North China Food and Beverage Market Research Report

Transcription

1 North China Food and Beverage Market Research Report Compiled by: German Industry & Commerce Co. Ltd., Beijing

2 1. Market Size 1.1 Food & Beverage International Trade in North China In 2017, the total F&B imports in North China were US$5.7 billion, of which US$4.73 billion for food and US$970 million for beverages. Indonesia was the largest source of imported food for North China, with a total import value of US$652 million, or 14%; followed by Malaysia, Brazil, India, South Korea and the United States. In contrast, the main exported products to North China from South Korea in 2017 were vegetables / fruits, pasta and dairy products.

3 France and Australia were the biggest winners in North China s imported beverage market, with imports of US$203 million and US$177 million respectively, and therefore with shares of 21% and 18%.

4 1.2. Food & Beverage Sales in North China By the end of 2017, there were 42,577 Chinese F&B manufacturers with annual sales of more than 20 million RMB. In 2016, sales value of F&B in North China accounted for 60% of the total sales volume of F&B in China, and the average growth rate was 3.9% during It s predicted that in 2017, the growth rate of the sales value of F&B in North China will be 5%.

5 1.3. Local Variations in Demand for Food & Beverages in North China As affected by geographical location, ethnic practices, living habits and other factors, the consumption of the people on major food products varies greatly in the different northern provinces. For instance, the people in the northeast and northwest regions prefer foods with high protein and fat due to cold climate during winter months, they also produce various kinds of frozen foods, such as frozen meat, frozen fish, frozen solid food (dumplings, steamed buns, bean buns and others), etc. The northern region is divided into four sub-regions as seen in the graph below, and each of which has similar consumption habits. Northwest: Xinjiang, Gansu, Inner Mongolia, Ningxia, Shaanxi and Qinghai Northeast: Liaoning, Jilin, Heilongjiang Central: Hubei and Hunan North: Beijing, Tianjin, Hebei, Henan, Shanxi, Shandong

6 Northwest: The per capita consumption of - milk is the highest ranking category - mutton in Xinjiang and Inner Mongolia is the highest in China. - vegetables in Gansu, Xinjiang and Inner Mongolia exceeds the national average. -melons and fruits exceeds the national average except Qinghai. Northeast: - Liaoning has the strongest per capita consumption capacity - Main consumption varieties: vegetables, pork, melons and fruits. - Liaoning is the largest consumer in aquatic products, while Heilongjiang is the largest consumer in plant oils. - The per capita consumption of milk in Jilin and Heilongjiang is lower than the national average. Local Variations in Demand of F&B Central: - The categories with the largest per capita consumption: aquatic products and plant oils. - Hubei has the largest per capita consumption in vegetables and Hunan has the largest per capita consumption in pork. - The categories with low per capita consumption: eggs, melons and fruits. North: - The categories with high per capita consumption: melons, fruits, milk and eggs. - Tianjin and Shandong have high consumption in aquatic products. - Tianjin has high consumption in vegetables.

7 USD million Demand analysis of each sector Fine Food & Imported Food From the point of view of regional distribution, Chinese snack food has obvious regional characteristics. Consumers in Xinjiang favor raisins and other dried fruits, spicy snacks are more popular in Hunan. In the northeastern regions, snacks like nuts and soybeans are prevalent, while in Henan, instant food is the best seller. Those characteristics are influenced by local circumstances and dietary habits. For example, the Turpan basin in Xinjiang has, natural conditions, such as low lying land, high temperatures, few rain showers and sunshine, which are suitable for grapes planting. The annual output of grapes is 500 thousand tons, and the raisin output of Turpan occupies more than 40% of the total in China. In 2017, the top 3 F&B categories with the largest imports in North China were fat & oils, wine and dairy products. Import Value of Main F&B Products in North China in , , , , ,

