Click here to read the first article. It deals with traceability and the wine industry
fruits vegetables

China: high-quality, healthy and convenient Food

China is the world’s second-largest economy, and growth is driven by consumption and investment, but the government has expressed interest in shifting to a consumption-led economy. In 2020, China imported consumer-oriented agricultural products worth nearly $89.3 billion.

READ ALSO China, Is the Golden Age of Wine Over?

In 2020, overall retail sales of consumer goods declined for the first time in the past ten years as the pandemic took a toll on disposable incomes and in-store shopping.

China’s Outline for the 14th Five-Year Plan (2021-2025) for Economic and Social Development and Long-Range Objectives through the Year 2035 emphasizes that, China will raise the production capacity for grain, and ensure safety of major agricultural products.

Due to the sheer size of China, its consumer market is complex and diverse. Regions in China have distinct taste preferences and styles.

Since the pandemic, consumer purchasing behavior has evolved to become more digital, while purchasing tastes have become more focused on lifestyle (eating better, enjoying time at home). Pet ownership (and thus pet food purchases) increased dramatically in 2020. The bakery sector also saw gains. With increasing demands for meat, and swine herds largely rebounded from the 2018/2019 African Swine Fever outbreak, China is expected to continue poultry and beef imports well into 2022.

The middle-class and disposable incomes are growing though a gap remains between first and second-tier cities and rural Chinese. In the case of the former, more is being spent on imported products and luxury items. China released the 14th Five Year Plan with ambitious goals to eradicate poverty in rural areas which could lead to a further increase in the middle-class.

READ ALSO Canada: a market for high-value consumer-oriented food

Recent Food and Agricultural Product Trends

China’s food processing industry has seen sustained growth in recent years. Sales, production, and income in the sector increased in 2020, according to the Chinese Ministry of Industry and Information Technology (MIIT). China’s major food processing companies recorded combined profits of 620.66 billion yuan (about $97 billion) in 2020, up 6.8% from the same period last year. Profit growth at these enterprises was 3.1 percent points, higher than the average of all industrial sectors, according to MIIT.

  • Consumers increasingly want high-quality, healthy, convenient food solutions. Top processed food products exported to China in 2020 were: processed or prepared dairy, prepared or preserved meat, vegetables and pulses, syrups, sweeteners, fruit (canned, dried, frozen).
  • Pet food and packaged foods (including breakfast cereals, baked goods, sauces, and condiments) are also trending up. Simultaneously, supermarket and convenience store outlets are expanding, for smaller outlets in communities.
  • National pride underpins support for Chinese made, manufactured and grown products.
  • Growing middle incomes lead people to ‘upgrade’ their eating habits to items once considered luxury such as imported tree nuts, prepared food, wine, snack foods and live seafood.
  • Middle-income families enjoy dining out more while, with strict travel limitations, younger generations seek international experiences available to them domestically.
China economy indicators

Food Processing Industry

Retail sales reached $6.14 trillion in 2020, of which 24% was derived from e-Commerce. Online retail sales increased by 10.9% over the 12 months and have continued to grow in 2021. Over 782 million Chinese people made purchases online in 2020. Improvements in logistics continue to support movement of products far beyond first tier cities.

China continues to transition from a society that values “eating full” to one that emphasizes “eating well,” especially among the growing urban middle class. This trend includes eating Natural or less processed, less sugary foods with a shorter shelf-life.

Replacement and light meals are increasingly popular among young consumers in first-tier cities. Replacement meals are diverse and include sandwiches, salads, energy bars, or biscuits but generally use less salt and reduced fat. Plants-based products used for meal replacement are typically beans, wheat, fresh fruits, nuts, dried fruits.

More traditional industry segments, especially those within the food processing and manufacturing sectors, are expected to consolidate, and growth may also slow relative to fresh and minimally processed foods. The retail (to include e-commerce) and Hotel, Restaurant and Institutional sectors are expanding their ready-to-eat options to have “fresh and healthy” and diet-minded foods for affluent urban consumers. Ready-to-eat products and convenient drinks continue to see the most potential in the food processing sector to meet the demand of the increasingly time-starved consumers.

