Since the 2008 melamine scandal, the domestic milk market in China has had a hard time gaining the trust of consumers. This scandal hurt all players, including Mengniu Dairy and Yili Group, which are the leaders of the Chinese dairy industry. The crisis has also influenced milk consumers in China to purchase milk and dairy products from foreign brands, putting domestic milk producers at a disadvantage.

Even though the evolving consumer perception of milk in China has facilitated the growth of import and consumption of foreign milk firms, domestic milk firms in China still have dominated the milk market in China. Moreover, according to MarketLine, regarding the overall performance, from 2015 to 2019, the milk market in China has seen steady growth. Thus the market is anticipated to grow in the future.

Analysis of China’s milk market

Size of China’s milk market is gradually expanding

Chinese consumers are turning on to the nutritional benefits of milk products. It is predicted that sales of milk in China will increase from 11.95 billion RMB  (2018) to 12.83 billion RMB (2022), with a 1.7% annual growth rate. Thus the market size of milk in China has been growing steadily.

Data source: MarketLine, China’s milk market value  

Consumption of milk in China has grown four-fold since 2012

Due to the influence of traditional dietary habits and limits of economic development, in 2012, each person consumed only about 6.39 kilograms of milk per year. That was only about 1/3 of the consumption of an average Indian consumer and 1/10 that of a western consumer. Moreover, the consumption of powder milk in China ranks at the top among all countries in the world.

In 2020, the consumption of milk in China has increased remarkably. The consumption of milk per capita is projected to reach 28 kilograms in 2020 and 41 kilograms in 2030.

Data source: Qianzhan, Sales volume of the milk market in China  

Data source: Qianzhan, Sales value of milk in China 

Domestic brands regain trust, imported milk in China faces fierce competition

According to IBISWorld, due to the preference of milk consumers in China and demand for middle and high-end milk, import volume has increased steadily. With rising import volume and average prices, the import value of milk in China reached $5.47 billion in 2019, with a YOY growth of 7.6%.

Since domestic Chinese milk brands have dedicate to enhancing the quality of milk they are replacing some import products, which has led to a declining proportion of imports in the domestic demand of milk market in China. As a result, in 2019, imported milk represented 7.5% of domestic demand for milk in China, which decreased from 10.1% in 2014.

Data source: IBISWorld, Import partners of milk market in China (2019)

The price of milk in China is gradually increasing

Overall, the price of milk in China has a rising trend. The increasing price attributes to the rapid growth of consumption of milk in China and the condition of upstream supply chains.

Data source: ruzhipincy & chyxx, Price evolution of milk in China  

UHT milk is the most popular milk among Chinese consumers

The product segmentation of milk in China is mainly categorized into liquid milk and powdered milk. They are similar in terms of nutrients while different in terms of taste, form and price. Powdered milk consists of the process of dehydration and evaporation, which helps preserve it. Even though it loses its flavor during the dehydration process, it perfectly matches with smoothies, tea and filtered coffee. On the other hand, fresh milk contains more nutrition than powdered milk does and has a better taste.

Liquid milk is the largest segment. According to MarketLine, UHT milk is more popular with milk consumers in China, in contrast to  western consumers who prefer fresh liquid milk. 

The milk powder segment in China targets both adults and infants. According to Nielsen China, online and offline milk powder sales reached 1.8 billion RMB and 1.5 billion respectively in 2018. Specifically, according to IBISWorld, the infant milk powder segment has been experiencing rapid growth and highly profitable. The market size reached 175.5 billion RMB in 2019 and is expected to reach 216.3 billion RMB by 2024. With the implementation of the two-child policy, demand for infant milk powder is increasing rapidly.

Consumption of milk powder for adults, especially for families, has been rising steadily. Online shopping has facilitated the growth of this segment. The milk powder for adults in China is in the early stage of the product lifecycle by considering its market scale and profitability. Hence the market size of this segment remains stable as milk consumers in China lack product awareness.  

The supermarket is the most important distribution channel in China’s milk market

According to IBISWorld, Supermarkets are the largest suppliers of milk and offer the most extensive product range. Regarding food wholesalers, the majority of milk brands in China sell their products in local regions. They often establish wholesalers in the target province and are in charge of recruiting and managing distributors in tier-two or three cities. Regarding food retailers convenience stores, the revenue generated from these channels has experienced continuous growth. Other markets, including online shopping, have been developing rapidly in recent years. Milk consumers in China purchase milk from online shops due to its convenience and low prices.

Data source: IBISWorld, Distribution Channels of Milk Market in China (2019)

‘Safety’ is the number one concern of Chinese milk consumers. Consumers from different regions and segment groups in China consume milk in different ways.

Regarding Chinese consumers’ attributes of milk, consumers from developed areas value “safety first” while consumers from less developed regions value quality and brand. In general, both of the groups value safety certification, shelf life, nutrition, taste, brand organic, etc.

Families are likely to purchase a large amount of milk on the weekends and prefer fresh milk; office workers and students prefer buying liquid milk with paperboard packaging in the morning.

Milk packaging in China

Regarding the packaging of milk in China, paperboard, plastic and glass are common materials. Domestic milk firms in China mainly outsource both paperboard and plastic packaging to foreign firms such as Tetra Pak, PrePack and SIG Combibloc. Paperboard packaging is normally used in preserving both UHT milk and fresh milk. It helps preserve the quality of the milk. Thus the quality is less likely to go bad easily and can preserve more than six months. Plastic and glass are used in preserving fresh milk. The size of the packaging is mainly standardized as 250 ml.

Photo source: Zhihu, Packaging of milk in China

Chinese prefer to purchase milk in smaller packaging than westerners do. Owing to the habit of some milk consumers in China, it is convenient for students and office workers to carry a single serving size of milk with them. Secondly, the established supply chain and logistics in China cannot support the transportation of fresh milk perfectly. Hence milk with paperboard packaging is more prevalent in the milk market in China as it can preserve for an extended period and does not require a sophisticated logistics system to preserve the quality.

Does being lactose intolerant stop Chinese from consuming milk?   

Even though research shows that Asians, including Chinese, are mostly lactose-intolerant, it does not affect the sales of milk in China significantly. According to Zhihu, their consistent milk consumption can be explained by:

1. Consumers perceive that a small amount of milk would not aggravate the discomfort of lactose-intolerance, and this might is another reason why packaging milk in small portions popular in China.
2. Some people do not even realize they suffer from lactose-intolerance since their symptoms are not obvious.
3. Some of them perceive that the ingredients of Chinese milk are adapted to eliminate the effect caused by lactose-intolerance, that is, ingredients such as water and chemicals are added to dilute the lactose.

Brand analysis of China’s milk market

Domestic Chinese milk brands are making a return after being tarnished by scandals

Among the top 10 dairy milk companies, 9 are local brands. Mengniu, Yili, Guangming, Wangzai, Wandashan, Weita Milk and Chenguang are the top seven Chinese domestic brands with two producers originating from Taiwan and Hong Kong. Founded in 1999, Mengniu is the largest dairy milk company in China. It possesses over 20 branches in 15 provinces and exports its products to the US, Canada, Mongolia and South-East Asia. Although it maintains a good reputation, not even Mengniu can escape from the melamine scandal. As a 2008 Olympic Games sponsor, Yili, the second-largest dairy company, has explored a new way to market its product and overcome the scandal.

In 2020, Mengniu and Yili have further consolidated their leading positions in China’s milk market, with more than 30% of market share. Both firms have developed differentiated milk products to capture market share aggressively.

Data source: Euromonitor, Company Shares of Milk in China (2019)

Yili has focused on high-end milk products   

Regarding milk products of Yili, even though the company has developed a variety of milk products, it aims to focus on its high-end segment. Its representative product, Yili and Satine, according to Euromonitor, earned the third (7.4%) and fourth (6.7%) place respectively, in the brand shares of milk product (2019). Satine is positioned as the high-end brand as Yili has significant investment across different business units. Shuhua is a lactose-free product and targets lactose-intolerant consumers. School milk targets students and solely sells to schools in China while QQ Star targets kids in China. Wei Ke Zi is the flavored milk product.   

Photo source: Yili, Milk Products of Yili

Mengniu has adhered to the product differentiation strategy

Likewise, Mengniu has developed various milk products to tailor to different competing with Yili. According to Euromonitor, Mengniu and Deluxe are the pure milk and earned the first (7.9%) and second (7.4%) place respectively, in the brand shares of milk product (2019). Deluxe is the high-end pure milk product. Future Star targets kid consumers in China while Xin Yang Dao targets lactose-intolerant consumers. Mengniu has also developed flavored milk such as Zhen Guo Li and Nai Te. Zhe Zhi Niu Lai (This cow) is the milk product that targets university students in China. Mengniu has also expanded its product lines to fresh milk (i.e. Shiny Meadow and Green House) which Yili has yet to focus on.

Photo source: Mengniu, Milk Products of Mengniu

Influence of COVID-19 and future trends

The outbreak of COVID-19 has affected lots of industries, including China’s milk market. The pandemic has affected each business unit of the milk’s value chain in China.

The value chain of China’s milk market goes through the process of feed manufacturing, milk production, delivery, processing, packaging, distribution, and lastly, retail. Regarding the upstream business, the pandemic has affected the production of

As the situation is gradually recovering in China, so does the milk market. The government in China has implemented particular policies and subsidized the business involved in the milk’s value chain. These actions have sped up the recovery of the milk market in China.

Fresh liquid milk is the future trend

In 2019, the trend of “freshness” has emerged in the milk market. Key industry players such as Yili and Mengniu have started to invest in fresh milk significantly. The outbreak of Covid-19 may foster the growth of this trend since the National Health Commission of China recommends drinking milk. The government sector has suggested that drinking milk is an effective method to strengthen the immune system. Moreover, milk consumers in China have consistently perceived drinking milk as a means of calcium supplement and skincare. Thus it helps to cure osteoporosis and facilitates growing height. As more and more milk consumers in China value nutrition, taste and freshness, nutrition-added fresh liquid milk is likely to be the future trend in China’s milk market.

Photo source: Sohu, Nutritious and fresh liquid milk sold in small cartons in the Chinese market

Creative product packaging can draw consumers’ attention

In comparison with traditional promotion tools such as advertising and direct selling, creative product packaging is a cost-effective tool to promote products and is popular with young consumers. Hence more and more companies have gradually applied this tool.

Photo source: adquan, Creative product packaging of New Hope Group’s milk 

New Hope Group has applied the creative product packaging successfully on its flavored milk. With this co-creation strategy, New Hope Group has collected a list of mottos via social media in China and printed them on the packaging. Meanwhile, the company has designed cute images that are popular among Chinese consumers. These mottos reflect the current Chinese culture and humor of self-depreciating optimism, or passive acceptance of negativity. They are relatable and effectively tease young people’s lifestyles in a lighthearted way.  

In conclusion, China’s milk market is experiencing a steady growth in market size and revenue. Domestic milk brands have occupied the majority of the market share. Currently, the dominant milk product in this market is long-life liquid milk. Nonetheless, with the changing consumers’ perception and improving logistics, fresh liquid milk is projected to be the future trend in this market. Moreover, creative packaging is a useful promotional tool to appeal to milk consumers in China effectively.

Author: Amelia Han

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This article The milk market in China: consumers’ perception of nutrition has sustained the growth of this sector is the first one to appear on Daxue Consulting - Market Research China.

Burberry’s China market entry strategy

In September 2010, Burberry bought out its first Chinese franchise partner in a £70 million deal, giving it greater control over its presence in the country. As of now, Burberry has over 57 stores in 31 cities in mainland China, including eight in Beijing, nine in Shanghai and three in Hangzhou. As China’s share of the global luxury market expands further, from 33% in 2018（when Chinese luxury consumers spent about $122 billion on high-end goods） to 41% in 2025 (when Chinese luxury consumers will spend between $173 billion and $181 billion), giving Burberry more market growth potential in China. Burberry’s strategy to enter China’s luxury market is mainly as follows.

Franchising

As a medium-cost method with rapid expansion, franchising is regarded as an increasingly critical method, which helped Burberry to enter the China’s luxury market with professional, local management. Franchising gives retailers the opportunity to build a global business in a short time. At the same time, franchising does not bring huge financial pressure on the domestic retail business.

