Full transcript below:

Hello everyone, this is China paradigm where we, Daxue consulting, interview season entrepreneurs in China.

Matthieu David: Hello everyone I’m Matthieu David the founder of Daxue Consulting and its podcast China Paradigm and today I am with someone who knows the food businesses very well in China. It’s David Beutin. You are now working at Lactalis as a sales manager and you have a very long experience of over nine years in China, in the food industry with a company called Daregal for more than 7 years, Qwehli, and then Lactalis to manage a food service company in China. Especially something I’m very interested in is the Horeca. So, Horeca is hotels, restaurants, catering, and B2B sales. At Daxue we have about 20-30% of our clients who are in the food business (discover one of our case studies in the food service industry) – food and drinks business and questions occur to be very often the same. Should I have a master distributor? Should I manage my distribution? How do you get in touch with the right person, the ones who make decisions? How do you build a sales team? Because of the context, today is the 21^st of March 2020 – because of the occurring crisis, the virus crisis, the Covid-19 we will certainly begin, which is unique here, with a bit of an update of what the situation now is for an industry which has been highly impacted, which is the food industry – especially restaurants, hotels, cafés, and catering. Before that, I’d like to add one thing, we interview entrepreneurs and intrapreneurs and so far I found the word intrapreneur as being overused as a way to actually glorify some people within the company which may start a product, but here I think – with you, David we are looking at an intrapreneur, being that you built a sales team, you built a sales system in B2B for a company for more than 7 years. You have set up a WFOE (learn more about the WFOE structure in China), you have set up a business – the entire business for Qwehli – and you are developing again sales – and it’s that in China for everything which is related to the market is in front of us. Thanks for being with us David and first of all if you could update us about the situation of the Chinese food industry during the virus outbreak and your perspective of the current situation.

David Beutin: Hello Matthieu, thank you for inviting me to this podcast. With pleasure, I would like to discuss a little bit the Chinese food industry during the virus outbreak. So, when the Covid-19 started a little bit more than two months and a half – actually three months – ago, but we were affected in Shanghai around 2.5 months ago. You know it was Chinese New Year. So, I would say, businesses at this period in Shanghai are a bit low anyway but since the Chinese New Year has stopped, the economy and I would say restaurants and hotels have been down around 5%, 5% off of last year’s turnover which is divided by 20. Hotels could not accept most of the guests for less than 14 days, they could not in the meantime close down because if they were closing their operations, which could have saved some money but it would have been very hard to restart, which is the moment now where people can start to travel a little bit more in China. They would be able to restart in a much slower path, so hotel businesses are down to 5% of last year turnover and the restaurant industry is down to 20%, so divide by 5 for February I would say. So, now restaurants are picking up, the sales for March are picking up I would say gradually. We expect maybe the restaurant industry to go back to 25 -30% depending on whether you’re located in a shopping mall or an individual restaurant, but I would say that the figures are very positive. The hotel industry which is mostly relying on travel businessmen and exhibitions will take more time to recover, but let’s say they will open by June or July, which is by the way low season in China, but we expect the hotel industry to be back to more or less number figure. It also depends on the virus situation in Europe, but basically, figures are bad but it’s a very good direction for the past few days, especially in Shanghai. Originally in China is also – each region has a different path and speed to recover, Shanghai, from my point of view, is a bit ahead of the other regions. Beijing will come very soon but, as a capital, they don’t want to take any risks with the Chinese food industry during the virus outbreak. So, they also take more time to reopen businesses and restaurants and close down the accounting, but it’s very positive for China right now, I think we should be back to normal in a very quick time.

Matthieu David: For people listening to us and are not in China, are not linked to China but may try to understand what could happen in their own country because China was a bit ahead in time on the crisis. How long did it take for hotels and restaurants to recover? Are we talking about 1-2 months for that – I mean recover, it’s not fully recovered yet, but to increase again?

David Beutin: It really depends, because there is no case, no more case. Schools have not reopened so all the people food catering because that’s what we are talking today – hotel, restaurant catering, so the first one to recover depending on I would say – the information was at the beginning, in Shanghai if you get no new case twice for 15 days, for a period of 15 days no new case, and then there is the second period of 15 days with no new case, then that’s a moment where the pandemic will be officially stopped. So, we are on that path. It’s almost been a month or maybe a bit less where we have no new cases in Shanghai. So, it will depend on the end of the pandemic, but the first one to recover will be definitely restaurants because people after staying home, they want to get out, they want to enjoy themselves, eat outside, especially the weather is getting great in Shanghai so restaurants will be the first one to recover right after the pandemic, I think it could be quite fast. Then all the catering industry supplying schools and companies take time, especially all the cruise and airlines (learn more about the virus’s impact on Chinese airlines) are much more deeply affected now, so the catering industry is expected to be much longer to recover. For the hospitality industry – hotel it should be in-between. I am not very sure about this but it will also take some time, maybe another 6 months, but restaurants will be faster, individuals’ restaurants, shopping malls should start to pick up in the coming weeks very fast. Hotels probably in a matter of months, and catering might take a little bit more time, especially since the pandemic is in Europe now, so there are fewer flights, it’s also, in fact, affecting cargo and transportation costs for good, to import from Europe, I mean I would say these three crises – there is the sanitary crisis, then there was a big supply chain crisis, even before an economic crisis really happened. Logistically it was a mess and it still today is a mess. So the catering industry, airline, and cruise are mostly affected by that.

Matthieu David: What did you do with Lactalis and the Chinese food industry during the virus outbreak? Because I believe the business was slowed down. Down in volume, slowed in terms of speed, but still, you had to serve some clients, some people, some distribution so what kind of things you did to protect people, what things you were asked by the government to do as a business to deliver food?

David Beutin: We actually worked mostly on the distribution business model. We import some products by ourselves but mostly go via a distributor. We sell in C&F – Cost, and freight, in Shanghai. So, we just end all production and exportation in Shanghai. So, I would say our distributor was mostly affected by the figures I mentioned to you at the beginning of the podcast, they were the first ones hit in the Chinese food industry during the virus outbreak. I would say – our orders which were on the sea were already planned and scheduled so we had to maybe reduce our production but we had, especially had a supply chain issue which was all those containers coming to Shanghai. Even the business was low, we had to deal – we had a lot of trouble with rerouted containers to Korea or Singapore because all the China ports were full of containers that could not be cleared. So, imagine that a lot of people didn’t want to send any goods in China during the Chinese New Year due to China’s supply chain issues during the coronavirus outbreak. They expect a lot of containers arriving just after Chinese New Year, and what happened is, all those containers arriving at that time, could not be cleared out because there was pandemic, everyone was at home, there were no trucks, so a lot of containers sent to Korea and then just finally got rerouted to Shanghai and was at the port of China this week as a consequence of China’s supply chain issues during the coronavirus outbreak. So, we had to deal – we had a lot of issues of logistics, supply chain. You can see that this crisis was global, it really put a mess with an increase of containers price with a possession fee of a $1000 and also a blank selling fee because it’s a yearly thing, it’s a logistics aspect that they re-route a lot of boats and there was not the same flow from China and Europe, so there was a lot of blank selling. So, we almost doubled the logistic cost because the freight forwarder and the maritime company increased their fee a lot and all the flights were canceled, because no passenger flight, so then most of the cargo flew all those passenger flights, so we could not get goods in by plane, or the price was crazy expensive. So we had a lot of work to deal with all those China’s supply chain issues during the coronavirus outbreak and I would say, since a lot of people were not even in the office or in the warehouses also we had difficulties to really add any action on the end last part of the deliveries, there was no order, just all the stock coming up, so we had to make a promotional plan trying to come up with the idea to clear the goods, but actually, we already anticipate that some overstock we have today, might come up with a shortage in the coming months. So, at the end of the day the business is picking up so it’s okay, we can still clear the product out and I would say this was in the supply chain point of view for the importation and we also had a factory locally acquired two years ago, so this one was closed down, but opened quite quickly anyway. We opened three weeks ago, so basically the office was also opened very quickly, so we could go back to the office just after the one week after the Chinese New Year holidays stopped, so I was able to go back to the office one month ago. I mean in Shanghai it was very well organized. So you know, at the end of the day we tried to make a lot of plan, but you had no choice but to follow the actual pandemic, every day you follow the pandemic development, expecting the slowdown of the new cases and hoping, cause there is nothing much you can do, just hoping that things get better and that your container finally arrives despite China’s supply chain issues during the coronavirus outbreak.

Matthieu David: Actually, I had two questions but now I’m adding one, so three questions related to what you just said. So the first question is – and it’s linked to the second one, what would you advise to businesses which are in the food business and strongly affected – restaurants, hotels, food service, which are now in Europe and the US, what would you give as advice or as warnings, if there is no advice and we just have to suffer it a bit, but warnings on what to be aware of and what to do to reduce the pain from your experience in the Chinese food industry during the virus outbreak. What would you advise?

David Beutin: Waimai, so Waimai in China this is the home delivery which you had Uber Eats (learn more on how Uber Eats may learn from Meituan) or any other, Panda Food, any other delivery system. So a lot of restaurants could reopen, because also sometimes your country open, but if you have a central kitchen office you can reopen, but not accept customer in because you don’t want people to sit less than 1 meter from each other or for whatever reason, so then you have this delivery solution which I think in all major cities already, are in place through Uber Eat or –

Matthieu David: If I may, because exactly – Uber Eat, because people may not know what waimai is, because waimai in Chinese means to take from outside, to buy from outside, so basically like Uber Eats. So, what you are saying is that restaurants need to rely on home delivery. I may add one thing on this, people may not be aware outside of China but for home delivery, for some time, on the package, it was written the temperature of the staff, of the cook who cooked the food. What the temperature was – 36.5 or 36.7 and so on and there was a very strong communication, of course, it’s just communication, you cannot check if it was true but a lot of transparency, communication transparency when delivering.

