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China’s beverage market has experienced considerable growth over the past several years. In 2016 the National Bureau of Statistics reported that domestic beverage industry sales had increased by 10.5% in 2016 . While each beverage category will present different challenges and opportunities, it is clear that there are emerging trends in Chinese consumer lifestyle which are helping shape the market.
Chinese consumers are among the world’s most health-conscious due to rapid growth and considerable lifestyle changes. Consumers are seeking an active lifestyle and physical health, but they are also aspiring to improved mental wellbeing. In all markets they are seeking products to make them feel and look healthy and happy, to the point where 73% of consumers are willing to pay more for products which are deemed healthier. This move towards healthier options has seen consumers interested in trying non-dairy alternatives. Despite this shift, China remains the world’s largest retail market for milk, and in 2016 it was the leading market for dairy drink innovation. Dairy milk is still widely considered a dietary necessity in China, but the non dairy market is set for further expansion as consumers are interested in different flavours and potential health benefits associated with these products.
China is the biggest market in the Asia Pacific region for carbonated soft drinks (CSD), but consumption volume per capita is still lower than that in developed countries, and the compounded annual rate of growth is below average. Most developed countries including USA, Australia and Japan are seeing slow growth in the CSD market as sugar content is a big concern. Increasingly, Chinese consumers are also concerned about sugar levels, meaning there is a market for CSD options with less, reduced or no sugar. Alongside healthier food and drink choices, Chinese consumers are also pursuing a more active lifestyle. As a result, the sports and energy drink market in China shows great potential. Average growth value over the past five years has been promising, and brands are marketing to regular consumers, rather than just specialised athletes. There is room for development in this area to include more natural and healthy ingredients, which 40% of Chinese consumers would pay more for, and more unique flavours which 51% would be interested in trying.
China has a ‘fan economy’ which largely plays out on social media with the millennial market. Beverage brands have begun to recognise the value of social media marketing to communicate directly with this demographic. Online campaigns largely consist of promoting the experience of a beverage, or inviting the consumer to be a part of the company’s process. There has been a surge in the popularity of tea, with Chinese company HEYTEA at the fore. Established in 2011, HEYTEA has developed into a brand which customers are willing to queue over an hour for. They have successfully utilised social media, particularly WeChat, to generate viral campaigns, and have created bizarre flavours and combinations including a green tea with a cream cheese topping to instigate further hype. International brands have also utilised a multi-prong approach to appeal to the millennial market including Lipton, which is owned by British-Dutch conglomerate Unilever, who created a pop-up tea bar during Shanghai Fashion Week. The initiative featured bespoke gift boxes and social media campaigns offering the opportunity to win fashion week tickets.
China has experienced an upward swing in people consuming food and beverages outside of the home in Tier-1 and Tier-2 cities. Food delivery, eating out, and the majority of goods bought at convenience stores are for consuming outside of the home. Between 2013 and 2016 online-to-offline food delivery increased by 40% to 50%, which has shaped the food industry with many more brands concentrating on online sales. Beverages, however, have relatively low online penetration which indicates that they are not as suited to this platform.Beverages sold at convenience stores have a higher rate of out-of-home consumption which has promoted many organisations to adapt packaging and branding to appeal to on-the-go consumption. Hypermarkets cater to a different market as beverages bought here are for home consumption, meaning there are greater opportunities for offering bulk packaging.
The China Shopper Report 2017 offers a useful method for re-thinking strategy in the Chinese beverage market. Chinese consumption operates at two speeds; fast and slow. In order to successfully operate in this market companies need to work simultaneously in both streams. For example, an established brand has an opportunity to create a premium range for white-collar shoppers, while raising prices of their traditional mass product which is targeted at blue-collar consumers to make up for the falling sales at this level. By working on both streamsconcurrently there is greater room for innovation and sustained value growth.There are various opportunities for the beverage market to operate in China at two speeds, with the potential to add premium products with reduced sugar, more natural ingredients, limited editions, and unique flavours or flavour combinations.
With a change in the eating and drinking habits of Chinese consumers, brands need to adjust their beverage offer depending on the context they are selling in. As convenience stores increasingly show a consumer preference for on-the- go products, beverage presentation and packaging can address these needs. Convenience store customers are also a key segment of health-conscious consumers who are purchasing healthier food and beverages. If operating on a two stream system, brands can target their premium, healthier options to these stores.As eating outside of the home increases in popularity, there is also an opportunity for brands to sell directly to restaurants and focus their attention on business to business retailing and marketing.
Digital trends to communicate the experience of a brand is significant among millennial consumers. In order to target this market, brands can invest in visual branding and social media campaigns. Innovative marketing campaigns are best played out on social media as they help create buzz and excitement around a product. There are opportunities for international beverage brands to partake in China’s digital and fan culture. Starbucks were an early adopter of integrating WeChat campaigns into their marketing strategy, and regularly change store formats to meet the changing expectations of consumers.
Chinese consumers are becoming more health-conscious and are showing an interest in less processed ingredients, which has increased the demand for more natural ingredients. This opens up opportunities to create beverages with more natural flavours, particularly with morelocally sourced ingredients. Local flavours are particularly popular in concentrates and mixes,and appeal to the tastes of individual countries, while providing opportunities to utilise local produce.When utilising more natural ingredients and flavours, the benefits should to be c onsidered and clearly marketed to appeal to health-conscious Chinese consumers