8 USD million Dairy Product In 2017, the value of imported dairy products in the northern region of China was US$605 million, accounting for about 10% of the total F&B imports in the north. Of those, Hunan Province was the biggest importer of dairy products, with imports in 2017 five times higher than the average of the northern provinces, followed by Shandong, Tianjin and Liaoning Top 10 Provinces of Imported Dairy Products to North China in Import Value Average Value Bread and Bakery The per capita consumption of bread and cakes in China keeps growing at a rate of more than 5% since In the recent two years, the popularity of imported cakes and biscuits has surpassed that of chocolate. In 2017, imported bread and bakery products to China was mainly from Indonesia, Malaysia, Denmark, Taiwan and Japan, with an import value of USD million, USD 72.9 million, USD 50.9 million, and USD 33.8 million respectively. Meat In 2016, the per capita consumption of pork in cities and towns reached 30kg; followed by Hunan, Heilongjiang and Jilin, with their per capita consumption of pork in cities and towns being 20kg higher than the national average.

9 USD million Seafood Liaoning, Hubei and Tianjin are the major consumption provinces of aquatic products. In 2016, the per capita consumption of aquatic products in the cities and towns of these provinces was 3-4kg higher than the national average. Therefore, there is a growing demand for imported seafood in the north. Frozen Food In 2017, the 10th China Frozen Food Industry Conference opened in Zhengzhou, Henan Province and attracted more than 400 enterprises from all over China to participate in the exhibition. Sweets, Confectionery and Snacks In 2017, Beijing s import value of candy and chocolate products was US$67.9 million, far higher than the average import of other provinces in Northern China. In addition, the imports of Tianjin, Shandong and Heilongjiang were higher than the average level of the northern provinces Top 10 Provinces of Candy and Chocolate Imports to North China in Import Value Average Value Tea and Coffee In 2017, the northern provinces imported a total of US$22 million worth of tea and coffee products. Of which, Beijing and Tianjin together accounted for more than 50% of the total, making them major importers among the northern provinces. Olive Oil & Edible Oil Tianjin s total import in fats, oils & edible oils exceeded US$1 billion, ranking first in the North of China. As an important gateway, the Tianjin port received 1.63 million tons of imported edible oils.

10 USD million Beverage (incl. Alcohol) In 2017, China imported 787,200 kiloliters of wine, a year-on-year increase of 17.8%, and imported 716,200 kiloliters of beer, a year-on-year growth of 10.8%. The consumption of wine in South China is higher than that of North China. Of the top 10 imported bottled wine trading areas, only four provinces are from the north, while Beijing, the largest one in the north, ranked only 5th. 1, Top 10 Imported Bottled Wine Trading Areas in

11 USD million Looking at the areas consuming imported bulk wine, the north is significantly higher than the south. Shandong is the largest trading area for imported bulk wine. In 2016, its total amount of imports was about US$110 million, growing by 66.01% over the same period last year and accounting for 69.31% of the total Top 10 Imported Bulk Wine Trading Areas in Vegetable & Fruits In 2017, Beijing imported US$ 107 million worth of vegetables and fruits, making it the largest importer of vegetables and fruits in the north, followed by Shandong, Tianjin, Liaoning and Heilongjiang. Organic Food At present, food quality and safety problems in China are constantly emerging. Consumers are increasingly inclined to buy organic and pollution-free green food. According to reports, the potential for the organic food market in China is huge, with a perennial shortage of 30%, and this figure may continue to rise. Certain organic foods will still depend on importing from other countries and regions. Halal Food The development of China's halal food industry has maintained a growth rate of around 10%. China has more than 20 million Muslims, of which the northwest, northeast, Henan and other northern areas are the main concentration areas for Muslims and also the main areas consuming halal food.

