Market Overview on Gelato, Coffee and Sweet Food in China
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Market Overview On Gelato, Coffee And Sweet Food In China MARKET OVERVIEW ON GELATO, COFFEE AND SWEET FOOD IN CHINA 2018 1 Market Overview On Gelato, Coffee And Sweet Food In China TABLE OF CONTENT SECTION 1: Executive Summary Page 3 SECTION 2: General Overview on Gelato, Coffee and Sweet Food Page 7 Market in China SECTION 3: The Ice Cream Market in China Page 11 SECTION 4: The Pastry and Bakery Market in China Page 37 SECTION 5: The Coffee Market in China Page 53 SECTION 6: The Chocolate Market in China Page 62 2 Market Overview On Gelato, Coffee And Sweet Food In China * SECTION 1：Executive Summary As a populated country with a fast-paced economy, China’s market for sweet food and coffee market is experiencing exponential growth due to a rising middle class and changes in the young generation’s attitudes and consumption behaviors. The Chinese, accustomed to a salty diet, are adopting the western coffee culture and learning to appreciate various sweet indulgences, leading to vast opportunities for Italian coffee and sweet food manufacturers. The era of globalization presents immense opportunities for brands, especially Italian ones, to understand and grow with Chinese consumers as they explore a modern lifestyle enabled by years of socioeconomic improvement. More encouragingly, third-party research showed a strong trend towards premiumization and discretionary purchases, which is likely to translate into demand for premium products. Since “made-in-Italy” coffee and confectionary is often considered “premium” by most Chinese, the market potential at this time seems stronger than ever for products of Italian origin. Among the different sweet food markets, the gelato and coffee markets seem to be having good potential in China as they are emerging and developing. *The present market research has been compiled by N‐Dynamic Market Research & Consultancy Ltd. for Italian Trade Commission Shanghai Office. 3 Market Overview On Gelato, Coffee And Sweet Food In China There is a high level of cross-pollination between western products such as coffee and gelato. Currently, there is a trend in which professionals from other industries start their own coffee and ice cream businesses. In order to maximize sales and offset significant production and operation costs, small business owners will often stock diverse product options to cater to as many customers as possible. This has resulted in the emergence of hybrid stores that can comprise of a gelateria, a café, or even a bakery. Ice cream has been integrated into other kinds of food forms. Instead of being a single product, ice cream has started to extend itself into other food categories. For example, restaurants might serve ice cream as a dessert along with other sweet food; bakeries could also sell ice cream in tandem with other products, such as mooncakes, birthday cakes, etc. Ultimately, the integration of gelato into other kinds of food forms is well received by Chinese consumers as they love sophisticated products. The promotions of the new food forms have resulted in higher awareness of and preference for gelato. One example is the affogato drink, which is promoted heavily by various coffee shops in China. While consumers care most about the taste and flavor of their ice cream, the “health” has almost an equal amount of importance. Interestingly, Chinese consumers’ preference for less sweet products makes it easier to create healthier ice cream without a significant compromise in taste. Gelato is well positioned to fulfill this unmet need with its fewer calories. In general, consumers are also seeking more flavors, and thus investment in research and development is needed. Other suggestions by consumers include a softer ice cream texture as well as more innovative shapes when it comes to serving ice cream. These are peripheral product attributes that can be leveraged to increase differentiation from other ice cream. 4 Market Overview On Gelato, Coffee And Sweet Food In China Gelato market players need to seek the best competitive advantages to define and maintain the product’s uniqueness through product innovations and nutritional messages. From a marketing perspective, gelato producers need to emphasize the naturalness and authenticity of the product through product attributes as well as leveraging the well-established reputation of Italy as a producer of gourmet ice cream. In order to educate consumers about gelato, industry experts advise business players to organize roadshows, gelato competitions, exhibitions, etc. These events will serve as educational opportunities where both brands and consumers can exchange information and become educated about each other. As suggested by one distributor, flagship stores are great marketing and business investments where gelato chefs can demonstrate the production process and educate consumers. Moreover, cross- promotion across other industries is a powerful way to enter the market through partnership growth. One machinery and