china food and drinks industry market report

1

Updated December 2009Complimentary Summary Version

© 2009 Schmittzehe & Partners. All rights reserved. For all enquiries please contact : [email protected]

Food and Drinks

in China

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Published by Schmittzehe & Partners, June 2009

Objective & Methodology:

Schmittzehe & Partners, an exclusively China-focused boutique management consultancy, undertook extensive, broad research on the food and beverage industry in China in 2008. Thus the data in this report mainly refers to 2007 figures unless stated otherwise. In the interests of comparability and consistency, for market sizing and growth we used figures from Access Asia /National Bureau of Statistics China. Other data is available, such as Euromonitor, and indeed caution should be used with regard to all data as for some segments, variations in values can be particularly large, especially with Dairy, Bakery, Dried and Baby Foods. Our definition of the ‘Food and Beverage Market’ excludes tobacco, alcohol, salt and sugar. Our definition for ‘Packaged Foods’ is ‘Food and Beverage Market’ less fresh foods.

These summary reports, as well as its full version, cover the findings of the above research. These reports were written by Schmittzehe & Partners Shanghai-based company analyst Sean Coyle with the collaboration and significant input of colleagues David Guo and Benjamin Schmittzehe. For a fuller understanding of the subject, to order the full report or for more in-depth analysis, please contact Schmittzehe & Partners at: [email protected].

Disclaimer:

Schmittzehe & Partners strives to ensure the accuracy of all information contained in this report. However, due to the fact that not all data can be verified, and that the majority of the information is based on secondary sources or individual primary sources, it is possible that errors or omissions may occur. Schmittzehe & Partners does not accept responsibility for such errors or omissions. Details supplied by Schmittzehe & Partners in this document should only be used as an aid to assist the making of business and investment decision, not as the sole basis for such decisions.

Copyright:

All rights reserved to Schmittzehe & Partners, 2009.

For all questions:

Please contact Schmittzehe & Partners:

Email: [email protected]

Telephone: +44 208 995 0886

Website: www.SandPconsulting.com


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Contents:

Page

1. Overview, Trends and Tastes 4

2. Fresh Food 6

3. Frozen Food 7

4. Chilled Processed Foods 8

5. Canned Food 9

6. Dried Food 10

7. Bakery 11

8. Dairy 12

9. Ice Cream 13

10. Baby Foods 14

11. Confectionary 15

12. Sweet and Savoury Snacks 16

13. Sauces, Dressings and Condiments 17

14. Non-alcoholic Beverages 18

15. Concluding Remarks 19

16. About Schmittzehe and Partners 20


4

Food and Beverage

Total food and non-alcoholic beverage sales in 2007 were RMB1,082bn, up from RMB449bn in 2001. That is a year on year growth of 14.8%, which is more than twice the Asia-pacific average for that period.

Growing presence of supermarkets improving market access for packaged foodsMuch of the packaged food sold is done so through supermarkets and discounters, which account for 35% of all packaged food sales. The distribution of packaged food relies to a great extent on the existence of organized retail networks; hence cities with more developed distribution chains see better sales of such goods.

Rising incomes creating more demand for packaged foodsAs middle class income growth continues to outstrip lower income growth, China’s food consumption is also becoming more divergent. However, incomes are rising everywhere, and as they do consumers continue to ‘trade-up’, spending more money on packaged, value added goods.

Health consciousness is growingHealth is becoming a growing issue for consumers. Growing health awareness due to advertising, government programs and numerous health scares about the food supply has meant consumers pay strict attention to the reputed healthiness of a brand or producer. This also explains somewhat the keen uptake of shopping in supermarkets, as food sold there is seen to be more standardized and safer. Increased health consciousness has also bolstered the demand for healthy foods, particularly fortified foods.

Infrastructure improvement helping market accessImproving infrastructure means that more varieties of food are reaching inland 2nd , 3rd tier cities and beyond. The improving infrastructure is simultaneously raising incomes while also providing more goods to spend that income on. This combined with a decline in self-sufficiency in rural areas, as more leave agriculture to work in industry, means that while eastern markets are maturing, new markets are being opened inland.

The increase in food sales has been mainly benefiting organized retailers, with small independents losing out on much of the growth. That said, regional markets are still very fragmented. There is no efficient national distribution network in China, so many national producers have to have regional production facilities and often rely on their own distribution network. A poor cold-chain infrastructure also means frozen and chilled foods and a lot of dairy cannot reach much of China. Many segments have a huge number of local producers, meaning that a national market leader may only have 5-10% of the market. Another cause of this fragmentation is the importance of local business relationships as opposed to quality and price.