However, the main drawback of franchising is the lack of control over the brand. Thus, it is crucial to find a right partner to eliminate possible control difficulties.

Flagship stores

Opening a flagship store is a method to enter China’s luxury market with the highest level of control and involvement, emphasizing branding rather than generating profit. Two years after seven openings of flagship globally in 2012, the “Dreams of London” was introduced in Burberry’s China flagship store in Shanghai. In the flagship store, products equipped with high-tech chips trigger multimedia content in the mirror, which displays the in the brand showroom.

Inspired by the global flagship store at 121 Regent Street in London, the space combines the best of British craftsmanship and materials. Burberry’s flagship store in China showcases the extraordinary performance of the brand, helping Chinese luxury consumers feel the multi-sensory image of the brand, aiming to increase brand awareness and achieve brand resonance.

Source: luxuo.com, Burberry Opens Flagship Store in Shanghai

At the beginning of expansion of Burberry in China, as the market knowledge and management experience acquired in the western countries may not be appropriate, Burberry tended to conduct marketing through low-control intervention, such as wholesale, franchising, concession, etc., to test the market reaction. After a few years, when the retailer had accumulated enough local experience and knowledge, it decided to accelerate its organic growth through the use of franchises and bring operations in-house. This has allowed Burberry to tighten its grip on brand identity at different times. Thus, maintaining the global exclusivity of the brand image.

E-commerce in China

Internet sales help international retailer measure its international sales if it decides to open the physical store in a new foreign market. As a market entry method to enter China’s luxury market, internet is a form of export that enables retailers to promote their products beyond the country of origin through online platforms, mobile devices and social media and establishes a direct and mutual relationship between retailers and consumers.

Burberry in China has accumulated about 1.51 million followers on Weibo, a very popular Chinese social platform, and the number of followers on Tmall sales platform has now reached 2.16 million.

Burberry launched its Wechat Mini program on Wechat on Chinese valentine’s day (Qixi) in 2018, the mini-program campaign takes the form of a game. The campaign encourages fans to play the game with their partners. After completing the game, users will be able to get access to Burberry’s latest collection, including two Qixi bags sold exclusively in China.

Source: Jingdaily.com – Burberry Launches 2 Handbags Just for China on First WeChat Mini-Program

Late last year, Burberry and Chinese tech giant Tencent struck an exclusive partnership to develop social retailing in China. Burberry and Tencent will pioneer a concept that combines social media and retail to create digital and physical Spaces for participating communities to interact, share and shop.

Burberry’s first step will be to open a store backed by Tencent technology that offers a unique experience that connects the social and online lives of luxury customers to their physical environment. This will be a unique testing and learning space, serving as a laboratory for experimental innovation that can be extended to other parts of network of Burberry in China.

Source: Burberryplc.com – Burberry and Tencent enter into exclusive partnership to develop social retail in China

Current strategy in China

In the past, Burberry in China has tended to adopt a low involvement and control approach to enter China’s luxury market, such as franchising, licensing and concession, to maximize its market share and sales. Having accumulated a lot of resources and experience, Burberry has recently started to use overseas partnerships to further increase revenue and brand equity through stricter control of its flagship, self-owned and other wholly-owned stores.

Target customer in China

McKinsey estimates that China’s luxury spending will nearly double between 2020 and 2025.

From the perspective of age, the post-’80s (Generation Y) accounted for more than half of the consumption of luxury goods in China, making them the main force of luxury consumption in China. In addition, two-thirds of the post-’90s generation (Generation Z), who tend to be only children because of the one-child policy, said their parents (mapping as Generation X) approved of luxury purchases.

In addition to target Generation Y (the current luxury consumer main force), Burberry also sees the potential of younger consumers. From the perspective of Burberry’s entry strategy and marketing strategy in China, Burberry has been continuously entering into various popular social platforms in China and launching events with advanced technology on the social platforms for young Chinese generation, such as the events held on WeChat Mini Program, which are deeply favored by young Chinese generation.

China, the fastest-growing market for luxury goods, continues to be underpinned by a growing middle class and the latest sign that consumers remain confident.

Marketing strategy in China

Multi-channel marketing strategy in China

Burberry sells five product categories (accessories, Women’s, men’s, children’s and beauty) in three strategic regions, Asia, EMEA and the US, through both online and offline channels. Although the global revenue of Burberry in 2018 reached 2,733 billion dollars, decrease by 1% compared with last year, luxury sales in Mainland China increasing by 20% in 2018.

The revenue from offline channels is larger than that from online channels in China; however, it is a significant channel to create a seamless brand display. Burberry adopts a multi-channel marketing strategy in China combining online and offline.

Physical store

So far, Burberry has operated 57 stores in 31 different cities of China, including two pop-up stores and one flagship stores located in Shanghai. Physical stores are likely to bring about a number of functions that cannot be replaced by online channels. The purpose of in-store shopping lies not only in goods acquisition, but also in the shopping experience, the social activities, as well as the entertainment.

Burberry’s stores in China are designed to provide customers with superior customer service and experience. Also, offline stores still account for the majority of its revenue. However, for Chinese luxury consumers buying brands like Burberry, offline stores can also help solve the problem of counterfeiting.

Integration of online channels

Despite its crucial contribution, the influence of physical stores might be geographically limited. Thus, the integration of online channels helps to create a comprehensive channel to communicate products and enhance brand awareness (regardless of regional restrictions). For the Chinese market, Burberry is present on popular social platforms including Weibo, and WeChat with seamless commercial accessibility on the platforms.

The seamless integration enables Burberry to extend purchase opportunities beyond markets where it has a direct presence. For instance, Burberry partnered with social platforms to allow followers globally to experience the flagship opening event like “Dreams of London” in Shanghai.

Moreover, Burberry invited the followers on WeChat to watch the women’s wear show at London Fashion Week (AW14) on social platform. As described above, Burberry launched WeChat Mini program for fans to participate in the game and release the limited edition bags in China.

The integration of online channels expands the accessibility through the Internet, because it dilutes the exclusive brand image and value of Burberry and promotes the brand’s visibility and participation in China.

Collaborate with Chinese celebrities and KOLs

In China, choosing a popular and suitable spokesperson via celebrity endorsement is a key to success. In 2016, Burberry introduced Kris Wu (Chinese actor, singer), who is hugely popular with the young Chinese generation, as the first non-British spokesman. Burberry’s retail revenues went from declining to growing by more than 20% in two months. The following year, Burberry announced Dongyu Zhou (Chinese actress) as the brand’s first female ambassador in Asia. Zhou’s unique temperament and extraordinary acting skills have endeared her to the young Chinese generation.

Kris Wu and Dongyu Zhou were invited to Burberry’s Spring/Summer 2018 fashion show at London Fashion Week. Burberry wanted to leverage the popularity from two celebrities to appeal to China’s millennial luxury shoppers.

In 2019, Chinese actresses Wei Zhao and Dongyu Zhou have landed new roles as the faces of Burberry’s Chinese New Year campaign. As an actress, director and pop singer, Wei regards something of national treasure in China. Since she starred in a hit TV series in 1998, she has accumulated a lot of popularity in China. Unlike the new generation of stars Kris Wu and Dongyu Zhou, the Chinese customer that loves Wei is more concentrated in Generation X and Y.

Source: luxurysociety.com – Zhao Wei and Zhou Dongyu star in Burberry New Year ads as downturn fears emerge

Creating cartoon characters as brand endorsements

To celebrate the Chinese New Year in 2020, Burberry created its cartoon rat character called Ratberry. Named ‘Bobo Rat’ in Chinese, it represents the Year of the Rat, which is integrated with the Thomas Burberry Monogram for the brand’s Holiday Collection. Also, Dongyu Zhou posted Hashtag #Ratberry# on Weibo for several times, interacting with followers while receiving many likes and comments.

Source: Chinafilminsider.com – How Burberry Won Over Chinese Consumers With ‘Ratberry’ Campaign

Burberry in China collaborated with different celebrities to appeal to Chinese luxury consumers of different generations. In attracting the millennial luxury consumers, Burberry had also consolidated current main Chinese luxury consumers. From this perspective, Burberry has set up a good model for luxury brand in China.

Luxury brands are increasingly partnering with KOL on social platforms and Burberry in China is no exception. In addition to Weibo, Burberry also cooperates with many Chinese local Kols on Xiaohongshu (China’s foremost social shopping and UGC platform).

Author: Qing Zheng

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China is the largest tea producer in the world 

The total global tea output in 2018 was 5.9 million tons, China contributed 2.6 million tons of them (44.7%). China is the largest tea producer in the world, but it still has a huge market demand for tea leaves. Hence, the output of major tea producing countries will continue to grow. In particular, the increased awareness of Chinese consumers on health will drive the global tea market to further increase.

Data Source: iimedia, Tea market in China report by daxue consulting. China is the major tea leaf producer in the world

The tea industry chain in China includes tea planting, picking, use of fertilizers, processing, and packaging. Also, different kinds of tea are rolled, dried, and oxidized. The sales channels are supermarkets, tea shops, restaurants, and e-commerce platforms in China.

China’s tea production market

Green tea leaves make most of the China’s tea production. Considering China’s huge market demand, green tea will continue to maintain its output advantage for a considerable period. Besides, drinking tea is an important part of the Chinese culture and living customs.

Data Source: iimedia, Tea market in China report by daxue consulting. Green tea has the biggest output in the Chinese market

China’s tea sales will maintain an upward trend. With the increase of income of Chinese residents, quality will become an important factor in the sales of tea.

Data Source: Qianzhan, Tea market in China report by daxue consulting. The tea sales revenue in China

China’s demand for tea is rising steadily

China’s 1.4 billion people already drink nearly 40 percent of the world’s tea, and they are thirsty for more. Chinese consumers prefer higher quality tea products, they often rely certification for assurance the tea is organic and sustainably grown. Besides, they agree to pay much more per serving than Western tea consumers. The best tea in China can be up to US$1,000 for 500 grams.

Data Source: Chyxx, Tea market in China report by daxue consulting. Tea leaf prices in China

China exports green tea and imports black tea

Green tea accounts for 83% of the total tea exports. Exports of black tea, green tea, and flower tea all increased by more than 6%. Black tea accounts for 83.3% of tea imports. The rise of new tea drinks such as milk tea in China has further increased the demand for black tea.

Data Source: Chyxx, Proportion of tea exports/imports by tea type

Key characteristics of tea consumers

According to the survey of China Tea Industry Research, tea consumers are mainly enterprise employees with 50,000-120,000 RMB annual salary. They usually have decent spending power and pursue a high-quality life. Hence, office places are a common place to consume tea.

Data Source: China Tea Industry Economic Research, Tea market in China report by daxue consulting. Characteristics of tea consumers in China

Where do Chinese consumers buy tea

Chinese consumers still mainly rely on offline channels such as exclusive stores or large supermarkets in China. Tea enterprises should broaden their channels and combine online & offline to find new ways to attract customers. Quality assurance, convenient purchase, good experience and low price are the focus of consumers attention. Tea companies must consider them when doing channel construction.

Data Source: China Tea Industry Economic Research, Tea market in China report by daxue consulting. Purchasing channels of tea

Drinking milk tea is a daily habit for many Chinese people, and a huge driver of the market

According to the survey of 36Kr Research, milk tea is becoming a part of daily lives for many Chinese people. Around 93% consumers buy milk tea at least once every week. Milk tea consumers are usually repeat customers. That is why it is essential for milk tea brands to improve customers loyalty leading to repeat business.

Data Source: 36Kr research, Tea market in China report by daxue consulting. Milk tea consumption in China

New-style tea consumers are mostly young women in tier-1 cities

Women under 40 years old are the main consumer group. Urban white-collar women in China are particularly keen to milk tea and fruit tea. Only 30% of consumers are male. The male consumer market still has a large space to develop. More research on male flavor and aesthetic preferences of new-style tea may help to further penetrate the market. This is consistent with the fact that many stores are in first tier cities. Tier-1 cities are saturated markets, but second and third tier cities have a lot of room to grow.  However, lower tier city consumers are more concerned with price.

