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Market Overview On Gelato, Coffee And Sweet Food In China

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MARKET OVERVIEW ON GELATO,

COFFEE AND SWEET FOOD IN CHINA

2018


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TABLE OF CONTENT

SECTION 1:

SECTION 2:

Executive Summary

General Overview on Gelato, Coffee and Sweet Food

Page 3

Page 7 Market in China

SECTION 3:

The Ice Cream Market in China

Page 11

SECTION 4:

The Pastry and Bakery Market in China

Page 37

SECTION 5:

The Coffee Market in China

Page 53

SECTION 6:

The Chocolate Market in China

Page 62


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* SECTION 1：Executive Summary

As a populated country with a fast-paced economy, China’s market for sweet food

and coffee market is experiencing exponential growth due to a rising middle class and

changes in the young generation’s attitudes and consumption behaviors. The Chinese,

accustomed to a salty diet, are adopting the western coffee culture and learning to

appreciate various sweet indulgences, leading to vast opportunities for Italian coffee

and sweet food manufacturers.

The era of globalization presents immense opportunities for brands, especially Italian

ones, to understand and grow with Chinese consumers as they explore a modern

lifestyle enabled by years of socioeconomic improvement.

More encouragingly, third-party research showed a strong trend towards

premiumization and discretionary purchases, which is likely to translate into demand

for premium products. Since “made-in-Italy” coffee and confectionary is often

considered “premium” by most Chinese, the market potential at this time seems

stronger than ever for products of Italian origin.

Among the different sweet food markets, the gelato and coffee markets seem to be

having good potential in China as they are emerging and developing.

*The present market research has been compiled by N‐Dynamic Market Research & Consultancy Ltd.

for Italian Trade Commission Shanghai Office.


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There is a high level of cross-pollination between western products such as coffee and

gelato. Currently, there is a trend in which professionals from other industries start

their own coffee and ice cream businesses. In order to maximize sales and offset

significant production and operation costs, small business owners will often stock

diverse product options to cater to as many customers as possible. This has resulted in

the emergence of hybrid stores that can comprise of a gelateria, a café, or even a

bakery.

Ice cream has been integrated into other kinds of food forms. Instead of being a single

product, ice cream has started to extend itself into other food categories. For example,

restaurants might serve ice cream as a dessert along with other sweet food; bakeries

could also sell ice cream in tandem with other products, such as mooncakes, birthday

cakes, etc. Ultimately, the integration of gelato into other kinds of food forms is well

received by Chinese consumers as they love sophisticated products. The promotions

of the new food forms have resulted in higher awareness of and preference for gelato.

One example is the affogato drink, which is promoted heavily by various coffee shops

in China.

While consumers care most about the taste and flavor of their ice cream, the “health”

has almost an equal amount of importance. Interestingly, Chinese consumers’

preference for less sweet products makes it easier to create healthier ice cream without

a significant compromise in taste. Gelato is well positioned to fulfill this unmet

need with its fewer calories. In general, consumers are also seeking more flavors,

and thus investment in research and development is needed. Other suggestions by

consumers include a softer ice cream texture as well as more innovative shapes when

it comes to serving ice cream. These are peripheral product attributes that can be

leveraged to increase differentiation from other ice cream.


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Gelato market players need to seek the best competitive advantages to define and

maintain the product’s uniqueness through product innovations and nutritional

messages. From a marketing perspective, gelato producers need to emphasize the

naturalness and authenticity of the product through product attributes as well as

leveraging the well-established reputation of Italy as a producer of gourmet ice cream.

In order to educate consumers about gelato, industry experts advise business players

to organize roadshows, gelato competitions, exhibitions, etc. These events will serve

as educational opportunities where both brands and consumers can exchange

information and become educated about each other. As suggested by one distributor,

flagship stores are great marketing and business investments where gelato chefs can

demonstrate the production process and educate consumers. Moreover, cross-

promotion across other industries is a powerful way to enter the market through

partnership growth. One machinery and ingredients provider stated that, in past few

years, their company has setup gelato booths at event venues like the F1 car racing

course and equestrian events with great success.

Partnerships with large businesses or even local governments could go a long way in

covering otherwise immense costs of industry-wide events. Gelato’s success in China

will be a combination of business ventures into unknown territories as well as public

relations strategies to raise awareness and establish a unique reputation for gelato.

Finally, understanding how to navigate the ever-changing government regulations will

be key for businesses. The Chinese government pays a lot of attention to food safety,

but the specific regulations around gelato remain unclear. Businesses will have to

continually look out for updates and guidance on gelato production in the near future

as the Chinese government becomes more familiar with the production process.


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It is without doubt that the gelato market in China will continue growing in the near

future. The most important challenges that gelato producers will need to continue

tackling are education, cultural assimilation and financial feasibility. As suggested by

many industry experts, education on an industry level will act as a catalyst for faster

growth through greater interest in gelato and a higher willingness to pay for it.