David Beutin: Yes, no it’s true. I mean in China they were very quick at finding solutions, reassuring the public, at the same time warning them not to go out, but they still had to eat right. I mean the food industry I would say – not all the turnover loss in foodservice Horeca hotel, restaurant, catering, went back to retail, but that’s the other thing. A restaurant, if they can deliver ready goods, it’s a good thing, but for a food manufacturer and for food importer of raw material or finished or unfinished goods, they should redirect more to online retail. I would say from what happened, Hema, even Hyper Market which is a more local platform for foreigners, these are a lot of platforms for retail and the one actually who took the most opportunity of this crisis were the ones relying mostly or only on online deliveries. So, we had Hema which actually maybe even closed their stores or didn’t have many people in their stores, were able to deliver to you in your home and they were overwhelmed with the number of the order they could receive (learn how Hema and other online grocers dealt with the outbreak). Hypermarkets are more expat-oriented platforms also informed their customers through email that they had so many orders that they would have maybe some delays or some product out of stock or they would not be able to respond as quickly as before. But I would say some retailers multiplied by 7 their turnovers. So once again, this business transferred to retailers, online retail especially – didn’t cover their loss in global foodservice, but some people still profit from this business and I think a lot of restaurants maybe tomorrow we think, oaky maybe I get the smaller restaurant, something I can – with the rent which I can have a better return on investment quicker and rely more also on deliveries or this kind of online platforms, rather than just 100% classic model which in terms of rent – I think rent today is the biggest issue for the Chinese food industry during the virus outbreak because even if you don’t have a business, your cost is so high, and you have to pay the tenant which don’t really care.

Matthieu David: What we may expect is that China will be back to business – it is on track to be back to business much earlier than Europe and the West. An official from Hong Kong said, “We may die of economic loss, earlier than of the disease” so ideally in the coming days and weeks what will be the priority is to try to find markets, maybe emphasize some markets. My question is – and I think we’ll dive into detail on some tips and understanding on how to do that, but what would you suggest for companies which are in the food business ingredients or whatever they do, in order to take advantage of the fact that China is back to business. From France, from Europe, from the US, from the West, from the rest of the world – would you have suggestions, warnings at the same time? On how to create a new channel?

David Beutin: Unfortunately, I would say the crisis is there, it’s already too late. In terms of the supply chain, now even you think China could consume more goods than Europe would do, it’s impossible or very hard to ship them out or even to manufacture them. Now, you see that the world is totally globalized because when we manufacture whatever dairy product for instance, maybe we can open the factories because we’re doing food and you need food and they will never close those factories during the quarantine, but you also rely on your packaging supplier, and you need to export to China administration to edit documents for you, phytosanitary certificate of origin and then you need the logistic company to be able to ship your goods to the port and to have someone taking your goods, put in a container and transfer this container to the boat. So, everything today I would say is a challenged model as the global model is really challenged. What we see today the opportunity for Lactalis group, which might not be reproduced by any other company but we at this local factory that we opened two years ago, and didn’t really pick up for various reasons until now that localism I would say and people with local manufacturing and local team, the sales team will be much easier and much faster to get back to business. Then you would have 11,000 kilometers away. So, at some point, and it’s just a matter of time because that’s the way I would say in terms of enduement and the way the customer wants to buy products. They want to buy products with less carbon (read our latest article discussing green products in China)  trace than before, they want to buy products which are made locally. They want to know more about those products, where they are made and you need to adjust those goods to match regulation, but also the taste of the people and that’s what you can do when you have a local plant or local activity, could be a manufacturing or transformation or at least development with a local team, adjusting all those marketing, communication products and so on. It’s important to be locally implemented.

Matthieu David: Talking about reopening the factory, can you tell us more – is it 100% reopened now? What kind of things you had to do? What kind of constraints you had from the government to reopen? Would you mind just telling us how you reopened and what are the changes compared to the past to manage a food service company in China?

David Beutin: Okay, I would say food manufacturing, it’s the standard in China, it’s in term of the standard of production. Food safety (learn more about the challenge of food safety in China), cleanliness of the facilities. When you talk about Shanghai, I would say – its super high. So, I would say producing today in China is not what it used to be. It’s more expensive at some point because you have a lot of standards you need to follow, which are even sometimes, especially in the Shanghai area you can say that in the kitchen and restaurant business is the same, standard will be even higher than Europe. In terms of cleanliness, food safety, we have a lot of control,  a lot of constraints so I would say food manufacturing was in such a high level anyway, everybody wears masks in the factory, you need to clean all the clothes, we have boots, we have the equipment, blouses and so on, so the standard was already high, we just had to clean and sanitize the whole plant, which also we are doing in order to improve and the cleanliness of the product. The whole plant was clean, even cleaner than a hospital and we just had to sanitize one more – train the staff on the cleaning habit, which they were already trained as a food manufacturer, so it was quite fast. Developed with the regional district to help us in the opening as fast as we could and actually, we were already back on track even before restaurants and foodservice businesses reopened and start reordering, so it was pretty fast.

Matthieu David: I feel indeed the hygiene standards are high in China and greater to China compared to France. I think we all had the experience in France to go to a bakery, to go somewhere and someone is serving you without gloves and with his own hands, cutting the bread or whatever. That would not happen in China, you would even have a kind of mask to protect the mouth.

David Beutin: Sure, Shanghai is not China I would say because to educate the whole population takes a lot of time but I would say in Shanghai what happened, one bakery which I won’t name, a big chain from Korea, one guy was doing bread behind glass, in the baking lab in the stores and the mask was just put on his chin, not covering his mouth. One customer took a picture, put on social media. And it actually affected greatly the image and even the staff himself, the employee himself. So, this happened in Shanghai, in other regions it takes time, but standard in Shanghai are very high and the social media, I would say is exactly on Taobao, people will take a picture, you have to be careful. You have no choice. So yeah – standard in Shanghai for the rest of China it’ll take a little bit more time but in Shanghai especially its very, very high.

Matthieu David: We’re talking about the situation and I think it was good to get an update, It’s not related to the podcast, more looking at the long term – to go back to the more usual podcast and talking about your current position managing a food service company in China, we may actually go further than your current position and go back in time later on, but could you tell us what Lactalis is doing in China currently and how different Lactalis is in China compared to the West. Specifically. I see from your website that China – let’s say, Asia because there is no number about China specifically but what we call Asia and Australia, is 13% of the revenue so compared to the population it’s much lower and in terms of revenue as well worldwide, 34% is cheese and we know that cheese is not a daily consumption in China, it’s not even a common consumption in China, not even in Shanghai or Beijing which are international. Even Milk, Yogurt, Butter are not products that are daily consumed in China the same way than it is in the West. So, would you mind telling us what do you do in China, with Lactalis what do you sell and how different is it from the West to promote dairy products in China?

David Beutin: So, Lactalis group is very strong in cheese manufacturing, this is the number one dairy company in the world. I think second food manufacturing in Europe and 10th food manufacturing world-wide. So, they’re strongest is processing dairy, but in cheese and in retail.

In France everybody knows about the President or you know Le Petit, we have a lot of brands of cheese, we acquire gourmet cheese brands but also more I would say commodities and volume items, but we are very strong in cheese. In China, as you pointed out very well, we do mostly cream. Cream for cooking or for pastries because of a bakery in China, so bread or I would say pastries is developing much faster as you mentioned than the cheese consumption. But, actually, things are moving very fast with cheese and my idea is really to try to push this consumption of cheese to promote dairy products in China and following a trend which is happening where actually dairy, one of my friends told me okay – you’re moving to Lactalis, good luck to going into a company who is selling dairy where I would say half or more than half of the population is lactose intolerant. They can’t drink raw milk, but they can actually eat our cheese with no problem. You can even if you’re lactose intolerant eat cheese, and there is – so other products that you would go through education, through the yogurt, so dairy consumption doesn’t come right away, which we are very strong in France and in Europe and globally, they would go through snacks, through yogurt, milk at some point maybe, but the education and I would say the consumption of cheese is already happening. More in processed cheese, which is like you would say a small triangle of cheese that you spread on your bread, you know it’s like cheese with herbs, that we all put on some bread, fresh cheese, so spread cheese and then people will get educated to our cheese like Emmental or Comté (learn more about the cheese market in China), this kind of cheese, and then they will start to try new soft cheese, such as Brie and many others. So, it’ll take time. The volume obviously compared to the population of China is not that big, but the growth is very, very important.

Matthieu David: May I ask you a further question. We looked into the case, I believe it’s a conflict of group Bel, with famous cheese called ‘La Vache Qui Rit’ – Crazy Cow – we have translated it in English – and they entered the market I think pretty early, I don’t know how early compared to Lactalis. Their market entry was not very successful and then they redirected their cheese towards children because children need milk, need cheese to grow, and also, they added a flavor in their cheese, which was like strawberry, like a banana in the crazy cow cheese. What do you see as the use of cheese which is different in China? I would add one more thing, we always think about cheese that’s personal consumption, added to the desert in France, but cheese is present in fast food a lot. McDonald’s is putting cheese in hamburgers. You may find cheese in other places and in restaurants as you said. So, I feel the market is driven by B2B, by those fast-food chains and also may be driven by new segments that have to be invented, compared to Europe. How do you react to this?

David Beutin: As we talked before, yes you need to start promoting dairy products in China with kids, education towards cheese will be mostly on the youngster, on the teenager, on the kids. They need protein and milk is one of the best ingredients with the highest ratio of protein intake you could get. So definitely all those sweet or non-sweet, I mean like we discussed at the beginning, you have to have a local operation and customize your product. Give it fancy, nice packaging or even a different way of eating it. Not on bread but on a stick. So, there’s a different approach to adapting our vision and the way we think cheese to a teenager and young people and definitely, this is something that needs to be done in order to educate them to later eat cheeses. But, as you mentioned still if you give those kinds of – I would say through retail – those kinds of protein intake, with good flavor, adapted to kids, then the second stage of experiencing cheeses would be via QSR and that’s something that I’ve seen previously with Darégal when I worked in that company, you cannot come with some new products like Emmental, or with some herbs like basil and develop a recipe towards retail right away. People don’t experience and don’t want to try something new in retail, they would try something new usually in food service when they go to a pizza chain or a burger chain or a bakery chain. It’s the best way for us and for all brand to promote dairy products in China, whether it’s Lactalis or another brand, to promote dairy products in China this brand to our bakery or to a QSR, then people will be easier to try something new there and then buy your product, in maybe a different format or buy your brand in supermarkets. Yeah, so the approach of QSR is I would say very – is necessary for a lot of ingredients and even for some end consumer brands to get the visibility, the brand awareness, and to educate the consumers. It’s very important.

