Your roadmap to China’s Food and Beverage market

Part 1

In the past few years, China has become the largest food and beverage

(F&B) market in the world, surpassing the United States. Its appetite for

edible products is insatiable and represents a clear opportunity for

foreign brands to establish a presence and conquer the minds and

stomachs of Chinese consumers.

But as exciting as this may seem, the characteristics of the Chinese market can be challenging for foreign companies and manufacturers. There are a few important aspects that need to be taken into consideration - such as taste, marketing and distribution - before venturing in this sector. 

Due to a series of food safety scandals in recent years in China, local consumers have increasingly looked for foreign brands as a source of quality. Currently, Chinese people feel more comfortable trusting and purchasing foreign food products than in the past.

This is good news for foreign companies looking to establish a presence in the Chinese F&B market and profit from its more than 600 billion USD value. The China Food and Beverage import market is expected to increase more than 15% annually.

One of the most important elements to consider when introducing a new product is the local taste and preferences. While Chinese F&B markets offer great potential for growth, they have a unique market structure, eating habits and cultural factors that shape the customer demand. 

The Chinese consumer market is constantly changing and evolving. For this reason, foreign brands must be aware and responsive to the local environmental, social, and economical factors that impact consumer’s developing trends. Companies entering the sector should invest in research and development regularly to determine local preferences and offer customized products that suit Chinese palate.

Safety and health are the two most important criteria for most of the Chinese, consuming foreign products. Many people in China are willing to pay extra for healthy products and imports. This has created new investment opportunities for foreign enterprises in the food business in China, especially those involved with organic and health food items.

The organic food market in China tripled since 2007, due to an increase in disposable income by middle- and upper-class Chinese with children. In large cities, such as Beijing and Shanghai, Chinese consumers are increasingly drawn towards “all natural,” edible products, they are keen on checking details on labels and as a result, they are willing to pay a premium for healthy food.

China’s fast-expanding middle class spending is expected to reach 6 trillion USD by 2020. Multinational companies cannot afford to ignore the Chinese market, rather they are coming up with viable marketing solutions to target the second biggest consumer market in the world.

According to a 2017 BCG survey, China is already the world’s most health-conscious country. The health and wellness market is expected to reach nearly 70 billion USD by 2020, as a result of both rising incomes and awareness about wholesome living.

Chinese consumers are cautious about the food products they use. It doesn’t take long for them to stop buying a product if a food brand has been involved in a safety scandal. Trust is extremely important in China, especially in the food industry.

Nevertheless, many people in China are still reluctant to buying organic food because they don’t trust the source and it is hard to distinguish from counterfeit products. Others find organic products expensive and inconvenient to buy.

Up to 90% of Chinese consumers prefer edibles without any food additives, according to a survey by Iposos. As part of wholesome living more than half of the Chinese population strictly watch their weight and like to consume food with less calories.

Chinese consumers are developing and adopting healthy, fast, nutritious and safe food items. They are opting for foods that favor their lifestyle. According to new research from Mintel on plant protein drinks (PPD) in the country, nearly nine in ten (87%) Chinese consumers now drink plant-based prepared drinks, it can be soybean drinks, juices or grain drinks.

Milk powders (infant formula & adult milk powder), which were at the center of the food safety scandals, are one of the most sought out imported products by Chinese consumers. Other popular food categories are cheese and butter, seafood (especially saltwater shell fish such as oysters, crabs, lobster and abalone), meats, fruits, baby food products, wine and beer, and processed foods.

The consumption of seafood significantly increases during traditional Chinese festivals, making it one of the most popular imported products.

In China, fresh food is high in demand. The sector grew to 59.7% in 2017 with 139.1 billion yuan revenue (22.1 billion USD).  Chinese consumers prefer all natural category items, safe from any hormones or chemicals. Most popular fresh products are fruits, vegetables, eggs, milk, meat, honey, and nuts.

The fresh food online demand is booming. This sector has been a big winner since the start of the COVID health crisis in China, when millions of consumers were forced to remain indoors. 

Etailer JD.com offers special fresh products on its website with online recipes to push the purchases of fresh fruit and vegetables, meat and seafood. It also opened its first fresh-food (off-line) supermarket 7FRESH where consumers can either buy locally or order via an App.       

Selling food products directly to consumers in China is extremely difficult given the complex linguistic, cultural and regulatory context. The solution is to sell to end customers via cross-border e-commerce channels.

In recent years, e-commerce has become a more popular option for retail sales. Market studies suggest that 82% of consumers in China upper tier cities prefer to buy foods and beverages through online channels.

Major players on China’s e-commerce marketplaces are Taobao.com, Tmall.com, JD.com. There are also a number of third-party e-commerce platforms that are specialized in certain product categories. The popular social media App WeChat is turning into an emerging competitive third-party e-commerce platform as well.

Along with the boom of e-commerce retail, China’s cross border e-commerce (CBEC) market continues to thrive. CBEC allows foreign business to sell in China without a physical presence, reaching millions of Chinese consumers at a relatively low cost.

Foreign business can profit from preferential policies that promote the sector, such as expedited customs clearances, preferential tax rates and clustering of e-commerce logistics services, among other benefits.

There are two ways you can attempt cross-border e-commerce in China.

The first method is direct and social selling. If you don’t have an existing search volume or brand recognition,  the most efficient way to get started is to partner with a blogger. You can set-up your e-shop through WalktheChat’s cross-border e-commerce platform.

If you are an SME trying to break into the Chinese market, go through social e-commerce via Key Opinion Leader (KOL) campaigns which will enable you to get started at a much more affordable cost. You can use WeChat cross-border platforms to get started.

If you are a brand with more than 100 million USD of annual sales and existing search volume, you can opt for the big cross-border marketplaces. You may have to invest about 1 million USD to really see results, but you have a good chance of making your money back multiple times.

There are plenty of marketplaces which enable foreign companies to sell in China.

Tmall cross-border is the largest cross-border platform and is part of the Alibaba group. You’ll find everything on it from cosmetics to clothing. Another one is JingDong (JD) global, Alibaba’s main competitor. It is a better fit for companies selling consumer electronics.

These platforms have pre-existing traffic and can help with the logistic and customer side of business. However, most of these sites will require your company to make at least 100 million USD in annual revenue to even let you apply. The selection process is intense, and only firms already popular in China may have a chance to get in.

Chinese customers are extremely tech-savvy and use mobile technology to increase their functionality. They appreciate new technologies and tend to adopt new products fast.

In order to benefit from strong e-commerce platforms, foreign brands must implement the right digital marketing strategy to create awareness about their services and products. This initiative should connect  seamlessly online and offline elements.

In China, consumers like to be kept entertained and engaged. If a service is appreciated, people would want to chat about it, becoming automatically brand loyalists who further talk about your service and brand among friends and family.

Should you have questions about your road map to the Chinese food and beverage sector, complete the below inquiry form with your questions and comments. 

DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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