How food and beverage brands can grow in China
The performance of the food and beverages sector in China has been very slow in recent times which may be attributed to factors including market saturation, economic uncertainty and social challenges due to slowing population growth. There are two areas though that are out performing the rest of the market.
E-commerce is a major channel driving growth in the sector. The average growth rate of food and beverages through all channels is 3%, however the growth rate in e-commerce hit reached nearly 30% in 2018. The value contributed by e-commerce rose from 48% in 2017 to 73% in 2018. Jason Yu, Managing Director, Greater China, Kantar Worldpanel, suggested that e-commerce should be a priority for any food and beverages enterprise and is not limited to e-commerce platforms but should also include WeChat business and other social e-commerce channels.
Another hot spot of growth is lower-tier cities where, due to product availability and rising incomes, market share has jumped from 50% in 2017 to 57% in 2018.
Beyond these areas though it is hard for brands and retailers to find growth, but Kantar has identified some key target and techniques that they could focus on.
The top three target markets for the next 5 to 10 years.
1. The 60+ market
In China, 60-year olds currently account for 17.9% of the population and this will rise to 25% by 2025, representing a potential consumption value of 2,831 billion Chinese yuan. According to Kantar’s data, the compound annual growth rate (CAGR) of elderly singles and couples hit 7% in 2018. The elderly also tend to prefer premium food products, particularly those promoting health or with added value.
Although currently online shopping accounts for just 7% of their overall consumption, they are warmly embracing the internet era. The online purchasing growth rate for the elderly is now 41.8%. As you might expect those in the more developed regions of China, particularly the first and second-tier cities in the east and south are the faster adopters of online shopping.
2. Young people in China’s low tier cities
Based on Kantar’s data, young families living in low-tier cities account for 63% of the overall young families in China’s urban and rural areas. The value of food and beverage products consumed by rural young people hit 236.6 billion Chinese yuan in 2018. The penetration of e-commerce and the developments in supply chain, particularly logistics, is a major factor contributing to the surge in growth seen in China’s developing areas. Driven by the pursuit of a better lifestyle, rural young people in these areas are more willing to purchase high-end products online, such as grape wine, healthy food and cheese.
Consumption preference varies in different geographic areas. For example, acceptance of western consumption habits is more commonplace in eastern China, so ready-to-drink coffee and olive oil are more popular. While in western China, people enjoy a leisurely life and focus on convenience.
3. Generation Z
GenZ are fast becoming the consumer group with the greatest spending potential in China accounting for approximately 150 million people, nearly 10% of the total Chinese population. GenZ is expected to account for 40% of all spending on consumer goods in China by 2020 as they will soon come of age and have a greater influence in household purchase decisions.
According to Kantar the disposable income of GenZ is 3,501 Chinese yuan, which is much higher than the average salary in Shanghai (2,400 Chinese yuan) and Hangzhou (2,100 Chinese yuan). GenZ place a high priority on novel experience and are willing to try new products and their spending is mainly motivated by social status, public persona and self-happiness.
As well as focusing on the right targets, Kantar advise on what can make brands stand out to shoppers in a competitive marketplace.
1. Product differentiation
Offering something different is key in a slow marketplace, for example offering advanced ingredients, using the latest technology to manufacture or innovative packaging. New flavours are another way to achieve this as consumers are keen to try something different. An example is Mengniu’s avocado flavoured BB-12 yoghurt which now accounts for 50% of all BB-12 sales.
2. Product placement and brand building using social interaction
Social interaction is an important element of a complete market strategy for food companies. In August 2018 Oreo launched a “tasting project” in China, allowing participants to create a novel flavour with people then voting for which one should be produced. This promotion went viral on social media and attracted one million participants. Another excellent example is seen in the case of Korean food brand Orion which used a popular game to promote is new product during the 2018 World Cup.
New opportunities are emerging in this space all the time. Kantar data shows the food and beverages sales value contributed by WeChat rose from 6% in 2017 to 16% in 2018, with a penetration rate of 14%. More and more food brands are now cooperating with social e-commerce platforms such as Pinduoduo and have launched customised products targeted at consumer groups active across these platforms.
3. Use new retail to create consumption demand
New retail integrates online and offline channels, and it offers new and interesting opportunities to food marketers. The recommendation of influencers is extremely popular in China and has proven to be an effective way to sell products, allowing consumers both a more intimate interaction with the brand and the ability to make an immediate purchase.
Many e-commerce platforms offer new promotion opportunities. Freshhema (a new retail platform owned by Alibaba), for example, offers consumers targeted product recommendations and useful content which vary based on the time of the day.
Kantar believes that despite a tough market there are always opportunities to grow so long as brands invest in understanding their marketplace and stay open to new opportunities.