Moreover, adapting to cultural norms and localizing the taste of gelato will help

gelato products bypass consumer unfamiliarity and into consumers’ comfort zones.

Lastly, scales of economies should be leveraged to reduce the overall cost of doing

business in China so that more producers, distributors, and retailers are incentivized to

expand access to gelato. Ultimately, the goal is to create a positive cycle of

profitability that will in turn lead consumers to be more frequently exposed to gelato

experiences. The inextricable link between consumer demand and gelato supply will

continue to grow as long as the barriers are addressed on both sides with long-term

prospects in mind.

This market research is a general overview. ITA Shanghai would be pleased to assist Italian companies

and associations to get more specific and detailed information on these sectors, as well as

personalized services to facilitate their entrance into Chinese market.


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SECTION 2：General Overview on Gelato, Coffee and Sweet Food

Market in China

As a populated country with a fast-paced economy, China’s market for coffee and

sweet food is experiencing exponential growth due to a rising middle class and changes

in the young generation’s attitudes and consumption behaviors. The Chinese,

accustomed to a salty diet, are adopting the western coffee culture and learning to

appreciate various sweet indulgences, leading to vast opportunities for Italian coffee

and sweet food manufacturers.

While there are only 33 cities with over 1 million people in all of Europe, the number

of cities in China with same population is 303. Furthermore, as shown in the figure

below, there are different tiers of cities in China. Each tier of cities represents a

certain group of consumers with their idiosyncratic attitudes, behaviors, and

preferences. Understanding these nuances will help products with different positioning

find their success in China.


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According to the consulting firm McKinsey & Company, rapid growth of disposal

income within China’s middle and upper classes has been occurring since 2012 and is

projected to last until 2022. The figure below demonstrates this growth and the

increased consumer spending as a result. The affluent (annual salary greater than

229,000 CNY [€29,090 EUR]) and upper middle class (annual salary ranges from

106,000 to 229,000 CNY [€13,466 to €29,090 EUR]) groups will have a CAGR

(compound annual growth rate) of 19.6% and 22.4% in the projected period,

respectively. The incremental growth of their annual salaries will drive an expenditure

shift from products to services and from mass to premium segments. In addition,

middle-class growth has been concentrated more so in smaller cities to the north and

west of China, many of which are 3rd tier cities.

China's Rising Middle Class

Source: McKinsey & Company

This transition of focus away from major cities presents a unique opportunity to

capitalize on previously untapped markets. What is interesting is that Italian coffee

and sweet food manufacturers will have the ability to shape the mind of customers,


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many of whom have minimal historical exposure to Western products. Less

preconceptions and stereotypes about what Italian products look and taste like means

that Italian producers can more easily assimilate into the local culture. Despite the

recent slowdown of the country’s economic growth, China’s middle-class consumers

are still confident about the prospects for their incomes, which make them more

willing to spend disposable income. More encouragingly, results from a recent survey

and third-party research showed a strong trend towards premiumization and

discretionary purchases, which is likely to translate into demand for premium

products. Since “made-in-Italy” coffee and confectionary are considered “premium”

by most Chinese consumers, the market potential at this time seems stronger than ever

for products of Italian origin.

Chinese consumers’ curiosity towards Western food has continued to expand in

conjunction with middle class income growth. The adoption of a Western lifestyle and

diet is evident through increased imports of foreign food products as consumers

search for avenues of enjoyment. HKTDC’s survey results highlighted the popularity

of international travel among Chinese consumers and their willingness to try new

things, which aligns with the growing appreciation for foreign brands and products

among China’s younger generations. The era of globalization presents immense

opportunities for brands, especially Italian ones, to understand and grow with Chinese

consumers as they explore a modern lifestyle enabled by years of socioeconomic

improvement.


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References

China Daily 2017

http://www.chinadaily.com.cn/china/2017-10/02/content_32752727.htm

HKTDC Research 2017

http://economists-pick-research.hktdc.com/business-news/article/Research-Articles/C

hina-s-Middle-Class-Consumers-2017-Survey-Summary-and-Recommendations/rp/en

/1/1X000000/1X0AB8SK.htm

McKinsey& Company 2016

http://mckinseychina.com/the-modernization-of-the-chinese-consumer/

McKinsey& Company 2013

https://www.mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class


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SECTION 3: The Ice Cream Market in China

Types of ice cream in China

Currently, the most popular type of ice cream in China is hard ice cream (10% to 18%

milk fat content), which is as known as American ice cream or Philadelphia ice cream.