12 USD billion F&B Imports to North China ( ) Over the past three years, the food exports from North and South America to North China have been declining year by year, especially in 2016, food exports were down 25% from In terms of beverage exports, there was a slight increase in 2016 over the previous year, but a significant decline in During the year, the exports went down by nearly 50% from the previous year. This was mainly reflected in the United States' loss of beverage exports to North China, which fell from 150 million US $ in 2016 to 30 million US$ in 2017, a drop of 120 million US$. This is mainly linked to the ambition of China to diversify its trade partners. For example, China signed a contract which provides Ukraine with credit, in exchange for corn supplies. Since then, Ukraine has taken over the United States as the biggest importer for corn. These kinds of contracts are often limited to certain segments and do not affect the trade as a whole. While corn imports from the United States fell sharply, other imports like consumer-oriented foods (i.e. fruits and meat) have been rising steadily since EU F&B exports to China on the rise The F&B exports from the EU to North China showed an upward trend year by year, with an increase of nearly 30% in 2017 compared to the previous year. 1.2 EU-27 F&B exports to North China Food Beverage

13 USD billion Other European Countries F&B exports to North China Food Beverage EU-27 Food and Beverage Exports to North China in 2017 In 2017, among F&B products exported from the EU to North China, the top 3 categories with the largest exports were dairy products, wine and fat & oils, the corresponding exports were US$373 million, US$278 million and US$103 million, with a total share of approximately 68%. EU-27 F&B Exports to North China, 2017 Dairy 0.01% 0.03% 0.22% 0.10% 20.27% 33.52% Wines Oils and fats Sweets,Confectionery and Snacks Processed Vegetable & Fruits 0.73% 2.97% 3.45% Spirits Prepared meals 4.39% Tea and Coffee 9.30% Fish products 25.01% Homogenised food preparation Meat products Others

14 2. Key Growth Drivers 2.1. Rising Income and Urbanization. With the rising income level of consumers and their growing attention to health, urban residents have a greater demand for more nutritious and healthy food The Concern about Food Safety. The successive food safety scandals have aroused great concern among consumers for food safety. There will be good opportunities for the import of green organic food. In conclusion, the food scandals and news about unhealthy products from China lead to an increased concern by consumers and a corresponding growth in the demand for imported products as these are regarded as safe and of higher quality.

15 2.3. The Development of E-Commerce. In 2016, the "One Belt and One Road" policy and the strategy of the Asian Infrastructure Investment Bank (AIIB) spawned the import cross-border e- commerce, which at the same time also boosted the growth of imported food. In 2017, the import volume of cross-border e-commerce in China reached billion RMB, up 120% year of year, of which 30% was imported food. E-commerce Platform Business Model Import Model Category Delivery Date Cross-border C2C Spot goods* in China + overseas direct mail Comprehensive commodity category Within 3 days Third-party B2C Self-operated B2C Self-operated B2C*** Self-operated B2C + Thirdparty B2C Overseas direct mail + bonded import Overseas direct mail + bonded import Overseas direct mail + bonded import Overseas direct mail + bonded import Comprehensive commodity category Food, mother and baby products and beauty products Food, mother and baby products, beauty products and health products Comprehensive commodity category Overseas direct mail: 14 working days Bonded import**: 5 working days Overseas direct mail: 20 working days Bonded import: 5-10 working days Overseas direct mail: 6-10 days Bonded import: 3-5 days Bonded import: 4-10 working days Overseas direct mail: working days *Spot goods = goods currently on hand. **Bonded import = imported goods from bonded warehouses, for which no taxes are charged. *** Self-operated B2C = SF Express provides via platforms such as ebay or iherb. Customers can order these on sfbuy.com and will receive them by SF Express mail.

16 2.4. China`s Policy Environment is Supportive of F&B Import. Since 2015, the Chinese government has amended the Food Safety Law of PRC to strengthen the administration of imported food operators and importers. The Free Trade Agreement between China and Australia and other provisions contribute to a more open market of imported food through tariff concessions. In 2016, there were more than 30,000 importers registered with AQSIQ, with an increase of over 10,000 compared to the level of Of them, there were 13,035 importers from North China, accounting for about 37% of the total Number of importers of North China in