Quick and ready-to-eat frozen food, another ingredient channel, has also grown because of better consumer education and cold chain logistics development. Besides the traditional quick-frozen dumplings, more varieties have shown up in the market, reflecting Chinese and western cuisine styles and gaining favor with younger consumers. The COVID-19 pandemic, unfriendly to many other sectors, did spur an upward market trend in quick-frozen food products.

International brands are gaining more Chinese consumers, but domestic brands still reign supreme. Live streaming has become integrated with e-commerce and plays a vital role in food and beverage marketing.

China’s bakery sector has expanded rapidly in recent years, underpinned by the country’s rising middle class, ongoing Westernization of lifestyles and diets, and increasing demand for convenient food options.

China food & beverage consumption

Best product prospects

Cheese

Cheese imports benefit from the growing popularity of western-style food and consuming foods high in calcium and protein. Therefore, cheese benefits from the rise of health-conscious consumers seeking healthy snacking, and single-serve cheese formats can fill the need of this consumer segment.

Price competition from New Zealand and Australia. Expanding consumption driven by ready- to-eat sector of convenience store chains.

Tree Nuts

Consumers understand that tree nuts are healthy and nutritious, and many snack and cereal manufacturers have stepped up the use of tree nuts in their products. These efforts are likely to drive tree nut consumption, while tree nuts have shown to be a popular product sold on e-commerce platforms.
Imported tree nuts have also found a home in China’s growing baking sector, where  almonds, pecans, and pistachios as ingredients in bread, cakes, cookies, and other pastries. Price competition from Australia and Iran. Versatile applications in either a snack, beverage, or baking industry.

Dried fruits

Blueberries, cranberries, and tart cherries have great potential. Raisins and dried cranberries are also used as an ingredient in food processing, and the rapid development of the bakery sector has helped drive raisin consumption. Price competition from Chile and Turkey. Growing demand from the baking industry.

Dairy Ingredients

Whey, skim milk powder, and butter are in high demand since China cannot produce them in sufficient quantities and quality. high-protein whey concentrate, which is used to fortify beverages and yogurts, is especially in demand due to lower assessed tariffs. High tariffs restrict the competitiveness of most other dairy ingredients.

Plant-based protein

Demand for high-protein plant-based beverage products are growing in the China market, including coconut milk, oat milk, and nut milk. Demand for higher protein beverages contributes to dairy and plant-based milk growth. Price competition from Australia and New Zealand. Increasing nutritional needs of health products.

Pulses

Chinese food processors have shown interest in pulses for making noodles, meat replacement products, and high-end pet food. Price competition from Canada.

Hotel, Restaurant, and Institutional Industry

China’s Hotel, Restaurant and Institutional (HRI) sector is the world’s second largest, with 2020 revenue of US $573.07 billion. The pandemic led to many restaurant closures in the first half of 2020, but the industry rebounded and exceeded the pre-pandemic scale by year end, reaching 9.17 million restaurants, up 1.2%.

Though the pandemic encouraged consumers to do more home food preparation and tourism remains below 2019 levels, the HRI sector is rebounding. Opportunities for high quality foods remain in high-end restaurants in first but also lower tier cities. High quality and value products, especially those with applicability in Chinese cuisines will be popular for mainstream restaurants and institutional dining.

The hospitality industry is recovering but demand of China’s HRI industry is yet to return to pre-COVID-19 levels. As it rebounds, the HRI industry will provide greater opportunities for exporting meat, live seafood and fresh fruits and vegetables. Middle-class consumers enjoy dining out.

The foodservice sector is somewhat fragmented. The top 100 catering groups increased their industry share but took only 7.8% of total 2020 revenue. Further expansion and integration will increase the concentration, and chain groups will develop further. Chain catering is particularly noticeable, increasing from 13.8% of the market in 2019 to 15% in 2020.