Even segments with relatively high consolidation remain very competitive, due to the prevalence of price-based competition. A majority of Chinese consumers, even ones who have money to spare, tend to have very little brand loyalty and will substitute products quite easily.

Tastes differ by region In the more developed regions, i.e. the eastern seaboard, consumers are becoming more particular in their tastes, demanding more differentiated products tailored to their local pallet. The growing importance of


35.00%

3.60%

16.20%

4.70%

40.50%

Packaged Food Retail

Supermarket Hypermarkets Food Specialists Discounters Other

Source: Datamonitor, 2005

5

regional variation in demand is felt by many foreign companies, who in response are opening up R&D facilities in China.

The east coast with their higher incomes tend to spend more on indulgent foods such as confectionery, as well as being more demanding of quality and healthiness and more adventurous in the foods they try -tea flavouring is a popular additive at the moment. Due to these factors, the east tends to be where most international companies launch their new products in China. PepsiCo for example have their only non-US research centre in Shanghai.

In the south west, growth of packaged food sales are strong, but the higher value added products are out of the reach of most, so staple crops are the biggest selling, while in the cities dairy products have been especially strong, including yogurt.

In the south, products with multiple flavours and or long shelf-life tend to perform strongest. Local producers tend to be the most trusted when it comes to freshness, which is particularly important in bakery and dairy. However there is a shift in consumer tastes in baked goods towards packaged biscuits, benefiting international brands such as Oreos. Advertising is also of growing importance in rural areas as consumers begin to move away from making purchasing decisions solely on price. Consumers are very receptive to television advertising.

In central China, like in the west, consumers are quite poor so staple packaged products are the most popular. Flavour is also particularly important in the region, with traditional spicy and sour flavours usually winning out against anything else. Packaging too, runs in accordance with tradition, bright and simple colours are popular while red, violet, black and white are very unpopular. The value added products tend to be dominated by national and international companies, while local firms are mainly focused on the budget range. Despite this, brand loyalty is very strong in key products such as condiments, were local producers sell more than international brands.

Northwest China has the lowest consumption of packaged foods, as it has the lowest consumer incomes. A majority of the packaged foods are sold in the main cities like Urumqi. Baby foods have also seen strong growth, but it is still the lowest in China.


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Fresh Food

Definition:Chilled deli meats and fish as well as more staple foodstuffs such as pulses, vegetables, starchy roots, fruits, nuts, eggs and sugar and sweeteners

Overview:The proportionally large amount of per capita consumption of fresh food represents a lack of refrigeration in many homes. Many buy meat and vegetables to cook and eat on the day of purchase.

Fresh meat is the biggest seller in the segment, with 48.78% of sales. Fresh and dry vegetables are also of considerable size with 33.56% of sales. Fresh fruit and fresh seafood are much smaller at 11.1% and 6.56% respectively.

Main Producers:Company Produce WebsiteChaoda Modern Agriculture

Fresh Food www.chaoda.com

China Green Fresh and Processed (frozen, canned, pickled) Foods

www.greenfood.org.cn

N.B. Illustrative examples only. Most fresh food in China is sold through wet markets. The above companies sell to supermarkets and wholesalers as well as wet markets.


2001 2002 2003 2004 2005 2006 20070%

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25%

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50

100

150

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250

300

Total Fresh CAGR

Sales, RMB Billions Growth y-o-yFresh Food in China

Source: NBS, Access Asia, S&P Analysis

49%51%

Total Fresh Total Packaged FoodSource: NBS, Access Asia, S&P AnalysisExcludes beverages

RMB 445bn

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Frozen FoodDefinition: Red meat, poultry, fish/sea food, vegetables, potatoes, bakery products, desserts, ready meals

Overview:The segment is 17.45% of total packaged food sales, being worth RMB81.80bn in 2007. The CAGR for 2001-7 was 17.2%.

Some estimate that by 2017, the entire packaged food market will be fuelled 75% by second and third tier cities, and to properly exploit these areas, a dependable and efficient cold chain supply is sorely needed. Indeed there is huge waste due to the lack of adequate storage and distribution. According to Cargonews, USD10bn is wasted annually in the distribution of farm produce with 30% of all fruits and vegetables being discarded.

Main Producers:Company Produce WebsiteChina Yurun Food Group Company

Meat products, particularly pork. www.yurun.com.hk

Daying Duck Company Frozen duck www.dy-duck.com

Henan Shuanghui Industry Group

Frozen and Chilled foods www.shuanghui.net

Zhengzhou Sanquan Foods Company Ltd.