17 China has cut its import tariffs on some consumer products from December 2017 onwards, covering 187 tariff lines, of which the average tax rate has dropped from 17.3% to 7.7%. Of them, the F&B products include alcohol, dairy products, meat products, nuts and other niche or hard-to-supply products in China. Liquor mainly includes whiskey, distilled spirits made from grape wine, vermouth and other liquor made from grape wine. For example, the MFN ( most favored nation) tariff has reduced to 14% from 65% for Vermouth in capacity of 2L and below, and other wines made from fresh grapes with plants or spices in. Dairy products mainly include niche cheese products and special formula milk powder suitable for lactose intolerant infants. For example, The MFN tariff for lactose free formula milk powder, previously being as high as 20%, was abolished. MFN tariffs for meat products such as sausage products with natural casing made from animal meat, sausage offal and blood were reduced to 8% from 15%. Nuts mainly include cashew nuts, macadamia nuts and dried cranberries. 3. Market Structure 3.1. Retail Channels In China, the retail outlets for imported F&B mainly include malls, supermarkets, hotels, western restaurants, bakeries as well as the internet and imported food outlets, of which the proportion of malls and supermarkets is more than 50%. The "other" channels are dominated by imported food outlets. For instance, Jenny Lou`s and April Gourmet stores.

18 Supermarket, Convenience Store, Import Food Outlet The mall and supermarket channel are mainly targeted at urban mass consumers and is one of the main retail channels for imported F&B. The mall and supermarket channel mainly include large chain multinational supermarkets, Chinese supermarket chains, convenience stores and imported F&B supermarkets. Large supermarkets with a background in multinational companies such as Carrefour, Auchan and Metro generally have special counters or areas for imported F&B, where products from origin countries of the stores are generally highlighted. For example, Wumart Hypermarket has special areas of imported F&B where there are mainly such goods as leisure foods, beverages, foreign wines and liquors, dairy products and olive oil on display. Bakery, Cafe and Tea Store Western-style bakeries have become an indispensable food-purchasing channel in the daily life of the Chinese. Ganso, Dinghao, Rosa, Andersen and other high-grade chain bakeries, increase in the number of their bakeries and experience higher turnovers in China. For imported dairy agents, 60% of their sales volume comes from such bakeries. At present, Chinese people have greatly increased their demand for western F&B such as coffee, including the consumption environment and tastes. For example, Starbucks, SPR COFFEE, COSTA COFFEE and others are developing rapidly in China. According to an analysis by Starbucks, there is a market capacity of more than 2,000 coffee shops in the two cities of Beijing and Shanghai. Hotel, Catering, Bar, Club and Resort High-end hotels are important places to sell olive oil, cheese, western vinegar and other high-end condiments as well as dairy products. Some imported F&B distributors may also directly supply products for such channels. Imported F&B are popular at bars, such as champagne, whiskey and vodka. Some imported F&B distributors may make joint promotions with bars. Clubs and resorts are mostly sites for high-grade luxury consumer goods.

19 RMB trillion Online Food Retailer In 2017, the trading volume of e-commerce in China reached trillion RMB, up 11.7% year of year. Of it, the trading volume of commodities in the e-commerce reached trillion RMB, accounting for 57.8%. Trading Volume of E-commerce in China Data source: National Bureau of Statistics of China,

20 Of the food sales in the e-commerce platform, the imported food sales account for 13%. Almost all major online retailers claim that they can supply imported foods such as seafood, beef and fruit straight from the places of origin. ( - Top 10 Sales Brands Evian SAMYANG Ferrero Perrier Bellina Richeese Kjeldsens Danisa HOA TAN WING WAH

21 3.2. Import & Distribution Channels in North China Compared with domestic F&B, imported F&B sales channels are much simpler. However, in addition to the direct supply of terminal retail channels, distributors at all levels may also carry out wholesale business at the same time. As a result, the distribution channels are more complicated as shown in the graphic below.