Matthieu David: I believe the question next would be – maybe it’s not something we can elaborate right now but the challenge will be in the future – how to create B2B2C brands when you’re used by restaurants, you’re used by bakeries and the final consumers don’t know about you, but still you could be useful for the restaurants, you could be useful for the bakery because Lactalis is well known, Lactalis is by the way 18.5 billion euros worldwide. So, it could be actually an asset for those businesses using such good ingredients in their food, in the same way as in the restaurant, in good restaurants you may have better water, for instance, you may have an Evian and other water.

To go back on sales, because I feel you expect you are developing sales in China beyond the fact that you have started a business, created a business, and so on. One of the focuses is on sales, and especially B2B sales. Would you mind sharing about currently Lactalis? Are you handling everything yourself? Are you going through distribution? Do you have a master distributor? Do we need to have a distribution pair province? There are a lot of questions about it and I believe there’s no simple answer but what could be at least the parameters to consider?

David Beutin: With Daregal, I would say, with Lactalis when I joined the company obviously you know the system and the channels and the distribution system was already in place for quite some time and they always – I would say every company, big or small starts with the distributor. You need to understand the market and at some point, whenever you’re ready to do your own importation or your own distribution or even open a local factory and manufacture yourself, most of the time you will fail. The first time.

Or, you are in the market and work closely with the distributor and you really learn the market, learn what the customer needs, learn how sales operate or logistics operate and then maybe you will have more chance to succeed to manage a food service company in China but even so I would say you most likely will fail the first time when you try to do everything on your own. Yourself.

So, the first approach of Lactalis at the time, they definitely went through a distributor, they were acquired by another company and then they find a new distributor and now what they are doing is they started to import some product themselves of different brands, to distribute to other channels, not to compete with the actual distributor and at the same time have local manufacturing. So, I would say, even in Daregal, first we had a lot of struggle to import but we were trying to import. One of the first mistakes you do is trying to rush to find the first distributor. In China, you really need to take time, evaluate all those potential distributors that you have, build up your network, go for exhibitions, through networking, through your pair and I would say in the French community, maybe not always on your field of expertise in the market in China that you’re looking for, but I would say, most likely yes. You really can find peers and friends and people will help you to find this channel. And China goes very fast, people are very open, very entrepreneur-minded. So take time, make a good study and once you did this study then you can really sit down – a lot of companies make the mistake to take an intern or someone for the short term, they really have to study, even though a consulting company, maybe first but do a deep study and – one big CEO says, it’s not a matter of early you start, but whenever you’re ready and you have a clear path, that’s when in China, you arrive late or not late – it’s okay. But – if you have a clear direction, then that’s when you’re going to be efficient. And the study of the distributor is very important, the first stage. The first ability of importation, it’s the key. A lot of products are going to be imported for various reasons. Is your factory accredited? Is your ingredient list allowed? There’s a lot of research needed to be done first.

In China, one of the approaches we have is not what the market needs, okay – what market needs are important but what China imports. That’s the first question and from that, you already narrow down a lot and it also helps you to have more focus somehow, and you kind of walk backward. What can I import? . Where do I have the opportunity? And then you narrow down to distributors, channels and all these things. So, basically, that’s what I’m doing now. Motivating the distributor and finding opportunities, always developing your network, trying to build brand awareness. Chinese people in the industry are very much looking into your technical advice, education about the products – where are they coming from? How to consume it? How to use it in a dish? For example, when you mentioned about cheese previously, nobody eats cheese at the end of the dinner, I mean that’s pretty French. No one after every meal would say okay, I will have cheese and then dessert. No. most of the consumption of cheese now comes with a glass of wine, some cold cuts, at the beginning of dinner I would say. Or incorporated into a dish. So, you need to rethink the way to consume cheese, you need to rethink the way how to sell it through distribution channels, online, offline and I would say you have companies in China who can help you promote dairy products in China. You have other people who did this work before and Chinese business people are very open to have these kinds of discussions and find the right direction for you, so it’s a very interesting market I would say.

Matthieu David: Okay, so go through a distributor, don’t do it yourself when you start in China. What kind of deals to expect from distributors, could you give some landmarks? In terms of percentage, do you give a free will on how much they price a product, what kind of elements do we need to have an agreement on and what kind of deal is expected by a distributor?

David Beutin: I think it’s – the first time you start something in China, most of the time you get it wrong because there are no such rules. Even if you are a huge company, the leverage you have with your local distributor maybe – you have to see how big your distributor is, and how strong he is on the market, but the leverage is not that easy to get. You need to entrust. You need to really study what the competitor does. If you can bring a value chain and say okay, what is a distributor – I would like to ask you first? It’s an importer. Someone who can also help you to clear the goods, because you need good knowledge about clearing products from the customs. Someone who stores and delivers your goods, or someone who sells and promote dairy products in China. This is three different businesses, three different works which actually companies are focusing on each of them and also hardly sometimes manage to do it perfectly. So, how can someone be able to import, stock, deliver, sell, and promote your products? Hardly they can do everything. So, try to find a distributor who matches your requirement, see where he’s strong. And from that you can start to build the value chain and say okay – maybe importation you’re not so strong, so I’m going to import it myself, open a WOFE, store the products here and then sell it to you, so you avoid also all those issues and create them, and then you can say okay then – from the margin, I give you before, I can reduce by that much percentage because I am taking the risk on the importation, storage and stock here. And I just sell you afterward, in China. But to arrive at this you really need to have a team, long term team here and learn these things, but it really depends on how much work they’re going to put on the distribution of your products and to get a number maybe goes from 10 for very big commodities to over 30% margin for a distributor. Another thing I would not suggest to do is sign an agreement, because whenever you do such a thing, then you tend to lose totally any leverage because the distributors have all power over you, but at the end of the day leverage, you acquire it by helping your distributor, being close to him, trusting him, but following him as well. So, it’s a very hard balance to find, but it’s something that when you’re in China for a long time you tend to acquire. Get lose and let some benefit to him whenever he really needs it, but be able to strike it and ask reporting and really following hard whenever you feel that he’s not pushing hard enough. Because at the end of the day every distributor is the same, you need to make him think of you more than other brands. So, it’s a game which is an endless game but you need the right person and the team to push forward.

Matthieu David: What do you do? What do you do to make them aware of you? What do you do so they push more your products than other products? Some tactics, can you share some very precise tactics or things you have in mind when you want to push your distributor to go further.

David Beutin: So, you know when I was in Daregal I had to handle 15 countries, so this you don’t – really can’t spend a lot of time, with all those distributors. So, I would say exhibition, to go to their country exhibition or to invite them to your own country exhibition, invite them there, treat them to dinner and take care of them it’s important to build this kind of relationship. Because what you want is, whenever you need to call them and ask them to push forward some projects for you, they will remember that and help you out. China of course drinking and going out with some customers and distributors, it’s important. It’s part of the business I think like in every country, but in particular in China. So, you need to do that, you need to be involved – you can’t be reactive, reply to an email quickly. Whenever they – never say no, it’s hard to say no but you have to sometimes, but in China, the culture says you have to do your best. You have to try to understand. Sometimes regulation in China is difficult, so if they ask you something, in particular, a special document for importation, you need to understand them that China it’s not like any country. It could be sometimes in terms of an administration very complicated as well, as French I think and like sometimes bringing in some competition is good. So, if you have one distributor and doing most of the business and start to be a bit slow, then you have to show him that maybe for the other part you’re also looking for new China, new distributors, or doing it yourself. So, it’s some tips but yeah – I mean you can look at many stories of Danone when they come to China and maybe overcontrol their first joint venture partner they had, and it was a failure because then you lose the advantage of having a local partner doing it, his local way, which is more flexible, with better guanxi and you know, who has some flexibility. So, if you control too much, it doesn’t work. If you don’t control enough, then they might have the temptation to push you away from this business and take another brand or do it directly or manufacture locally, so it’s once again the balance. I would say, Chinese businessmen and Chinese business world, it’s not that different. You just need to get to understand it and see from their perspective rather than yours. Really looking at the business through their eyes will help you to take the appropriate action.

Matthieu David: Is it correct to say that your experience with sales is a lot through distribution or have you built also a sales team to sell directly? Was it a mix or was it focusing only on distribution?

David Beutin: You have some direct, you need at some point to have some direct account, international account or even big local account which at the end, the price ratio sometimes can be so hard that you have to supply directly in order to be competitive but I would say, French people – maybe European people, other people maybe are not that business oriented sometimes, but whenever you arrive in China you see that people are friendly but also talking about their business. You do constant networking (learn more about how companies enter China and build their network). WeChat, I would say – if I look for something, rather than going through Google now I go through WeChat because I have all those history of groups and you can get very quickly information, so I would say, of course after 9 years, after many years in China, you have a good network, you build your contacts, whenever now you have a direction to supply a certain channel then you call your friend, you call some business partner, you try to get information about a specific channel. So, I would say- but you can’t do all the little ordering process. Foodservice is all about food and service. How can you yourself respond to all the customers’ requirements? Urgent deliveries? You need people to do this. So, if your distributor has the capability to deliver and to supply and to answer your customer question and user question then it’s the best. So, I would say you go back to the same first reason. Are you distributor good at distributing and selling, then let him do it. If he can’t, then okay – distribute but then you will assist him with your own personal team to contact and directly. So, from our point of view now, from Lactalis’ point of view, we have two-person in Beijing, one in Shenzhen, one in Guangzhou, and then we’re going to open in Chengdu soon. So, we have these people managing basically the distributor and also contacting and talking to some chefs and customers directly, but it’s a mix of everything. You just have to identify whenever you have a distributor, whether they are strong or weak and then you can develop particularly – for us we are working on the technical team. Maybe the sales we still sell and promote dairy products in China but for technical advice, we will send our team to support consumers and customers to help them how to apply the products in their recipes, how to use it, what’s the advantages of the products. So, China is such a big market, manage a food service company in China, and do it yourself it’s impossible. Even Taobao at some point doesn’t do the distribution themselves. It’s just a platform, it’s a matchmaking platform so people want to sell goods, people want to buy goods and then that’s it. This JingDong then, they will have fewer goods, have their own platform and distribution, but also it makes them slower. So, a distributor could be to some extent – whenever you sell those kinds of very mass-market products, have to be through those channels, who have all operation and strength. Otherwise, it’s too big.