Regional cuisine boundaries are becoming blurred, and foodservice-retail boundaries even more so. With supermarkets and convenience stores eroding the foodservice market, chain foodservice brands have launched pre-packaged products and easy-to-cook dishes. Most chains have central kitchens and many are developing standardized products that only need heating.

January to November 2021 foodservice sector revenue was 21.6% above 2020, reaching USD 609.71 billion. Digitalization drove supply and consumption. January to November online sales were USD 1.72 trillion, up 15.4%. Sales of physical goods online grew by 13.2% reaching USD 1.42 trillion, with sales of foods increasing 18.8%.

RankBrandEnterprises
1KFCYum! China
2Hai Di Lao HotpotSichuan Haidilao Catering
3McDona;d’sGolden Arches
4Qian Xi HeHebei Kinghey Foods
5Ding QiaoTianjin Ding Qiao Catering & Consulting
6Yang Guo FuShanghai Yangguofu Management Group
7P-Shang Dolar Hot PotJiangsu Pinshang Catering Franchising Group
8Chao Tian Men Hot PotChongqing Chaotianmen Catering Group
9Zhong Kuai FoodsShenzhen Zhongkuai Catering Group
10Xi BeiInner Mongolia Xibei Catering Group
Source: China Catering Association

While restaurants globally struggled with the pandemic, China saw a record number of new outlets in 2020. Several Western chains opened branches in first tier cities like Shanghai and Beijing. Popeyes opened its first outlet in Shanghai in May 2020, and now has nine outlets. Five Guys opened two stores in Shanghai in 2021. Others like Chili’s, Red Lobster, Shake Shack, and Cheesecake Factory, as well as fine dining restaurants including Wolfgang’s Steakhouse and Ruth’s Chris Steakhouse were also performing well. Yum! Brands (KFC, Pizza Hut, and others) launched huge expansion plans. Starbucks had 5,410 outlets by November 2021.

The Chinese foodservice is fragmented, but still dominated by Chinese cuisines (full-service, fast food, and hot pot). Chinese-Western fusion restaurants are also growing. Increasing health consciousness is driving innovation. According to China Catering Association, restaurants featuring light diet menus exceeded 1.1 million, 13% of the 2020 total. Plant-based meat has become popular, with several renowned chain catering groups launching new dishes.

Some Western restaurants, however, haven’t done as well. Fewer business events and no overseas visitors meant low attendance and shrinking customer bases for some high-end restaurants in Tier-1 cities. Some struggle to redefine themselves and their menus, and some have succumbed.

China’s catering industry has one of the world’s most complicated supply chain systems. Depending on whether the catering business is Chinese cuisine, Western cuisine, fast-service chain restaurants, or hot pot restaurants, the supply chain structure varies. Generally, there are three categories of suppliers/distributors for food ingredients for China’s catering industry.

China food & beverage imports

Foodservice distribution channels

These were developed relying on e-commerce platforms, including Meicai.com, SongXiaoCai.com, Liannong.com, and JD group. They pioneered the concept of Internet + Agriculture, focusing on shortening the chain from field to restaurant with the Farm to Business (F2B) mode, offering comprehensive solutions from sourcing, warehousing, ordering, and delivery for millions of small catering businesses with support from third-party logistics (3PLs) services. They provide one-stop service with numerous ingredients and products for a small door-to-door catering business. However, a lack of unified standards for fresh produce makes it challenging for these internet-based supply chain platforms to provide consistent and high-quality products and services.

Hotels and Resorts

With major international events, conferences, and trade shows, China’s hotel and resort industry is immense and growing. Many internationally owned or managed hotel groups are rapidly expanding operations in second and third-tier cities and top tourist destinations. In 2020, border restrictions made domestic travel the only choice for most consumers. Star-rated hotel guests have become mainly local or surrounding city consumers. Five-star hotels have few foreign guests. Some hotels began providing take-out services and closed executive lounges. Hotel and resort foodservice accounts for approximately 30% of average total revenue. Hotel restaurants are not necessarily visited by only lodging guests, but instead are increasingly visited by outside guests. Hotel restaurants are considered to have superior quality and service. Hotels often purchase ingredients through a centrally managed system. Imported food products are often preferred by international hotels because they cater to a diverse clientele.

