Top 4 trends shaping China’s F&B market

China’s growing middle class is shaking up the country’s food sector, with major shifts in consumption and spending habits, and greater demand for healthy and premium products. Here we take a look at four of the biggest trends driving the Chinese food and beverage industry.

The connected consumer

The retail sector in China is digitalised like none other and e-commerce is more developed than anywhere else in the world.

According to the Boston Consulting Group, 70% of Chinese transactions involve at least one digital touch point, including online searches or social media reviews, meaning that companies must engage with consumers at every possible digital step on the path toward purchase or risk losing sales. E-commerce is a major trend, accounting for 15% of all retail sales of physical goods in 2017, according to the Chinese Ministry of Commerce. And at brick-and-mortar stores, some food retailers and foodservice outlets now only accept payment by QR code or facial recognition. 

“The Chinese food retail sector is evolving at the same time as the digitalisation of the country,” said Augustin Missoffe, Managing Director China & HK at Sopexa Agency. “The habit and the facility to get products from all around the world has increased with the new generation.”

He added that innovative technology and ‘Instagrammable’ foods and experiences are major attractions for many younger consumers. 

In addition to e-commerce, several retailers who were previously dedicated to online retail now are opening physical stores, including Alibaba, JD.com, Mei Tuan or Zhang Yu Sheng Xian. The reasoning behind this move is not to shift spending back in-store, but to allow for local distribution centres to ensure rapid delivery and product freshness.

“The transformation is just at the beginning, and consumers are looking for more: more healthy food, innovative food, and food with benefits,” Missoffe said.

He added that Chinese consumers’ openness to innovation is what makes the nation’s retail sector so unique – and why it continues to evolve. 

Growing dairy consumption

Despite relatively low per capita consumption, the Chinese dairy market is the world’s largest and fastest growing, according to Rabobank.

Average annual Chinese milk consumption has increased ten-fold since 2000, to about 10 kg per person, from both international and domestic producers. One of the fastest-growing categories is yoghurt, which has grown about 20% per year since 2014, according to Mintel, and the cheese market has also grown, by about 15-25% from 2015-2017, although per capita consumption is still extremely low. Yoghurt in particular benefits from a healthy image, as consumers consider it a good protein source and beneficial for digestion.

Multinationals have benefited from Chinese concern about dairy quality, particularly after the 2008 infant formula scandal, in which adulterated milk powder killed six infants and left thousands more critically ill. China is now the biggest market for New Zealand dairy co-operative Fonterra, for example, consuming a quarter of the milk it produces. 

The Chinese government is also cracking down on the quality of domestically produced milk, and the country’s dairy industry has flourished in the past few years, doubling in size from 2009 to 2014 to reach an estimated $40.6bn, according to China Mengniu Dairy, one of the country’s largest milk producers.

Dairy companies looking to capitalise on the trend are emphasising product safety, quality, and value-added ingredients, such as omega-3 fatty acids. State-owned dairy company Yili, for example, has launched drinkable yoghurts with live bacteria and added fibre under the Mei Yi Tian brand. 

Reduced sugar, salt and fat

The Chinese government issued new dietary guidelines in 2016, urging people to cut sugar, salt and cooking oils to improve their health. Such guidelines are taken very seriously in China, and serve as an action plan for food and drink manufacturers, as well as public health recommendations. The Chinese Centre for Food Safety has launched a programme to help companies cut sugar, salt and oil, including trade guideline documents.

In fact, Chinese per capita sugar intake is among the lowest in the world, but children aged three to 17 tend to consume too much, mainly in the form of fizzy drinks. This is thought to be a major factor behind a rapid rise in obesity and overweight among children. 

In addition, changing lifestyles, greater affluence, and higher consumption of western-style foods and drinks has reduced the quality of the average Chinese diet, and the nation has seen a spike in diet-related diseases like cardiovascular disease, high cholesterol and type 2 diabetes.

“In recent decades, as Chinese people’s income grows, they become also more and more aware of their health problems,” said Missoffe. 

China has come up with several innovative ideas to encourage reformulation and to alter purchasing behaviours. The government proposed subsidies to those who develop healthier foods, for example, and shops and supermarkets have been encouraged to set up designated areas for lower salt products.

Low sugar beverages have also gained traction in recent years. China’s leading bottled water supplier, Nongfu Spring, for example, introduced a range of zero sugar iced teas under its Oriental Leaf brand in 2011, followed by Tea π, a low sugar fruit flavoured drink – and hundreds of domestic and international companies have followed suit in just the past few years. 

Power to the plants

Even as China’s dairy industry is booming, many Chinese consumers are looking to move away from animal products, and fruit and vegetable consumption is rising rapidly. The nation consumed about 40% of the world’s fruit and vegetables in 2017, according to Euromonitor data, up from 35% just a year earlier.

 

According to a 2015 report, obesity and diet-related illness increased from 2002 to 2012 across China. In 2016, as Chinese meat consumption reached a record high, official dietary guidelines recommended eating less meat – and it seems that consumers are paying attention. Chinese pork consumption has fallen for the past three years running, according to Eurostat figures, to about 40.85 million tonnes.

“Due to research and media exposure on the ‘disadvantages of meat consumption’, most Chinese consumers are likely to relate [excessive] meat consumption to health issues or diseases such as high blood pressure and obesity,” said Missoffe, adding that many consumers also see it as a more eco-friendly choice.

 

With rising incomes and growing awareness of healthy eating among a burgeoning middle and upper class, meat consumption is no longer the marker of affluence it once was. According to research from the Boston Consulting Group, Chinese consumers are the world’s most health conscious, and 73% are willing to pay more for healthier foods.