Matthieu David: I listed a question but I feel I may have to change it a little bit which is – what is still missing in the market in the food business? Where do opportunities still lie in the market? The reason why I’m thinking that the question should be changed because based on what you just said I think that products, most products are already in China. Are findable. But what’s missing is education and how to know how to use it and when to use it, for what and how. Is it your perspective too? What do you feel? Do you feel that there are still products to import which are not present or the efforts are more about marketing? Getting to be known as a product?

David Beutin: If you go towards food service, I would say distributor as you mentioned, they already have quite a bit catalog. Not as big as other countries in the foodservice like Hong Kong and so on, because you can import basically anything and I would say the market is a bit more mature, but the distributor first thing he will ask you is what’s your marketing budget? Can you help us to promote dairy products in China? Do you have a brand ambassador? Because at the end of the day, they can’t finance your stock here and push your products, rather than all this, you need to show them you have – marketing power, brand ambassadors (learn more about brand ambassadors in China), someone who can help us to promote this. So, now I know in the French community there is a lot of culinary consultants, helping you to adapt your recipe or incorporate our products into some local dishes and there is a lot of company like yours helping maybe online or to help people to understand the market to promote dairy products in China. China has a lot of opportunities, but as you say – you need to be able to come up with a plan and with product adaptation and a direction. So, all those culinary consultants, I think it’s something pretty new. Some people with both cultures who are able to tell you from a local point of view, okay I think this product has potential there. And there is definitely a lot of opportunities, even on the dairy, on the beverage, in many aspects. So, I mean – it’s just a matter of the approach really. Consumers for example for cheese I would say, people are willing to buy expensive cheeses, but you need to be there and explain to them what’s this cheese, how it’s made, where it comes from. How to eat it? How to pair it, with which wine. And this as you mentioned, it’s actually costly but it’s effective and there is a lot of small distributors, or now big distributors who are doing this work in a very niche perspective but I think it’s the right investment to start with small distributors now, even with a niche product, do it step by step to promote dairy products in China. Finding the right guy locally and develop it bit by bit and you know, like oysters a few years back was a niche product, now it’s a huge volume item. So, yeah – China needs to react fast but there is a lot of things to do.

Matthieu David: Yeah, I confirm, the oyster market, we have a client in the oyster business and they consider China as really a very, very important market.  I’d like to talk about what a producer of food, processed food, and the food inspecting has to consider when exporting to China. I can give you a bit of explanation of why I’m asking this question. I understand that regulation asked you to change the packaging so that you can write in Chinese and so it’s understandable by the local market. That’s one thing. The other thing is you have to get a certification that you can export the product, food is not something that is under looked by the government. The government is very, very careful about it because they had some issues in the past with infant formula for instance. In 2008, not as big as this one, but still – so it’s in some ways a bit of a risky business to sell food in China. So, what would you at least as a top priority to consider to change on your product when you are considering exporting to China?

David Beutin: China regulations on the importation, even the GB standard, local GB production standard, which is basically every factory in China have to follow this standard. So, whenever you import goods you also have to follow GB standard. All of those are changing very fast. If you’re working on an ingredient of finished product business, a big volume item, a commodity but its somehow not sure whether you can import or not, the first thing you do is put someone in Beijing, start to do the lobbying and really trying to work with the local French embassy and all these constituent companies trying to understand whether how it’s going forward. Because there is a lot of company opportunities from the food ingredient point of view, it’s hard to import. China is protecting its frontier on the importation, we have a lot of regulation that sometimes it’s hard to make sense of it, but its opening. I’m very convinced and positive about it, it’s opening.

So, I think the first stage would be very understanding. The mean and the reason for all this regulation behind it and it takes a lot of time but it’s possible and a lot of products have been working hard on it to open any kind of buyer that could block you from importing your goods. So that’s for the commodities.

For more niche products, understanding the importation is the key. As once again it’s the same thing, distributor. What your distributor can do – can he import? Can he stock? Can he deliver? Can he import? So, does he do it himself? Does he really have knowledge about it? Because his knowledge is power. Every time you ask a distributor – how did you import this product? It’s supposed to be forbidden, not forbidden, in the end, everybody is confused. It’s a blurred area and actually, you usually work most of the time in the grey area. Just have to be careful not to be in the black area, but you know importation sometimes is always a bit grey area. So, if you have a distributor, get involved in this, understand how does he import? What’s the reason behind a problem with the document? Really trying to get involved and not saying oh I can’t do it or can’t do that. You need to ask him – why? And understand the reason behind this, because tomorrow, whenever you want to change the distributor, you will have to restart from zero, unless you really get involved in this importation business and that’s the first thing, I did with Daregal. It was really complicated. And then with Qwehli, and even Lactalis now I’m seeing – and we’re talking about opportunities, but I’m saying opportunities because when it’s difficult, no one – not everyone can do it. But when you have good knowledge, when you understand the market, the regulation, the importation issues, then you kind of tend to see opportunities and in Qwehli in particular when I did the WOFE importation, the type of fish you can import, the herbs was the same, the variety of herbs, the species of fish, all the formulation and the origin of milk of products you can import, all of those make it very complicated but when I have knowledge about it, then it’s much easier. It’s much easier. You see opportunities, the distributor will always stay in the grey area for this because that’s what Chinese say, it’s in troubled water, then you catch most fish. Because whenever you don’t see it – you can’t make any move. You don’t see someone’s coming on top of you. So, a distributor, if you don’t know how to import, you’re not going to change distributor. You know it’s going to be hard. So, if you understand all this first part, you understand how to import and you have products on hand, then a lot of doors will open, a lot of opportunities, you can react faster, and to me, importation is the crucial point. Whenever you think of a business in China, import food, if it’s important for you, you think this market has potential, you need to at least be involved. And this will change dramatically the attitude your distributor will have with you, the leverage you have, the understanding in the market, you’ll be more reactive, and able to find new opportunities much faster.

Matthieu David: We are soon leading to one hour and I’d like to add one more question. How do you stay up to date about China? What’s going on? Whatever it is about, if it’s about information about the market, about information about regulations, about information for yourself. What sources do you use?

David Beutin: So, as you know in China there’s a great firewall, so gfw right. So I would say all the – LinkedIn for me it’s a very important platform to keep connected with people rather than Facebook and so on, but to know where people are, keeping touch with them, posting any article related to their industry, somehow it’s a good way to keep informed. WeChat is a tremendous platform to share news about business opening, business closing for the restaurant industry, and hotel opening and closing. Networking and guanxi, that’s where you get the most accurate and close information about your markets – who is importing what, what are the new distributors in the new products, new brands coming in. so all those – these are a lot of networking and events. There’s one tonight in Shanghai, I think the first networking since the pandemic, so that’s a good sign, but those networking are very important.

Matthieu David: That’s very interesting because I think if we ask – there are so many I interview who have said that my source of information is WeChat, LinkedIn, social networks. I think if you asked the same questions to Europeans, Americans, they may say – they may name some well-known newspapers, some well-known magazines in their industry or website in their industry, but they may not say that I’m crowdsourcing information through WeChat groups and LinkedIn groups or Facebook groups or WhatsApp groups and I feel that in China, information is fragmented, because of this social networks. It goes fast but it’s sort of fragmented because you have groups, you may not be part of or you may be part of. So, it’s very, very interesting. Thank you, David, for being with us, already one hour. Thanks for the update on the crisis, I think it was very useful. Hopefully, we’ll be able to publish very soon so people can protect themselves from what may happen in their own country in the world. And thanks for the tips on distribution, I think it’s a question we very often have. I hope you stay safe; I hope everyone stays safe and thank you for listening.

David Beutin: You too, my pleasure. Bye Matthieu. Bye, everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

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This article China Paradigm transcript #97: Managing a supply chain in the Chinese food industry during the virus outbreak is the first one to appear on Daxue Consulting - Market Research China.

Growth of the dairy market in China

It is widely acknowledged that the dairy products in China serve as the pillar in people’s livelihood. It is a highly integrated industry, and at the same time, it extends from the primary industry (agriculture) to the secondary industry (food processing industry) and the third industry (distribution and logistics). China, as one of the world’s largest economies, has witnessed the surge of the dairy industry, prompted by economic, social, and many other factors. Even though the whole development history is not very long, the status of dairy products in people’s dietary structure has been greatly improved.

The dairy market in China has witnessed the steady and substantial growth since the beginning of 1990s and even with the widespread 2008 Melamine scandal which disrupted consumer confidence as well as domestic production, the market only experienced a short period of turbulence after the Chinese government has taken several measures, including cracking down on illegal producers, enforcing new regulations to better ensure the safety and quality of domestic dairy products in China.

At the same time as the restructuring process, China is becoming the most dynamic sector in the global dairy market, and the whole industry has gradually shifted from scale growth to quality upgrading.

How the market overcomes the obstacle of lactose intolerance in China?

It is true that Asian people are genetically predisposed to lactase-deficiency (around 85% of people suffer from lactose intolerance in China). Older generations of Chinese who were not used to consuming dairy products in their diets are also mostly lactose intolerant.

But this lactose intolerance in China will not slow down the market. First, because to create new generations of milk drinkers, society and government have taken several measures. Today Chinese babies are born with the ability to make lactase, which is the enzyme needed to digest the milk vector and which is lost as they grow older. Moreover, children do not stop drinking milk as they grow up and therefore continue to produce this enzyme.

Government support of the dairy industry

Within the health community, new official nutrition guidelines were also issued recommending that more dairy products should be consumed in daily life. Health professionals, hospitals, and clinics have also been trained to explain to parents that their children need a lot of milk.

In 2000 the government also launched a program in all schools to give each child a cup of free milk.

Plant based milks are hugely popular in China

Finally, this problem could easily be overcome with all the alternatives that exist: plant-based milk in China. Indeed, from 2015 to 2017, plant-based milk sales increased by 17%. More and more companies are setting up production lines for plant-based milk in China. For example, the Swedish oat milk brand Oatly has recently opened an office in Shanghai and deployed a new Chinese character for ‘vegan milk,’ that is to say, plant-based milk in China.

Finally, the industry knows that fermenting milk helps break down lactose, so new yogurt products are also marketed to overcome lactose intolerance in China.

