associates. Make arrangements with key export service providers such as freight forwarders, trading houses, and customs brokers.
2. Check prospective counterparties Verify the end users, retailers or intermediaries' credit rating. Contact other exporters who have had dealings with the counterparty. Ask the Swiss embassy in your target market to provide you with information on the counterparty. Verify the counterparty’s business profile. Visit counterparties.
3. Sales confirmation Confirm the following items during the sales confirmation: Quantity Payment terms Shipping/trade terms Corresponding HS codes Transportation method Price
4. Prepare a L/C (Letter of Credit) issued by buyer's bankers, where applicable The process for a letter of credit is as follows: 1. The buyer issues an instruction to his or her own bank. 2. The buyer's bank sends your bank the L/C. 3. Your bank sends the L/C to you.
Review the L/C carefully with your freight forwarder, banker, and legal counsel. It must be consistent with your sales agreement, and you must comply with all of its provisions. Remember that it pays upon receipt of correct documents, not upon successful completion of the transaction. If a name or address is misspelled, if the shipping date is wrong, or if all charges are not included, you may be unable to collect the payment.
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60 5. Prepare documents Your shipment must be accompanied by all relevant documentation, including: Commercial invoice Packing list with registration number (from registering with AQSIQ) Label sample in compliance with Chinese regulations and translated into Chinese Insurance certificate (issued by a transport insurance company) Shipper's instructions and Shipper’s Export Declaration Air Waybill (issued by airline) or Sea Waybill (issued by ocean carrier) Cargo receipt (issued by domestic logistics company) Dock receipt (issued by freight forwarder for presentation at airport or harbour) Certificate of origin HS Code (customs tariff number) Inspection certificate (also required for wood packaging) Standards documentation (if necessary) Health/sanitary certificate (if necessary)
6. Shipment process Please also refer to chapter 8.1 Import Procedures into China 1. Book space on airline /containers on shipping vessels 2. Freight forwarder sends the goods to the carrier 3. Customer receives all relevant documentation, allowing the shipment to clear customs 4. Goods clear customs at the destination entry point 5. Collection of goods 6. Confirmation of Receipt of Goods 7. Filing of shipment document (for five years from shipping date for government inspection)
7. Collection of payment 1. The freight forwarder presents your bank with the L/C and all accompanying documentation 2. You present your bank with a demand for payment 3. Your bank passes the documentation to the buyer's bank with a demand for payment 4. The buyer's bank accepts the documentation and lets you know when the funds will be transferred 5. Your bank transfers funds to your account
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61 11. Appendix
11.1. CROSS-BORDER E-COMMERCE OF BONDED WAREHOUSES
Import bonded warehouses, or customs supervised warehouses, are warehouses under the direct or indirect supervision of China’s import authorities. They are generally used in areas away from the sea and airports of China and allow imported goods to be held for a period of time with deferred payments in tax and duty. Products therefore are only taxed after they have been purchased by customers and shipped to their homes. Regarding e-commerce, the Chinese China’s General Administration of Customs designated six cities—Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, and Chongqing—for various cross- border e-commerce pilot projects, dedicated to importing and delivery of products purchased online across different countries. Bonded warehouses therefore have many advantages for e-commerce and in general, including among others: Reducing the number of middlemen, allowing direct shipping from producers abroad. Shipping in bulk to the bonded warehouse, reducing logistics costs and consumer prices. Eliminating the standard commercial import duties for products transiting the bonded warehouses. Instead, the government imposes “individual import duties” of 10-50% of the value of goods, depending upon the product category.
11.2. CROSS-BORDER E-COMMERCE IN BONDED LOGISTICS PARKS AND FREE TRADE ZONES
Bonded Logistics Parks (BLP) are bonded warehouses with similar trade agreements as bonded warehouses but cover a specific geographic area or special economic zone, such as Free Trade Zones (FTZ). Compared to bonded warehouses however, China’s bonded logistic parks have different rules regarding export-related VAT rebates, which are available immediately upon entry to the facility and do not require the goods to be assigned to a particular vessel or flight before rebates can be claimed. Other typical advantages include deferred duty or VAT for import cargo, which can be paid on a per piece level not per shipment, and many other value added services not requiring prior customs approval.
Free Trade Zones (FTZ) are special regions in selected cities in China that provide tax and foreign currency benefits to encourage Foreign Direct Investment. The Shanghai Entry-Exit Inspection and Quarantine Bureau and the Shanghai Pilot Free Trade Zone announced in June 2015 that new policies are on its way aiming to decrease the processing time for imported goods through e-commerce channels within the FTZ. The inspection department is also establishing a comprehensive list, allowing other goods that are not yet on the list to enter China via e-commerce. In short, the current policy encourages and supports the development of e-commerce trade, especially within and to FTZ. For F&B specifically, the focus is more on fresh and perishable foods, where several policies are in place to reduce the processing time. Largest players currently that focus on trading F&B through e-commerce are Yihaodian (yihaodian.com) and Fruit Day (fruitday.com). In 2014, the total revenue of cross-border e-commerce in China amounted to USD 71.8 billion, increasing by 44% compared to 2013. Importing accounts were USD 20.6 billion and grew by 60% compared to the previous year.