It is the most common type of industrially produced and branded ice cream that can

easily be purchased in China’s supermarkets and convenient stores. Other varieties of

ice cream, such as gelato (Italian-style ice cream), custard- or egg-based ice cream

(French-style ice cream), sorbet, frozen yogurt, and soft serve ice cream, can be found

in a multitude of distribution channels including ice cream shops, hotels, cafés, and

restaurants. Among all the ice cream types, soft serve ice cream is a particularly

popular in China mainly due to the convenience of making and storing the product

through a soft serve machine. While American ice cream and soft serve ice cream

have gained widespread recognition and large market share in China, gelato has not

grown to the same extent and accounts for only a very small portion of the market.

Market size indicators and trends

Chinese consumers are not known for their love for ice cream—as a matter of fact,

older generations of Chinese believe that cold food is bad for one’s health, let alone

iced food. The projected average consumption per capita for ice cream in China is

only 0.03 kg in volume in 2018 according to Statista. Even so, as of 2014, China is

the world’s largest ice cream market in terms of volume consumption thanks to the

influence of Western lifestyles and rising disposable incomes. The graph below shows

the incredible growth of China’s market volume since 2008: a stark difference

especially when compared against the highly saturated and stagnant US market.


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Market volume of Ice Cream in China and US

Source: Mintel

While Mintel projected the market volume to continue upwards in 2014, the ice cream

category in China actually recorded a decrease in ice cream volume consumption in

2017. To be more specific, based on data from Euromonitor, both take-home dairy ice

cream (-3%) and impulse ice cream (-1%) saw decreased retail volume last year.

Research further indicates that the percentage of Chinese people that do not consume

ice cream rose from 4% in 2012 to 11% in 2017 as Chinese consumers’ preferences

shifted towards healthier eating habits. Considering the strengthening awareness of

healthy diets amongst consumers, overall ice cream sales volume is expected to keep

declining in the next few years while healthier options such as frozen desserts are

predicted to slowly increase in volume based on reports by Euromonitor.

Despite the decrease in volume, China’s ice cream market has continued to grow in

retail market value. According to Statista, revenue in the country’s ice cream segment

is expected to reach $183 million USD (€149.70 million EUR) in 2018 with the

market expanding annually by 3.5% in value from 2018 to 2021.


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Revenue Growth of Ice Cream in China

Source: Statista

According to the marketing manager of a machinery producer interviewed by N-

Dynamic Market Research, the overall market size of ice cream is approximately 40

billion CNY (€5 billion EUR) per year. The gelato market share is believed to be less

than 10% of this amount, although the interviewee demonstrated confidence in

gelato’s growth potential: “In the next 5 years, the gelato market should be able to

take off again quickly”. As a gelato producer interviewed by N-Dynamic puts it,

“Even though there was a ‘winter season’ for China’s gelato market in 2015 and 2016,

the 2017 market began to warm up again”.

Furthermore, the growth in value coupled with the decrease in volume points to the

greater demand for high-quality/gourmet ice creams. This trend is likely to remain for

the foreseeable future and will continue to benefit makers and distributors of gelato.

In addition, Technavio published a report on the global market for gourmet ice cream,

covering three segments: gelato (which accounted for 69% of the gourmet ice cream

market in 2016), sorbet, and frozen custard. The report predicted that APAC (Asia

Pacific) will soon become the fastest-growing market for gourmet ice cream products

due to rising demand. Indeed, the explosive growth of China’s emerging middle class

has greatly driven demand for gourmet ice cream, among which gelato plays an

important role due to its viability as a premium and healthier ice cream alternative.


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Data on ice cream imports from 2014 to 2017 indicates that imports dropped in 2015

and 2016 and recovered in 2017. More importantly, the 2017 recovery lead to an

importation market value of $64.16 million USD (€52.45 million EUR) by November

2017, a value that already surpassed the market value for the entirety of 2016 ($60.68

million USD [€49.60 million EUR)]. In conjunction with decreased sales volume, this

jump in market value is strong evidence that premium product demand is growing.

According to the Chinese custom ‘s data, the China’s importation of ice cream for the

first three months has increased of 20.54% comparing to the same period of last year.

Currently, the average price per unit for ice cream products in China amounts to $4.90

USD (€4 EUR) based on data provided by Statista. Moving forward, the prices of ice

cream are likely to go up as manufacturers launch more premium product lines and

raise prices to maintain profit margins.

In order to better understand the gelato market in China, N-Dynamic interviewed 6

experts in the industry, including machinery manufacturers, gelato retailers,

distributors, and showcase manufacturers. Their many years of experiences in gelato

production and retail have led to in-depth insights on the market. Based on the

interviews, the most significant difference between the gelato markets in China and in

Italy is the consumer perception of gelato itself — Chinese customers ultimately think

that ice cream is too cold and therefore unhealthy for human bodies. Simultaneously,

they are unaware of gelato’s health benefits. Most importantly, however, many

Chinese consumers cannot differentiate between gelato and ice cream. These cultural

and knowledge gaps among Chinese consumers are significant barriers for gelato

producers and sellers. Of course, the complete opposite is true for Italians—for them,

gelato is native and an essential part of their lives.

