New Environment for Overseas Functional Foods and Supplements in China

The fast development of cross border ecommerce in China offers new opportunities for overseas functional foods and supplements enterprises, and many overseas brands are already entering Chinese markets through the CBEC channel.

Market opportunities for functional foods and supplements:

According to a report from TMALL International in 2016 (as revealed in Food and Beverage Forum 2017), functional foods and supplements, cosmetics and mother & baby products are the three hottest categories on CBEC. China has also engaged in a large number of business deals with the global functional food industry. It is reported that from 2010 to 2016, Chinese enterprises finished 14 merger and acquisition deals overseas, including the merger and acquisition of Swiss, Vitaco, and Nutrition Care in Australia, Perrigo and Vitatech in USA, Good Health in New Zealand, etc. Meanwhile, many dairy and cosmetic enterprises not originally in the health food industry are now entering this sector.

Market development strategies:

• Channel selection

There are great differences in the sale channels of functional foods and supplements between China and western countries. In China, direct selling accounts for also 50% of the total market share, while offline stores and ecommerce account for approximately 20% each. Compare this to the situation in the US, where the most important sales channel is the specialty store.

• Subdivision of product category

Most enterprises focus on one or several core products to develop their business. For most enterprises, 70% of their business revenue comes from their top 10 products. Overseas nutrient supplements can usually be divided into more than ten subcategories including vitamins and minerals, plant herbs, sports nutrition, weight management products, as well as other special supplements (e.g. probiotics and fish oil products). There should be more opportunities for enterprises that pay attention to the nuanced differences in these subdivisions and cater to consumer demands for innovative products with scientifically substantiated actives.

• Function claims

In China, only 27 function claims are allowed to be used on health foods after being registered with CFDA. Due to the time consuming and costly registration process, many enterprises choose the CBEC channel to export their products to China. These products can only be exported to China under the category of conventional food (no function claims on the label). As such enterprise should adopt creative marketing strategies (within legal boundaries) to underscore the advantages of their active ingredients and products.

Traditional channel vs. CBEC for functional foods and supplements:

There are both advantages and disadvantages for traditional channel and CBEC channel. CBEC channel is targeted at online shoppers and the emerging middle class in China who are willing to buy niche and new products, while traditional channels are more suitable for the senescent demographic. These two channels should be combined especially with regulations subject to abrupt policy change. It is also suggested that enterprises should still take product premarket approval into consideration as the ultimate objective of the government is to realize unification of online and offline market entry requirements.

Personal article supervision will not be fully implemented for CBEC traded commodities:

China enacted a series of new CBEC policies starting last year, including a new taxation policy, a positive list system and an extension on the grace period until the end of 2017. On Mar. 17, 2017, China’s Ministry of Commerce (MOC) announced that commodities traded through cross border ecommerce will be regulated as personal articles from Jan. 1, 2018. The number of CBEC pilot cities will also increase from 10 to 15 (see relevant CL news report).

However, according to the interview with vice president from Department of Finance of MOC, Yuan Xiaoming by Xinhua News Agency, the use of the personal article definition for CBEC traded products still hasn’t been finalized which means there will still be changes in the CBEC supervision mode. He also stressed that the requirements for CBEC traded commodities was likely to be different from CBEC traded commodities. The supervision mode of imported general commodities and personal articles is completely different. The quality and safety risks posed by personal articles are problems for individual consumers where quality and safety issues for traditional trade issues are issues for the government. CBEC is a new business type which has the characteristics of both general commodities and personal articles. The most important task for the government is to ensure the steady and healthy development of the industry while preventing quality and safety risks for consumers.

As indicated by Mr. Yuan Xiaoming, in the next step, enterprises and CBEC platforms will be required to undertake the responsibilities of ensuring the safety and quality of commodities, notifying consumers of the product information, establishing information traceability system, etc. Product quality and safety risk control system will be established in all 15 pilot cities including enterprise and commodity filing, commodity quarantine upon entry, risk monitoring, etc.