Frozen dumplings, frozen glutinous rice balls, frozen noodles etc.

www.sanquan.com


2001 2002 2003 2004 2005 2006 20070%

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25%

30%

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35

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Frozen Food CAGR

Sales, RMB Bil-lions

Growth y-o-yFrozen Food in China


17%

Frozen food Other Packaged Foods


RMB 81.8bn

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Chilled Processed FoodsDefinition:All chilled processed foods, as opposed to fresh or frozen

Overview:The market for chilled food is worth 3.69% of all food and beverage retail, or RMB17.3bn in 2007. The CAGR was 16.8% for 2001-7, and is actually the highest in the world.

However, compared to the growth of other segments in the Chinese food and beverage market, growth is not above average. The segment suffers from the same distributional problems as the frozen food sector, or possibly even worse as the temperature band in which chilled food needs to be kept is narrower. The market leader is chilled fish. This is primarily due to the fact that chilled fish in China is actually quite a mature market, predating modern refrigeration, so the market itself is not restrained by the same issues as the rest of chilled foods.Main Producers:

Company Produce WebsiteChina Yurun Food Group Company

Meat products, particularly pork. www.yurun.com.hk

DaChan Food Chicken meat products www.dachanfoodasia.com/

Henan Shuanghui Industry Group

Frozen and Chilled foods www.shuanghui.net

Hormel Deli meat, Ethnic foods, Pantry foods, SPAM

http://www.hormel.com/

Pacific Andes Group Frozen and Chilled Seafood www.pacificandes.com/

Canned Food


2001 2002 2003 2004 2005 2006 20070%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

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1

2

3

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7

Chilled Food CAGR


Growthy-o-yChilled Food in China


4%

Chilled food Other Packaged Foods


RMB 17.3bn

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Definition:Canned or preserved food, like meat, fish, vegetables, ready meals, soup, pasta and fruit

Overview:The market represents 7.16% of all packaged food, worth RMB33.54bn in 2007. The segment enjoyed the highest CAGR of all segments with 21.4%, 2001-7.

Part of the reason that canned food has been growing so fast, especially in comparison to frozen food and chilled food, is that it does not need to be refrigerated. Growing supermarket expansion inland, while also extending the cold chain, also helps distribute canned food. However in poorer areas consumers are unlikely to have the means to refrigerate at home, so the first foods to be bought will be in fresh or canned form. Canned fruit is the clear leader in the segment, while canned meat as a proportion of the segment has declined slightly in recent years.

Main Producers:Company Produce WebsiteHailong Foodstuff Company Seafood and vegetables www.hailongfoods.comShanghai Maling Food Company

Canned Fruits, Vegetables and Seafood

www.rcmaling.com


2001 2002 2003 2004 2005 2006 20070%

5%

10%

15%

20%

25%

30%

35%

40%

0

5

10

15

20

25

30

Canned Food CAGR

Sales, RMB BillionsGrowth

y-o-yCanned Food in China


7%

Canned food Other Packaged Foods


RMB 33.45bn

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Dried FoodDefinition: Rice, Dessert Mixes, Ready Meals, Dehydrated Soup, Instant Soup, Dried Pasta, Plain Noodles, Instant Noodles.

Overview: Dried food is worth 0.96% of the total packaged foods market, or RMB4.51bn in 2007. The market has the lowest CAGR at 12.6%.

One of the reasons for the low growth of the market is that it is an inferior good to canned and frozen food, that is as income rises spending on dried food decreases. The largest consumer group is likely to be those who are too busy to prepare fresh meals. China is the world’s largest instant noodles market, with USD5 spent per capita per year. Dried noodles are not viewed as particularly healthy, given that deep frying is part of the manufacturing process. However more healthy variants are coming on the market and are spurring much of the growth.Main Producers:

Company Produce WebsiteNissin Food Products Co Ltd Instant noodles www.nissinfoods.comTingyi Holding Corp. (Master Kong brand)

Instant noodles, beverages, bakery

www.tingyi.com

Uni-President Food Co Instant noodles, drinks, dairy www.uni-president.com


2001 2002 2003 2004 2005 2006 20070%

2%

4%

6%

8%

10%

12%

14%

16%

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

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0.45

0.5

Dried Food CAGR


y-o-yDried Food in China


1%

Dried food Other Packaged Foods


RMB 4.51bn

11

BakeryDefinition:Baked goods, biscuits and cereals

Overview:In 2007, the market segment represented 2.88% of total packaged food, hence worth RMB13.48bn. Despite its small market share, the segment has a CAGR of 18.0%, making it the second fastest growing segment in China, and making China the second fastest growing bakery and cereals market in the world.

