To enter the biscuit market in China, there are three key elements to aware of:  nutrition, packaging-design and taste.

China’s snack market overview

According to a report by the Ministry of Commerce, the total output value of China’s snack industry increased from 424 billion yuan to 2,215.6 billion yuan, with a compound annual growth rate of 17.9% between 2006 to 2016. The report predicts the total output value of the snack industry will increase to 3 trillion yuan by 2020. There are four reasons contributes to the future positive outlook.

First is increased consumption power due to China’s economic development. Second is the even spread of the production factories in China. This helps meet consumer demands in different regions, as snack preferences vary from region to region. The third factor is the diversified sales channels. Other than offline department and retailers, e-commerce is well-developed in China to serve the consumers. Nearly 30% of the sales of online food are snacks. According to CNBD 2020’s online snack sales report, Tmall is the main platform that consumer purchase the snack. The growth rate of snack sales in Tmall is faster than the growth rate of snack sales in Taobao. Biscuits and bakery products have relatively low sales compared to other categories. However, it also indicates the biscuit market in China has huge potential to grow.

According to Mintel, the CAGR of China’s biscuit market from 2011 to 2016 was 11.93%, much higher than the 2.17% in the US. The market of biscuits cookies and crackers grew at annual rate of 4.6% from 2013 to 2018. Total sales of biscuits in China will exceed $11.8 billion by 2023. Accordingly, the market grows at a stable rate over the previous period and will continue to expand both its volume and revenue.

Fierce competition from both domestic and international players

There is a wide variety of flavours in the Chinese biscuit market, primarily savoury biscuits and sweet biscuits (cookies). Flavour-coated (chocolate or strawberry) biscuits, filled biscuits, Wafers, and some other different forms share the market simultaneously. Functional biscuits with less sugar or special advantage for health have a rapid growing market. Though we’ve already numbers of brands and products in such complicated market, we still have a chance to enter the market as it stably grows with rising demand for healthy goods. (See also: Our Sensory Research Methodology)

Chinese biscuits market has a distinct characteristic which is that the domestic products have more sales volume while foreign ones have more sales value. Domestic products are cheaper and few of them prioritize packaging, but they have a large mass base in the market, which keeps their sales volume at a stable level. Local brands such as XU FU JI (徐福记) and Hao Chi Dian (好吃点) originate in the Pearl River Delta economic zone. Foreign products pushed in Chinese market strongly with solid investment. They have a higher price and quality as well as more attractive package. Smart distribution strategies accompanied by a premium image of brands also help to increase their sales. Since its market entry, Danisa became one of the most popular choices of gifts in holidays, taking 2% market share.

In 2018, Munchy’s launched its first online shop via JD. By taking advantage of the rapid growth consumer in e-commerce in China, Muchy’s has been very successful as a foreign biscuit brand in China. Recently, imported biscuits grow quickly as nowadays people can get access to them easily online without going abroad. In brief, domestic brands and foreign brands have competed throughout the years, while the imported biscuits have a quality and packaging advantage.

Nutrition and packaging design are the selling point

A healthy lifestyle has spread widely among Chinese people so that they pay greater attention to what they eat every day. The high amounts of sugar in biscuits drive health-minded consumers away. Thus, the changing concept gives the birth to the functional biscuits which have less sugar and more health benefits. Several companies made the use of this opportunity to launch so-called healthy biscuits and enjoyed great success in the China biscuits market.

Two biscuit brands in China that used health to gain market share

Hougu biscuits firstly launched by Jiangzhong Pharmaceutical Co. Ltd claims to contain hericium erinaceus (a fungus used in traditional Chinese medicine) with advertising says that this nourishes the stomach. Therefore, Hougu biscuits are becoming widely accepted. Many consumers buy the biscuits not only for themselves but also for their elders who are not the target customers of biscuit brands in China. Another wheat cracker without sugar launched by Silang Co. Ltd has also gained great popularity as it can help digestion. Surprisingly, diabetics can also eat this kind of biscuit because it has no sugar. It’s even a good choice for people who want to lose weight as it can give a sense of fullness so as to suppress appetite. So, it is no surprise when these healthy biscuits first appeared, people rushed to buy them. Eying their success, other companies promoted their own healthy biscuits to follow the trend.

However, we still have a lot of developing space under this category. For different crowds, specific functional healthy biscuits can be developed. For instance, children need nutritional biscuits to grow healthy. The elders prefer the biscuits full of micronutrients good for bones.

Young consumers appreciate attractive packaging

Despite the ingredient and quality of the biscuit, younger generation consumer value the packaging design of the biscuit. For instance, millennials tend to buy a brand such as Shiroi Koibito (白色恋人), Akaibohshi (红帽子) and Jenny Bakery （珍妮小熊）because of the fancy packaging. Any entrant of the biscuit market in China who can grab the selling point of wellness and well-designed packaging will sure become the dark horse among biscuits producers.

