China Health Food Development Trend - An Interview with Jeff Crowther

On November 20, 2015, Chemlinked Food Portal was proud to take the interview with Jeff Crowther from U.S.- China Health Products Association to have his professional perspectives on the development trend of China health foods.

Q1: Do you think Chinese health foods and nutrient supplement regulatory requirements present too great an obstacle for foreign enterprise?

A1: Yes most definitely. Even though the China market represents huge opportunities for international supplement companies, I’m seeing more and more global supplement companies invest or pay more attention to other markets that have more developed or at least transparent systems.

Because China’s supplement regulations have been stagnant and in need of change for years, some are choosing to go for the lower hanging fruit of surrounding countries. I will pose a question, “How many well known domestic health product brands that are distributed national can you name?” Not too many especially considering the current and potential size of the market.

By-Health comes to mind quickly and has done a great job. However, if you talk to them I’m sure they’ll be quick to say this industry is difficult and filled with uncertainties. This is why we don’t see more domestic players in the market. It is just too uncertain and not seen as a good investment, which will provide the quick return on investment that most Chinese business people seek. As the saying goes, “If it was easy, everyone would be doing it”. So for those few that have made it over all the hurdles, they have the luxury of controlling the lion’s share of the market. To clarify, most of the successful direct sales companies such as Amway, Nuskin, Herbalife, Perfect, are foreign companies not domestic.

Q2: Besides regulatory issues do you think there are other reasons for the lack of international brands sold through legal channels here in China?

A2: No other reasons, this issue rests squarely on the shoulders of regulatory stagnation.

We can look at Japan as an example. That market was considered by most as horribly regulated. In the 90s global and domestic industry leaders came together and worked closely with the Japanese government to move the regulations forward. Afterwards Japan saw a huge jump in over all market development, which catapulted Japan into the top three markets for supplements in the world.

China is no different. Once regulations move forward the market will jump to the number one position. It is all about regulations. When regulations are more open and transparent investment, R&D, education, infrastructure all begin to develop and flow.

Q3: What are the most important trends in the health food and nutrient supplement market here in China at the moment?

A3: What immediately comes to mind is the explosive growth of cross border e-commerce. Due to the less than desirable regulatory situation mixed together with consumer demand, companies were forced to the Internet channel.

Chinese consumers / businesses are some of the most resourceful in the world. When they want something, they will find a way to make it happen. It was reported that up to 20% of the enormous Tmall “Singles Day” sales day of over $14 billion were in fact health products. Many companies in this segment saw hundreds and some thousands of percent increase over last year’s business.

Q4: There is a certain amount of innovation lag between commercialization of R&D between the west and China, what products that are already performing well on a global level do you see transferring well to the Chinese market?

A4: In my opinion, Chinese consumers are no different from the rest of their counterparts around the world. They too want what works and is of high quality.

With that said, there have been a basket full of products that have done well many due to lack of choice. Calcium, fish oils, lecithin, eye supplements, grape seed, etc.. Awareness and education will drive this demand. From the company side, anything that can be in a food based dosage form such as a powder, chewable, liquid etc. will be easier to import thus have more appeal and access for consumers. Over the last couple of years, many global players have been looking to create more products that fit this model as the result of China’s restrictive regulations on capsules, tablets, soft-gels, etc.

Q5: Do you see any potential for Chinese health foods particularly those based on proprietary Chinese medical formulations doing well in western markets?

A5: Not really. That is unless a Chinese company partners with a market leader in that market and the product marketing adheres to health food marketing strategies. Too much reliance on Traditional Chinese Medicine (TCM) marketing will confuse consumers most of which do not understand TCM principals nor believe them.

For example, the U.S. market has many TCM type ingredients in the market such as goji, licorice, ginseng, dang gui, etc. but all are marketed as botanical dietary supplements and not TCM.

More over due to China’s poor food safety record, products perceived as from or made in China will have that stereo-type to over come. This is why it would be advisable to partner with a trusted brand already in the market, which can assist in avoiding this stigma.

Q6: You probably noticed in my previous article I stress the differences between China’s standard import and crossborder ecommerce models. What is your opinion on crossborder ecommerce and the greenlight it gives to the sale and distribution of products traditionally considered illegal in China?

A6: I addressed this question a bit in number 3 above, but here’s some more input.