“Understanding the markets’ distinctiveness is key to entering China’s gelato market”,

suggested a showcase marketing manager, “so it’s better for foreign companies to hire


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Chinese market specialists to implement marketing strategies”. Ultimately, the hope is

that local specialists will be able to tackle the cultural and social nuances of Chinese

consumers. “The high price of gelato makes it a luxury dessert in China’s market, and

the main customers are young people who have travelled abroad, kids who grew up

well-off, young couples, and oversea returnees”, remarked a distributer.

Overall, the interviewed experts think the confectionery industry in China has been

growing in the past few years. The major reason cited is the rising disposable income

of Chinese consumers along with China’s economic growth in general. As a

machinery manufacturer stated, “With rising income, Chinese people started to pursue

higher quality of life including sweet food”. Thanks to the huge population of the

nation, the entire confectionery industry is extremely promising in China. Also,

according to a gelato distributor, “Decades ago, Chinese people simply wanted to

have food to survive, but now people want food not only to be delicious but also to be

good looking, so they can take photos and share on social media platforms”.

With increasing quality of life for the average Chinese consumer, many gravitate

towards food as a means of enjoyment and social reciprocation: “Since more flavors

are invented and more styles are created, food nowadays can even be selected as a

present for friends”. Moreover, according to one distributor, “the offline sales

channels have expanded from street stores to shopping mall centers”, especially as

products have become more mainstream.

The main consumer groups of gelato are young. Born between 1980 and 2000, many

grew up with ice cream and popsicles with the culture of eating ice cream deeply

rooted in their lives. These are the consumers that will continue the cycle of ice cream

consumption as they encourage their children to consume ice cream as well. In the

long term, this self-reinforcing culture will bring a positive influence on the market.

Ultimately, as the interviewed experts all believe, the future of the ice cream market is


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being built on a strong foundation of cultural norms established by a young generation

of Chinese consumers and will likely keep growing as they strengthen their long-term

appreciation of ice cream.

Geographically speaking, “both southern and northern regions have good markets. In

the North, ice cream is being sold throughout the year due to the warm heating

systems in the region, while the sales drop in South when it enters winter”. The

experts believe tier-one cities like Shanghai, Beijing, Guangzhou, and Shenzhen have

the most potential for future market development. For example, Starbucks opened its

biggest store Roastery in Shanghai in late 2017, which led to another coffee craze in

the region, causing people to wait in long lines to visit the shop. This is not to say that

lower-tier cities are not worth expanding to: as stated by a machinery manufacturer’s

marketing manager, “People in tier-three and tier-four cities are more conscious of

“face” and consider eating ice cream a fashionable trend, which makes the market in

those cities have growth opportunities”.

Market structure and key players

According to Euromonitor, Inner Mongolia Yili（内蒙古伊利） Industrial Group

continued to lead ice cream and frozen desserts in 2017 with a market share of 13%.

China Mengniu Dairy（蒙牛乳业）Co., Ltd. is another top Chinese dairy company

among the industry leaders. These local giants have maintained their market shares

through strong cross-country distribution and consistent new-product launches. Two

non-Chinese companies also made the list of the country’s top 10 ice cream brands:

Unilever and Nestlé (Eurasia Consult 2015). The success of Unilever’s ice cream

brands in China (Wall’s, Magnum, and Cornetto) proves that international brands can

have strong brand presences that compete well against local players. Aside from these

big players, the market is highly fragmented with a vast variety of locally-produced

and low-price brands all vying against each other in a competitive environment.


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Based on results from a recent internet poll, the ice cream brand most favored by

Chinese consumers is Häagen-Dazs, followed by Dairy Queen. The high recognition

of Häagen-Dazs came primarily from its successful positioning as an “experience”

luxury brand as well as its countless marketing campaigns. The company reported

strong growth in large cities (revenues in Shanghai and Beijing grew 16% and 13%,

respectively) in June 2016, despite challenges it faced in other smaller cities. In them,

rising commercial rent and lower profit forced Häagen-Dazs to close stores in second-

and third-tier cities in 2015 and 2016 amid a slowdown in the ice cream market. As

the brand is widely perceived as overpriced by many Chinese people, one of the major

reasons for its failure could have been consumers’ lower willingness to pay for ice

cream in second/third-tier cities. Häagen-Dazs’ failure comes as a lesson that

companies need to proactively manage their pricing strategy in response to consumers’

price sensitivity—this can vary widely based on the city and be a large determinant in

the success of a product in highly individualistic environments.