Data Source: 36Kr research, Tea market in China report by daxue consulting. Age distribution of new-style tea consumers

The leading brands in China’s new-style tea market

Most of the direct-sale shops are high-end brands. They are more concentrated in the first-tier cities with higher prices but less offline stores. It means franchises are helpful for expansion but not for a high-end image. There is little variation in store menus, which means there is a trend of product homogeneity in the market.

Case studies of tea brands in China: path to success

Lipton (立顿) – The most successful tea bag brand

Lipton is the largest foreign tea brand in China. It is a black tea brand from England. It mainly focuses on black tea, green tea, jasmine tea, and oolong tea. Its advertising slogan is: “Direct from tea garden to the tea pot”. In 1992, Lipton officially entered China and started to sell black tea and green tea.

Due to the high quality and clear target market, Lipton in China achieved very large sales and market share. Lipton’s owner Unilever invested 50 million USD in Anhui (安徽) province to build one of the biggest tea factories in the world at that time. In 2008, the total annual output value of Lipton was about 23 billion RMB, which was almost the 2/3 of the output value of the China’s tea bag industry. 

How Lipton built itself as a mainstream tea brand

Lipton brought its standardized design and production of tea products when the brand entered China. They helped Lipton reach every corner of the market while also building brand awareness among Chinese consumers. Many foreign tea brands sell tea products from abroad using Chinese distributors. However, Lipton invested in building a local factory and hiring local employees. With this strategy, Lipton greatly reduced the costs and localized the brand. It helped the brand to act quickly to meet the needs of Chinese consumers. In 2008, Lipton was one of the first international brands advertising on mobile Internet in China. The brand was also one of the first to use e-commerce in China.

Lipton targets Chinese white-collar workers and young adults with its tea bags

Tea is traditionally a leisure product. Therefore, many Chinese brands target middle age and elderly people, who have more leisure time. Most Chinese tea brands sell loose leaf tea, which can make people enjoy the process of brewing tea. Lipton mainly targets on white-collar workers in China and young adults in urban areas. The brand uses its tea bag as a competitive difference in China’s tea market, because it is convenient and safer. It also greatly simplified the steps of drinking tea in China.

Lipton is facing great challenges in China

According to the annual report of Unilever in 2019, Lipton’s profits decreased. The brand is facing many challenges in China. Lipton’s tea usually is very cheap, which means it must keep high sales to get enough revenue. Besides, most Chinese young adults (21-30 years old) crave creativity and novelty. Lipton is losing this huge consumer group.  Now, competition in China’s tea market is tighter and consumers preferences have changed. But Lipton has not innovated its package and products, it’s less exciting for Chinese consumers. More Chinese competitors are rising, they have better understanding of consumers, more creative package, and advanced marketing (such as KOLs in China).

Xiao Guan Tea (小罐茶)

Xiao Guan Tea is a high-end Chinese tea brand launched in 2014. It covers six categories: green tea, black tea, oolong tea, dark tea, white tea, and reprocessed tea. The brand targets young adults with strong consumption power and pursue the quality of life. By the end of November 2018, Xiao Guan Tea’s sales revenue reached 2 billion RMB in China’s market. It has around 650 offline shopsin the nation.

Data Source: Xiaoguantea.com, Sohu.com, Tea market in China report by daxue consulting. Online sales channels of Xiao Guan Tea

Positioning itself as a high-end brand

Xiao Guan Tea positions its products as high-end. The brand built its high-end image using well-designed packages and offline stores. It can create the distinct sense of modern luxury for consumers. Xiao Guan Tea uses aluminum cans and high-end gift box as packages, which make the tea healthy, and easy to conserve. Hence, Xiao Guan Tea products are now popular gifts during some Chinese holidays.

Xiao Guan Tea is upgrading its tea manufacturing by developing and using AI

In cooperation with IBM, they developed a robot that can scan and pick out the impurities of tea leaves. One robot can finish 50-60 human workers’ job every day. The technology can reduce labor expenses and improve processing efficiency. Xiao Guan Tea and Siemens launched a cooperation at the end of 2018 to build a new smart tea production facility in Huangshan (黄山). The factory will use AI technology in China to achieve the intelligence of the job-shop, optimizing the production process.

The impact of COVID-19

With the coronavirus outbreak in China, exporting became slower and more expensive. The epidemic also has complicated international logistics. Thus, China’s tea export progress is much slower and export costs increased. The main tea import countries strengthened their customs inspections and some countries reduced or stopped importing China’s tea. Offline retail channels had the biggest impact due to coronavirus in China. More than 60% of tea shops had no sales revenue during February 2020. Online orders for tea decreased and some products had delays in delivery because of the lack of employees in logistics. Therefore, online tea sales also declined.

Long-term impact

The economic impact of the coronavirus in China on tea distribution channels is temporary. The main impact on tea retails was mainly in February and March. The online and offline sales both will quickly recover when the epidemic is over.

Increased focus on health and social

After the COVID-19 outbreak, there is no doubt that everyone will pay more attention to personal health than before. Although tea leaves are not medicine, they are still health-related products, and have health benefits. The proper promotion of the knowledge about tea leaves will help facilitate everyone’s tea consumption. Chinese people’s enthusiasm for social networking is still growing, tea brands need put more emphasis on packaging and appearance design.

Because the COVID-19 outbreak, Chinese consumers have stronger health awareness. Many consumers choose to buy milk tea with little or no sugar. Fruit tea is also popular for due to having less added sugar and more health benefits. For milk tea brands, it’s essential to add the concept of health into their promotion and advertising.

Socializing is more and more important for today’s young people. Tea is not only a kind of drink, but also a sense of fashion and ceremony for them. Thus, milk tea shops now focus more on appearance. Therefore, if traditional tea brands want to increase sales, appearance is as important as quality and taste.

See our full report on the tea market in China

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Overview of China’s coffee market

The Coffee market in China has been steadily climbing for years. In 2019, the market scale of coffee in China reached US $10  billion, which only US $7 per person. Chinese coffee consumers are mostly in tier-1 and tier-2 cities, as lower tier-city consumers become familiar with coffee, the market has potential to explode.  If China’s per-capita coffee consumption matched that of Japan (at US $237 per person annually) China’s coffee market would reach $330 billion US, which is a lot of room to grow. Hence, the coffee market in China is promising to explore.

[Data Source: chyxx “The Market Scale of Coffee in China”]

Since 2006, Costa Coffee, the British coffee shop chain has entered the Chinese market and expanded dramatically. Based on the Starbucks model, with the implementation of Coffee shop just nearby Starbucks stores, its ambition is to make China become its ‘second home’, having one-third of the market share of coffee shop market. Costa Coffee has the particularity to have his own roastery with their proper blend in every store. The giant has since more than 3,800 stores globally.  

However, Costa only has 293 China stores as of mid-2020. The possible reason may be the aggressive competition among those famous chain coffee brands. Starbucks leads the coffee market in China.

See also our piece on the Coffee shop market in China

In 2017, Costa China’s parters of Southern China withdrew its shares. Thus, Costa China and Costa’s parent company were able to totally control China’s southern market, preparing for Costa’s expansion plan. However, in 2018, Costa was adopted by Coca Cola with 3.9 billion pounds (around 5.1US dollars). James Quincey, the CEO of Coca Cola, contended that the company desired to create a drink portfolio catering to customers. Costa can bring Coca Cola to explore the hot drink market and build a robust coffee sale platform, while Coca Cola can create more opportunities for Costa to develop new service. After Coca Cola acquired Costa, Costa started to make some innovations to improve its position in the coffee market in China.

Strategic Approach for Costa Coffee to Enter China’s Market

In order to differentiate Costa Coffee from its strong competitors such as Starbucks, Costa Coffee relies largely on local Chinese retailers. One of the recent moves included an agreement signed with the Beijing Hualian Group, a nationwide retailer. Costa Coffee also gives many authorities to its partners; as more it gives authorities, more the operations are efficient.

Costa Coffee conducts a strong analysis of the local market and is open to change its offer according to its region and the taste of the people in that region. This strategy leads many Chinese consumers to give feedback saying, even in Shanghai and Beijing, Costa coffee tastes slightly different. Ye Xiaobo, the store manager of Costa Coffee 1912, said: “Starbucks are more casual like the way Americans do while as for Costa Coffee, is more traditional, rigorous with more focus on the utensils”.

Costa Coffee also noticed that Chinese customers tend to be more comfortable sitting in a more private space while drinking coffee. Costa Coffee has been focusing on a smart way of arranging tables and chairs so that every customer will feel more at ease.

Like its competitors, Costa also embraced the localization strategy by adding iced green tea to stores in southern China and a hot beverage in northern China.

Overview of its Long-Term Business Plan in China

Compared to Starbucks’ 16-year-presence in China, Costa used only 8 years to reach 25% of the total market share. The only problem is that having too many partners to share its profits can be risky in the future. Thus, how to build an efficient platform where each party has a fixed say and how to create a system to prevent future conflicts remains to be considered.

Costa Coffee Club

Costa coffee in China is directly competing with the American coffee maker “Starbucks” who have seen a lot of success in China with a strong local strategy, with an emphasis on the consumer experience factor.  Such as his main competitor the British Coffee brand is proposing a loyalty card for app or android phones, the member can gain points every time-consuming at the shop in order to get free coffee or other goods.

How to launch a new product in China’s coffee market

In September 2019, Costa initially launched its portable instant coffee in the U.K, gaining 6 percent market share in a short time. Later, on March 25th, 2020, Costa’s instant coffee appeared in China’s coffee market, marking its formal layout in China’s instant coffee market and the beginning of its ‘omi-present’strategy, making products for the home in addition to coffee shops. This coffee is available in online platforms, supermarkets, and other distribution channels, mainly in tier 1 and 2 cities. Costa’s overseas market CEO said China was an essential market for Costa, and considering modern consumers’ fast pace of life, Costa targeted the instant coffee market to adapt to customers’ requirements and develop new growth points for Costa under the competitive coffee market in China.

Image source: sohu.com, Costa Coffee launches instant coffee in China

Cooperation with Onecup to kick-start China’s at-home coffee market

Recently, it is reported that Costa united Onecup to produce customized coffee capsules with Costa’s formulation. Meanwhile, similar coffee will also be accessible in Costa’s stores. Although Costa has many stores in China, it aims to make its products available everywhere. Particularly, NCA’s global data unveiled that the average person consumed 2.06 cups of coffee a day. That comprised 1.37 cups at home, 0.24 cups at workplaces, 0.25 cups at restaurants and cafes, and 0.2 cups at other sites. Most coffee around the world is consumed at home. Their cooperation can allow more people to enjoy Costa’s high-quality coffee, triggering more consumption of its coffee.

Daxue Consulting expertise

With many years of experience in the coffee shop industry, Daxue Consulting can help you enter the Chinese market and develop your brands to reach millions of consumers. From online surveys to mystery shopping, our consultants in China can give you a full tour of the Chinese market and determine what is the best strategy for your brand. To know more about the Chinese coffee market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

Learn how to run a coffee shop in China

This article Costa Coffee in China: Becoming omni-present in China’s coffee market is the first one to appear on Daxue Consulting - Market Research China.

Energy drinks are not traditional Chinese drink, but they are gaining popularity among youngsters. Recently the variety of imported energy drinks to China is increasing. Today, China is the largest energy drink market. Statistics show that the retail sales value of canned energy drinks in China increased from 9 billion yuan in 2009 to 87.5 billion yuan in 2019. China as the largest energy drink market also has the highest market growth rate in the world. Sales amounted to over 1.3 billion litters in 2015, a year-on-year increase of 25 percent. In 2019 sales grew by 15 percent year-on-year to CNY 64.5 billion. It was one of the fastest growing sub-categories in the Chinese beverage market. Easy access and availability as well as the growing consumer purchasing power contributed to the increasing sales.

Energy drinks market in China has a huge potential

The size of energy drinks market in China has maintained an annual growth trend from 2011 to 2018. It grew from 9 billion yuan in 2011 to 36 billion yuan in 2018. Forecast shows it will rise to 48 billion yuan in 2021. In 2019, the total sales volume of the energy drink market in China was 42 billion yuan.

