Thanks to its rapid growth in recent years, China has emerged as the world’s largest consumer market for food and beverage (F&B), surpassing the United States in 2011 and making the Chinese market increasingly appealing for foreign brands as consumers’ behavior shifts.
According to a recent study conducted by the Economist, China is the second fastest growing F&B market out of all major Asian countries, with an average annual growth rate of 30% in the past five years, according to the Ministry of Commerce. Not surprisingly, this rapid development has helped fuel the demand for imported F&B, with China becoming the largest importer of F&B in the world as of 2012. The Chinese National Bureau of Statistics reported that the average annual growth rate of F&B imports was around 15% during the last five years, reaching an aggregated value of approximately US$ 98 billion by 2012, according to the World Bank.
It is widely acknowledged that the increase in household disposable income and the prevalent food safety scandals in recent years are two key drivers that have helped boost the rapid growth of China’s imported F&B market. According to the Chinese National Bureau of Statistics, China’s urban household average annual income per capita rose from US$ 320 in 1990 to US$ 4,300 in 2012, allowing Chinese consumers to spend more money on higher-valued food products including dining out, and imported products. The pervasive food safety scandals, such as the tainted milk scandal in 2008 and the discovery of 15,000 dead farm animals in the Huangpu River in 2013, have substantially undermined Chinese consumers’ confidence and trust in domestic food production processes and standards. These food safety incidents have subsequently had a great influence on the purchase decisions of consumers. A survey carried out by Ipsos during 2012, shows that over 60% of Chinese consumers would choose foreign brands, particularly when purchasing food products for infants and children.
In addition to growing disposable income and domestic food scandals, the extraordinary growth in online shopping has been a recent key driver in stimulating the boom of the imported F&B industry. A report on China’s online shopping market conducted by CNNIC shows that online shopping increased by 66.5% during 2012 alone, reaching an aggregate value of US$ 202 billion, and that online buyers more than tripled between 2008 and 2012 from 74 million to 242 million buyers respectively. The three main players within the online F&B segment are T-mall, JD and Yihaodian, where Yihaodian alone is responsible for 27.5% of China’s total dairy products, according to China customs data. The demand for imported F&B peaks during the yearly ‘Double Eleven’ online shopping Carnival on 11th November, which was originally initiated by Mr. Ma Yun, the previous CEO of Alibaba, to boost online shopping by offering substantial one-day discounts, similar to the Black Friday in the United States.
The key reason Chinese consumers prefer buying their imported F&B products online is the price advantage received as compared to traditional import-oriented food retailers such as Tesco, Metro, Carrefour, etc. This price advantage is mainly due to online retailers’ ability to streamline their supply chain and reduce overhead cost, allowing them to offer better prices to the end customer. For instance, Organic Valley, a US milk brand, is priced at US$ 5.39 per liter in a typical retail supermarket, while it is sold at around US$ 4.24 per liter online with free delivery, or even lower at US$ 3.92 per liter with a volume discount. China’s great appetite for imported food products has naturally caught the interest of a number of international enterprises that are eager to enter this market either organically through partnerships, or as in some cases, through acquisitions. For example, the US retail giant, Wal-Mart acquired 51% of the e-tailer Yihaodian in 2012, one of the largest online grocery shops in China.
Looking into specific products, the categories that dominate the imported F&B market are dairy products, snack foods, and alcoholic beverages. The domestic tainted milk scandals have created rapidly increasing demand for high-quality dairy products, particularly for products produced overseas. Currently, many foreign brands are available in China. For instance, there are currently over ten US cheese brands in the Chinese market, including Leprino, Sargento, and AmeriDairy. In addition to dairy products, the snack foods market is also growing rapidly as Chinese disposable incomes increase. Foreign branded chocolates, high-end confections and biscuits are gaining in popularity, with Hershey, the largest chocolate producer in the US, having a strong presence. According to the China Ministry of Commerce, US confectionary products are dominating the high-end segment due to their increasingly high brand recognition—a segment traditionally owned by Japanese and Korean brands.
Looking more closely at the alcoholic beverage market, it is estimated by China customs that China’s wine imports reached a value of US$ 1.56 billion in 2013 and China will be the largest wine importing country in Asia by 2017, according to Hong Kong Trade Development Council (HKTDC). Even though traditional wine producing countries such as France, Australia, Italy, the US, and Spain have had a strong presence in the Chinese market for many years, it appears that the Chinese wine market is not yet saturated. While the competition is fierce in early adopting cities such as Shanghai, Beijing and Shenzhen, there is significant potential in fast-growing second and third-tier Chinese cities. These second and third-tier cities, particularly Wenzhou, Shenyang, and Taiyuan (with a combined population of around 21.5 million people) are given top priority by foreign wine brands that either are entering the Chinese market for the first time, or that are expanding beyond tier-one cities.
To summarize, the rapidly growing Chinese F&B market, driven by high disposable incomes, food safety concerns, and rapid growth in online shopping, has created many opportunities for global food producers aiming to expand their business in China. Opportunities exist for foreign enterprises in the F&B industry, especially those in dairy products, snack foods, and alcoholic beverages, with special attention given to the rapidly developing second and third-tier cities.
For any exporters who are interested in gaining a deeper insight into this particular industry segment, as well as strategic market entry/expansion advice, we welcome you to contact ARC Consulting to learn more.
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