The Chinese market also sees a high level of cross-pollination between Western

products such as coffee and gelato. As remarked by a gelato machinery and ingredient

distributor, there are a large number of individual market players in China that

contribute to the growth of the coffee and ice cream market. Currently, there is a trend

in which professionals from other industries start their own coffee and ice cream

businesses: “The investors mainly have their own full-time jobs in design or

architecture industry, but they see the opening a café or ice cream shop as a business

investment as well as a way to pursue their own interest and dreams”, said a distributor.

In order to maximize sales and offset significant production and operation costs, small

business owners will often stock diverse product options to cater to as many

customers as possible. This has resulted in the emergence of hybrid stores that can

comprise of a gelateria, a café, or even a bakery.


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While distribution and preservation have always been big challenges for frozen food

companies, it is now a better time than ever for gelato market players to enter China

as the country has been strengthening its storage and distribution channels. Moreover,

the growing demand for ice cream has resulted in the expansion of production and

distribution, according to Daxue Consulting—the frozen foods logistics industry was

expected to achieve a 25% increase in market size in 2017.

Based on the in-depth interviews, one of the main challenges for gelato retailers is the

high production costs. As an example, a retailer stated that his store is able to sell 100

cups of gelato every weekday and 400 cups every day on weekends; yet he cannot

solely rely on gelato to sustain his business. He continues to run his coffee and

Cantonese dessert product lines to make a profit: “It is almost impossible to make

money by selling only gelato, because the cost is really high”. These costs include

investments in large fixed purchases such as production machines and showcases as

well as the variable costs of gelato ingredients, labor, rent, and utilities. Imported

production machines, such as Carpigiani, costs around 300,000 to 400,000 CNY

(€38,127 to €50,836 EUR) while imported showcases cost 18,000 to 19,000 CNY

(€2,287 to €2,415 EUR). On the other hand, domestic production machines, like

Kingdom and Easy Best, only costs 20,000 to 50,000 CNY (€2,542 to €6,354 EUR)

and the showcases around 20,000 to 30,000 CNY (€2,542 to €3,813 EUR). Although

these domestic machines would markedly reduce the cost of doing business,

distributors and retailers are not satisfied with the performances of these appliances.

Thus, retailers naturally gravitate towards the idea of purchasing imported machines.

The truth is that many retailers believe the Italian-made machineries would help them

produce better gelato, but the entry price is simply too high for many of them. The

interviewed experts believe that, if machinery and ingredients costs can be reduced,


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there would be more retailers to sell higher-quality gelato, starting a cycle of

consumer education and more stringent expectations towards gelato quality.

With high production costs, the gelato industry suffers from overpriced products—a

single scoop of gelato costs between 25 ~ 40 CNY (€3.18 ~ 5.08 EUR)—which deters

customers who cannot afford it or are not willing to pay for it. “In order to reduce the

cost”, the retailer comments, “We need to develop our own recipes. 50% of the

material cost [could be saved] if we invented new flavors on our own”. Another

distributor suggested opening a gelato factory to reduce the production and operation

cost for retailers. The expert indicates that she and her partner plan to set up a gelato

production factory while relying on a third-party shipping provider to efficiently

deliver the fresh gelato to major cities like Shanghai or Beijing. Purchasing gelato

directly from a factory itself would effectively reduce the cost for retailers because

they would not need to purchase gelato production machines nor the recipe

ingredients themselves. This centralized production system would utilize scales of

economy to lower cost for all market players and create an affordable solution for

Chinese consumers. Another way to help retailers reduce costs would be to simplify

the gelato production process through innovative recipes: in fact, an interviewed

ingredient distributor remarked that they have started to sell new ingredients to gelato

retailers that do not require expensive machinery to process, thus saving on the large

fixed costs that a normal gelateria would incur.

Consumer needs, attitude and behavior

As Chinese consumers become more sophisticated and further refine their tastes and

preferences for ice cream, new formats of ice cream made from organic and natural

ingredients—such as gelato, sorbet, and other reduced fat products—are becoming

more popular. Based on recent research conducted by Mintel, more than half of urban

Chinese consumers are willing to buy 100% natural ice cream products and are


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willing to pay more for them, owing likely to increased health-consciousness. Yet, it

was also pointed out in the research that consumers did not want a compromise

between a product’s taste and its healthiness. As a result of its balance between

healthy ingredients and rich taste, gelato is gaining more and more attention in the

Chinese market and is well positioned to grow in the ice cream market.

Moreover, Mintel published a recent study indicating that consumers in Shanghai

demonstrate a strong interest to eat ice cream products that are made on the spot when

they are hanging out or craving something sweet. The freshly-made format seems to

be popular among the consumers in tier-one cities like Shanghai, which aligns

perfectly with the nature and tradition of gelato. As a matter of fact, a number of ice

cream boutiques have appeared in China in recent years that are likely a result of

growing demand for instant-made ice cream like gelato.