Per capita consumption of energy drinks is still quite low in China

The energy beverage market in China started expanding quite late. The per capita consumption level of energy beverages is still significantly low, with broad room for growth. According to the data compiled by Euromonitor, the per capita consumption of energy drinks in mainland China in 2017 was 2.2 liters. This per capita consumption amount was 50% less than in Hong Kong. The gap was even more with the United Kingdom, Japan, and the United States.

Consumer groups are gradually expanding

The consumption group of energy drinks has gradually expanded, and consumption scenarios have become more diversified. In terms of occupational classification, the main consumer of energy drinks were drivers, couriers, medical workers. Currently energy drinks have more consumer groups such as students and white-collar workers in China. The consumption scenes have gradually expanded from overtime, staying up late to more casual such as parties and travelling. Some energy drink brands have begun to sponsor games and music festivals in China.

The expansion of consumer groups and diversification of consumption scenarios are important drivers of the growing energy drinks market in China.

China is the largest energy drink market with an exploding growth rate

Energy Drinks Market in China. Concerning global beverage consumption in 2021, China is expected to reach a 47.2 percent share, according to Beverage Daily, compared to the prediction of a 17.9 percent share of North America and Western Europe combined. Functional beverages have especially been enjoying a higher demand recently. Functional beverages are a sub-sector of the non-alcoholic industry and canned beverage, for instance, further classified into energy-, sports, or nutrient-enhanced drinks. Sports drinks primarily contain sodium, potassium, and magnesium, whereas nutrient-enhanced drinks usually include an extra supplement of vitamins, as reported by the Global Times. However, especially energy drinks, which already make up most of the functional beverages, are growing rapidly.

According to China’s General Administration of Quality Supervision and Standardization Administration, energy drinks are classified as “drinks with other special functions” as they contain caffeine, taurine, and sugar together with other ingredients such as guarana and B vitamins. Statista shows that the retail sales value of canned energy drinks in China increased immensely from CNY 9 billion in the year 2009 to an estimated CNY 87.5 billion in 2019.

Over the past decades, China’s industrialization and urbanization have been in the process of converting a large population to urban dwellers. This leads to increased regulations economic growth has continued to soar and develop into a market-based economy.  The rising income and disposable income levels, and a constant improvement of living standards of Chinese people have resulted in modernized, busier lifestyles which is one of the primary drivers of the increase in demand.

The largest energy drink market China also has the highest growth rate in the world. In 2015, sales amounted to over 1.3 billion liters, a year-on-year increase of 25 percent, and sales grew by 15 percent YoY to CNY 64.5 billion, as analyst CCM stated. Easy access and availability through improved distribution infrastructure as well as the growing consumer purchasing power contributed to the increasing sales.

Energy Drinks Market in China: Red Bull remains the top market leader

Canned and bottled energy drinks are now sold everywhere in China, from supermarkets & hypermarkets to convenience stores, grocery stores, bars, nightclubs, and online. They have been enjoying a surge in popularity nationwide among its primary consumers such as gym goers, sports people, the working class, and school students who prefer a boosting beverage to recover their energy and stay awake.

China remains a fertile ground for the beverage market, and its energy drink segment and the vast market has attracted many businesses. However, the leading international player Red Bull dominates it. Competition is, therefore, rough. Red Bull in China unequivocally maintains the top position in the market. Bloomberg reports Red Bull having global energy-drink sales of $43 billion in 2015 and a global market share of 30.2 percent. Comparing global revenue of Red Bull in 2015 to their main competitor, Monster Beverage Corp with a market share of 21.10 percent, the picture on Chinese grounds looks entirely different.

Red Bull in China, which is not carbonated, accounts for a significant market share of about 80 percent. Eastroc Super Drink follows with about 10 percent, and others like Dali’s Hi-Tiger or Wahaha’s Qili share the remaining. Also, Monster Beverages has entered the Chinese market. According to Reuters, Coca-Cola Co bought a 17 percent stake in Monster Beverage Corp, also seeking to expand into the fast-growing energy drink category.

However, it remains unclear how successful Monster Beverages will be. Not only because of the intense competition but also because of beginning difficulties, as its trademark has already been registered in China, according to CCM Data and Business Intelligence.

A new trend towards flavored energy water?

The changing consumer preferences in China, such as a growing awareness about health and fitness benefits, and the willingness to pay more for a quality difference, indicates the energy drinks market will have to show adaptation. Concerns regarding high sugar content require upgrading products. In particular, as the young population at the age of 25-35 years is the target customer for energy and sports drinks, the brands should match their new expectations which are not only low-calorie, high nutrition, functional features but also natural and fashionable drink products.

One of the brands in the Chinese functional drinks market is Glaceau Vitamin Water. The world’s largest beverage maker, the multinational Coca-Cola Company, produces this brand. Unlike other energy drinks, which usually contain caffeine in combination with other energy-enhancing ingredients such as taurine, herbal extracts, and B vitamins plus calories, Glaceau Vitamin Water is made with natural ingredients preserving their nutritional values and gets rid of artificial flavors and preservatives which give it a wider appeal to existing and potential consumers.

The Chinese beverage brand Nongfu Spring launched Victory Vitamin Water, prompting Coca-Cola to accuse them of plagiarism, as reported by China Daily. Additionally, the success of Mizone, the flavored energy water brand owned by Danone, highlights the trend by taking first place in the sports drinks segment.

Nevertheless, energy drinks like Red Bull, for example, are very popular in the energy drinks market in China, yet each can (250 ml) contains 80 mg of caffeine which amounts to two cups of coffee or a cup of tea. Other brands of energy drinks contain several times this amount without displaying the presence of caffeine. William Reed Business Media describes energy drinks as controversial, but successful. The reason behind that phenomenon may be their efforts in marketing and advertisements, claiming energy-boosting effects as well as an impressive image, which consumers believe, according to Euromonitor. The Chinese government also keeps an eye on the production of energy drinks and has been controlling and mini increased regulation for the energy drinks industry. These include the production standards and strict acceptance standard given that energy drinks are directly related to the health of the consumers.

Energy Drinks Market in China Prospects for the industry

Energy drinks market in China will tend to be more competitive. Leading brands will consider investing more capital and energy on distribution penetration, marketing campaigns, and research and development of energy and sports drinks made of natural ingredients while preserving their nutritional values to fit requirements from the high-end market consumers. Other domestic players in the energy and sports drinks industry will put their focus much more on second- and third-tier cities and enhance their distribution channels to create an affordable alternative to the key players in the market.

Nevertheless, growing personal disposable income, changing lifestyles, and increasing consumer spending on food and beverages will further drive the energy and sports drink market in China. Thus, the segment provides immense opportunities in China. However, at the same time, one should not underestimate the challenges it entails and should do a professional market analysis and research in advance.

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This article Energy Drinks Market in China: The beverage market’s fastest growing segment is the first one to appear on Daxue Consulting - Market Research China.

The O2O food delivery market in China is estimated to be worth over 37 billion USD, and it is growing rapidly. Among the products sold online, food is one of the most promising categories: online food sales rose by 36.8% year-over-year in the first two months of 2018. Food delivery apps have an estimated 355 million users, meaning that a quarter of all Chinese people are ordering food from their phones. There are more than 1.8 million food delivery orders placed every day in Beijing alone.

Transformation of eating habits in China

Getting takeout food is a relatively recent phenomenon in the country. The trend started with foreign fast food franchises such as McDonald’s in the 1990s. Homegrown local restaurants, such as noodle houses and those offering regional specialties, followed suit. But it was not until the rise of online food delivery platforms that the O2O delivery market in China took off.

Since 2009, when the first food delivery app Ele.me appeared, the number of customers using these platforms has gone up from zero to 406 million at the end of 2018. Nearly half of China’s internet user base has ordered takeout food through apps at some point in their life.

The development of online delivery has improved the food processing and supply capabilities of offline restaurants. At the same time, it has also stimulated new demands due to convenient and fast services. As of 2020, the growth rate of O2O food delivery market in China is more than 10%. It exceeds the growth rate of the traditional catering industry. Due to the development of diversified consumption habits of Chinese people, the food delivery market in China will exceed 300 billion yuan in 2020.

Fast food category dominates in terms of O2O food consumption

In the first half of 2019, fast food accounted for 69% of O2O food consumption. Western food and local dishes had second and third place. Such categories as seafood barbecue, milk tea, desserts also were popular among Chinese consumers when ordering food.

The number of seafood O2O orders increased in 2019

The proportion of seafood in China‘s O2O delivery market increased. It is an important category for night delivery consumption. In the first half of 2019, users consumed more than 150 million seafood barbecues on the Meituan takeaway platform. It had a year-on-year increase of 55.3%. In the first half of 2019, the order volume of crayfish has exceeded 20 million orders. It is about 300 million crayfish.

Semi-prepared food and vegetables as a new trend in the O2O food delivery market in China

Online shopping for semi-prepared dishes has become a new choice for young consumers. This new trend has led to a rapid increase in sales of semi-prepared food. In 2019, 800,000 semi-finished dishes have been sold. At the same time many elderly people have changed their habit of hoarding vegetables for Spring Festival. They started to order home delivered fresh vegetables. Sales on the platform Taoxianda increased 172 percent compared to 2018. “The semi-prepared dishes satisfy young people’s enjoyment of cooking at home,” said Yongcheng, a sales clerk at Tmall.

Penetration rate of the O2O food delivery market in China continues to increase

As the market scale continues to grow rapidly, the penetration rate of the food delivery industry continues to increase. In 2018, the penetration rate was 10.8%.  By the third quarter of 2019, this figure had increased to 15.9%.

Breakdown of the O2O food delivery market in China

The food delivery services in China work through apps, which show lists of food providers nearby or allow the user to search for specific restaurants. Clicking on the restaurant brings up the menu and the ordering system, which uses online payments or bank cards. The apps also allow users to rate the food and service, as well as show the location of the delivery driver so an order can be tracked. The apps take about 20% of the order revenues.

The Chinese food delivery industry is high growth and highly profitable, but it is hard for outsiders to enter the space because two platforms control 90% of the food delivery app marketplace.

Who are China’s food delivery industry’s consumers?

The food delivery industry in China is so large and profitable because of how often consumers make purchases. 256 million people in China used online food ordering services in 2016, and in 2017 that number rose to 346 million. Now it is 355 million.  35% of food-delivery app users order food one to three times a week, and a separate 35% of users order food four to six times a week, according to a report by iiMedia Research.

Online food delivery service users are primarily white collar workers. In 2015, about 63% of online food delivery app users were white-collar workers and 30.5% were students. Now, 83% are white-collar workers, and only 10% are students.

Consumers are clustered in top tier cities, with Shanghai boasting the highest number of users per capita.

Consumer demographics are split nearly evenly by gender, with women making up 51% of food delivery app users. Users are overwhelmingly young, with 75% between ages 18 and 39.

Contact us for any question on the Chinese market

Food delivery in China is popular among all income demographics. Consumers are split nearly evenly by income level, with high-income consumers boasting only a small edge.

Why is food delivery so popular in China?

Because of the intense competition between delivery apps in Great China, consumers often receive steep discounts and coupons when they place an order. This can often make ordering food cheaper than eating it in a house. The intensive couponing practice is a result of price wars between the industry’s two major players, Ele.me and Meituan. The rivalry has hit both companies hard, with Meituan’s operating losses crippling year-over-year to USD 510 million in the third quarter of 2018. Ele.me will also face pressure soon as their parent company Alibaba copes with slowing revenue growth. Coupons are no longer as high as they once were, but consumers still receive them often.

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Meal delivery in the Chinese market is significantly more popular in China than in the West, owing in some part to the fact that food delivery costs in China are about 10% to 20% of what they are in the US.

Which apps dominate the food-delivery industry in China?

The food delivery market is a duopoly dominated by Chinese tech giants Alibaba and Tencent, who own Ele.me and Meituan respectively. Combined, these two delivery apps control a 90% share of China’s food delivery market.

Longtime rivals Alibaba and Tencent have been competing across industries for years, and China’s meal delivery is just yet another sector for them to battle in. The two giants are not just competing for the O2O food delivery market in China, but they are racing to gain new users who can be guided to other Alibaba or Tencent services. Owning Ele.me gives Alibaba a treasure trove of consumer data, and the same goes for Tencent’s ownership of Meituan. Data derived from Chinese meal delivery apps provides insights about consumer spending power, eating preferences, and payment profiles.