Image: Jenny Bakery’s packaging design

Image: Shiroi Koibito’s packaging design

Entering the Biscuit Market in China: the flavors of success

When it comes to biscuits, the first question jumps into the mind is that “does it taste good?” The flavour preferences of Chinese are vastly different from westerners. Apart from those functional biscuits, Cranberry Cookies sells best on Taobao.  The biscuits with milk or chocolate flavours follow as the second-best sellers. Chinese people tend to prefer crisp textures over soft when it comes to biscuits and cookies. In addition, some special flavours like yogurt, shallot  (green onion) and tomato are also favorites among Chinese.

Regional flavour preferences

Localization is always important for a company who wants to enter the market. For instance, east coasters tend to favor more sweet taste whereas the people live in the middle of China such as Sichuan and Hunan prefer salty and spicy food. Only knowing clearly about consumers’ taste can lead to great sales of the products.

Chinese biscuits market still has great potential especially for the foreign brands who can localize to the flavor and nutrition preferences.

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This article The Biscuit Market in China: Localizing flavors and nutrition to gain market share is the first one to appear on Daxue Consulting - Market Research China.

Importation of margarine to China

China as a country is not a strong margarine exporter globally but its importation and consumption are very high. This is seen with China ranking second in the world imports list by OEC with 6.1% of total margarine imports value and volume globally equalling 300 million US dollars. This is as there is a huge demand for margarine in China with domestic margarine makers not being able to keep up with consumer consumption.

Are western trends driving the margarine demand in Mainland China?

In 2017, the market demand for margarine accounted for approximately 1.5 million tonnes, while the market consumption in 2016 was at 1.06 million tonnes. The consumption difference in a year shows the growing trend of margarine consumption which can be partially attributed to the recent western lifestyle adoption in larger cities. This is especially with the urbanization and rise of the middle-class which has contributed to the development of western lifestyles and alternative food trends in China. Chinese people, especially those in higher tier cities, welcome western food especially baked goods, cakes and sweet pastries, and the increase of bakeries is directly linked to margarine sales.

Moreover, consumption on the go has increased in China with consumers in higher tier cities living a faster pace of life. This is as the large busy cities themselves has led those working between the ages of 25 to 44 years old changing their consumption habits. This group is having fast lunches and consumer a lot of taking away food which includes products usually made with margarine such as fast food, sandwiches and bread-based meals. This is made easier by the availability of delivery services, convenience stores and restaurants catering to the consumption habits of these consumers.

Chinese people are also very active on social media with social network and status being of great importance to them. Posting pictures on social media feed such as Wechat and Weibo are a very common practice with food being a popular topic among Chinese consumers. This is evident with consumers posting pictures of cakes from famous brands of homemade baked goods which also helps perpetuate the popularity of baked products leading to increased consumption by Chinese consumers as a whole.

Industrial demand vs consumer demand for margarine in China

The business to consumer demand is very low in the Chinese market with it being only 18% of the total demand. This is as margarine does not yet have a strong awareness among Chinese consumers and is not a commonly used product. Industrial demand is very high, however, with it being 75% of the total demand as bakeries frequently use margarine in baking products. This figure can be linked to the globalization of food, with more international food being integrated into the Chinese lifestyle especially in tier 1 cities. This is with over 80% of Chinese people buying imported products which, as a result, is influencing margarine consumption as a whole. Consequently, the main place to target in order to enter the Chinese market is industrial production.

Chinese consumers concern about health in 2019

Food safety is a huge concern among Chinese consumers in general, with other health issues arising in the past. As a result, consumers tend to look for information about products before buying them- especially in regards to new products. The use of processed trans fats is a recurrent question with consumers asking about trans fatty acids effect on health. This is evident, for example, with consumers being concerned about whether margarine is cardiovascular unfriendly. This concern is heightened with the South China Morning post talking about margarine causing a cancer-risk food scare this year for Hong Kong.

Further, the food scandals that have taken place over the last decade has made Chinese consumers wanting to know the ingredients of what they are eating and seeking out seek out quality and healthy food as a result. Consequently, these health concerns have shaped the margarine industry, with opportunities arising for international companies to appeal to Chinese consumers by improving, innovating or developing new products which are lower in fat or contain a limited amount of trans fatty acids.

Further, even the industry itself has mixed feelings towards margarine with international giants and Chinese companies showing a split. Mcdonalds responding to consumers and trying to change its health perception stated and stopped using liquid margarine and started using real butter in its fast food. Further, the world’s largest margarine and spreads producer Unilever also sold its margarine business to KKR as it didn’t see the business as still profitable. In comparison, Chinese lifestyle firm Fosun and food company Sanyuan is jointly buying the French margarine maker St-Hubert, as they see the business is still growing. Opportunity is brewing with brands having the chance to appeal to and address the health concerns of Chinese consumers.

