According to annual financial reports released by big food enterprises, there has been a significant decline or slowdown in sales in the global market and in the Chinese market. This is attributed to an overall global downturn in economic growth and the accompanying lack of consumer demand. However despite this stagnation, a number of new stars have emerged in China. Their rise has contradicted forecasts and flies in the face of current trends, allowing these new kids on the block to steal market share away from global food giants. This strange phenomenon begs the question? Is the market downturn as bad as analysts are stating or could it be that global enterprise are getting weaker and failing to adapt to new trends? What has allowed these newcomers to succeed where the far more experienced multinationals are failing?
The declining fortunes of multinational food enterprise
Nestle’s rate of increase in sales volume was only 2.4% in 2016, which is far lower than the expected 5%. In Greater China, its sales volume in 2016 was 7.4% lower than in 2015. Coca-Cola’s annual sales decreased by 5.49% in 2016 and its global sales volume has decreased every year for the past 4 years. As for the Chinese market, many food giants, such as Tingyi, Uni-President China, Want Want China and Wahaha, have seen a decline in sales since 2014.
Is consumer demand really weakening?
There is no doubt that the global economy is facing challenging times. In emerging markets, economic growth is also slowing. According to Euromonitor International’s data, the growth rate of the global food industry fell to 1.1% in 2016, the lowest in the past 10 years. Kantar’s data also shows that the annual sales growth of China’s fast-moving consumer goods market in 2016 hit a 10 year low. However, despite this relative deceleration, the global economy and China’s economy is still growing. In a report released by Nielsen, data showed how consumption contributed 71% to China’s GDP growth in 2016, which means Chinese consumers’ are still willing to spend.
Who are the winners? Healthy foods, snacks, value added beverages, yogurts and functional foods
·Healthy foods
The pursuit and maintenance of health is now a key concern for Chinese consumers and certain categories of food and beverages have seen rapid growth.
·Snack food
In China consumer demand for snacks is huge and still growing. The sales volume of China’s snack food industry in China was 822,400 million RMB in 2016, which increased by 421,000 million RMB compared to 2010. This number is expected to reach 1.2 billion RMB by 2020.
With highly innovative products, packaging and user experience, many snack food brands have performed extremely well in China in recent years. Their success is closely related to e-commerce and word-of-mouth marketing. Among them, “Three Squirrels” is undoubtedly a superstar. It was established in 2012 and has become the largest snack brand among Chinese e-commerce channels. Driven by its remarkable success, the e-commerce market for nuts and seeds has flourished and is expected to reach 100 billion RMB by 2020. No wonder Kraft Foods introduced its Planters Peanuts brand to China for the first time last year.
·Value added beverages and soft drinks
The recurring theme of Chinese and global consumer’s pursuit of healthy foods has also had a significant impact on China’s beverage market. Drinks which are low in calories and high in nutrients are becoming more and more popular. According to Zenith Global’s reports, global sales in alternative beverages surged by 21% in 2016 and the overall market is expected to double by 2020. Coconut water, which currently accounts for 96% of the total sales volume of plant-based beverages, is obviously the hottest one. That’s why Pepsi acquired Amacoco, a Brazilian maker of coconut drinks, and Coca-Cola invested in coconut water company Zico. Reignwood Group, the parent company of Red Bull China, also introduced the leading coconut water beverage “Vita Coco” to China in 2014.
·Functional foods and functional beverages
According to Orbis Research’s data, the global sales volume of health food is expected to reach 295 billion US dollars by 2020. It is also predicted that the sales volume of health food in China will exceed 1 trillion RMB in China in the next five years. Sports and energy drinks have always been the focus of attention. Mintel’s Sports & Energy Drinks - Global Annual Review – 2016 shows that energy drinks across key global markets enjoyed volume growth of 10% between 2014 and 2015 and sports drinks market also recorded a 6.7% growth between 2014 and 2015. Although the US remains the world’s biggest sports drinks market, Chinese consumers drank an extra 545 million liters of sports drinks between 2014 and 2015, which was nearly four times the amount Americans drank. This reflects changing lifestyles and behavior, with more Chinese consumers exercising and drinking sports drinks.
·Yogurt and dairy beverages
Yogurt has emerged as one of the most popular food products across the world, as it contains all the nutrients in milk along with beneficial bacterial cultures. According to Euromonitor, the Chinese yogurt market saw a 25.6% increase between 2015 and 2016, with the sales volume almost catching up with milk in 2016. The yogurt market in China was worth approximately 100 billion RMB in 2016 and is expected to reach 190 billion RMB by 2020. At that time, yogurt will make up 50% of liquid milk consumption. Thus, the growth potential of yogurt is very huge in China. In addition, due to the rising interest in lactose free- and dairy-free options, the non-dairy milk drinks market has seen considerable development in recent years. Xiaoyan Mo, strategic marketing manager at Dupont, pointed out that the development potential of water and protein drinks (especially vegetable protein drinks) are huge in China. The sales volume of vegetable protein drinks increased by 21.6% in 2015 and its market size is expected to be worth 154,900 million RMB by 2019. Moreover, it has grown beyond its reliance on soy to a whole range of other plant-based foods, particularly those made of nuts and grains.
Cashing in on emerging trends
The most important trends in China for the food and beverage market seem to be adding value to existing products, higher quality, “healthification”, catering to young consumers and e-commerce. Similar trends can also be seen in certain fast-growing sub-categories such as Nestle’s Health Science and Mondelez’s e-commerce business. The secret behind these trends might be the fact that the millennial generation has become the most important consumer group. They are well educated, care more about quality of life and prefer shopping online. In order to survive and thrive, all food enterprises should keep innovating and adapt to changing trends.
Disclaimer: the above is the author's personal opinion and is not the opinion or policy of Chemlinked.
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