Chinese meal delivery app: Ele.me

Ele.me is China’s largest food delivery giant with 53.4% market share. They have 260 million users, 3 million couriers, and are estimated to have delivered nearly 300 million orders. Alibaba in 2018 valued Ele.me at USD 9.5 billion.

Chinese meal delivery app: Meituan Waimai

Meituan Waimai, commonly known as Meituan, controls 40% of China’s food delivery market. Similar to Ele.me, Meituan is an online-to-offline (O2O) food delivery app that provides users with online ordering, food delivery, and some other related services in China. Significantly, Meituan offers more non-food delivery services than Ele.me, such as flowers, office supplies, and more.

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What are the benefits/drawbacks for restaurants of being on food delivery apps in China?

Listings on food delivery apps give restaurants in the Chinese market new profit sources, widened service awareness, and new consumers. App operations can be so profitable that some “virtual restaurants” operate out of the kitchen only. However, profit margins for restaurants are declining swiftly. To gain Chinese market share, Ele.me and Didi provided restaurants with subsidies to entice them into selling food on their apps. But as the apps struggle to become profitable, they are raising commission rates on the food providers. Commission rates vary by restaurant location, size, and type, but most restaurants give the apps 20% of order revenues. For restaurants operating on low margins, this can hit hard. To keep profits stable, restaurants must shift the burden to consumers and raise menu prices. Otherwise, they are forced to absorb the new costs – keeping consumers happy but hitting their profit margin hard.

The Chinese food-delivery industry: Looking ahead

Ride-hailing app Didi recently threw its hat into the food-delivery ring, starting in March 2018. Didi provided subsidies and incentives to restaurants and consumers, forcing Meituan to follow suit before local authorities stepped in to demand an end to the “extreme” marketing practices. As Didi expands to other cities, the subsidy battles will likely continue.

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This article The O2O food delivery market in China 2019| Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

In 2018, the scale of ice cream industry in China reached 124.3 billion yuan, up 11.98% year-on-year. The sales volume was approximately 1.234 million tons, up 3.52% year-on-year.

[Data Source: Guanyan World Data Center, ‘Market size of ice cream industry in China’]

The market size distribution of ice cream industry was dominated by East China in 2018. It accounts for 28.2%. Market size in Central China was 9.5%, in South China 23.9%, in North China 18.9%, in Northeast China 6.9%, and in West China 12.8%.

With the development of China’s economy, the income of residents will continue to increase. Therefore, the ice cream market still has a lot of room for improvement. Forecast shows that the market size of the ice cream industry in China will reach 223 billion yuan in 2025.

With the continuous expansion of the industry’s market space, the industry’s total profit will continue to increase. The industry’s total profit in 2019-2025 will maintain a year-on-year growth rate of about 3% -6%.

Ice-cream shop market shows is growing

Ice cream shops market in China grew 14% to reach an estimated 41 billion yuan in retail sales value in 2018. Forecast predicts that the ice cream shops market will grow further at a CAGR (compound annual growth rate) of 11.9%. It will reach 71 billion yuan in the five years to 2023.

COVID-19 impact the ice cream consumption in China

During the first two weeks of the coronavirus outbreak in China, in-home ice cream sales increased 18% year on year. The following fortnight this accelerated to 38%, surpassing the growth of both food as a whole and snacking.  This is quite a different effect to 17 years ago when SARS hit China and ice cream sales lagged those of food and other snacks.

Chinese consumption habit is different

Chinese food buying habits are different from Western ones. In China, ice cream is something you enjoy on the spot where you buy it. This is partly due to the late development of a reliable cold chain in China. Currently this is changing due to dramatic increase of online shopping in China.

Despite the growth, ice cream has the lowest penetration rate among Chinese respondents when compared with Chinese and Western desserts. According to Mintel, 22% of Chinese respondents haven’t had ice cream in the last 12 months in 2018.  Just 12% have not had Western desserts and a mere 8% have not had Chinese desserts. Moreover, over a tenth (12%) of Chinese respondents say they eat both Chinese and Western desserts. Just 3% claimed that they contribute ice cream very often.

New ingredients attract Chinese consumers

Almost two-thirds (64%) of dessert consumers would like to try ice cream that incorporates seasonal fruits (e.g. pomegranate, grapefruit). Mintel research also reveals that 43% of dessert consumers in China would like to try ice cream with superfoods (e.g. chia and avocado).

The use of natural ingredients is becoming more important in the food and drink industry overall, including the dessert category. In fact, consumers are willing to pay more for options with natural ingredients.

In past few years, China has surpassed the US to become the largest ice cream market in the world. At Daxue Consulting, we observed in a previous article that this explosive growth has given rise to both international and domestic powerhouses. In 2015, the ice cream production volume in China was 3.06 million tons, and total sales value yielded over CNY 40.8 billion (USD 6.04 billion). Through a combination of forces is driving increased consumption, one of the chief proponents is rising middle-income stratum in China. With more disposable income and a proclivity for goods enjoyed in the West, ice cream consumption has never been higher in China.

Still, Chinese have yet to surpass the West in terms of per capita consumption. According to Mintel, US citizens were still the largest ice cream consumers in 2014, as they consumed on average 18.4 liters of ice cream per capita. Contrast with Chinese consumers, who ate less than four times that amount on average. The latest data from Mintel shows that Chinese ice cream sales value climbed to CNY 96 billion (USD 14.21 billion) in 2016, which was 20% higher than last year. In addition, the consumption volume in China reached 4.3 billion liters in 2016.

As higher leisure spending increasingly contributes to the growth of the ice cream industry in China, emerging consumer tastes and interests are changing how Chinese consumers are taking their ice cream. All things considered, this trend of growing consumption and new preferences is likely to continue for the foreseeable future.

Engines of Growth

Of all the growth drivers of the ice cream industry in China, perhaps the greatest is the increasing average socioeconomic levels and incomes across China.

In the past decade, according to the National Bureau of Statistics (中国国家统计局), annual Chinese salaries have tripled from CNY 21,001 (USD 3,108) in 2006 to CNY 67,569 (USD 10,000) in 2016. In the first quarter of 2017, the average monthly disposable income in China was CNY 7,184, which is a 7 percent year-on-year increase from 2016, according to Global Economic Data (全球经济数据). With higher income levels, Chinese citizens are spending more than ever before on leisure goods, and have taken particular interest in non-traditional desserts like ice cream.

When considering China’s population of over 1.38 billion, the increase of total consumption is staggering. Also, as current rapid economic development in China attracts more foreign enterprises and domestic investment in the frozen food sector, the industry is beginning to develop and address that growth accordingly. Notably, the frozen foods logistic industry is expected to maintain a 25% increase in market size and reach CNY 470 billion (USD 69.6 billion) in 2017. Thankfully, China is investing in improving the retail infrastructure and capability of the frozen food industry and its diversified distribution channels, which will make meeting the growing demand for ice cream a reality.

Ice cream has become a daily enjoyment for almost everyone in China. Photo source: Daxue Consulting

Product Adaptation According to Current Trends in China

More bizarre flavors

From the perspective of ice cream companies, ice cream consumption behaviors have changed in the past few years, which is presenting both challenges and opportunities. For Nestlé (雀巢), the growth of the ice cream industry in China has revealed two interesting trends. Not only are Chinese consumers looking for more refreshing and cold foods to beat the summer heat in China, which can reach 30℃- 42℃ on average in big cities, but also are gravitating towards subtler flavors. The traditional milk, chocolate, and vanilla flavors are not satisfying middle-class Chinese customers anymore. These new trends are forcing companies to adjust by diversifying their flavors and developing new products for the changing preferences of a growing upper middle-class in China.

For instance, Wufeng (五丰) introduced a spicy chocolate flavored ice cream called Mengxiaola (萌小辣) in 2016. Moreover, an ice cream store called Global (全球) has squid ink flavor and other unique flavors from across the world. The yolk ice cream can be found in Bonus (陆记蟹行), a Chinese ice cream store in Shanghai. These are all newly invented flavors and consumers are keen on trying them. On a widely used restaurants review and recommendation app called Dianping (大众点评), Global scored 8.3 on a scale from 1 to 10 in terms of its flavors, which is a pretty high mark.

Less sugar, less cholesterol, healthier food material

Considering that China has the largest number of diabetes cases in the world, an increasing number of people are calling for healthy or low-fat diets, which facilitates the creation of new ice cream lines. Indeed, conventional ice cream ingredients may contain high sugar, fat, and additives, but to satisfy customers’ healthy requirements, many manufacturers are returning to natural ingredients. For instance, in Europe and the U.S., many brands are experimenting with 35 percent of concentrate whey protein instead of dried skim milk for a healthier end product, a design choice that Chinese brands may seek to emulate.

Noticeably, frozen yogurt has also become a popular choice in China. The probiotics found in frozen yogurt help conserve some of the nutritional value in ice-cream, which is conducive to maintaining beauty, slimming, and digestion. Another example is the “one egg” ice cream (一个鸡蛋) introduced by Deshi (德氏), a well known Chinese ice cream company, in 2016, the special ‘’egg + oats’’ ingredients draws a significant amount of attention. Astoundingly, In Dongbei (东北) region, the average daily sales volume of “one egg’’ was 2 million in the beginning of 2017.

The WeChat index of “One Egg” ice cream (一个鸡蛋) remains high this summer, with a massive peak in searches in July. Source: WeChat Index (微信指数).

Offer DIY experience

As Chinese are putting more focus on experience as opposed to the food itself, ice cream are no longer just seen as just treats, but as a product of modern life. In traditional Chinese mindsets, eating very cold food is perceived as adverse to health; however, the considerable impact of Western ice cream has changed perceptions. Since overseas ice cream companies began entering China in the 1990s, ice cream sales in China have maintained a 20% increase each year.

Nowadays, opening DIY experience ice cream stores is a new strategy to cater to the requirement of customers. Nestlé（雀巢）, Yili (伊利), and the Japanese brand Meiji（明治） have all invested over CNY 1 billion for developing new ice cream projects in 2016 to win more shares on the market.

In May 2017, Magnum (梦龙) reopened its DIY experience shop called “Pleasure Store” in K11 Shopping and Art Center, Shanghai for the third time, which rekindled the enthusiasm of many ice cream enthusiats. In other cities like Nanjing (南京), Beijing (北京), Chengdu (成都), Pleasure Store also left footprints in the busiest commercial districts like Jinmaohui (金茂汇), Sanlitun (三里屯) and Taiguli (太古里) in the last two years. Notably, this DIY shop only opened for one month, the short time period stimulates consumers to seize the opportunities to try. The DIY experience does not only endow ice cream with higher value, but also strengthens the ice cream brand and customers relationship.

In its experience shop called “Pleasure Store”, Magnum (梦龙) offered a fascinating experience which included a wide array of toppings, sauces, and other garnishes for truly unique products for every consumer. Photo source: Baijiahao (百家号)

The aesthetic advantage

To sustain people’s interest, constant innovation is a necessity for every ice-cream brand striving to succeed. Hence, more and more unique styles can be seen in the ice cream market, and some of them are considered as “food celebrity”（“食物网红”）on Weibo because of their novelty.

Huang Cheng Chi Zhu (皇城吃主), a food KOL on Weibo who has more than 490,000 followers, highly recommended Gooble（果堡）, an ice-cream that turns the fruit into the wrapper of the ice-cream, which is both aesthetic and nutritious.

Food KOL Huang Cheng Chi Zhu (皇城吃主)] introduces Gooble: a relatively healthier option for ice cream lovers. Source: Weibo (微博)

Another trendy type is the shining ice cream (闪光冰淇淋), which is made by putting ice-cream on top of sparkling soda water in a delicate jar. This eye-catching design attracts numerous customers to queue for it and post pictures of it on social media afterwards. Additionally, mini ice-cream (迷你冰淇淋) is a new fashion. For instance, Cornetto (可爱多) launched a mini set of ice cream collaborating with Line Friends (连我), a famous cartoon brand in June, 2017. This mini set of ice cream is priced at CNY 15.9 per box and has received wide popularity in China. The topic #Mini Cornetto LINE FRIENDS# on Weibo has accumulated 390,000 reads up to now.