Meanwhile, more and more Chinese are buying ice cream products in winter

compared to several years ago, suggesting a behavioral shift to year-round

consumption that is not dependent on season. The shift can possibly be attributed to

Chinese consumers perceiving ice cream more and more as a sweet indulgence rather

than just a summertime treat.

When it comes to sweet food (especially ice creams and desserts), an interesting

observation can be made about Chinese consumers: they tend to display herd behavior

and fall for all kinds of internet fads. For example, WIYF is an ice cream shop in

Shanghai, which is now “the most popular ice cream” place in the city with people

lining up for hours just to try their ice cream, according to China Daily. Based on

interviews conducted by East Day News, a number of its customers actually came

“for a selfie rather than the ice cream” itself just because of a viral post that introduced

WIYF on the internet. Another example of fad-driven success is the


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growing popularity of Russian ice cream in China. This was a result of the Russian

President, Vladimir Putin, bringing them as gifts for his Chinese counterpart, Xi

Jinping, during the 2016 G20 summit in Hangzhou. In the end, however, viral fads are

simply unpredictable and unsustainable marketing tactics that require astute and timely

identification of internet trends: something that companies are unlikely to achieve

consistently. Even WIYF and Farine, its sister French bakery, were forced to shut

down in March 2017 due to issues with their ingredient procurement, demonstrating

the barriers to running an ice cream shop despite nation-wide fame.

N-Dynamic’s online survey of 300 respondents has shed light on additional Chinese

consumer needs, attitudes, and behaviors. First of all, as shown below, all surveyed

consumers purchase imported ice cream at least once a month while a third of

respondents said they purchase once a week. These respondents are distributed evenly

across three major cities—Shanghai, Guangzhou, and Beijing—and their reported

behavior support earlier findings that urban citizens regularly consume ice cream.

How often do you purchase imported ice cream?

22.2%

33.3%

44.4%

Once / week times/month Once / month


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Similar to the preferences for baked products when it comes to country of origin, Italy,

France and United States rank among the top three. When it comes to ice cream,

however, a majority (68.3%) of the surveyed consumers preferred Italy more than the

other two countries, demonstrating the strong preference for Italian ice cream products

in China.

Which country’s ice cream is your favorite?

Italy 68.3%

United States 51.7%

France 46.1%

New Zealand 38.9%

Australia 35.0%

Japan 35.0%

China 22.2%

South Korea

Others

18.

0.6%

3%

More than half (58.9%) of the respondents claimed to know the differences between

gelato and industrial ice cream. The percentage is quite high considering the

penetration of gelato in China and is likely a result of the demographic present in this

survey: Chinese consumers in major metropolitan areas with exposure to Western

culture. Nevertheless, the results demonstrate that there continues to be a knowledge

gap, as only 60% of Westernized Chinese consumers understand the difference.

Extrapolation to more rural populations or those in second/third-tier cities will likely

mean that a majority of Chinese consumers in those areas do not know the difference

between gelato and industrial ice cream.


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Do you know what gelato is? Do you know the differences between gelato and industrial ice cream?

2.8% 2.8%

I don’t know gelato

58.9%

35.6%

I know gelato, but it should be the same as other ice cream

I know gelato, but not sure what’s the different between gelato and industrial ice cream

I know gelato and I know the differences between gelato and industrial ice cream

More specifically, however, when asked about the actual differences between gelato

and industrial ice cream, almost half (49.1%) of whom claimed to know the difference

think gelato contains more milk and air than industrial ones, when, in reality, gelato is

actually denser with less air in it. This finding shows the misperception of Chinese

consumers and the knowledge gap that must be addressed to position gelato as a

premium product. Additionally, during the in-depth interviews, almost every expert

stated that Chinese consumers do not fully understand the product of gelato, nor can

they perceive the differences between gelato and industrial ice cream. “The industry

needs a leading company to educate the consumers”, a showcase sales manager claims,

“There is no competitive gelato brand on the market, no outstanding brand at all.” The

interviewees believe if Chinese consumers could understand the uniqueness of gelato,

they would be willing to pay the price for it. The healthiness factor of gelato, as

mentioned, continues to be a highly relevant consideration for all market players: “The

media should educate the public about the advantages of gelato, it’s fresh,


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healthy, with absolutely no additive”, says the gelato retailer. He thinks that, with the

right message, consumers would jump at a chance to try gelato.

What do you think is different between gelato and industrial ice cream?

27.4%

Gelato contains less milk but more air than industrial ice cream

Gelato contains less milk and air than industrial ice cream

49.1%

10.3%

13.1%

Gelato contains more milk and air than industrial ice cream

Gelato contains more milk but less air than industrial ice cream

Fortunately, even without a proper understanding of gelato, Chinese ice cream

consumers already perceive gelato as a superior product in terms of taste and

healthiness when compared to industrial ice cream. In their minds, gelato is viewed as

a healthier and fresher type of ice cream. 40% of the surveyed consumers also cited it

being more expensive than regular ice cream.