The Chinese government is playing an important role in increasing dairy consumption in China

The current party in China has included the consumption of dairy products in its 13th five-year plan. It identifies one of its top priorities the transition from small herds to larger industrial farms to supply its population of 1.4 billion people with milk. Official dietary guidelines recommend consuming three times as much dairy products in China as people do today.

But on the other hand, China imports a lot of dairy products, and it has some impacts on the country’s domestic dairy producers such as the decline in sales revenue and profit margins. In this respect, the government is also taking action to regulate dairy imports, which of course has an impact on the brands and products consumed by Chinese people.

Stricter regulations on infant formula

For example, to restrict the import of infant formula milk powder, in early 2018, the China Food and Drug Administration take measures called ‘‘Measures for Administration of Registration of Formulas of Infant Formula Milk Powder’’ that stipulate that infant formula milk powder that has not been registered in China is not allowed to be sold in China, and the Certificate of Registration of Formulas of Infant Formula Milk Powder must be obtained according to the law for imported infant formula milk powder to be marketed in China.

A bit later in 2018, the Announcement of the State Certification and Accreditation Administration on Renewing the Registration of Overseas Manufacturers of Imported Infant Formula Milk Powder in China specified that the registration of overseas producers of imported infant formula milk powder in China would be valid for four years and should be renewed upon expiration. These policies should curb the entry of more than 80% of the 2,000 brands of powdered infant milk imported into China.

The expanding middle class are consuming more dairy products in China

The national economic strength undoubtedly plays a significant role in the rapid development of the dairy industry in China. The below chart illustrates the change in per capita disposable income of urban and rural residents from 2013-2017, which implies the improvement of living standards. Consumers now have higher purchasing power and are increasingly exposed to international trends, resulting in a shift in lifestyles that towards westerners.

In 2018, among all dairy products, milk powder imports contributed nearly 70% to the import value of dairy products in China. The milk powder imported includes infant formula milk powder in China, raw milk powder, etc. This is, therefore, by far the most consumed by the Chinese.

Growing health awareness accelerates dairy consumption in China

Another main factor that influences dairy consumption in China health consciousness. Dairy products are a useful source of protein, calcium, vitamins, and several minerals. Yogurt in China is one emerging category that has catered to Chinese’s growing health awareness as it is often believed to help digestion and strengthen the immune system.

As a result, yogurt has experienced explosive growth which fueled the general demand for dairy products in China. According to China Daily, the total yogurt sales in 2017 has overtaken the milk sales for the first time in the country. As depicted in the below chart, the total domestic yogurt sales have risen by 108.6 percent from 2013 to 2017, whereas milk sales grew by just 18 percent in the same period.

Top yogurt brands in China

Furthermore, among all yogurt sector, the ambient yogurt maintains the fastest growth. The craze initially started with the Momchilovtsi(莫斯利安) from Brightdairy in 2009 then Yili introduced Ambrosia(安慕希) in 2014, successfully generating buzz in the country.

The ability to store and transport at room temperature is the major characteristic of ambient yogurt, which seems quite exotic to westerners since they consider chilled yogurt as mainstream. Nevertheless, being able to transport at room temperature is important as the chilled chain infrastructure is still underdeveloped in China. This entirely new wave is providing a wider distribution network as well as offering convenience for both retailers and consumers. At present, this sector is soaring not only in the dairy market in China, but also in the food and beverage market. It is mainly targeted at young consumers, both male and female.

One famous example is Yili Ambrosia(安慕希), a brand of yogurt in China, it is endorsed by Chinese popular actress Angelababy and has been the title sponsor of the popular Chinese reality show Running Man(奔跑吧兄弟). It took advantage of the celebrity effect to achieve precision marketing and dramatically increased the total sales and now occupies the first place in that segment.

Since the scale as, as well as the technology of chilled chain, all need to be improved; ambient yogurt will continue to appeal to Chinese consumers. The potential for the total yogurt sector is still huge, and the trend would probably lie in the innovation of flavors and premium products.

Will the emerging cheese market in China be the next leader?

Apart from the outstanding performance of yogurt  in China, cheese also drove the growth of the dairy market in China. We have already carried out research in Cheese market in China in 2013 and 2015 and compared with that time, Chinese consumers are becoming more and more aware of the health benefits of cheese. Cheese and other dairy products in China which are rich in protein and calcium offer a more nutritious, healthy choice over many other food types. This segment is thus receiving attention from dairy players.

The cheese market in China now relies heavily on import, and the import volume boosts steadily throughout the years. In terms of top three cheese exporters to China in 2017, they are New Zealand (55,329 tonnes), Australia (20,012 tonnes), and the United States (12,841 tonnes).

Despite consistent sales growth for cheese led by great interest in the particular category, the per capita consumption is still lagging behind compared with other neighboring Asian countries, let alone with western standards.

In all, the cheese market in China is expected to continue positive retail value growth over the following years. Cheese’s development in China is still in the early stage with low per capita consumption. And most cheese offered in China is processed cheese, such as Anchor(安佳) from the Netherlands, La Vache Qui Rit (乐芝牛) from France. With Chinese, especially Millennials’ lifestyles, moving towards westerners, the demand will keep increasing. The adaptation of the taste of cheese will be crucial, and future improvement would also lie in the spread of relevant knowledge, information, digital marketing campaigns, and health-focused innovations.

Various channels intensified the battle between domestic and import dairy products in China

Since the central government has approved the universal two-child policy, the demand for milk as well as other dairy products in China will still be strong in the following years. China dairy major players have accommodated to diversified needs and implemented innovation constantly, including Mengniu Dairy, Inner Mongolia Yili Group Co Ltd, and Brightdairy for East China. However, fierce competition has been intensified with the appearance of foreign brands. According to Mintel, Chinese consumers still prefer imported products over domestic ones, due to the lack of trust and price advantages.

Traditional supermarkets and hypermarkets

The battle between domestic or imported dairy products in China has been escalated due to the development of e-commerce. Online platforms have played a critical role and facilitated the efficiency of the distribution network. In addition to that, the trend of cross-border commerce or buying dairy products by Daigous (代购) is becoming more popular, especially among younger generations in urban areas.

Against the slow-down in the growth of the overall FMCG, the import dairy market in China still maintained rapid growth. The official import figures of dairy products for the first quarter of 2018 has shown an increase by 15.3 percent year-over-year, with rises for Bulk and Packaged Milk, Whole Milk Powder (WMP), Whey, Skimmed Milk Powder (SMP) and Infant formula. Chinese dairy imports exceeded 750,000 tonnes between January and March 2018. Moreover, China’s growing appetite for high-value-added products resulted from increasing disposable income suggests that consumers are putting more emphasis on quality.

Unequal regional dairy consumption in China implies room for improvement

Regarding Chinese consumers’ consumption structure and occasion, generally different consumers have their preferences. Common consumption occasions include between-meal snacks, at breakfast, as a dessert or beverage. According to a survey by Mintel, 40% of Chinese consumers said that they consume yogurt at least once every day and 17% consume lactobacillus beverage at least once every day while contrarily, those figures were only 15% and 11% in 2013.

Different age groups dairy consumption

The research also found that different age groups of consumers have their preference. For example, young white-collar workers prefer one-time consumption and 1-2 bottles each time and are willing to choose a slightly more expensive product. Family members have a fixed habit of dairy consumption, a dozen or more each time, favoring fruit-flavored or calcium-rich products for children and paying more attention to promotions.

Regional differences in dairy consumption

The acceptance of dairy products in China also varies from region to region. Northwest China is the main raw milk production area in China, so the per capita consumption is higher. In addition, the per capita consumption of Beijing, Tianjin, the Yangtze River Delta region and the Pearl River Delta Region is also higher due to the prosperous economy. But in Northeast China, Southern China, central China, and southwest China, the consumption of dairy products per capita still has room for improvement. Also, it is evident in China that UHT milk is way more popular than pasteurized milk. The market performance of the latter is fairly limited to coastal cities because of its relatively short storage period and costly logistic expenses.

Likewise, more and more urban residents are willing to purchase premium products and therefore generating a lucrative niche market for certain high-end products for instance, organic, low fat, low calorie, since health concern remains the key determinant in consumer purchasing behavior. Whereas, in rural areas, a large proportion of people used to drink soy milk, but now more are inclined to consume milk since the penetration of dairy advertising as well as sales channels.

Distribution is also facing great evolution. First-tier city consumers are more inclined to shop online, and the penetration rate is over 90 percent while the lower-tier city or rural area only got 20 percent as the penetration rate for dairy products in China. Such kind of unequal distribution implies that dairy manufacturers have to extend their sales channels, both offline and online, which is a great challenge for retailers.

Future trends continue to flourish China’s dairy market

In general, the dairy market in China has entered a slow-speed development stage and is shifting from scale growth to product upgrade. The dairy consumption in China has been fluctuating in the past decades, yet the market’s total value and volume are huge. Compared with western countries, China possesses a large amount of fresh milk and milk powder but a lower amount of butter and cheese.

There already exists a great number of domestic and foreign brands in the market and several local brands such as Shengmu(圣牧), Xinxiwang(新希望), Junlebao(君乐宝), Huishan(辉山) are rising quickly. These young brands took share from the largest players and therefore lowered the concentration of the top brands. It is true that low loyalty is a macro trend in FMCG as consumers are provided with even more options. As a result, dairy players need to identify and cater to the diversified yet changing needs of consumers and apply the corresponding marketing strategy.

Pan Gang, chairman of the Yili Group, once said that there are only two kinds of people in his eyes. One is a person who drinks milk; the other is a person who doesn’t drink milk. And his wish is to convert the second kind of people into the first kind – “milk drinking man” – people who enjoy milk nutrition and health. For the time being, it is still domestic dairy companies that are leading China’s dairy market. With the booming economy, accelerated globalization and rising health concern, future product transformation will be mainly focused on the flavors, quality, and variety of the products. Premium product market will thrive under the selling points like organic, health, and nutrition. The ambient products stick to be the mainstream in the following years, while chilled ones are also expected to expand its market share to better foster the growth of China’s dairy market.

Daxue Consulting has a robust background in the dairy industry in China:

Our market research team has already carried out research for the cheese industry and various food and beverage industries in China. If you want to know more about these industries in China do not hesitate to contact us at dx@daxueconsulting.com

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This article The dairy market in China will be the world’s largest by 2022 is the first one to appear on Daxue Consulting - Market Research China.

