China’s dairy market has been getting foreign multinationals excited for some time now – Danone, Parmalat, Nestlé – most of the big international dairy players have built a presence in China to some degree even if their financial performance is distinctly low-fat. While consumption is still low, it is certainly true that dairy is one of the fastest emerging food and beverage sectors in China right now.
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Consider:
- China’s dairy output has seen nearly 12% annual growth for the last two decades;
- The world’s top 20 milk enterprises all have facilities in the People’s Republic of China (PRC);
- 45% of Chinese now drink milk daily in the major cities;
- 27% consume yoghurt at least twice a week in the major cities.
However, 50% of Chinese remain calcium-deficient, rural consumption is almost non-existent in some provinces and regions, consumption is below 7kg per annum on average – way below western levels – and the domestic production industry is largely inefficient.
Growing acceptance of dairy as awareness and quality improve
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By GlobalDataAt China Dairy 2003 held recently in Shanghai – the dairy consumption capital of China and the city most willing to adopt new products – one session focused on the growing acceptance of dairy by China’s consumers and the emergence of new products and sectors. The session was chaired by Paul French, the Shanghai Chief Representative and Publishing Director of market research publisher Access Asia.
During the session, French outlined the increasing role of dairy in the average urban Chinese diet – noting rising consumption of milk and yoghurt especially. However, the market remains fragile. The ice cream sector is declining after years of price wars that have turned a former brand name-led market into a generic market with few profits to be had. The urban middle class and young professionals are driving consumption as they vary their diets away from traditional Chinese cuisine and children are beginning to accept dairy products as part of their daily diet – thanks in no small part to government campaigns designed to encourage consumption and a major school milk programme.
China is now seeing lower income consumers starting to try dairy products and a vast improvement in the quality, taste, hygiene, packaging and marketing of local brands. Indeed in the milk sector the dominant brands tend to be regional dairies such as Shanghai’s Guangming (Bright) Dairy and Beijing’s San Yuan, while in the yoghurt sector the major players are Bright and San Yuan again along with Hangzhou Wahaha Group, Harbin-based Wandashan and Inner Mongolia Yili.
“Major foreign brands playing second fiddle to the locals” |
Across most of the market the major foreign brands – including Parmalat, Kraft, Nestlé, Dutch Lady and Danone – play second fiddle to the locals. The exception is ice cream where advanced production techniques, strong international brands and massive marketing budgets have meant that global players such as Wall’s and Nestlé have become the market leaders.
Drinking yoghurt in the ascendance, but cheese barely known
Yoghurt is a particularly interesting market in China and at China Dairy 2003 Ms Zhang Haiying of Hangzhou Wahaha’s yoghurt division outlined the trends in the market. She identified drinking yoghurt as a very fast growing sector thanks to wide distribution, rising incomes and children’s acceptance of the beverage. While a few years ago Chinese consumers looking for yoghurt were faced with the choice between natural or one or two traditional flavours (strawberry etc) the industry has now responded to local tastes with new varieties of yoghurt with ‘Chinese characteristics’, mostly highly sweetened and including flavours such as coconut-milk, aloe and others.
However, while milk and yoghurt have become increasingly accepted, cheese is a minor segment of China’s dairy market. Indeed, cheese is almost an invisible product in China with little local production, consumption or interest. As Ray Han, the Marketing Development Manager of NZMP China, pointed out to the conference in his presentation on China’s cheese market, few sales assistants in Chinese supermarkets actually know the difference between butter and cheese, let alone between varieties of cheese. Perhaps, as Han suggested, the Chinese just need to become reacquainted with cheese – it was after all a Mongolian invention that entered China 80 centuries ago along with Genghis Khan – though some sources claim cheese was invented on the Iranian Plateau around 8000 BC.
“Few sales assistants in Chinese supermarkets know the difference between butter and cheese”
Additionally, the resistance to cheese by many Chinese consumers is not a typically Asian prejudice – the Japanese have taken to cheese increasingly in recent decades. More likely the negligible impact cheese has had in China is down to poor market awareness, lack of availability and an incompatibility with local cuisine traditions. Cheese is starting to make modest inroads through the growing market for pizza in China – Pizza Hut just opened its 100th Chinese restaurant in the northern city of Tianjin, near Beijing. However, cheese in China will be a slow growth market in the short to medium term and continue to be a tough sell to Chinese consumers.
Great potential for functional dairy foods
The final part of the afternoon session was taken up with a discussion concerning the possibilities and opportunities for functional dairy foods in China. According to research by Access Asia in Shanghai, most Chinese consumers are now buying dairy products based on a combination of purchasing decisions including price, flavour and, increasingly, nutritional content. In part this reflects the fact that the government’s pro-dairy campaigns are starting to raise awareness as well as the fact that dairy products are increasingly being marketed for their nutritional qualities in China. As yet specialist producers of functional foods are having to tread carefully in China due to some inconsistent regulations but it is expected that functional food – particularly those that target cognitive recognition and the brain generally – will be most popular and able to command a premium price with consumers.
Nowadays some Chinese food brands and products are starting to claim functional qualities. However, this is often more a result of China’s ‘soft’, or downright lax, advertising regulations rather than the product’s ingredients. The main speaker leading the debate on functional foods in China, Professor David Richardson of dprnutrition commented that, as George Orwell might have said, ‘All foods are functional but some are more functional than others.’
Lactose intolerance a hot topic
Finally to end the afternoon there was a discussion about the relationship between the dairy industry and China’s consumers. No conference on dairy in China can escape the question of lactose-intolerance. This condition is commonly thought to be rife in China and a major block on the development of the dairy industry. It is certainly true that rates of lactose-intolerance are higher than western levels and lactose free products are rare, though many Chinese prefer soya milk products, such as those from Vitasoy, to cow milk.
“All foods are functional but some are more functional than others.” |
Most consumers in China disrupt their milk-drinking pattern after the infant stage and approximately 36% of them then develop lactose-intolerance. However, the rates are falling. In Shanghai the municipal government has been experimenting through its school milk programme with dispensing small amounts of milk to primary school pupils to build up their tolerance gradually. Shanghai officials claim that they have reduced the average lactose-intolerance rate to around 20% and falling as the programme refines – in other words adding a potential new 15-16% to the number of dairy consumers per annum. Perhaps as other Chinese cities and provinces adopt similar school programmes the notion of China as a lactose-intolerant country will gradually recede.
China Dairy Markets 2003 was held at the Shanghai Hilton Hotel, 15-16 January 2003 and was organised by IBC Asia. For more details click here or to purchase any of the papers relating to the conference contact:
Audrey Chen
Tel: +656 835 5137
E-mail: Audrey.chen@ibcasia.com.sg.
To contact the conference session’s Chairman, Paul French,
Tel: +862 163 747 484
E-mail paul@access-asia.info.