Chinese citizens beating the summer heat with the new “Shining Ice Cream” (闪光冰淇淋) on top of the colorful soda water. Photo source: Sohu (搜狐)

Brands Competition Escalated: Domestic VS Foreign

The expansion of domestic brands in the ice cream industry in China has not gone on unchallenged, has many international brands are innovating as well. The competition between domestic and foreign ice cream brands has entered a critical point after ten years of development. Here is a table presenting all the major Chinese and foreign brands on the market now.

Chinese ice cream brands

Foreign ice cream brands

While domestic producers are superior concerning distribution channels and prices, international brands are known for higher quality. Fonterra Co-operative Group (恒天然集团) launched Tip Top（哈奇贝奇）, a beloved New Zealand ice-cream brand in China and collaborated with Tmall (天猫) to deliver them efficiently. Seeing the tremendous potential in a geographically close market, a Russian fresh milk ice cream brand Kopobka (格里诺夫) also decided to get in on the action. The proportion of butter in Kopobkais approximately 15 percent-18 percent, which is healthier than most other ice cream brands.

Shawn Lou, senior project manager at Daxue Consulting, stated that fresh milk ice cream could be a segment with large potential in China. Photo source: Daxue Consulting

According to Shawn Lou, senior project manager at Daxue Consulting, fresh milk ice cream could be a hit as Chinese’s awareness of healthy diet is rising and fresh milk contains the largest amount of nutrition among all kinds of liquid milk. Kopobka also benefitted by partnering with various distribution companies in Chinese industry to ensure quality deliveries. Consequently, the sales of Kopobka mounted to CNY 20,000 CNY on the first day of it’s sales on the Silk Road Expo (丝博会), an exhibition of new products in various industries from countries and cities near the Silk Road (丝绸之路), making a grand entry in June 2017.

The rising of foreign ice-cream brands can also be identified from the data on Taobao (淘宝).

Chinese brands Yili（伊利）, Modern (马迭尔), Guangming（光明）, Mengniu (蒙牛), Zhongjie (中街) taking over the sales volume ranking. Source: Maijia(卖家网)

Six international brands ranked in top nine of sales value due to higher quality and rising popularity, namely Haagen-Dazs, Nestlé, Poonmanee, Tip Top, Walrus and Wall’s. Source: Maijia (卖家网).

The higher chart of the two above presents the top eight ice cream brands in terms of sales volume, and the lower displays the top nine brands in sales on Taobao in June 2017. Notably, Chinese brands still dominate with regard to sales volumes, with only three foreign brands; Haagen-Dazs (哈根达斯), Wall’s (和路雪) and Walrus (海象) cracking the list. It is also interesting to note that foreign brands took six places of the sales value ranking：Haagen-Dazs (哈根达斯)，Nestlé (雀巢), Poonmanee (蓬玛尼) , Tip Top (哈奇贝奇), Walrus (海象) and Wall’s (和路雪). By occupying these slots in sales value, they represent a declining effectiveness of the domestic brands’ low price strategies. As Chinese consumers are prone to switch to the high-end ice cream market, which is priced at between CNY 150 and CNY 300, they are willing to pay extra for premium quality or attractive features of the products, which is a golden opportunity for overseas brands.

Keywords related to foreign ice cream brands soars on Taobao in June, 2017. Source: Maijia (卖家网)

Here, we see that the top 10 keywords related to ice cream industry from 12th June to 18th June on Taobao, with “imported ice cream” (冰激凌进口) being the hottest search keyword with a growing percentage of 1.95 %. The search frequency of the keyword “ice cream” and “Nestlé” (雀巢) also increased sharply with 0.58% and 0.48%, ranked 6^th and 10^th respectively.

Foreign ice cream brands take the leading position in the internet voting of popularity. Source: CNPP & Maigoo (买购网)

The results from a recent internet poll of 41,823 people showed that Haagen-Dazs is the most popular ice cream brand in China from a comprehensive perspective placing over three popular domestic brands in the top five and 51 other brands. Haagen-Dazs received 9,670 votes, followed by Dairy Queen (冰雪皇后) at 3,681.

Still, domestic brands have certain advantages in the homeland. For instance, De Shi was the first enterprise in ice-cream industry that held new product release conference in the Great Hall of People (人民大会堂) in February 2017，helping to convey a trustworthy, people-focused image. Holding a conference in this place used for formal government meetings and high-grade business conferences, stands for high recognition and great honor for companies.

There are still some well known foreign ice cream brands that have not entered China, like Coppelia (葛蓓莉亚), BimBom of Cuba, Crescent Ridge Dairy (新月山脊) and Handel’s Homemade (汉德尔自制)  from the U.S. Seeing the large potential in Chinese ice cream market, it is highly probable that these companies will attempt to enter China in the near future.

CONTACT US TO LEARN MORE ABOUT THE CHINESE MARKET

Daxue Consulting’s Expertise: Market Entry Study

Daxue Consulting helped a client, a French frozen food company, to develop its line of dairy products in Chinese brick and mortar grocery shops. Initially, we conducted a market entry to help understand the competitor’s positioning in China. The second stage of the project was to implement a market survey with a focus group in first and second tier cities in China. Our research revealed that Chinese ice cream consumes in grocery stores are predisposed to first look at the brand, then the flavor, and then the price to make their decision. Indeed, the aesthetic appeal of a product is therefore paramount in the ice cream industry in China.

In the food and beverage industry and in other practices, our clients share our passion for results and success. For more on our expert insights on and our work in the Chinese market, please see our site, follow our newsletter, or reach out to us to learn more.

This article The Ice Cream Industry in China: The Biggest Market in the World is the first one to appear on Daxue Consulting - Market Research China.

[Data Source: qianzhan, ‘Bottled water sales in China’]

From 2018 to 2019, the monthly growth rate of bottled water sales on the Tmall e-commerce platform in China was 130%. The average monthly consumer growth rate was around 180%. The main consumer group is 25 to 34 years old people. Anhui Province’s sales growth rate was 200% year-on-year, surpassing the first-tier regions such as Shanghai, Zhejiang, Guangzhou, and Jiangsu.

China has the biggest revenue in the bottled water segment

Chinese government promotes healthy lifestyle for some years now and achieved a good result. Today, Chinese consumers are more sensitive to food products and beverages. Consequently, bottled water is popular common daily drinks for old and young people in China. More and more Chinese consumers are embracing a more active and healthier lifestyle. Their beverages consumption habits are moving beyond soft and energy drink, and are getting on with a healthier bottled water. Nowadays, most Chinese consumers consider bottled water is the best healthy beverages, among other alternatives, especially on the road. The average per capita consumption stands at 84.2 L in 2019. In global comparison, China has the biggest revenue in the bottled water segment. Imported bottled mineral water is one of favorite imported beverages in China market.

The price for domestic bottled water is increasing

According to Euromonitor data, the unit price of bottled water in China continued to increase from 2010 to 2018. In 2018, the unit price of bottled water in China was 4.1 yuan per liter. It is about 2 yuan per bottle (assuming a single bottle capacity is 500 ml). 

In 2018, the four major brands occupied the bottled water market in China. Nongfu Spring had 26.4% of market share. China Resources Beverage had 20.9%. Ganten and Master Kong had 9.6% and 9.3% respectively. Their share totaled 66.2%. Together with Ice Due and Wahaha they occupy more than 80% of market.

Sales channels of bottled water in China

In the beverage market in China, 2.4% of total revenue will go through online sales by 2021. However, offline sales still occupy the key sales. Statistics indicates that offline sales were 98% in 2019. It predicts that they will decrease to 97.6% by 2021. The main reason for gradually dipping offline sales is the growing e-commerce in China year by year.

Drivers of the bottled water market in China

As the second largest economy in the world, and a major driver of global economic development, China has paid a high environmental price for its economic increase: polluted air, contaminated land, uninhabitable areas, desertification, and a severe crisis of drinking water. Our focus lies on one of the markets which directly shows the impact of these environmental issues: the bottled water market in China. The country only has about 6.5% of the planet’s renewable water resources to sustain one-fifth of the world’s population. Due to the economic growth, faster than freshwater supply, China’s water shortage has become a much more severe problem.

The WHO (World Health Organization) warned that although China is ranked sixth regarding the total volume of fresh water available worldwide, the amount of fresh water available per-capita in China is only a quarter of the global average. Moreover, the interaction between water resources and agriculture is likely to become increasingly important considering food safety in China. Particularly in Northern China, which holds only 18% of the total fresh water while having 65% of the total fertile land.

Consumers take contamination seriously

Furthermore, consumers take contamination very seriously. In early 2013, 7,500 rotten pig carcasses were found floating in the Huangpu River. The event aroused mass media and people’s attention, as the river supplies 80% of tap water to Shanghai. Although the authorities have guaranteed the quality of the city’s drinking water, residents have remained concerned about water safety, and many of them have stopped drinking tap water and are buying bottled water instead.

In 2016, the Ministry of Water Resources (MWR) in China declared four-fifths of groundwater contaminated, which means it is unfit for drinking or daily use. Thus, the rapid growth in this market results in a mistrust over water safety. A survey conducted by the China Water Supply Services Union in 2014 – with 30,000 urban residents in 100 cities – showed 59% of them drinking (boiled) tap water. The remaining participants prefer bottled water as the first choice over a home water filtration system.

Bottled Water Market in China: The horror of China’s water pollution

Officially, there are five grades for groundwater to categorize ‘drinkability,’ whereas only the first three are acceptable for human consumption, according to The New York Times. 32.9 percent of grade 4 water – which is mainly suitable for industrial use but not for human contact –  was found, primarily in Northern and Central China, across the tested wells. Even worse, 47.3 percent was found to be grade 5. The study showed the contaminants included compounds used in fungicides, such as manganese, fluoride, or triazoles. Moreover, in some areas, pollution through heavy metals was found. The MWR clarified the released data was valid mainly for shallow groundwater, while the drinking water comes from deep groundwater. However, even surface water pollution can have an impact on crop contamination and also (an unknown percentage of) deep groundwater is unsuitable for drinking, as the Epoch Times reported.

China’s increasing bottled water market is world’s biggest

Research has shown an enormous growth in the bottled water market segment. In 2013, China surpassed America, becoming the world’s biggest bottled water market by volume. The Chinese market is continuously growing, experiencing an increase from 19 billion to 37 billion liters of bottled water in the years from 2010 – 2015 in China, as reported by The Economist, and is expected to reach 49 million tons of total annual consumption by 2020, according to China Daily. Statista forecasts the revenue of bottled water in China will grow by 22% between 2019 and 2023.

Bottled water revenue in China

In per capita terms, however, the picture is very different. China is running below the global per capita bottled water consumption average of 30 liters per person. China’s per capita consumption is just around one-fifth of that of the U.S. That means there’s plenty of room for this segment to grow in the future. The emerging upward moving trend in China’s bottled water market also led companies – which compete in other fields besides the beverage market – to participate in the bottled water industry, such as Sinopec Corp, an oil company, as announced by China Daily. However, research shows that businesses that are primarily competing in soft drinks drive the market. These brands include Nongfu Spring, surpassing Ting Hsin in 2015, Wahaha, C’est Bon produced by Hua Run and Ice Dew (China’s biggest foreign-owned brand) produced by Coca-Cola.

Social responsibility: A strategy to sell premium water in China

As the economy becomes larger and stronger and China becomes more and more exposed to western culture, Chinese consumers see expensive consumer goods as trophies for their success. They are embracing new economic ideas and habits, devouring goods that previously were unreachable, were impossible to achieve, or forbidden. The rapid urbanization and the change in lifestyle, as well as the increased health awareness in China, are leading Chinese preferences towards the premium water and foreign brands, which were jumping onto the moving train. For instance, Nestlé and Coca-Cola both associate their branding with social responsibility. Their marketing strategy is turning the consumer to perceive water as a safer alternative, and as a result has bolstered their sales as consumer’s growing worries about risks of contamination continue to rise.

A television ad in China for Nestlé’s Pure Life brand of bottled water showed children making unhappy faces after tasting the water. One child pours his glass into a fish tank instead of drinking it; his face lights up when his mother offers Pure Life instead.