22 4. Market Barriers in North China 4.1. Differences in Dietary Habits and Tastes Most of Chinese consumers buy to a large extent imported F&B out of curiosity. In the northwest region in 2017, the main imported products in the northwest provinces were meat products, accounting for 64% of all meat imports in North China. The imported products in Northeast China are mainly fish products, followed by coffee/tea and liquor. Northern provinces compromise the main area for imported F&B in the North China, with the amount of imports of homogenized composite food, edible oils, prepared food, wine and vegetables/fruits all exceeding 80% of total imports to North China. Import value (USD million) Total in North China North China (Northern Part)* Percentage Homogenized composite food % Edible oils % Prepared food % Wine % Vegetables/fruits % Spirits % Tea and Coffee % Fish products % Sweets, Confectionery and Snacks % Dairy % Meat products % *Includes Beijing, Tianjin, Hebei, Henan, Shandong, Shanxi, excluding Hunan and Hubei. The top ten provinces (and cities) for alcohol consumption are: Shandong, Hebei, Jiangsu, Henan, Beijing, Liaoning, Anhui, Shanxi, Jilin and Hubei Consumers Concerns Chinese consumers have growing requirements for the production date and shelf life of food. Most of the imported foods can be sold in China within 3-6 months after their production dates, which may have an effect on the purchasing behavior of consumers. The rise of cross-border e-commerce, overseas online shopping and shopping agencies leads to diverse channels of imported F&B. More and more F&B are imported through couriers and other channels.

23 4.3. Development of Traditional Sales Channels First and second-tier cities are still the most important markets for F&B, but the growth rate has slowed down. Small and medium-sized cities will become an important market for F&B competition in the future Competition of Domestic F&B Producers The concentration of the food industry in China is very dense, and the comprehensive strength of large enterprises is comparable strong. The top 5 enterprises in beer, dairy products, high-end white spirits and edible oil industry have a combined market share of over 60%. China's food production continues to grow. As of the end of 2017, there were more than 10,000 major food enterprises in China. Among them, there are 60 million tons of edible vegetable oil, 32 million tons of fresh and frozen meat, 29 million tons of dairy products and 190 million tons of beverages. As the quality of the domestic foods improves, the consumer confidence is picking up. According to the "China Dairy Quality Report (2017)" released by the Dairy Association of China, the passing rate of raw milk sampling in 2016 reached 99.8% and the passing rate of dairy products sampling was 99.5%, a leading number in the food industry. In 2017, the dairy industry showed a warming trend with a slight increase in revenue and net profit as compared to As more and more imported F&B enters into the Chinese market, the prices of most imported F&B are not significantly different from those of the domestic ones or even lower than those of the domestic products Difficulties of Cold-Chain Transportation Fresh food is characterized by high-frequency consumption and rigid demand. The e-commerce market of fresh food is currently at the stage of high-speed development. Facing a one-trillion RMB market size, many of Chinese enterprises are trying to enter this market in various ways. However, there are three weaknesses of the distribution of fresh food via e-commerce: cold storage warehousing, cold-chain distribution and the "last mile" bottleneck.