Restaurants

China has distinct local and regional food and flavor preferences. While restaurants serving local cuisines continue to dominate the market, Western cuisines are becoming popular in Tier 1 cities. In general, ingredients for non-chain establishments are sourced from local distributors and markets. The chain establishments have centralized purchasing points. Demand for higher quality products has risen with disposable income. Per-capita food expenditures were US $ 1,004, though economic development is still unbalanced across China. More affluent consumers in more developed coastal areas spend more than the national figure. According to industry insiders and restaurant operators, upscale restaurants benefitted from pandemic travel restrictions, as consumers opted to spend money on premium dining for business or personal purposes as they could not travel abroad. The pandemic has led to fewer income sources and reduced catering consumption, but the high-end market in which affluent consumers pay a premium for quality and international dining experiences remains prosperous.

Institutional Foodservice

Traditionally, institutional foodservice was primarily for hospitals, government offices, military, schools, and transportation (i.e., trains, flights). The latest China Catering Association data indicates the sector has been developing fast, and the top 10 catering businesses in China include five institutional suppliers. Some smaller players are suffering from unstandardized operational procedures, food safety control and management measures, and supply chain issues. Due to extreme price sensitivity within much of the sector, the catering market has yet to use a meaningful level of imported food and beverage products. Despite that, with increasing wealth, high-end office complexes and private companies, institutional foodservice could be a future market for imported food ingredients.

Route-to-market

There is no magic formula for exporters to enter China’s foodservice market. Strategies vary by products and competition.

With regular changes to food and agricultural regulations and standards, customs, tariffs, and imports, it is important to know what is new for your industry and product(s).

China revises its systems regularly and often without warning, making it challenging to understand and stay current with the systems

Protect your brand early by registering patents and trademarks with the China Trademark Office (CTMO). China has a ‘first-to-file’ policy for trademark registration. Take the time to negotiate an agreement that works for you. Trademark copyright can take 18 months to process in China. Plan well ahead before exporting to China to make sure you are as protected as well as possible from intellectual property theft and copyright violations.

Importers know that China is a large lucrative market so they may ask for favorable terms. Many buyers will ask for exclusivity deals, a large initial order quote, or marketing support. Exclusivity agreements can be beneficial for some companies, but regional or limited exclusivity agreements are generally preferred over an all-China agreement.

According to the International Trade Administration, incorrect labeling is the most common reason products do not pass customs.

Chinese communication styles are generally more subtle than typical western ones, though there are regional differences in style. In addition, consider the regional dialects where you will be doing business. Hire an interpreter who can help with both the language and the meaning.

The eastern concept of ‘losing face’ can destroy business relationships, even if unintentional. Research in-person and online etiquette tips. Understand gift giving norms and expectations. Be patient during negotiations and do not lose your temper. Chinese contacts may be less direct than counterparts, especially when seeking to express an unwillingness to do something.

Guanxi is a network of people one can trust and rely on for help and support, similar to the Western notion of, it isn’t what you know, but who you know.
If a Chinese businessperson does a favor for you, they will expect it to be reciprocated. When looking to establish a new partnership, try to be introduced by a common party.

Business cards (and WeChat). The exchange of business card with information in English and Chinese is still accepted, but in some cases phasing out in favor of digital connections. WeChat is ubiquitous to establish and maintain communication, in some cases replacing email.

Plan accordingly to avoid Chinese holidays. The two largest and longest public holidays are Mid-Autumn Festival/Golden Week (first week of October) and the Lunar New Year (one-to-two weeks, mid-January to mid-February) when most businesses close. Most holidays follow the lunar cycle so dates will vary.