Comparing with industrial ice cream, what do you think about gelato?

91.7%

76.7% 76.7%

40.0%

15.0%

3.3%

Gelato tastes Gelato is Gelato is fresher Gelato is more Gelato helps lose Gelato makes me

better healthier expensive weight gain more weight


25

The results of the survey show that indulgence is the biggest reason for eating ice

cream—respondents cited “feeling happy” (78.3%) and “releasing some stress”

(72.8%) as the top two reasons for consuming ice cream. There is also a large

percentage (66.7%) of respondents whom eat ice cream primarily to spend time with

family and friends, and to “reward themselves” (64.4%). The motivations behind ice

cream purchases are highly useful in informing marketing strategies used to attract

target consumers. Since these motives range from personal to social, there is a large

range of emotions that brands can appeal to in order to build long-term consumer

loyalty. Another interesting finding is that almost half (47.2%) of the surveyed

consumers eat ice cream because they think it’s “fashionable”—this aligns with the

previous observation of Chinese herd mentality as well as the positioning of some of

the most famous imported ice cream brands (such as Häagen-Dazs) in China.

Why do you eat ice cream?

78.3% 72.8%

66.7% 64.4%

47.2%

0.6%

Eating ice cream Eating ice cream Eating ice cream Eating ice cream Eating ice cream Others

makes me feel happier

helps me release stress

with family and friends is a joyful

thing

is one way to reward myself

is fashionable

The distribution breakdown (chart below) shows the potential of each distribution

channel for the sale of gelato. Other than supermarkets, which gained the highest vote

chiefly due to industrial ice cream sales, dessert shops (63.9%), cafes (39.4%) and

bakeries (31.1%) are also popular locations where consumers go to purchase ice


26

cream besides actual ice cream shops (63.9%). The popularity of these non-dedicated

shops are a useful consideration for distribution and partnership strategies—the

diverse retail experience in China means that there are plentiful and innovative

opportunities to promote gelato on a product and brand level. Indeed, during the

in-depth interviews, a showcase manufactory sales manager mentioned that ice cream

has been integrated into other kinds of food forms. Instead of being a single product,

ice cream has started to extend itself into other food categories. For example,

restaurants might serve ice cream as a dessert along with other sweet food; bakeries

could also sell ice cream in tandem with other products, such as mooncakes, birthday

cakes, etc. The interviewee emphasized that Chinese consumers prefer sophisticated

food products. Ultimately, the integration of gelato into other kinds of food forms and

its promotions have resulted in higher awareness of and preference for gelato. One

example is the affogato drink, which is promoted heavily by various coffee shops in

China.

Where do you usually purchase ice cream?

Large chain super market (Carrefour, Walmart, etc.) 73.9%

Dessert shops 63.9%

Ice cream shops 63.9%

Cafes 39.4

Online platforms (Tmall, Taobao, etc.) 35.6%

Convenience stores 35.0%

Bakeries 31.1%

Ice cream wholesale stores 28.3%

Food delivery apps (Eleme, Meituan, etc.) 23.3%

Hotels 15.0%

In terms of purchase factors, flavor (83.3%) and texture (79.4%) are the two most

important factors while choosing ice cream, as one would expect. On top of that, the


27

brand and the ingredients’ origins are also highly valued by Chinese consumers

possibly because of their need for reassurance when it comes to food quality and

safety. Price being the least important factor implies that Chinese consumers are ready

for discretionary purchases, especially in major metropolitan cities.

When you choose ice cream, which factors would you find important?

83.3%

79.4%

63.9% 60.6%

52.8% 49.4%

38.3% 35.0%

30.0%

Flavor Taste (is it Brand The If it's good Color and Package of Decoration Price

(vanilla, strawberry, coffee, etc.)

smooth?) country of origin of

ingredients

for health look of the the product ice cream

and hygiene of the store

The survey results reveal a strong consensus that Chinese consumers tend to eat ice

cream spontaneously. Whether they are physically passing by an ice cream store or

finding a place for indulgence with friends, Chinese consumers make impulsive

decisions about eating ice cream. Consequently, gelato makers should invest more

into the appearances of not only the products, but also the decorations of the shops to

attract customers. Marketing tactics could also be tailored to appeal towards the joy

and excitement that comes with being spontaneous.


28

In which occasions would you eat ice cream?