24 5. Opportunities for International SMEs in North China The total demand for imported F&B in China increases at an annual rate of 15%. In 2018, the market size of imported F&B in China is expected to reach 480 billion RMB. According to the Research Report on Chinese Consumption of Snacks and Beverages 2017 by Ipsos, 85% of the consumers bought imported snacks in the past year and 69% bought imported beverages. Imported sugar/chocolate, coffee, milk/milk drinks are the most popular among consumers and imported products from the United States, Japan and Europe (Britain, France and Germany) are favored. Thanks to China's "One Belt and One Road (OBOR)" policy, the products from more than 50 countries along the "One Belt and One Road" can enter China through e-commerce. Through the easy accessible sales channel of e-commerce smaller companies with less widespread sales channels have the chance to actively serve the Chinese market. Additionally, through the advancing infrastructure aligning to the engagement of OBOR SMEs from other states which had less access to the Chinese market enjoy increasing market access. Food, alcohol, home textiles, fruits, watches and seafood are among the best-selling categories. Of them, food is the most widely distributed imported commodity, such as Chile cherries, Mexican avocado, Argentinean red shrimp, Ecuadorian white shrimp, Philippine dried mango, Indonesian dried fruit and vegetable, and Vietnamese LIPO rusk. For these specific products, opposing to soft drinks, fast food chains and sweets like chocolate, a huge brand awareness is not a main purchasing factor for the consumer. Therefore, international SMEs have large opportunities with serving niche markets. In general, imported F&B are not only doubled in quantity but are also expanded geographically year by year. In 2017, imported F&B was sold throughout China Potential Segments (future trend predictions) Holiday Gifts Chinese pay attention to reciprocity of gifts and they often offer gifts to friends and family members on important festivals. According to Kantar Consumer Index statistics, during the Spring Festival, which is the most valued holiday by Chinese people, the proportion of households that have received FMCG (Fast Moving Consumer Goods) gifts is as high as 60%. The largest consumption of imported F&B is for the purpose as using them as a gift. The sales volume during the Spring Festival and National Day accounts for 40% of the total annual sales. Imported F&B often used as a holiday gift are mainly chocolates, candy, biscuits, wine and beer. However, packaged nuts as a gift have gradually become a new favorite of consumers in recent years. Swiss chocolates, Japanese marshmallows, South Korean nori, French red wine, smallpacked biscuits, confectionery and so on, are popular among consumers due to their novelty, delicacy, lovely patterns and crisp taste, thus resulting in rising sales.

25 Baking ingredients, additives, spices and condiments Baked foods such as cakes and biscuits are one of the most popular imported foods. Home baking has led to continued sales of raw baking materials, additives, baking tools, baking appliances and other related products. Safe, organic and natural food As Chinese consumers have become more aware of industrial pollution, they are increasingly pursuing safe, natural and organic foods. Imported dairy products, grape wine and other F&B are widely accepted in China. Especially after the incident of melamine milk powder in China in 2008, many infants who ate infant milk powder produced by Sanlu Group had been found to have kidney stones. The proportion of young parents purchasing imported baby milk powder has increased significantly since then. Furthermore, consumers' interest in nature and hope of "returning to their original nature" has pushed the development of plant-based drinks. "Plant" has become an emerging key word in the beverage market in % of consumers believe that the beverages containing plant ingredients are better for health, and that plant-based drinks have broad prospects in the market. In China there is also a sizeable vegetarian/vegan community that continues to grow, currently around 50 million people, consider themselves vegetarian. Low- calorie Food Currently, fast food, packaged food and beverage industries are trying to adjust to customers preferring healthier food. Many candy tycoons such as Mars, Nestle, Ferrero and Lindt have announced that they will make products with less than 200 calories in half of their individually packaged products by 2022 and display these health features at eye-catching positions. But traditionally these brands are not well-known for their focus on health. The market demand of health food is a comparable new trend and gives SMEs a great potential to enter these niche market, especially focusing on the changing needs of Chinese consumers. Large cooperation s face larger problems in shifting their well-established brand image. At present, consumers are looking for healthier diets and are becoming more self-restrained. Their definition of healthy snacks and drinks began to move towards sugar free / low sugar and low fat / low calorie. There was a significant increase in the topic of low sugar / calorie snacks in 2017.

26 5.2. Promotion Strategies Imported F&B operators or distributors also carry out different marketing methods for their target consumer groups. New types of marketing are also widely used, such as app-advertising including apps such as WeChat and Alipay, video-streaming platforms including Tencent Video and iqiyi, WeChat subscription marketing, WeChat business ads and others. In 2017, the number of active monthly users of WeChat rose to more than 900 million. Top500 WeChat subscriptions spread million articles, which were read billion times. Similar to Facebook and Google in the west, WeChat makes use of big data to place advertisements into the live feeds of its users. Alipay advertises supermarkets and convenience stores on their App, and also its related online platform such as or which indirectly promote the consumption of F&B. End of Report