The small market size is because bread in China is not a staple of the Chinese diet, where in the south consumers are more accustomed to eating rice, and in the north they are more accustomed to steamed buns and noodles.

Biscuit have been the fastest growing part of this segment, making China the third largest market in the world next to the US and India. 70% of the consumers are female, with sandwich biscuits and chocolate coated biscuits being most popular. Small packs coming in 100-200g sell best. Sweet biscuits are by far the most popular with a 60% market share and savoury with a decent 39% market share as of 2005. Cereal bars in the same period were a mere 1%.

Main Producers:Company Produce WebsiteCereal Partners Worldwide (Nestle and General Mills)

Breakfast Cereals www.cerealpartners.co.uk

Kraft Foods Inc. Food Conglomerate

www.kraftfoods.com

Lotte Confectionary Confectionary www.lotte.co.kr/englishOrion Food Co. Confectionary ir.orionworld.comThe Garden Company Ltd. Baked Foods www.garden.com.hk/


2001 2002 2003 2004 2005 2006 20070%

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Bakery Products CAGR


y-o-yBakery Food in China


3%

Bakery products Other Packaged Foods


RMB 13.48bn

12

DairyDefinition:Drinking milk products (milk, flavoured milk, soy milk, powdered milk), Cheese, Yogurt, and some other dairy products.

Overview: It represents 6% of the total packaged food, worth RMB28.29bn in 2007. With a CAGR of 19.1% over 2001-7, the segment is the second fastest growing in the food and beverages market (joint with bakery foods and condiments) and it is growing much faster than the global average. Sales in 2007 were over two and a half times as much as in 2001, meaning that China is now the third biggest producer of milk in the world, next only to the U.S and India. Most of the sales in dairy were made through supermarkets, ringing-up 57.1% of all dairy sales, a vast increase from almost nothing a decade ago. Daily dairy consumption is overwhelmingly made up of liquid milk, accounting for 97.8% of consumption, while powdered milk only makes up 2.2%. Yogurt has quite a large target market, 10-50 year olds, and it is seen as an 'introductory' product for many Chinese to dairy products. Meanwhile the cheese market is quite narrow, aiming at 20-30 year olds, but the demand is increasing impressively with 2005 sales being 3.6 times that of 2001, and imports of cheese increasing 56% year on year to 7,241 tons in 2005. Butter is aimed at 20-40 year olds.

Main Producers:Company Produce WebsiteChina Mengniu Dairy Co.. Milk and Ice-cream www.mengniuir.comInner Mongolia Yili Group Co Milk, Yoghurt and Cheese www.yili.comShanghai Bright Dairy Milk and Yoghurt www.brightdairy.com/


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Dairy CAGR


y-o-yDairy Food in China


6%

Dairy Other Packaged Foods


RMB 28.29bn

13

Ice CreamDefinition:All retail ice cream.

Overview:The data set we used did not include Ice Cream as a segment, and so it is difficult to compare with other segments in this report. According to some sources, including Euromonitor, the total value of the ice cream market in China was worth RMB31.bn in 2006, with a 2001-2006 CAGR of 6.61% - this would make it a large, but comparatively slower growth market. When segmented by price, low-end ice creams are less than RMB1, mid-range is RMB1-2, and high-end is anything above RMB2. 70-80% of sales in 2006 came from the mid-range.

While ice-cream consumption is set to grow, profit margins are quite low as there is fierce competition particularly in innovation. The higher end of the market, where margins are higher, is dominated by foreign firms such as Nestle and Walls. However domestic dairy brands such as Yili and Mengniu also compete. There are also a number of smaller, regional brands which have quite strong customer loyalty, from which they may be able to grow in the future. Innovation, too, is a strong feature of the market, with new products taking up 20-30% of the market every year, so Chinese consumers are clearly still shopping around.