On June 2015, the government released a new series of guidelines to support cross-border e-commerce, including streamlining clearance of goods by customs. Collective customs declaration at the end of each month is already allowed by some regional customs authorities, reducing costs that are typically associated with multiple individual declarations.
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62 11.3. POTENTIAL IMPORTING PARTNERS FOR CHINA
Table 11.3. 1: Local distributors and importers
Name of distributor / Partners / Category Description Contact importer Brands
General Food Foodgears Industrial Importer, distributor and www.foodgears.com Devondale, International Ltd. marketer in Hong Kong, Macau Frey, Melitta and mainland China
General Food Goodwell One of the major food importers www.goodwellchina.com Arla, Bauer, in China Ceres, Dole
General Food KK Food Trading Co., Import food, snacks, beverages, www.kk-food.com Rita, Mypis Ltd etc., on a smaller scale
Dairy Beijing Milkyway Two-way dairy trading company www.bj-milkyway.com Fonterra Trade Corp. for both import and export
Dairy Shanghai Juneng Sales agent of imported dairy- www.dfxd.com NZMP, Foods Co., Ltd based raw material Fonterra
Soft Drinks Guangzhou Sinogreen Subsidiary of Sinogreen Europe www.sinogreenchina.com Landessa Food & Beverage Co., B.V., a Dutch trading company Ltd
Alcoholic Ottimo Wine importer to supply www.ydlptj.cn Scrimaglio Beverages Vino(Shenzhen) restaurants, high-end hotels and Winery Co., Ltd clubs
Alcoholic CHEERS Wine Imports mainly international www.cheers-wines.com Mestizo, Beverages wines and fine foods Terramo
Organic Food Healthy Imports Ltd Since 20 years importing www.healthyimports.com. Rocwell Water, healthy food into China as a cn Organix WOFE
Organic Food City Shop Operating more than 30 stores www.citysuper.com.cn Friland Meat, in HK and mainland China with Organic Valley, a large assortment of imported AlceNero food
Organic Food Helekang Online platform that sells and www.helekang.com Borden, imports organic food from Organic Valley original producers
Baby Food Run (Beijing) Agent of several imported baby www.runbj.net OZ-Milko International Trade food products and supports in Co., Ltd customs clearance
Baby Food Dalian Century Active in import and export www.century-intl.com Beingmate, International Co., Ltd trade, storage, etc. mainly Nestle focused on baby food and dairy
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63 Dietary Beijing Taiyikangcheng Import products mainly from www.cnhealth360.com Liverite, supplements Company US, like Liverite, ForeMost, ForeMost, Nutrisant, No.9 House Bactolac
Sports Beijing Fenghe Lijian Biggest agent in the industry www.fenghelijian.com BSN, Monster, INT'L Trading Co., Ltd with over 10 partners overseas Nutrex
Sports Rightsun Corp. US agent selling protein powder www.rightsun.net Champion from overseas producers in Nutrition, China Prolab
Source: Company Websites, AQSIQ, Fiducia Analysis
11.4. LOCAL TAXATION AND LEVIES ON ALCOHOLIC BEVERAGES IN CHINA
Please also note local taxation and levies on alcoholic beverages in China:
RMB per litre of pure alcohol
Excise tax RMB220 per tonne for beer costing less than RMB3,000 per tonne RMB250 per tonne for beer costing more than RMB3,000 per tonne RMB240 per tonne for rice wine 10% ad valorem for wine 20% ad valorem for spirits
Import tax 40% ad valorem for imported rice wine 14% ad valorem for wine 65% ad valorem for fortified wine 10% ad valorem for imported spirits
Sales tax 17%
Source: China Customs and National Taxation Bureau
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64 11.5. REFERENCE
AQSIQ - General Administration of Quality Supervision, Inspection and Quarantine
Biofach
Bloomberg
China Business Review
China Chain Store and Franchise Association
China Food and Drug Administration
CNCA – The Certification and Accreditation Administration of the People’s Republic of China
Datamonitor
EMIS
Euromilk
Euromonitor
Financial Times (FT)
IFOAM Organics International
International Wine and Spirit Research (IWSR)
Ministry of Industry and Commerce
Ministry of Agriculture
National Bureau of Statistics of China
OABC – Organic Agricultural Technology Centre
OECD
Organic and Beyond
Organic Trade Association
Reuters
Swiss Milk
United States Department of Agriculture (USDA)
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65
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