Coca-Cola’s China bottled water strategy

Coca-Cola Co., launched in 2014, is a socially responsible bottled-water brand in China that funds projects to bring clean drinking water to school children in rural China. The name is Ice Dew “Chun Yue,” or Pure Joy, and a single serving bottle costs just slightly more than local products sell for. For the work in rural areas, Coke paired with the prominent local non-governmental aid group ONE Foundation.

Socially conscious brands are not as present in China as in some other markets, and their market share is still small. According to The Economist, Coca-Cola’s waters (including Ice Dew) have 5.6%, Danone of France is close behind with 5.5%. Nestlé of Switzerland has 1.8%.

Bottled Water Market in China: Market potential in China

The market concerning bottled water is highly concentrated in China. National brands control a majority of the volume and value of sales. Nonetheless, international players have established a presence in China, such as Coca-Cola and Nestlé. The increasing consciousness of health among Chinese people and the desire to avoid waterborne diseases has seen the continuous sale increase of bottled water and which will continue in the future; which means high-end bottled water will still play a significant role in the water market.

As of 2017, domestic bottled water brands face threats from foreign water companies due to China’s food security, as national regulators raise concerns about non-compliance with standards. For instance, in December 2014, the Economist reported that authorities in Shanghai found a quarter of the bottled water sold by some of the largest brands was contaminated. However, today existing leading players are more likely to expand their production capacity and develop more high-quality water sources to match their strategic business plans.

How brands increase sustainable production

For example, the Chinese bottled water producer Nongfu Spring has invested in high-speed Sidel bottling (a manufacturing company providing packaging equipment for liquids) – switching from HDPE (High-Density Polyethylene) to PET (Polyethylene terephthalate) – to achieve a more cost-effective and sustainable production process. Since the launch of those PET bottles, Nongfu Spring has seen its sales increase significantly in this market segment. Furthermore, China reasserted and reinforced the 2011 ‘Three red lines Policy’ or also known the ‘Water Ten’ in April 2015, according to China Dialogue 中外对话. The new water management policy discusses the control of water usage, improvement of water efficiency, and limitations to water pollution. Nevertheless, the country’s per capita bottled consumption rate is still 19% below the world’s average which implies an enormous unfilled potential in the Chinese market.

To know more about Bottled Water Market in China, please don’t hesitate to contact us.

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This article Bottled Water Market in China is the first one to appear on Daxue Consulting - Market Research China.

[Data Source: Statista, size of the facemask market in China]

2021 estimations after COVID-19 show a slowdown of the trend, but the memory of the pandemic will still account for a significant part of the demand.

Before the outbreak, the face mask market in China was much more driven by pollution concerns than disease. Pollution alerts often led to a surge in demand on the Chinese e-commerce marketplaces. Resulting from COVID-19, an unprecedented surge in national demand for face masks pushed thousands of new manufacturers to start producing face masks, with the support of local authorities. However, the rush for N95 masks with higher filtering capabilities has largely benefited the American brand 3M, which dominates the N95 face mask market in China.

China met global face mask demand with a production boom

Since the re-qualification of the outbreak as a global pandemic, China experienced a mask-making boom. In 2020, More than 38,000 new companies registered to make or trade face masks. China was already the main market for protective masks production in the world, making half of the global output in 2019. In February 2019, the country had already risen its capacity from 20 million to 110 million. Concerns about overcapacity in the offer on the Chinese market have quickly disappeared, with China’s face masks being in urgent demand from other countries.

In April 2020, foreign governments’ ‘wild feeding frenzy’ for Chinese protective face masks brought chaos to the landscape of manufacturers. A medical supplier during the pandemic told the South China Morning Post: “mask machines are like cash printers.” To meet global demand, many factories that were making completely different products like car parts, electronic parts, or plastic toys, therefore turned to mask production. With governments fighting for ramping up their stocks, quality controls at purchase were often completely avoided in favor of shipping speed.

New regulations to prevent face mask scams

The influx of new actors to the market has led to a dilution of the quality and a surge in scams, forcing the Chinese government to change the rules. Mid-April’s new regulations from China’s customs agency require companies manufacturing PPE (Protective Personal Equipment) for export to go through a government-led process. Mask exporters also need to prove that their products meet the relevant regulatory standards of the destination country.

This move comes after a global backlash in which foreign countries were supplied shoddy products, undermining China’s position as ‘the global savior.’

As long as the pandemic doesn’t end, the Chinese face mask market will stay warmly flooded with transactions. However, foreign countries are now ramping up their own productions to be less dependent on Chinese exportations.

Thus, if the pandemic is an instant boon for the Chinese face mask market, the gold rush will soon end, and many actors may be left aside.

National issues supporting the Face Mask Market in China

The face mask market in China is largely driven by external events like epidemics and pollution. Most recently, the Coronavirus outbreak has caused face masks to sell out all over China. Originating in Wuhan late December, the 2019 new Corona Virus (2019-nCoV), has infected over 28,000 people and killed about 570  in Chinese mainland as of February 7^th 2020. – The rapid spiral in the number of identified n-CoV cases forced the Chinese government to seal cities and public transport. The Spring Festival holidays had been extended by a week, hoping to curb the spread of the epidemic. Two months before the destructive outbreak, China’s National Health Commission had already called to effectively enhance prevention measures in anticipation of the upcoming flu season, looking for a more standardized process for diagnosis and treatment.

But the 2019-nCoV is by far neither the first nor the last to appear on Chinese soil. China has always been considered by the World Health Organization (WHO) a hot spot for new influenza viruses; there is indeed no other country on earth where so many people have close contact with wild animals. Thus, the n-CoV reminds of the lethal 2002-3 severe acute respiratory syndrome (SARS), but also less widely known avian influenza A(H7N9) virus, which killed 212 people in China according to a 2015 WHO report.

In the meantime, according to the Global Health Observatory, total health expenditure per capita in 2014 in the country reached 731 USD, which is much lower than the 2014 world average of 1041 USD. This report from the OECD shows that China counted 1.8 physicians per 1000 people in 2015, which is slightly more than the World average of 1.5, but almost twice less than the OECD countries.

Pollution drives the functional mask market in China

Flu prevention is not the only health problem that China is facing. Air pollution is another one, which has become one of the most intensely discussed livelihood issues that the Chinese government focused on the 12th National People’s Congress (NPC), held in Beijing on March 5, 2016. Chinese Premier Li Keqiang declared a “war on pollution” at the Communist-controlled NPC parliament in 2014.  Three years later, average particulate levels in Chinese cities still do not meet the World Health Organisation (WHO)’s standards, which considers anything over 10 PM2.5 as health hazard (maximum annual average PM 2.5 exposure). According to this infographic, in 2016, Beijing had  a yearly average of 7.3 times above the WHO’s recommended safe levels.

N95 masks in China: A shield in a war against the Coronavirus

In January 2020, Chinese President Xi Jinping declared “a people’s war against the [n-CoV] epidemic” over a governmental meeting, stressing that prevention and public awareness remain the most effective measures to fight a pandemic. Since the 2002-3 SARS, people rely on wearing surgical masks. Especially high-filtering specialized N95 masks, during illness as one of the main preventive barriers against propagation. Claimed as an effective way to protect oneself from the virus, face masks have been urgently brought to the fore as a daily necessity and a fast-moving consumer good in China, resulting in a massive gap between market demand and supply.  On January 3, 2020, just over a week after the new coronavirus outbreak, China “urgently needs” protective medical equipment while medical masks shortages were reported across the country.

 Face masks, also called ‘kouzhao’ (In Chinese口罩) usually cover the nose and mouth and include cotton masks with cute designs, surgical masks, and imported high-end filters. In 2014, officials in Shanghai considered distributing free protective masks to residents after the financial hub of China “suffered one of the worst spells of air pollution on record,” reported The Telegraph. At this time, PM2.5, fine ambient particles less than 2.5 micrometers in diameter causing cardiovascular diseases and lung cancers, rocketed to levels that were more than 20 times those deemed safe by the WHO.

Red alert in Northern China

In December 2016, northern China (including Beijing, Tianjin, and around 70 other northern Chinese cities) had been covered for weeks in thick toxic smog, composed of high concentrations of PM2.5. It is one of the worst episodes of air pollution the country has seen, affecting 460 million people.

The “red alert” was declared in 24 cities, prompting the closing of schools and airports, restricting traffic and asking citizens to stay indoors. In response, online shoppers splurged on filtration masks, and anti-pollution equipment , with e-commerce firms and brands reporting record demand, as explained by Reuters. In December 2016, Internet retailer JD.com Inc sold to domestic consumers about 15 million US-branded filtration masks through its online marketplaces. 

Face mask price inflation

The 2016 measures to counter air pollution strangely resemble the drastic measures of early 2020 to stem the spread of the new coronavirus, forcing dozens of Chinese cities to quarantine. As a result, 80 million masks were sold on Taobao over the two days of January 20 and 21. The BBC also reports that the price of a 20-mask box jumped to 1,100 yuan ($158) on Jan. 21, up from 178 yuan in November. Between December 30 and January 24, 3M, the most popular face mask brand in China, added $1.4 billion in market value. Honeywell, the American conglomerate that also sells face masks in China, added $500 million in market value, in the same frame time.

Overall, due to significant health crises, the protective face mask market in China, still dominated by Western brands that control more than half of the Chinese market, is heating up. Many budget manufacturers and low-cost producers from Japan and China are now trying to get a slice of it.

Rising demand for face masks in China

The demand volume of protective masks in China has grown continuously since 2012. State media estimate the protective face mask market in China was worth nearly 4 billion yuan ($600 million) in 2015. Along with the improvement of the living standard of people in urban areas and the rise of the middle-class, people’s awareness of pollution, germs and contaminants protection is increasing all the time, especially for young children, and will maintain rapid growth.

Protective face mask production in China

China’s protective face mask market enterprises are mainly distributed in the eastern region, and Bohai Rim, Yangtze River Delta Region, and Pearl River Delta Region are the major production areas. Shandong province serves as the center of the masks industry in China with another production hub, Dadian, dubbed the “mask village” for producing the cheapest pieces.

There are more than 300 mask processing and supporting enterprises in Dadian village, Jiaozhou City of Shandong with an annual production capacity of nearly 1 billion pieces. Realizing about CNY 1.1 billion ($160 million) of output value, it accounts for more than 80% of market shares nationwide (data based in 2017).

Currently, common protective masks widely available in every convenient store are priced at CNY less than 1 or 2 ($0.15 to 0.40) to CNY 30 or 40 ($4.5 to 5.8), and they are made from cotton yarn, activated carbon, and other materials. Along with the continuous increase of Chinese residents’ incomes and the improvement of people’s living standard, people have a stronger awareness about the environment and health. As a result, consumers are willing to pay more to protect themselves from health crises’ effects. They look for more comfortable and effective masks, such as Vogmask or Cambridge masks, which generally range in price from CNY 120 to 245 CNY ($19 to 37, based on 2019 Tmall/Taobao prices and currency exchange rates).  To meet growing demand in China, new market entrants like Airinum focus on the high-end market, with stylish design and high-quality replaceable filters.

Collectivism and Chinese consumer psychology 

“In China, people just pretend or assume that it is useful. It’s a mass behavior,” indicates Wong Chit Ming, a researcher at Hong Kong University’s school of public health. “You may feel a little better…but there’s no real evidence this might help.” This is collective consumer psychology among the Chinese who are entirely concerned about the threat of air pollution and germs during flu season. For him, Chinese people have the impression that this could resolve the problem of air quality and they should, therefore, do something to protect themselves from the harmful air, which will comfort them emotionally regardless the practical effect.

Different style and functions for the Face Mask Market in China

China Textile Commercial Association officially released ‘the community standards of PM2.5 protective masks’. The standards were implemented on March 1, 2016. Before this date, China had no quality standards for face masks for personal use, and the majority masks available claiming to reduce particulate matter by 99% on the market were not protecting against PM2.5.