Main Producers:Company Produce WebsiteChina Mengniu Dairy Co.. Milk and Ice-cream www.mengniuir.comInner Mongolia Yili Group Co Milk, Yoghurt and

Cheesewww.yili.com

National Dairy Brands (Meadow Gold)

Dairy www.meadowgold.com

Nestle Food Conglomerate www.nestle.comUnilever Conglomerate www.unilever.com


14

Baby FoodsDefinition: All baby food, which is dried foods, wet foods and formula milk

Overview:The baby food segment is the second largest in the food and beverage market. The CAGR was average for China, at 16.9%, but is still very high, especially when considering the size of the market, which makes it one of the most dynamic. Children are traditionally very important within the household in China, so in addition to effects of the one child policy, parents are generally willing to spend a lot of their incomes on their babies. This then coupled with increasing pressure for parents to work longer hours or even away from their home town, and increasing income levels, has pushed China into becoming one of the top three consumers of baby food in the world. While in China past health scandals may have caused an increase in demand for high quality foreign brands (which are often up to three times as expensive) and even wet nurses, a majority of Chinese parents cannot afford to trade up. Thus despite the impact of the Sanlu scandal, cheaper Chinese baby formula will still be bought by their target market as they cannot afford any alternative. The baby cereal market is small by comparison to other foods. It was worth about USD580million in 2008. When it comes to the promotion of baby foods, there is a need to convince the entire family of the baby of the value of the product, not just a parent. This is because of the typically strong role family; grandparents in particular,

play in daily life.

Main Producers:Company Produce WebsiteDanone (Dumex) Dairy, Baby foods, water www.dumex.com.sgMead Johnson Nutrition Co Baby foods http://www.mjn.com/Nestle SA Food Conglomerate www.nestle.comInner Mongolia Yili Group Co Milk, Yoghurt and Cheese www.yili.com


2001 2002 2003 2004 2005 2006 20070%

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Baby Foods CAGR


Growthy-o-yBaby Food in China


16%

Baby foods Other Packaged FoodsSource: NBS, Access Asia, S&P Analysis

RMB 75.99bn

15

ConfectionaryDefinition:Chocolate confectionery, sugar confectionery including gum

Overview:The growth of the domestic market (including cereal bars) is out-performing the global market. It increased by 17.1% per year from 2001-2006, compared to global growth of confectionery in 2006 of 3%. The sugar confectionery segment is the largest, with 49% of confectionery market revenue, thus equal to around RMB7.8bn. The market share of chocolate actually declined from 44% in 2001 to 42% in 2006, despite strong growth in sales. Purchases of Chocolate, mainly from eastern regions of China, are often for gifts rather than personal consumption. However, there are signs that chocolate is being purchased at times other than just traditional seasons for exchanging gifts such as Chinese New Year. Chewing gum sales in China was worth RMB4-5bn in 2006, accounting for approximately 29% to 36% of the market. A vast majority of the chewing gum market is made up of chewing gum sold on taste, rather than chewing gum sold on function, i.e. brands claiming to improve dental hygiene. However functional gum has been steadily increasing as a share of the chewing gum market, from a base of just 5% in 2001, to 40% in 2006.Main Producers:

Company Produce WebsiteLotte Confectionary Confectionary www.lotte.co.kr/englishMars (incl. Wrigley) Food Conglomerate www.mars.comNestle SA Food Conglomerate www.nestle.comWant Want Holdings Limited Rice Crackers, Dairy and Beverages http://www.want-want.com/

en/


2001 2002 2003 2004 2005 2006 20070%

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Confectionery CAGR


Growthy-o-yConfectionery in China


3%

Confectionery Other Packaged Foods


RMB 15.98bn

16

Sweet and Savoury SnacksDefinition:Crisps/Chips, Extruded Snacks and Nuts

Overview:The savoury snacks segment has a CAGR of 16.7% for 2001-7. This strong growth is much for the same reasons as baked goods sales are growing, in that changing urban lifestyles are resulting in larger disposable incomes and faster lifestyles with less time to prepare food. Snacks tend to be divided into two categories: eastern-style such as dried/preserved meats, nuts and seeds, and western-style such as crisps, and popcorn. Eastern-style snacks are consumed more at social gatherings whereas the western-style snacks are consumed more on individual impulse, especially amongst younger consumers who are more focused on taste than nutrition. Snack food, such as crisps, are more popular in China than chocolate, primarily due to the lower prices and snack foods greater versatility when it comes to savoury tastes which are generally more popular than sweet ones. The crisps market, which is dominated by western companies such as PepsiCo, have sophisticated marketing and innovation to cater for these tastes, such as Frito-Lay's Peking Roast Duck or Spicy Crab flavours. The need for innovation also extends to the texture, shape and packaging. Shapes, such as flat discs, round balls, twists and cones, are more valued by young consumers, in addition to flavour and colouring. Older consumers however are more focused on the taste quality and texture. The Eastern style snacks are quite varied, but simple and low value-add while the markets are quite fragmented with numerous small local producers.

