The rapidly expanding Chinese food sector has long been a focus for multinationals looking beyond developed western markets for expansion. However, it isn’t just the international food Goliaths – with big bucks to spend on M&A or organic expansion – that are looking to China for growth. just-food caught up with some smaller enterprises hoping to tame the dragon at Hong Kong trade show Hofex – an event that prides itself of being the largest of its kind in Asia.
The opportunity presented to food manufacturers looking to expand in China is as immense as the country’s rapidly growing population, which, according to the World Bank, now totals around 1.53bn people and counting. The country has a rapidly expanding middle class that is benefiting from growing income levels and improved standards of living. And, while its GDP slowed to 7.8% in 2012, the country’s economy has stood up remarkably well to the challenges of recent years.
According to Mintel figures, per capita spending on food products in China reached US$500 in 2012. While this is still much lower than the average spend in developed markets such as the UK and the US, growth is much faster: Mintel predicts this consumer base will have increased by around 80% between 2010 and 2015.
However, while all the demographic growth drivers are there, it is worth noting increased competition has had a massive impact on whether new entrants are able to succeed in an increasingly crowded space. Local players and multinational FMCG groups have invested significantly in developing their businesses in China.
“It has become a much more difficult country to operate in,” Chris Brockman, senior global food and drink analyst at Mintel, said in a just-food webinar earlier this year. “Local companies have upped their game and forced out the Western more international brands.”
As a result, it has become ever more important for Western food manufacturers to offer something that will allow them to stand out from the competition.
Speaking to just-food at Hong Kong trade show Hofex (7-10 May), it is clear a swathe of SME food groups from developed markets are hoping to make a crack of it in China. And, while growing competition – coupled with language and cultural barriers – will present challenges, a number of factors are in their favour.
Taking in the SMEs exhibiting at Hofex, it is evident many of the western brands aiming to expand in the market come from the premium end of their respective categories – be is Black Forest ham from Germany or black truffles from France.
Such firms are well-placed from an increasing appetite for premium products in China. While some of the major companies, such as Nestle and Unilever, have struggled to gain traction in more mainstream channels with higher-end brands (think ice cream), smaller upmarket firms are playing to their strengths: targeting a niche, but lucrative sector.
Chinese consumers are also adapting their consumption patterns – with increasing uptake of categories that were previously the prevail of western diets. The potential for dairy, for instance is massive. China’s annual per capita cheese consumption, for example, is about 260g a year – a fraction of the average in the developed countries of Asia, which is about 2.2kg, and almost incomparable to the 15kg eaten each year by the average European. While dairy giants from Fonterra to Arla Foods have been scrambling to expand in China, growing demand in the region also bodes well for smaller players. UK cheese maker Bridgehead Food spoke to just-food about their ambitions for the region and how they hope exhibiting at Hofex will further these goals.
But perhaps the most significant factor in the favour of western SMEs trying to break into China is the national obsession with food safety and the widespread belief that foreign-produced food products are manufactured under stricter safety standards.
For western companies to make an impact in the crowded and intensely competitive Chinese market, they may need to look at areas such as food safety, provenance and product history if they are to win over Chinese customers and consumers. Leveraging the strengths and product quality of western brands is where smaller, foreign, food groups could have an advantage over domestic rivals when targeting the demand for premium from affluent consumers.
Click here for more news and views from exhibitors at the Hofex trade show in Hong Kong.