"Explore New Growth", Food & Beverage Innovation Forum 2021 (FBIF2021) was held in Hangzhou International Expo Center from 30th June to 2nd July. Over 170+ senior executives from Nestle, Yili Group, PepsiCo among others have confirmed to speak at FBIF2021. During the three-day forum, experts and analysts have shared their insights into China’s current food industry and looked into the future. Analysis of the current situation and future trends are summarized by ChemLinked as below.
Where Are We Standing in the New Era?
Meng Zi (Assistant Director, Head of Consumer Group, Chief Analyst of Food and Beverage & Cosmetics Sector, Guotai Junan Securities) pointed out that China's economy changed sharply from quantity to quality-oriented in past years. The industry can see the increasing stability of the overall economic development as well, which gradually transfers from the invest-driven phase to the consumption-driven phase. He expected that in the future, the proportion of consumption in the domestic economy will continue to rise.
“The consumption industry is going through a transition toward a mature period, namely, from satisfying consumers demands to providing innovative and high-end products to consumers,” Meng Zi added, “we also note that in China, consumption upgrade is quite obvious.” If we look at the consumption industry in Japan and the US, they are in linear development, but China is now with several consumption phases existing at the same time. For example, the consumption capability in first and second-tier cities of China is rising quickly. Meanwhile, the consumption in low tier cities is also expanding rapidly. Consumption upgrade brings opportunities to brands, while consumption expansion invigorates products and categories.
Five Trends in China’s Food Consumption Market
1. Premiumisation, the key to the next decade
Premiumisation is the first feature that Meng Zi emphasized in his speech. He believes before 2012, the premium consumption in China was attributed to domestic economy development, but things changed later. The overall consumption performance was relatively flat from 2012 to 2015. After 2016, the consumption industry performed well, which was mainly pulled by the consumption upgrade. In this phase, experts found the correlation between premium consumption and domestic economy dropped sharply. The core influence factor is people’s wealth—salary, year-end bonus and the appreciation thereof.
The wealth gap is big in China, which leads to consumption stratification. But how does it relate to premium consumption? Take what happened in the pandemic as an example, families whose annual income are over 3 million yuan suffered little during the pandemic. For families whose annual income are less than 50 thousand yuan, 34.6% were affected because they highly rely on their labour force. According to the data from the People’s Bank of China, the top 10% residents have owned around 50% assets. Meng Zi predicted the consumption capability of this group of people will increase in future and will boost the development of premium consumption.
2. China chic and the rise of domestic brands
The rise of domestic brands is the second trend Meng Zi emphasized. He held the opinion that the rise has started to emerge since 2010. The overall development (including the development of socioeconomic background) can be divided into four stages: economic growth, cultural revitalization, the enhancement of national self-confidence and the rise of domestic products. Compared with the historical development of Japan, the enhancement of national self-confidence is boosted by historic events like Olympic Games, etc. Especially after the outbreak of the pandemic, people's patriotic sentiments were stronger than ever before. Others like the leading position in 5G have all boost people's national self-confidence. In past years, ChemLinked also witnessed the development of the domestic consumption industry. More and more consumers tend to choose domestic products, even special foods like infant formula. New consumption brands like Genki Forest, Chayanyuese (Sexy Tea) and many domestic cosmetic brands like Perfect Diary are sweeping the market. In the next decade, the proportion of domestic brands is expected to increase fast.
3. Accelerated changes in the market & new forms of consumption
New forms of consumption are closely related to the reform and changes of the distribution channel, marketing and demographic structure. In terms of sales channels, it is greatly influenced by the development of technology. "Now the e-commerce channel is regarded as a traditional channel in China," Meng Zi expounded, "it used to be a novelty when I first studied it in 2008. But now we find other forms like social e-commerce, new retail, livestreaming, short video are taking its share.” As for the form of marketing, it also shifts quickly from traditional ways like putting advertising on CCTV (China Central Television) to releasing ads on search engines like Baidu after 2000. Along with the development of mobile internet, product marketing now can reach a specific group of people and the marketing forms are diversified, which also raised higher demands of technology. As for the growth of Gen Z, they look highly on and own a higher perception of products, not brands. In another word, without a good product, it is hard to obtain continuous growth in future.
4. New individual demands
Joanna Lu (Expert Partner, Bain & Company) decoded the demands of Gen Z in FBIF's plenary session. She put forward that the post-95s is the first generation that grows up in an affluent environment and can easily get access to what they want. Their demands have now moved from products to emotional needs. They are not just buying the products but expressing themselves and seeking a sense of belonging. Therefore, enterprises should find more consumer-oriented solutions.
In her speech, Joanna also gave a brief summary of the new trends in food and beverage sector. First, consumers' tastes have been changed. In the past years, we saw products like Liuzhou river snails rice noodle (with a strong smell but good taste) and sparkling water going viral among Chinese consumers. Consumers today are seeking new sensory experiences and that will push enterprises' product innovation. Second, health trend. At the present stage, "zero sugar, zero calories and zero fat" has become a standard claim in the food industry. However, what's worth noting is that to Chinese consumers, making products healthy is not enough. Products must be delicious. To give consumers wonderful feelings like making them feel cool or refreshed is the kill king. Hence, enterprises need to find the balance between health and taste. Third, consumers tend to choose convenient products and like to create a little ritual in their lives. Back to what mentioned before, they are not just buying a product but prioritize living a better life and being better selves. Fourth, cultural confidence. This summer, ice cream with a creative shape and cultural connotation (eg. shaped like the Terracotta Warriors) is the hottest product in the F&B industry. China chic is boosting the development of Internet hit products.
5. Sustainability
Paul Zhu (Managing Director Greater China, Tetra Pak) believes after satisfying people's demands of eating well and living well, sustainability is the next pain point all human beings are facing. Food enterprises are responsible to take actions, such as reducing food waste and the use of plastic packages, recycling packages, etc., which goes with the carbon neutrality goal raised by China in 2020.
Besides the actions mentioned above, Andre Pots (R&D Director Foods Product and Process Science & Technology, Unilever) also mentioned their development of plant-based products. According to Unilever's research, plant-based meat emits less greenhouse gas than conventional meat. David Zhang (President Asia, Oatly) shared Oatly's sustainability strategies in China, which is quite insightful. First, they think people's health, in other words, the physical body, should be sustainable. People need a rational dietary structure and a healthy lifestyle in this aspect. Second, the mindset should be sustainable. People need positive attitudes, cool feelings, expectations, etc. Third, the environment and the earth’s sustainability. These are the three spheres of sustainability that Oatly stick to in China and other Asian countries.
In addition to above-mentioned topics, in the forum, experts and speakers also explored the effectiveness of implementing DTC (direct to consumer) mode in China, ways to improve enterprises’ comprehensive ability, category trend of dairy products, etc.
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