Main Producers:Company Produce WebsiteKraft Foods Inc. Food Conglomerate www.kraftfoods.comOishi Group Drinks, noodles, snacks and

restaurantswww.oishigroup.com

PepsiCo Inc. Food and Beverage Conglomerate www.pepsico.comTingyi Holding Corp. (Master Kong brand)

Instant noodles, beverages, bakery www.tingyi.com


2001 2002 2003 2004 2005 2006 20070%

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Savoury Snacks CAGR

Sales, RMB Bil-lions Growth

y-o-ySnacks in China


2%

Savoury snacks Other Packaged Foods


RMB 9.84bn

17

Sauces, Dressings and CondimentsDefinition:Soy sauces, herbs and spices, ketchup, mayonnaise, cold sauces, tomato pastes, spreads, meat and seafood paste, honey.

Overview:The segment was 4.58% of total packaged food sales, or RMB21.45bn, in 2007. The CAGR was quite high, as high as dairy and bakery products, at 17.1% for 2001-7. Not only is the market growing quickly, but it also of considerable size globally, accounting for nearly a third of all volume sold worldwide in 2003.

Ketchup, ironically of Chinese origin, is enjoying strong growth, primarily due to consumers’ growing exposure to it, amongst other western sauces, through fast food restaurants like McDonalds or KFC. In terms of tomato value added products, China has been rapidly increasing its output both for the domestic market and international export. By 2007 for example, China became the world’s largest exporter of bulk tomato paste products. Most condiment sales come from Chinese sauces, with foreign sauces mainly a niche market. Typical Chinese sauces are soy sauce, chilli sauce and oyster sauce, each kind with its own wide array of differentiated kinds.

Main Producers:Company Produce WebsiteLee Kum Kee Co Ltd Sauces www.lkk.comMasterfoods (Mei Shi Fu) Sauces www.masterfoods.comShantou Nanfang Jiale Foodstuff Co.

Sauces, Coconut Products n/a


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Sauces and Condiments CAGR

Sales, RMB Billions Growthy-o-ySauces and Condiments in China


5%

Sauces and condiments Other Packaged Foods


RMB 21.45bn

18

Non-alcoholic BeveragesDefinition:All retail soft drinks and hot drinks

Overviews:The compound annual growth rate was 14.4% for 2001-7, which is relatively average for the industry in China; however its large size coupled with such a growth rate means it is of considerable importance. Soft drink sales, RMB96.56bn in 2007, are by far the market majority, representing 92.44% of all beverage sales. Its 2001-7 CAGR at 14.2% is slower than hot drinks sales which are running at 16.9% for 2001-7. Sales of carbonated drinks, the largest segment of the beverages market, have slowed down in recent years, and much of the growth has been derived from diversified and tailored products. Ready-to-drink tea is the second largest segment, by volume, selling 3.5m tons in 2005. Fruit juice is the fastest growing segment with strong innovation in flavours and growing health awareness following higher incomes.

Main Producers:Company Produce WebsiteChina Huiyuan Juice Beverages www.huiyuan.com.cn/

enHangzhou Wahaha Group Beverages en.wahaha.com.cnJianlibao Group Beverages www.jianlibao.com.cnPepsiCo Inc. Food and Beverage

Conglomeratewww.pepsico.com

The Coca-cola Company Beverages www.coca-cola.comTingyi Holding Corp. (Master Kong brand)

Instant noodles, beverages, bakery

www.tingyi.com

Uni-President Food Co Instant noodles, beverages dairy

www.uni-president.com


2001 2002 2003 2004 2005 2006 20070%

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Total Drinks CAGR


y-o-yBeverages in China


6%

Beverages Food

RMB 104.46bn


19

Concluding remarks

On the demand side, increasing household incomes are resulting in overall growth in F&B in China. However the increasing purchasing power of consumers is creating more mid-range markets with greater discerning tastes, meaning more fragmentation in consumers’ tastes.

On the supply side, improving infrastructure and supermarket expansion is improving market access around China and potentially creating freer markets. This should result in increasing competition in all segments of packaged foods around China, with both high-end brands diversifying down and low-end brands trading up to cater to the middle ground, competing on price, quality and specificity. This is not a foregone conclusion however, as regional business in China is extremely relationship dependent, and local governments’ interests may be more allied with local business leaders than that of the greater economy.


20

Schmittzehe & Partners

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china food and drinks industry market report

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