Do Chinese consumers understand the difference between margarine and butter?

As stated, food safety is very important to Chinese consumers and as such with the low awareness of margarine and what it contains is an issue for the market. This is with 80% of Chinese consumers buying butter whilst 20% of consumers are buying vegetable margarine. Moreover, for consumers, the difference between butter and margarine is not clear. This can be attributed to the Chinese characters used for both products with the distinction being quite small with only the first character differing.

• Butter: 动物黄油 è literal translation: animal butter
• Margarine: 植物黄油 è literal translation: vegetable butter

This is evident, for example, when looking for margarine on online supermarkets, results are often a mix of butter and margarine. This is further a key issue in business to consumer promotion with brands not always making clear their classification as either butter or margarine. This leads to confusion as consumers sometimes end up buying one or the other without paying attention due to the lack of clarity by the brand. Further, the most popular questions asked by consumers in regards to margarine makes it clear that Chinese people do not know the difference between both products and how to use and eat margarine.

The three questions most asked about:

• 动物黄油和植物黄油区别? What is the difference between butter and margarine?
• 植物黄油有什么用途？ How to use margarine?
• 植物黄油怎么吃? How to eat vegetable butter?

Another reason for margarine lack of awareness by Chinese consumers is its lack of presence in supermarkets or general shopping areas. This is as Chinese cooking traditionally usually involves cooking with vegetable oils such as soybean or sunflower oil. Moreover, unlike western households, a lot of modern Chinese kitchens do not contain ovens because baking is so uncommon. This is due to time, the convenience of baked goods already available and unfamiliarity. China is still expected to become more westernized over time but it is likely to still keep a lot of its own traditions especially in regards to home cooking. As a result, margarine is still very new to consumers and not yet adopted by China’s population. This, however, has the potential to change over time with greater awareness and adoption being needed in order to integrate it into Chinese home consumption and cooking practices.

Major players in the margarine and butter market in China

When looking at the overall product range of the main market players in China, it can be noted that margarine is only a small part of their business. This is as margarine is a more recent development in the Chinese market and to be successful, brands need other products to support them in order to stay profitable. The products that these brands offer are mostly dairy and baking products. This is as margarine is considered as a butter replacement and therefore it is relevant for dairy businesses to have it within their offerings. This is the case with Shanghai Gaofu Longhui Foods Co Ltd, Bright dairy and Food Co. Ltd and Goodman Fielder Ltd all selling margarine as only part of their business model. Further, this business structure provides a good platform off of which known brands can develop new products and benefit from their awareness and customer loyalty. This is especially important as the dairy industry has suffered from several food safety issues thereby making imported products and raw materials a major competitive advantage for international brands.

Margarine manufacturers in Mainland China

Domestic vs international raw materials in China

Soybeans are the main material used for margarine production in China. Despite this, less than 10% of the soybean production is used for modern processed productions including margarine. Soybeans are grown in three regions in China including the north (Heilongjiang, Jilin, Liaoning and Inner Mongolia provinces) with large production farms, the Huang Huai Hai area which includes the Central region of China and South China around the Yangtze River Valley area.

There is a sharp increase in soybean imports and a decline in domestic production. This is with the price of domestic soybean production being higher than the beans produced in the USA or Brazil, due to the smaller and rarely mechanical based farms in China. In the oil production process, cheap prices and the oil extraction rate are the most important, with imported products being preferred. China, however, does not measure up on a global scale with Chinese produced domestic bean oil content remaining 3 to 5% lower than imported beans from other countries causing its soybean production to decline steadily.

Imported materials consequently are a significant source of raw materials for margarine production in China. As stated by OEC, in 2016, major oil imports in China include Palm Oil, Coconut Oil, Seed Oils, Rapeseed Oil, Soybean Oil and other pure vegetable oils. Most of these oils can be used as raw ingredients in margarine production especially palm oil, rapeseed oil and soybean oil. The main suppliers for raw materials are the USA and Brazil where they have larger scale production farms.

[Source: Daxue Consulting]

International margarine manufacturers in China

Some of these companies produce imported raw material as the basis of their business model for margarine production. These include Unilever, Cofco and Fuji oil who are all international producers and only have margarine as part of their business along with soybean oil, rapeseed oil and palm oil (mostly vegetable oil). There are also other companies who also specialize in margarine but also produce other oil-based products such as Daxin Oils & Fats Industrial Co. Ltd, Anhui Kangermei Oil & Far Co. Ltd and Guangzhou Yahe Food Ingredients Co. Ltd.