ingredients provider stated that, in past few years, their company has setup gelato booths at event venues like the F1 car racing course and equestrian events with great success. Partnerships with large businesses or even local governments could go a long way in covering otherwise immense costs of industry-wide events. Gelato’s success in China will be a combination of business ventures into unknown territories as well as public relations strategies to raise awareness and establish a unique reputation for gelato. Finally, understanding how to navigate the ever-changing government regulations will be key for businesses. The Chinese government pays a lot of attention to food safety, but the specific regulations around gelato remain unclear. Businesses will have to continually look out for updates and guidance on gelato production in the near future as the Chinese government becomes more familiar with the production process. 5 Market Overview On Gelato, Coffee And Sweet Food In China It is without doubt that the gelato market in China will continue growing in the near future. The most important challenges that gelato producers will need to continue tackling are education, cultural assimilation and financial feasibility. As suggested by many industry experts, education on an industry level will act as a catalyst for faster growth through greater interest in gelato and a higher willingness to pay for it. Moreover, adapting to cultural norms and localizing the taste of gelato will help gelato products bypass consumer unfamiliarity and into consumers’ comfort zones. Lastly, scales of economies should be leveraged to reduce the overall cost of doing business in China so that more producers, distributors, and retailers are incentivized to expand access to gelato. Ultimately, the goal is to create a positive cycle of profitability that will in turn lead consumers to be more frequently exposed to gelato experiences. The inextricable link between consumer demand and gelato supply will continue to grow as long as the barriers are addressed on both sides with long-term prospects in mind. This market research is a general overview. ITA Shanghai would be pleased to assist Italian companies and associations to get more specific and detailed information on these sectors, as well as personalized services to facilitate their entrance into Chinese market. 6 Market Overview On Gelato, Coffee And Sweet Food In China SECTION 2：General Overview on Gelato, Coffee and Sweet Food Market in China As a populated country with a fast-paced economy, China’s market for coffee and sweet food is experiencing exponential growth due to a rising middle class and changes in the young generation’s attitudes and consumption behaviors. The Chinese, accustomed to a salty diet, are adopting the western coffee culture and learning to appreciate various sweet indulgences, leading to vast opportunities for Italian coffee and sweet food manufacturers. While there are only 33 cities with over 1 million people in all of Europe, the number of cities in China with same population is 303. Furthermore, as shown in the figure below, there are different tiers of cities in China. Each tier of cities represents a certain group of consumers with their idiosyncratic attitudes, behaviors, and preferences. Understanding these nuances will help products with different positioning find their success in China. 7 Market Overview On Gelato, Coffee And Sweet Food In China According to the consulting firm McKinsey & Company, rapid growth of disposal income within China’s middle and upper classes has been occurring since 2012 and is projected to last until 2022. The figure below demonstrates this growth and the increased consumer spending as a result. The affluent (annual salary greater than 229,000 CNY [€29,090 EUR]) and upper middle class (annual salary ranges from 106,000 to 229,000 CNY [€13,466 to €29,090 EUR]) groups will have a CAGR (compound annual growth rate) of 19.6% and 22.4% in the projected period, respectively. The incremental growth of their annual salaries will drive an expenditure shift from products to services and from mass to premium segments. In addition, middle-class growth has been concentrated more so in smaller cities to the north and west of China, many of which are 3rd tier cities. China's Rising Middle Class Source: McKinsey & Company This transition of focus away from major cities presents a unique opportunity to capitalize on previously untapped markets. What is interesting is that Italian coffee and sweet food manufacturers will have the ability to shape the mind of customers, 8 Market Overview On Gelato, Coffee And Sweet Food In China many of whom have minimal historical exposure to Western products. Less preconceptions and stereotypes about what Italian products look and taste like means that Italian producers can more easily assimilate into the local culture. Despite the recent slowdown of the country’s economic growth, China’s middle-class consumers are still confident about the prospects for their incomes, which make them more willing to spend disposable income.