According to the FDA, “Face masks and N95 respirators protect the wearer from liquid and airborne particles contaminating the face. They are one part of an infection-control strategy.” While face masks like medical and surgical masks are meant to block large-particle droplets, splashes, sprays or splatter that may contain germs from reaching your mouth, they are more loose fitting than N95 masks which are meant to achieve very close facial fit. The ‘N95’ designation means that the mask blocks at least 95 percent of very small (0.3 micron) test particles. Properly fitted, N95 respirators’ filtering capabilities exceed those of face masks, making N95 masks the most popular choice in times of pollution and influenza season. Currently, the N95 mask market in China is dominated by the giant 3M, as it is the only brand to be N95 approved by the Center for Disease Control and Prevention (CDC).

[Source: South China Morning Post ‘3M N95 Masks in China’]

Choosing the most effective mask

At present, the variety of types of anti-dust and anti-contamination masks sold in online shops and outlets have contributed to the disorder of this market. Those most popular kinds of masks are always those masks which have a relatively simple wearing process. Still, the vast majority of Chinese residents use cheap cotton masks that offer little protection. Also, expensive specialized N95 masks aren’t made to fit Chinese faces well, according to a study from Wuhan researchers. Even those benefiting from China’s Kou Zhao boom admit that their masks can only do that much.

Except for the most common cotton masks, active carbon mask which can be recycled and praised for  its adsorption force becomes another hot choice in China market. As some researchers analyze, China’s functional mask market has not been arousing general consumption groups’ attention due to its late start. But now it has garnered significant attention.

Division of the Chinese Mask market

Simple market research shows that on Taobao/Tmall, the top-selling mask brands are replicas of each other. Top brands sold in Dec 2018 to Jan 2019 are listed in the graphic below:

Lack of diverse options in China’s mask market

These brands and their products are the same in almost all aspects including materials, designs, promotional strategies, pictures used online and textual description. It is very likely that these masks are produced by the same producer. However, there is no trace showing the actual manufacturer of the products, and thus unable to identify whether the domestic mask product is highly concentrated or not.

Based on Xinhua.net, the overall face mask market in China is mostly controlled by the international giants 3M, which occupies almost 90% of all the market share, followed by Honeywell and Ludun 绿盾 with less than 5% respectively. Other brands such as Uvex and Hakugen have a non-significant market segment of less than 1% respectively.

To be noted that, among all these brands, only Ludun 绿盾 is produced by Chinese domestic company Sinotextiles Corporation Limited, other brands are all international based.

Another market analysis renders different views on the masks industry in China. According to a market report, four major domestic mask producers own 7 major brands. The largest domestic mask manufacturer is Shanghai Dragon Corporation 上海龙头股份 (market share 6.52% with 2 brands) followed by Shanghai MNP Inc 上海美科 (market share 7.14% with 3 brands), Teda Tianjin 天津泰达 (market share 5.90% with 1 brand) and Dongguan Rongxin 东莞容鑫防静电技术 (market share 1.00% with 1 brand) in a descending order.

The future of the Face Mask Market in China

There is an increasing demand for both functional and comfortable masks, so much improvement has been achieved in protective measures, what’s more, these functional masks are equipped with high technological contents. Thus, the additional value increases correspondingly. For example, masks for controlling bacteria and protecting virus should carefully suit with people’s facial form. Obviously, such a malignant environment we are living in is difficult to be improved thoroughly in a short time. Therefore, self-protection measure appears to surge high unprecedentedly, bringing vigor to the protective face mask industry in China.

New market studies in late 2018 found that ‘smart’ masks are now more welcomed than traditional protective face masks. Now major mask buyers in China not only consider the function of filtering but want to buy smarter equipped masks. With some AI microchips implanted into masks, those new products can both monitor the filtering function and other rates affecting human body performances including heart rates, air pressure, humidity and other air-related live data. Some other products even developed a replaceable filter with AI function, and these products are more like sports equipment than simply anti-pollution masks. Their filters can be replaced to imitate different air pressure levels and add on training difficulties when people try to exercise under a thin-air condition and to improve cardio abilities. Most buyers of this new type of AI-based masks are female, and 53% of the buyers are less than 30.

Many investors have seen this opportunity; it is estimated that the production value of China’s functional mask market will grow up to CNY 10 billion in the next five years.

Author: Maxime Bennehard

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Overview of the instant noodles market in China

A Euromonitor study showed that the consumption of instant noodles in China had increased significantly since 2003. The industry has maintained a positive growth rate for five consecutive years, with 69.5 per cent sales growth to 59 billion yuan in 2008 – up from 34.8 billion yuan in 2003.

In 2012, industries suffered in the global financial crisis, the instant noodle sector, however, suffered no damage.

Consumption growth driven by premiumization

According to Euromonitor, the instant noodles market in China continued to see the rise in sales in 2019. The strong performance of mid-to-premium products facilitated the upturn in this market. The product segment took advantage of the increasing demand for health-conscious and premium products. The broth is a critical factor in driving growth while emphasizing healthier food, upgraded from a MSG base to include more natural flavors. Instant noodle companies in China now emphasize high-quality ingredients. Apart from developing premium products with better quality and new flavors, brands are also shifting part of their packaging from pouches to cups to meet the need for busy urban instant noodles consumers in China.

Sales performance influenced by delivery industry

The Instant noodles market in China has been the largest world over the last decade. However, from 2013 to 2017, the sales volume had been decreasing. This was due to the remarkable performance of China’s food delivery industry. From 2017 onwards, the sales performance of this market has been recovering because of the market turbulence of competitors’ sectors. Therefore, in the foreseeable future, the sales volume and value are projected to grow steadily and will reach 0.937 billion RMB with the YOY of 2.9% in 2021.

Manufacturing and consumption of instant noodles in China

Influenced by the Chinese consumers’ rising health consciousness and development of other industries, instant noodles companies in China experienced a downturn from 2014-2017, and the production volume maintained at 10 million tons. In 2018, it plummeted to 7 million tons and dropped by 36% in comparison with the figure in 2017.

The demand for instant noodles in China has been dropping gradually. From 2013 to 2016, the annual consumption of instant noodles in China fell by 8 billion. In 2017, the demand decreased to 0.385 billion units. Since then, the figure has maintained below 0.4 billion.

[Data source: chnci, ‘Demand in China’s Instant Noodles Market’]

In 2018, China was the largest market for instant noodles with 40.3 billion units of sales volume and consumed 38.9% of total instant noodles. Even though the total consumption of instant noodles in China was the largest all over the world, the consumption per capita was way lower than that in other countries. With the rising middle class and increasing purchasing power, China will become the potential market for high-end instant noodles.

In terms of the consumption pattern, the instant noodles market in China is evolving towards the high-end market. In 2018, the high-price instant noodles product in China was the most popular and accounted for more than 50% of the total consumption of instant noodles in China.

Instant noodles products in China: high standardization

Packing methods, cooking methods and texture of noodles are the key characteristics of instant noodle products in China. Instant noodles in China can be sold in cups or bags.

Regarding the texture of instant noodles, non-fried instant noodles are healthier. They skip the fried process and include a low amount of palm oil and saturated fatty acid. However, fried instant noodles are the most original product. Since instant noodles consumers in China have become increasingly health-conscious, instant noodles manufacturers have modified the process to avoid heavy oil.

Lastly, wet-processed instant noodles are the healthiest products among these three. They need to be boiled before serving, and they are the result of rolling, boiling, pickling, sterilization and package sealing. Due to their moistness and freshness, these features have differentiated wet-process instant noodles from others and become the high-end products in the market.  

Price of instant noodle market in China: a gradual increase

From 2003 onwards, price of instant noodles in China has experienced stable growth, from 15,000 RMB/ton in 2003 to 26,000 RMB/ton in 2017, with a fluctuating YOY.

Distribution channels on the instant noodle market in China: supermarkets dominate

Owing to the feature of instant noodles, convenience and time saving, it has attracted different consumer groups. Instant noodles consumers in China can shop in supermarkets, convenience stores, vending machines, service stations, and so on. Customers in China consume instant noodles in various contexts, home, train, canteens, flights, etc. With the development of E-commerce in China, shopping for instant noodles online has become easier. Instant noodles consumers are likely to shop on mainstream platforms such as Tmall and JD and other delivery apps.

Localization and health

China produces many instant noodle dishes that reflect the unique flavors of various regions. One example is Zhengzhou lamb noodle soup. Different regions develop their tastes to differentiate from competitors.

Crossover collaboration is the latest trend in the food industry in China. The frozen food industry in China has applied this strategy by collaborating with the catering industry and E-commerce sector in China. It has developed the signature dishes which are healthy and accessible. The instant noodles market in China can imitate and apply a similar strategy to maintain and occupy more market share.

Health is always the critical priority of instant noodles consumers in China. Therefore, instant noodles companies in China can leverage R&D and develop more nutritious and natural products. For example, steamed and boiled noodles are the latest innovations in the instant noodles market in China. The product maintains the nutrition and taste of traditional Chinese noodles. Another outstanding example is the fine dried noodle, which includes vegetables and grains, can satisfy current consumers’ need.

Brand analysis of instant noodles market in China

Key players in China’s instant noodles market: high CR4

[Data source: chyxx, ‘Market Share of Key Players in China’s Instant Noodles Market (2018)’]

The brand concentration degree in instant noodles market in China has been increasing. In 2018, the key players in this market were Master Kong, Uni-President, Jin Mai Lang and Bai Xiang, occupied more than 80% of the total market share in the instant noodles market in China. Master Kong and Uni-President accounted for 60% of the overall market share,  which indicated their overwhelming brand loyalty in this market.

Brands of instant noodles market in China: Master Kong and Uni-President dominate

In the competitive instant noodle market dominated by Taiwan’s Master Kong and Uni-President Enterprises Corp, the only way for smaller Asian rivals to gain a larger market share may be to resort to magic. Perhaps that is why Huafeng recently hired famed magician Liu Qian as its brand spokesman, hoping to boost sales in the country’s vast second- and third-tier cities.

For a company without an established distribution network, it will be challenging to compete with Master Kong and Uni-President. The market research firm Euromonitor International reported that Ting Hsin International Group, which owns Master Kong, led in domestic market share with 27.2 per cent in 2007, followed by Uni-Present with 7 per cent. Huafeng, with a 1.3 per cent share, ranked ninth among leading instant noodle makers. However, Huafeng, which suffered losses from the end of the 1990s through 2004, has recruited a fresh new management team. Market conditions in China’s first-tier cities have been extremely competitive, dominated by top brands that created barriers to entries due to their economies of scale.

Master Kong and Uni-President

Ting Hsin International Group is a Taiwanese-owned company based in Tianjin, PR China. It is China’s biggest instant noodle maker, owning the Kang Shi Fu brand, also known as Master Kong or Tong Yi. It also partly holds 33.2% of shares of its associate Tingyi Holding Corporation. Uni-president Enterprises Corporation is an international food conglomerate based in Tainan, Taiwan. It is the largest food production company in Taiwan as well as in Asia and has a significant market share in dairy product, foods and snacks, and the beverage market. It is also responsible for running Starbucks, 7-Eleven, Mister Donut and Carrefour in Taiwan. Besides, Uni-President also has subsidiaries in China and Thailand.

Foreign instant noodles brands in China: Korean instant noodles

According to Euromonitor, domestic brands continue to dominate in the instant noodles market in China. However, foreign instant noodles brands in China offering novel and exotic products can still find space to expand, especially as demand moves upmarket. Amongst those foreign brands looking to enter China’s instant noodles market, Samyang has drawn Chinese consumers’ attention successfully. Spicy Buldak Ramen noodles have become popular in China owing to a viral online spicy noodle challenge, the endorsement of K-pop stars and multi-channel distribution.

Shin Ramen is a distinctive brand of Korean instant noodles produced by Nong Shim Ltd. since 1986. It exports its products to over 80 different countries and is the highest-selling brand of noodles in Korea. Shin Ramyun comes with a seasoning packet and a packet of dehydrated vegetables and is usually prepared in a pot or other container. It is also sold in an instant cup or instant bowl form. This debut version came out in Korea in 1981.

[Photo source: Nong Shim, Voiello and Samyang, ‘Products of foreign brands in China’s instant noodles market’]

Author: Amelia Han

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This article Instant noodles market in China: a recession-resistant meal is the first one to appear on Daxue Consulting - Market Research China.