Importance of imported products in the value chain of margarine in China

The value chain of margarine in China also illustrates the reliance of China on imported raw and processed material. This is with these materials being present in the very early stages of margarine production. The demand from the food industry requires margarine producers to source beyond domestic suppliers for raw materials as domestic producers are currently unable to efficiently meet the quantity needed or the cost-effective measures undertaken by other countries in production. Furthermore, beyond sourcing, domestic margarine production just cannot sustain China’s food industry with its smaller scale production farms. This current situation has, as a result, caused China to rely heavily on margarine imports.

Opportunities for international brands in China

The Economist indicated that from 2017, margarine sales in Asia-pacific region will not grow much but that butter sales will grow at a faster rate from 2017 to 2021 approximately double the total sales in five years. Similar trends have already happened in the US as in 2013; the per capita consumption of butter exceeded that of margarine for the first time since the middle of the 1950s. This increase in demand for butter in China has caused a butter crisis in Europe with the increasing demand from Chinese consumers. Further, other demand in the oils and fats industry includes soybean oil, rapeseed oil and olive oil (mainly vegetable oil).

Foreign expertise in margarine production is highlighted as strength in the industry. This is especially so where international organizations could partner with Chinese manufacturers to bring technology for margarine production and improve competitiveness in the Chinese market. Additionally, another opportunity for international brands is to provide new production techniques in order to provide healthier margarine that would align better with Chinese consumer needs and wants. Moreover, awareness is also needed in order to educate consumers about the difference between margarine and butter. The fast pace of western lifestyle trends is also likely to continue to increase consumer demand in the future. It is also highly recommended for brands to import raw material in order to obtain better quality products and to keep the added advantage of foreign knowledge and value in margarine production. This is especially with the need for international brands to focus on maintaining the competitive advantage in industrial production supply. As a whole, there are a variety of ways for international brands to get involved with production technology. This includes by providing new production techniques to the domestic market, by providing healthier product developments and by targeting industrial production.

Author: Jessica Farrell 

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This article The development of the margarine B2C and B2B market: Are Chinese consumers ready for margarine? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Chinese culture, particularly Chinese traditional cuisine, implies active use of flour; Chinese noodles, bakery and even some of the main meals contain flour as one of the main ingredients. The flour market in China is supposed to be the largest in the worlds grinding more than 115 million tons of wheat annually. However, rapid economic development and urbanization significantly shifted pattern of flour consumption in China.

Flour consumption in China

As recent market research data show, household consumption of flour accounted for 60% of total consumption in 2006, but it dropped to 45% 5 years later. This might be explained by changing style of life in China, which is becoming as busy as that of Europeans. To compare, in 2011, while Chinese households consumed 45% of flour, the Europeans demanded only 12%. It is suggested by market research analysts, that household consumption in China will drop even further and reach European level in the foreseeable future. Consumption of flour is gradually shifting from private households to manufacturers, which use it as one of the ingredient in the production of snacks, bakery and noodles.

Flour market in China is not mature

Flour market in China is not always stable. This is explained by outdated technology, used to process flour, and price war between farmers, which occur due to cheap labour. Chinese flour market does not have proper regulations regarding payment period, quality of a product and its price. As a result, noodle manufacturers tend to delay payments to flour processing companies to enjoy “non-interest free credit”. Moreover, due to cheap labour and excess production capacity flour factories apply dumping techniques to get read of competitors. Technology, used for flour processing is not up-to-dated in all factories, what creates unfair competition and inefficient production. The leading company in the industry in terms of quality and production volumes is China Flour Mills Group. However, as long as the Flour market in China is diverse and represented by a lot of large, medium and small farmers, it is fairly difficult to identify few companies, which control a considerable share of the market. Even though market participants seek to drop their price, the yearly price for wheat flour is increasing from year to year being $464 per MT in 2009, but rising to $680 per MT in 2013. This might be explained by inflationary pressure on Chinese currency, production inefficiency and rising costs.

As it was noticed above and as market research showed, China, being one of the largest wheat flour producers in the world, still needs a reconstruction of the industry. Inefficient production and unused capacity arise from out-of-dated equipment, used to grind wheat, and dumping strategies applied by competitors. The trend of decreased household consumption is currently observed, which is explained by high economic growth and increasing living standards of Chinese people; on the contrary, more wheat is purchased by manufacturer every year due to increased consumption of prepared food. This changes the landscape of flour market in China.

For further information, refer to:

Market research China

http://www.flourmillers.eu/uploads/China_wheat_milling_sector_Rabobanknote092012.pdf

http://www.davidmckee.org/wp-content/uploads/2007/08/china040900worldgrainmillingarticle.pdf

This article Market research: Flour market in China is the first one to appear on Daxue Consulting - Market Research China.