Historical reasons explain the rejection of cheese by Chinese consumers

Traditionally, dairy products were associated with the nomadic tribes who lived on the fringes of China and who were regarded as barbarians. So back then, eating cheese was associated with an unsavory lifestyle.

Also, the majority of Chinese people avoided the consumption of dairy products, including cheese, because so many of them are lactose intolerant. In fact, many East Asians are lactose intolerant because of a lack of exposure to cheese. It’s a vicious cycle.

Cheese currently becomes trendy in China: Booming cheese market

Daily dairy intake is consistently an important theme in China, however, cheese consumption, while growing still remains low. Chinese dairy consumption of fresh & UHT milk, yogurt, and milk powder account for 95% total cheese market share. Cheese, butter and other dairy products share the remaining 5%. Cheese consumption in China recorded 0.1kg per capita in 2016. Looking at the neighbor countries, Japan and South Korea, both were over 20 times higher than China (2.4kg and 2.6kg respectively), which implies a significant opportunity for cheese in China in the future.

The market has seen a surprising growth, revenue in the Cheese segment amounts to US$1,056m in 2019. The Chinese cheese market is expected to grow annually by 5.3% (CAGR 2019-2021). Between 2009 and 2017, the volumes of cheese demand, as well as supply, see continued growth, thanks to emerging diverse formats, acceptable flavors, and textures catering to Chinese palates. Domestic suppliers of cheese still account for less than half of the whole demand, meaning cheese consumption in China relies heavily on imported cheese.

By 2019 the cheese currently becomes trendy in China particularly Shanghai and other 1-tire cities. This may be preceded by the following reasons. First, Increasing upper-middle-class and affluent households. Second, a new generation of freer-spending, sophisticated consumers, born since 1980. Third, the growing power and ease of e-commerce delivering cheese to China’s doors. Forth, the rapidly accelerating Western culinary influences have introduced cheese to these cultures. Last but not least, an increasing number of expats requiring Western goods and, as a result, the active growth of imported stores.

Cheese consumption in China: What’s the image of the cheese?

The Chinese Nutrition Society issued updated dietary guidelines for Chinese consumers in 2016, recommending that each adult should consume 300 grams of dairy products per day – current consumption is 100 grams.

Most of the time, protein and calcium intakes are presented to Chinese consumers. “Good for pregnant women and the elderly” states Baidu Baike (the Chinese Wikipedia). The nutritional side is explained and the description highlights that the cheese is a concentrate of milk, from 10 kilograms of milk only 1 kilogram of cheese is producing.

Moreover, amidst increasing awareness of children’s diets, cheese snacks have been well-received by parents, especially in tier1 and tier2 cities. Kids cheese market dominates 55% of the retail cheese market (Kantar 2017) and sees positive growth in the near future. Therefore, many processed kinds of cheese can be seen as more common in supermarkets and convenience stores due to light flavors.

[Source: Yili]

“Cheeses do not only attract expatriates any more. We can see a lot of Chinese customers coming to buy cheeses,” said an experienced dairy salesperson in Ole, an upscale supermarket in Shanghai.

The landscape has changed a lot recently compared with the situation in 2015.  Before 2016, it was nearly impossible to find cheese in small stores, and 94% of the imported cheese market was sold through large international supermarkets and hypermarkets.

The Chinese cheese market should overcome cultural barriers

The cheese consumption mix in China is dominated by processed cheeses, which are more suited to the local palate. Chinese consumers, in general, do not favor the strong tastes and scents of many natural cheese varieties. Furthermore, processed cheese is easier to handle when used in hamburger and pizza preparation.

The attractiveness of the Chinese cheese market as a large consumer of cheese is enforced by the lack of Chinese cheese producers, enabling international companies to shape the market. Despite France being the largest producer of cheese in the world, France only accounts for 4% of the current market share. New Zealand, Australia, and the U.S. are the largest exporters of cheese in China.

[Source: OEC]

Shanghai is for many years the leading power of China economic and trade development. International trade of goods is facilitated in Shanghai, enabling the city to discover new products at an earlier stage; it includes the cheese market implementation.

Therefore, the deep analysis of the Chinese taste and cheese preferences will help to study this market and the audience and in the future easily predict acceptation from customers. Shanghai Roria, a European food importer offered tastings of various French, Italian and Spanish cheeses in Shanghai. As a result, the rate of satisfaction toward the strong blue cheese was extremely low, as only 30% said it was amazingly good. Unlike in western countries, a lot of Chinese consumers have never tried Cheese and have an image of a bad smell concerning to this good; this is illustrated very well by the Chinese word for cheese “nailao” (奶酪), meaning “milk jelly”. Whereas Cheese has another Chinese name: “zhishi”(芝士, a buzz word now in China ), is mostly being used in the context indicating cheese.

Why the Cheese market in Shanghai can lead the way

In Shanghai, people enjoy experiencing new products and discovering new tastes from imported products. For foreign companies, educating and changing consumer tastes represents a real challenge. That’s why firms such as Bongrain Food preferred other strategies to enter into the Chinese market by adapting to the market and introducing tailored products according to Chinese tastes. Thus their products have already seen 50 new varieties. In Shanghai, the most famous cheese brands are cheese snacks for children such as Stick Cheese, Kiddy Cheese and Small Triangle Cheese. Those may represent the beginning of the Chinese adaptation to the taste of cheese; especially by going through new Chinese youth.

According to Euromonitor, cheese is being added to school lunch menus in many primary schools in Shanghai.

In the nearly past, Cheese was strictly considered as a luxury food. But with the rise of consumer awareness of the nutritious benefits of the product due to exposure to western culture and style in large international cities such as Shanghai, parents have started to buy cheese snacks for their children. Typical families believe that the presence of calcium in cheese will support vital functions in the growth of children.

Another sign of the increasing popularity of the cheese market in Shanghai is the recent apparition of traditional cheese makers in the streets. La Parisienne and La Formaggeria, for example, offer both a decent array of cheese right in the center of Shanghai. A wide range of cheese can be found on the Internet and deliver high-quality cheese in China quickly.

Also, there is an increasing amount of tasting events held in Shanghai and will get more Chinese consumers to try cheese for the first.

A variety of cheese-related foods sparks the wave of “cheese lover”

Western-style cuisine began to enter into the Chinese market a decade ago, and now it has been widely accepted by Chinese people, no matter the burgers from McDonalds or KFC, or pizza from Pizza Hut, or creative popular dishes all having options for cheese flavors. But still, Cheese’s development in China is at an early stage with low per capita consumption and novelty driving sales.

1. Cheese has emerged thick and fast in many recipes

Nowadays, Chinese netizens are favor of sharing everything about their daily lives through social media, such as LRB, short for Little Red Book(小红书), a social network for Chinese users. If we search “芝士”(Cheese)on LRB, more than 220,000 posts are shown in the results, teaching you how to cook “Tomato cheese rice”, “Cheesecake”  or other dishes receipts of each include cheese.

[Source: Little Red Book]

2. Cheese milk cap (奶盖) becomes ridiculously popular amongst the young generation

With the rise of Wanghong drinks (网红饮品)，for example, HEYTEA and Lelecha among famous cheese tea brands, young milky tea lovers are obsessed with the type of tea with cheese on the top. According to HEYTEA’s official website, this type of topping is made of salty cheese imported from New Zealand. Cheese tea lovers are willing to queue up for several hours only to order one cup of drinks.

[Source: HEYTEA]

3. Cheese snacks are gaining more popularity in Shanghai

Cheese snacks in retail performed well in 2018, and most of them are processed cheese which is trendy at the moment.

How to select proper cheeses for kids?

• 4 critical contents: protein, fat, calcium, sodium;
• Cheese is the concentration of milk, ready for kids supplementing protein and calcium;
• Cheese can be categorized into “natural cheese” and “processed cheese”, most kids cheeses are processed one. In terms of nutrition, these two types of cheese are almost the same.

Similar to kids cheeses, normal cheese snacks are majorly processed and have a variety of shapes, including stick, mini cup portion, cube, ball, triangle, bar shape and so forth. Considering user-friendly, convenience-in-use and easy-to-carry is a crucial factor for snacking consumption. On the other hand, innovative appearance is leading consumer trends. It’s very likely that in the near future, traditional original flavor cheese snacks can hardly meet the varied demands of sophisticated Chinese consumers. Compared to slight taste improvement by foreign brands, some Chinese brands provide very unique offerings, such as potato, date, peanut, and pizza flavor.

Shanghai given its unique attributes about open to new things and large disposable income of citizens, is expected to lead the cheese evolution in China. Lactose intolerance, according to studies, can be less of a problem if people begin to have cheese and milk in a younger age. It is reasonable to believe that exponential cheese consumption is expected to grow continuously in the foreseeable future.

Daxue Consulting helps you get the best of the Chinese market

Daxue Consulting can provide you with support in discovering the Cheese Market in Shanghai. We conduct all the market research and consulting services you may need, such as potential analysis, cost analysis, implementation feasibility etc. To know more about the Chinese cheese market, do not hesitate to contact our dedicated project managers by email at dx@daxueconsulting.com.

This article The cheese market in Shanghai: Cheese evolution | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Background China’s cheese market

China’s rapid economic growth in the last 30 years has both direct and indirect impact on the local Cheese market. From a country that traditionally had no dairy in its diet with very small base of consumers (mainly foreigners) to a country that enjoyed the fastest cheese market growth in the world. The recently released customs figures show that China’s cheese market and total cheese import volume reached 47,316 tons in 2013, representing a 22% increase in comparison to 2012 and a 106% increase in comparison to 2010. That provides indication on the expending status of the Chinese Cheese market.

During the early 1990s, Cheese products were not only hard to find but also were considered a real luxury in the Chinese Mainland. However, the growing number of foreigners in China’s biggest cities and their appetite for familiar food products led importers to begin placing large orders for cheese to facilitate the growth in demand on the China’s cheese market.  By that time, while many Chinese may have known the word “nailao” (奶酪), which literally means “milk jelly”, only few had tried it.