I personally feel cross border e-commerce is not an ideal situation for all involved. It is simply a way for the government to side step the huge consumer demand and place responsibility for safety/quality in the hands of consumers. Cross border is only great because “we” the industry have no other choice.

Let’s look at the three entities involved in cross-border:

1)      Foreign companies – cross border model does not allow for national “in-country” marketing. Moreover most foreign brands are working through a domestic e-commerce management company, so they are not directly working in the market, which makes it difficult for them to get an understanding of what the market needs. The lack of advertising is also problematic as it derails any attempt at increasing market awareness or the spread of education. Also the nature of the Internet and social media make forecasting production runs extremely difficult.

2)      Consumers – At the end of the day, consumers are trusting that what they are buying is in fact genuine, safe and affective. And with many of China’s more popular etailers not having direct connection to the brand owner, it is some times difficult to say if the products are legit. Recently the State Administration of Industry and Commerce reported that up to 40 percent of the products sold on the Internet are counterfeit or are of poor quality. Also consumers have to wait some times weeks to receive their products as they have to clear customs.

3)      Government – has very little in the way of control nor does the business produce much in the way of tax revenue or domestic job creation.

The solution here is for the government to create legislation that allows the industry to conduct business legally across all sales channels. Companies, consumers and government will all benefit from this. Consumers will have more options, infrastructure and investment will flow creating more jobs and tax revenue for the government and companies will be more directly involved in their China business. This isn’t rocket science here these are basic concepts of supply and demand, freedom to conduct business and government supervision to ensure industry is not abusing consumer trust.  

Q7: Do you think crossborder ecommerce is a more efficient method for foreign supplement and functional food companies to enter the Chinese market?

A7: Again it is the only option. In reality, it should be a minority channel, but it is becoming the dominant channel.

Q8: What advice would you give to a functional food or supplement manufacturer looking to enter the Chinese market?

A8: Pay close attention to the upcoming health product regulations that will most likely be released in 2016. There is a limited “recording” system that will help to allow some products to enter the market.

But for the foreseeable future, cross border e-commerce is the way to go. Again because there isn’t any other legal way around the current regulatory system.

Get involved with your China business, hire Chinese staff to help with communication and guidance as much as possible. Work closely with your in country partner to ensure they are getting the support they need. Make regular trips to the market and take advantage of China’s super strong social media.

If budget allows, open an office in China. Not every company can swing this investment. However, most foreign brands that are successful in China have a China office. It is very difficult to manage China business from overseas.

I’ll make a shameless plug here, companies should join U.S. – China Health Products Association as it is the only foreign association completely focused on the China market. The association represents global as well as domestic dietary supplement finished products and nutritional ingredient companies.

Q9: Have you seen any examples of globally well-known products failing in the Chinese market? What do you think the reasons for this failure were?

A9: Won’t mention any names here, but yes some fail or do not live up to expectations mostly because they do not invest appropriately in the market. Just throwing up a website on tmall global and hiring a management team is not the formula to success.

Companies still need to get involved in the market as much as possible to gain consumer awareness through attending trade shows, sponsoring events and making daily posting in China’s social media networks. Some gorilla marketing tactics are necessary from time to time as it is not legally allowable to advertise cross border products.

Q10: I know you are involved in advocacy on behalf of the US supplement and health food industry, what positive changes have you been able to impact and are there any pending changes in the pipeline that offer hope for foreign investors?

A10: The association has been working with its members, a variety of foreign governments most notably the U.S. government and China’s responsible agencies/organizations to encourage China’s regulatory system to move towards a more open and transparent one.

Regulatory advocacy is not an easy game in any market especially in China where the government tends to be very conservative and needs sometimes years to review at every level of government before actively reforming any segment of legislation. This is certainly the case with the health product industry. Lobbying in other countries such as the U.S. relies on industry associations to work independently of government to represent industry and/or consumers. Information and suggestions flow from consumers and trade groups up to government. However, associations in China are directly attached to the government, which makes effective lobbying difficult. Direction flows from government down to industry groups and finally to consumers.

The U.S. – China Health Products Association together with other groups have been encouraging a notification system like that in the U.S. for health products be implemented. I’m happy to report that after many years, China is now putting a new “recording” system in place that will make it feasible for vitamin and mineral based products to enter the market with less restriction. These regulations are still being worked on, but they should be finalized in 2016.