Beside the growing number of foreigners, the economic growth drove Western fast food chains such as McDonald’s and Pizza Hut to begin expanding their business across China. The growing popularity of this Western Fast Food chains and the vast use of cheese in their products had stimulated the interest of Chinese people in Cheese and indirectly the Cheese market in China. Following the success of the Western fast food Chains, more and more bars, cafes, bakeries, high class restaurants and hotels also offered western food thus, the Chinese consumer’s exposure to Cheese continued to grow. In accordance to the “Modernization Theory”, China’s economic growth also led the Chinese consumers to pay greater attention on health and food safety and quality. Given cheese has high levels of protein and calcium, it was perceived by many as a healthy food, especially for children. The 2008, “Sanlu” melamine scandal, has strengthen the Chinese awareness for food safety, thus, many Chinese consumers who were looking for a high quality and safe dairy products preferred major western brands.

Additionally, the rapid economic growth led to increase of the middle-class expansion and to fast urbanization. Both processes contributed to the growth of China’s cheese market. First, as the disposable income was getting bigger, consumers are willing to spent more money on food and to taste new unfamiliar foods. Secondly, while in villages the exposure to cheese products and western restaurants is limited; in the big cities the new urban people will have great exposure to Cheese, thus the target consumers segment getting bigger.        

Patterns and trends of the Product, Competitors and customers on China’s cheese market

The Product

The supply in China’s Cheese market can be divided into two main groups: processed Cheese (“new world”) and unprocessed cheese (“old world”). The processed cheeses are made from the mixing, melting and emulsifying of natural cheeses with addition of food additives and oils. This group includes cottage cheese, cream cheese, pizza Cheese and other pasteurized cheeses.  Unprocessed cheeses are obtained by fermentation of milk and curd, butter or cream with lactic acid and pressure.  They can be classified according to their consistency: soft (mozzarella, camembert etc), medium hard (Blue, Gouda, etc.), hard (Edam, Cheddar, Gruyere, Emmental etc.) or very hard (Parmesan).

For now the processed cheeses match the tastes of the Chinese better than unprocessed cheese since:

1) It had been sold in western fast food chains, restaurants and hotels for more than 25 years thus, the Chinese consumers are more familiar with the taste.

2) It doesn’t have strong scent and taste.

3) It’s easier to use, for breakfast with bread, toast, crackers or snacks. The total processed cheese retail volume in China increased from 4160.0 tons in 2005 to 9636.4 tons in 2010.

Forecast sales of Cheese at retail in China by volume, released by Euromonitor, shows that processed cheeses sales are expected to grow from 18,011 tons to 33,132 tons between 2014 and 2018. It is a 16.49% annual average growth. The sales of unprocessed cheese are expected to enjoy even higher rate of growth, from 694.55 tons in 2014 to 1324.42 in 2018, with 17.6% annual average growth. While both groups are expected to enjoy growth in the next years, we can still expect the preference of processed cheeses among the Chinese consumers.

The competitors

The cheese supply in China’s market is divided between local productions and imported. After the changes that followed the “Sanlu” milk scandal and a series of other milk-quality-related incidents, the main local producers of cheese: the SOE- Bright Dairy and Food Co. Hold a 52% share of the retail cheese market in 2010. Recently the company expands its business outside China by purchasing an Australian dairy company Mundella Foods, New Zealand’s Synlait Milk Ltd and Israel’s largest Diary Company Tenuve. The recent acquisitions will gain Bright food an advanced technology, new products and knowledge of international experts. Other local main companies are Mengniu Dairy co , which is a joint venture between  Danone and Arla with 9.9% and 5.3% shares respectively and a  local SOE, and the private company Yili Group. This Chinese cheese manufactures are produce processed cheeses only.

New Zealand, Australia, and the United States, are the top three biggest cheese exporters to China with over 80 percent of the market, thanks to their relatively early entrance to China and their focus on processed cheese.  In 2013, the cheese import was dominated by New Zealand (45%), Australia (25.5%), US (23%), France (3%) and Italy (2.5%). Additionally, companies from New Zealand are also enjoying the advantage of having bilateral Free Trade Agreements with China and great reputation, thus, it is not surprising that the New- Zealand based company Fonterra, holds 18% of China’s market.

French companies such as La Vache qui rit, Président and Milkana were also holding great sales performance when they doubled their total sales from 400 ton to 800 ton, between 2009 and 2011, but they still fall behind New Zealand, US and Australia.

Given the sales forecast of Unprocessed Cheese, the local companies focus on Processed cheese and, the European countries long tradition of producing Unprocessed Cheese, we might see companies from France, Italy, Spain and Germany focus on the Unprocessed Niche market.

The customers

Western fast food and Western desserts such as pasta, hamburgers, pizza and cheesecake are becoming more and more popular, and are in large part responsible for stimulating Chinese people’s interest and taste for cheese. However, China’s yearly consumption of cheese per capita is still very low – 250 grams compared to the French consumption of 26kgs per person per year or the yearly Australian consumption of about 12kgs per person. It is important to emphasize the fact that core growth within the Cheese market is restricted to the selected urban centres – Shanghai (35%), Beijing (23%), Guangzhou (22%) and Tianjin (8%). The situation where 4 cities accounting to 88% of the market growth highlights the great sales potential companies will enjoy outside those cities. Other figures that emphasize the sales potential are the consumers’ distribution. 60% of cheese in China is consumed by hotel guests, 25% by the chain markets, 10% are used by dessert making-related firms. And the rest is used by others.

While recent projections expect China’s growth rate to decline to 7%, it will not have effect on the Chinese consumers. As part of the plan to restructure the economy from export oriented to domestic consumption oriented, the central government initiated few policies and laws, including the raise of the minimum salary, which will promise the ongoing middle class expansion and urbanization. ” The Chinese diet is changing along with the increase in middle class and high net-worth individuals,” said Tiffany Pan, a communications officer at Ole, thus “demand for taste and delicious food continues to grow”.

Major Points:

• China’s growing middle class, the Urbanization, the growing attention to healthy and safe food and motivation of many Chinese for a more European consumption lifestyle assure the growing demand of Cheese in the next years.
• Latecomers should find their Niche. French companies might focus on the relatively undeveloped unprocessed Cheese market while Israeli Companies which are well known due to their low fat and high calcium Chesses might focus on the processed healthy market.
• The gap between per capita spending on cheese between China and Western countries highlights the considerable potential in the market.
• FTA provides competitive advantage.
• The big sales potential outside than first tier city depends upon investment in familiarizing consumers with cheese via marketing and widening distribution.
• Food Safety might give a competitive advantage for foreign firms.
• China’s alleviation of its one-child policy, allowing certain families to have a second child, might add another 700,000 mouths to feed per year. As cheese is perceived as healthy food, the demand could increase in the future.
• Companies must consider the adjustments of its products flavor to suit the taste of Chinese consumers.
• As a country that traditionally had no dairy in its diet, about 92% of Chinese have some form of lactose-intolerance and 40% among children aged 7 to 13.
• Foreign companies must be aware on the possibility of IPR violations (for example the brand “Happy Cow” which is a copy of “The Laughing Cow”).
• The proliferation of local Chinese Cheese producers or workshops, such as Le Fromager de Pékin, demonstrates the cheeses growing demand.

References

http://www.chinadaily.com.cn/china/2012-11/27/content_15964575.htm

http://www.chinaeconomicreview.com/all-cheese-china

http://www.cheesemarketnews.com/guestcolumn/2014/13jun14_01.html

http://theconversation.com/after-wine-chinese-consumers-want-a-slice-of-cheese-19036

http://www.asiaperspective.net/chinas-increasing-appetite-imported-food-beverage/

http://www.transparencymarketresearch.com/global-cheese-market.html

http://daxueconsulting.com/market-research-on-where-to-buy-cheese-and-who-buy-cheese-in-china/

http://www.scmp.com/magazines/money/article/1264320/say-cheese

http://www.asiaperspective.net/chinas-increasing-appetite-imported-food-beverage/

This article China’s Cheese Market is the first one to appear on Daxue Consulting - Market Research China.

Market of Cheese in China

Brand 1: Président

The brand of Président was founded by André Besnier, a leading figure in French dairy industry, in 1962. At present, Président is owned by the Laval based Lactalis company, a multi-national dairy products corporation in France. It is becoming the largest dairy products group in the world, and is the second largest food products group in France, following Danone. Apart from Président, it also owns the brands include Sorrento, Société Bridel, Rachel’s Organic and Valmont.

Brand 2: La Vache qui rit (乐芝牛)

As the first cheese brand in the whole world, the most popular La Vache qui Rit was born in France, having a history of more than 90 years. Now she is all over the world, with recognition and preference of consumers from over 100 countries and regions: Globally, there are over 10 million “La Vache qui Rit” cheeses being purchased every day, that is, over 115 cheeses every second on average. La Vache qui Rit has its members all around the globe right now, such as “The Laughing Cow” in English-speaking countries, “Vessiolaia bourionka” in Russian-speaking areas, and it has already become a legend brand. The red cow who laughs, high-quality cheese, Unique packaging, these all became typical symbols of La Vache qui Rit in the heart of consumers everywhere.

Brand 3: Kiri

Kiri is a cheese brand owned by Bel Group or Groupe Bel (in French), which is a multinational cheese marketer centered in France. The Bel Group is a cheese manufacturer and distributes processed and semi-processed cheese to over 120 countries. Apart from Kiri, Bel Group also holds the usage right of the brand includes “The Laughing Cow”, “Babybel”, “Leerdammer”, and “Boursin”. All these five brands consist of Bel’s five core brands that are distributed on five continents. In 2008, Bel Group and its shareholder, Unibel created Bel’s Corporate Foundation which aims at promoting a balanced diet and preserve the environment.

Brand 4: Milkana (百吉福)

Milkana opened a specialty market of cheese since Alex Bongrain, the creator of Bongrain Group, developed Caprice des Dieux. Bongrain Group focuses on cheese manufacturing and distributing, and has already been the largest supplier of dairy product all around the world. As for now, it becomes the leader of retail market in butter and long-time preserved cream industry in France and Belgium, the pioneer of cheese and dairy product selling channel in France, and the largest service supplier of high-end banquet hospitality in France, New York, Moscow, and St.Petersburg.

Amy Wang, consultancy in China

To know more about the Cheese market in China.

Bloomberg / MarketingtoChina 

Related articles

• Lactalis strikes price deal with French milk producers

This article Focus of French Brands growing in market of Cheese in China is the first one to appear on Daxue Consulting - Market Research China.

According to market research ran by Daxue Consulting (contact us for more information), New Zealand is the largest supplier of cream cheese to China’s market. During the period of 2005 and 2007, New Zealand exported fresh cheese, processed cheese, and other cheese related product with 3453.71 ton, 3907.73ton, and 4092.1 ton respectively. That figure had already taken up 1/3 trade of cheese between New Zealand and China. The reason why Chinese companies and customers prefer New Zealand cheese is because the good reputation of quality, even the price is much higher than other suppliers. The main function of cheese imported from New Zealand is for China’s food companies to make pastry, biscuit, and others.

American Cheese on China’s Market:

As the largest producer of cheese among the world, the United States provides the amount of cheese that has already exceeded more than 30 percent of global yield to consumers. At present, the demand of cheese within the United States reaches a state of saturation, which stimulates it to enter China’s market for developing. The U.S.A is eager, optimistic, and active to look for partners in China for collaboration and the potential competitiveness of China’s market. According to the data issued by United States Department of Agriculture, China is one of the most important importers of whey for the U.S.A., which shows in the trade record in 2011 that a great export growth of cheese from the U.S.A. to China significantly speed up and accelerate in a consecutive 3 months.

French Cheese on China’s Market:

From the sales performance of French cheese from 2009 to 2011 to see, the total sales of French cheese in China increased from 400 ton to 800 ton, which was an encouraging and satisfactory result. However, from the total volume of cheese importation in China to see, French cheese fell behind New Zealand, the United States and other countries.

German Cheese on China’s Market:

Germany has a long tradition of cheese-making and because of its varying landscapes, methods of production and regional traditions; it boasts more than 600 different types of cheese. While 75% of Germany’s cheeses are produced in Bavaria, the areas of Schleswig-Holstein, Mecklenburg-West Pomerania and Saxony-Anhalt in the northern part of Germany also produce some of Germany’s more famous cheeses such as Wilstermarsch, Tilsit and Altenburger Ziegenkäse (goat cheese).

Various Brands of Cheese in China:

Cheese Brands From France:

• La Vache qui rit
• Babybel
• Président
• Kiri
• Milkana

Cheese Brands From New Zealand & Australia:

• Bega
• Anchor
• Dairylands
• Mianland

Cheese Brands From the United States:

• Suki
• Kraft
• Crystal Farms
• Swiss valley
• Borden

Edited by Amy Wang from Daxue China consultants.

Picture source: Google Image

This article Cream cheese market in China is the first one to appear on Daxue Consulting - Market Research China.

Where to Buy Cheese in China:

A great amount of cheese in China is common and accessible to Chinese consumers in supermarket, such as Carrefour, Wal-Mart, Metro, BHG of Beijing Hualian Group, Ole of CR Vanguard, and other big supermarkets or high-end boutique ones. 

Besides, more and more local Chinese producers or workshops are dedicating themselves in making cheese and creating their own brands. Le Fromager de Pékin, established by a French artisan cheese maker LIU Yang, is located in the Hui Long Guan District of Beijing. Mr. Liu Yang was trained in cheese making in France. LFP offers a variety of soft cheese (similar to camembert), ricotta, mozzarella, whey cheese, etc.

Consumer Structure of Cheese on China’s Market:

The individual consumer group of cheese in China mostly consists of foreigners and overseas returnees. The sales of cheese account for 1 percent of all the importing goods sales in China’s supermarkets. At the same time, they are undergoing a fast growth at 30 percent per year.
As for group consumer’s distribution channel, 60 percent of cheese in China is consumed by hotels, 25 percent by chain markets, 10 percent used by dessert making-related firms. Rest of 5 percent used by others.

Following table shows the consumption for each consumer type:

According to a market research conducted in China, consumers living in Eastern China are the majority group of people who consume cheese, of which sales take up to 31 percent of all cheese consumption. In Northern China, the figure is about 30 percent. Northwestern China consumed the least volume of cheese which only accounts to 3.74 percent of whole nation’s amount. 

See also: cheese market in Vietnam

This article Market Research: Who Buy Cheese in China is the first one to appear on Daxue Consulting - Market Research China.

As the first cheese brand in the whole world, the most popular La Vache qui Rit was born in France, having a history of more than 90 years.

Now the company is all over the world, with recognition and preference of consumers from over 100 countries and regions: Globally, there are over 10 million “La Vache qui Rit” cheeses purchased every day, that is, over 115 cheeses every second on average. La Vache qui Rit has expanded all around the globe, but goes by different names in different countries such as “The Laughing Cow” in English-speaking countries, “Vessiolaia bourionka” in Russian-speaking areas, and it has already become a legendary brand. The laughing red cow, high-quality cheese, unique packaging, these all became well-recognized symbols of La Vache qui Rit in the hearts of consumers everywhere.

The Evolution of La Vache qui Rit

The Laughing Cow is almost always depicted wearing earrings that looked like boxes of cheese, red and joyful. Leon Bel trademarked his brand, calling it  “La Vache qui rit,” in France on April 16, 1921. This patent was the very first branded cheese product registered in France. Bel had made the original drawing for the laughing cow himself, after seeing a travelling meat wagon during World War I called “La Wachkyrie,” a play on the word for Valkyrie. In the initial design, the laughing cow was not laughing, was not red and did not wear earrings. In 1924, Benjamin Rabier, a famous illustrator, edited the drawing into something more similar to the company’s logo today.

Focus on La Vache qui Rit in China

Laughing Cow cheese is available in its original flavor, a light version with 7% fat, and an ultra-light version with 3% fat. In addition, flavored versions of the cheese (such as ham, gruyère, garlic, paprika, mushroom, bleu, hazelnut, pizza and onion) are also available in various markets worldwide. Bite-size cubes of Laughing Cow are flavored in various countries and are designed to be eaten with alcoholic drinks at parties; these cubes are marketed under Cheez & Fun in many European countries, and also Apéricube in France, Belgium and the Netherlands, Belcube in Japan and South Korea. They are produced in 24- or 48-cube boxes of one flavour or of a particular theme.

Current Position of La Vache qui Rit in China

Despite La Vache qui Rit’s global success, its has yet to penetrate the Chinese market . The only way Chinese customers can enjoy its delicious cheeses is  to either go to France or go to one of the few foreign goods shops in Beijing and Shanghai that  provide La Vache qui Rit products.

Unlike in Europe, cheese is not regularly consumed everyday in typical Chinese lifestyle. However, as it continues to rapidly expand, the Chinese market has become a part of the global market. La Vache qui Rit should consider its market strategy in China by developing recipes and adapting them to Chinese tastes if they hope to enter the Chinese market.

Daxue Consulting China & Focus Groups in China

Sources:

• La Vache qui Rit
• China Daily
• Los Angeles Times
• The Huffington Post

Picture source: wiki, La Vache qui Rit

This article Focus group: La Vache qui Rit in China is the first one to appear on Daxue Consulting - Market Research China.

Traditionally, there was barely a market for cheese in the past in the past, but the tastes of Chinese consumers are changing fast and cheese is becoming one of the most popular foods among China’s large cities.
This burgeoning growing has been supported by the increasing health awareness and nutritional value of dairy products among Chinese consumers. The figure from a market research report shows a steady rise indairy consumption in China from 2003 to 2010. By 2006, Cheese has occupied 4 percent of whole dairy market in the traditionally dairy-less market.

The total processed cheese retail volume in China increased from 4160.0 tons in 2005 to 9636.4 tons in 2010. The source of cheese in China is split in half between domestic production and importation from abroad. New Zealand and Australia are two nations that ranked in Top 2 among Chinese imports from 2005 to 2007. Cheese imports from other foreign countries is also growing significantly. The U.S. Dairy Export Council says that cheese imports to China grew 47 percent in 2010. In addition, data from CNIEL, a French dairy Ccuncil, shows that China imported 30,000 tons cheese from abroad in 2011. In the past few years, the annual growth of cheese importation to China has been growing steadily at 24 percent. During the period from 2009 to 2011, cheese produced in France tripled its sales from 400 tons to 800 tons.

Market Sizes of Processed Cheese in China – Retail Volume in Tonnes

Key Players in China: Mengniu, Yili, Bright Dairy & Food

Before 2006, the top 4 domestic dairy companies in China, Mengniu, Yili, Sanlu, and Bright Dairy & Food Co, dominated China’s dairy market. However, since the Sanlu milk contamination scandal and a series of other milk-quality-related incidents, the situation and structure of the dairy market in China has been gradually changed. After the scandal-hit Sanlu dairy company, it merged and was taken over by Sanyuan Group, a state-owned dairy firm, with revenues of 616.5 million yuan (US$90 million).
In 2010, Bright Dairy and Food Co. held a 52% share of the retail cheese market in 2010. This was followed by Fonterra Commercial Trading, a New Zealand company that is one of the top 10 largest global dairy companies, with a 18.5% market share. For other foreign cheese brands in China, they can usually be found in various retail markets, such as Anchor from New Zealand, President from France, Coeur de Lion from UK, La Vache qui rit from France, Hochland from Deutschland, Arla Castello from Denmark, and so on. Besides, some foreign companies, for instance Danone, Bongrain, Fonterra and Nestle, have already invested in domestic dairy companies or formed joint- ventures in China.

Opportunities & challenges in China’s cheese market (market analysis)

The demand of consumers for cheese is driven by several factors. First, Chinese shoppers seek high quality products with big brands in order to get safe, organic, and healthy food. Second, the lifestyle of Chinese people has changed a lot; especially for young children and those living in urban area. Children play a big role in driving the demand in food expenditure as they account for more than 50% of total household spending in urban cities in China.
However, the food scandals that broke during the past several years in China alerted Chinese people to pay much more attention to what they eat and drink. Food quality and safety are top priorities for Chinese consumers when making a decision about what products to buy for their kids. Marketing towards safe food for kids is an important aspect for foreign companies to consider when forming their strategy in China to enter this promising cheese market.

Daxue China Consultant (market study in China)

Sources:

• La Vache qui Rit
• China Daily
• Los Angeles Times
• Euromonitor International

Credit Photo: Agriculture and Agri-Food Canada

This article Market Study: Cheese Market in China is the first one to appear on Daxue Consulting - Market Research China.