When walking by an ice cream shop on the street 72.2%

When craving for a certain brand of ice cream 66.1%

When relaxing at home alone 65.6%

Serve as a dessert after meals when dine out 63.9%

Ice cream date with friends at the shop 62.8%

Serve as a dessert after meals at home 49.4%

“Chinese consumers prefer classic flavors”, observed by an ingredient distributor,

“flavors such as chocolate, strawberry, vanilla, and mango are very popular.” The

survey results, shown below, align perfectly with the industry insider’s comments.

“On the other hand, Chinese people are also willing to try new things: durian and

matcha are the new trends of popular flavors in China”. At the same time, it is

important to heed customer needs and stay conscious of their preferences: As a

retailer remarks, “Chinese customers complain the products being too sweet for them,

although I have already controlled the sugar around 27%. They also express concern

about the product being too colorful; they are afraid too much color is not good for

health”.


29

Which ice cream flavor do you like?

Chocolate

Vanilla

Milk

Strawberry

Matcha

Coffee

Melon

Cheese

Hazelnut

Pistachio

Wine

Mint

Others

0.6%

27.8%

26.1%

24.4%

44.4%

42.2%

40.0%

36.7%

34.4%

57.2%

65.6%

62.8%

73.9%

The middle-tier price range that target consumers would pay for one-time purchase of

ice-cream is between 36 and 50 CNY (€4.58 to 6.35 EUR). There is also an

outstanding 13.8% of consumers willing to pay more than 81 CNY (€10.29 EUR)—a

possible signal that receptivity is growing towards high-quality gourmet ice cream.

How much would you usually pay for one‐time purchase of ice cream?

4.4%

1.7%

9.4%

10.0%

Under RMB 15

RMB 16‐25

20.6%

21.7%

RMB 26‐36

RMB 36‐50

RMB 51‐80

32.2%

RMB 81‐100

More than RMB 100


30

While consumers care most about the taste and flavor of their ice cream, the “health”

has almost an equal amount of importance based on the online survey results.

Interestingly, Chinese consumers’ preference for less sweet products makes it easier

to create healthier ice cream without a significant compromise in taste. Gelato is well

positioned to fulfill this unmet need with its fewer calories. In general, consumers are

also seeking more flavors, and thus investment in research and development is needed.

Other suggestions by consumers include a softer ice cream texture as well as more

innovative shapes when it comes to serving ice cream. These are peripheral product

attributes that can be leveraged to increase differentiation from other gelato brands.

Improvement Suggestions on Ice Cream (part 1)


31

Implications

Improvement Suggestions on Ice Cream (part 2)

International brands and products entering China have enormous and varied

advantages, including a reputation for superior food quality and safety as well as

authenticity through experience. Due to increasing demand for healthier and more

varied ice creams, coupled with the premiumization trend, gelato has become

increasingly popular among Chinese consumers. Nevertheless, competition is fierce

due to rising interest in this segment, and challenges exist in gaining market share.

With the dominance of the online shopping market in China, artisan gelato

manufacturers must combat digital sales of industrial ice cream makers and drive

customers back into brick-and-mortar stores. Gelato market players need to seek the

best competitive advantages to define and maintain the product’s uniqueness through

product innovations and nutritional messages. From a marketing perspective, gelato

producers need to emphasize the naturalness and authenticity of the product through


32

product attributes as well as leveraging the well-established reputation of Italy as a

producer of gourmet ice cream.

Based on the industry expert interviews, two schools of thought exist in regards to

flavor innovation. One school of thought believes in localization of flavors through

new developments (e.g., durian and matcha) that help drive adoption among Chinese

consumers. The other school of thought is to retain the tradition and authenticity of

gelato by maintaining and asserting the original flavors upon new customers. Whether

a gelato producer chooses to keep only traditional flavors or localize flavors with

local ingredients, the product and brand must convey a unified message so that

customers know what to consistently expect. A traditional brand may tout the

luxuriousness and authenticity of their gelato while a localized brand may message

about their farm-to-fork process of gathering local ingredients. Either way, to further

drive success, gelato manufacturers will need to understand and adapt to Chinese

culture and trends.

Major international ice cream brands such as Nestlé all have different ice cream

flavors in China than in Western markets—often times, the products are made not as

rich or sweet, aimed at satisfying Chinese palates. Integrating local flavors has also

been shown to be effective in terms of bringing excitement to potential consumers.

When French chef Gerard Taurin offered his latest creation in Beijing back in June

2015, most of his ice creams were made with unusual but very Chinese ingredients,

such as jasmine, goji berries, ginger and Sichuan peppers. Moreover, according to

China Daily, Huangjiu Bangbing (黄酒棒冰; Huangjiu is a type of Chinese wine), a

new type of ice cream, has taken the market by storm in 2016 with its infusion of

traditional Chinese wine flavors; their remarkable sales (more than 40,000 sticks sold

in one summer in Ningbo, a city in East China's Zhejiang province) indicates the

popularity potential of innovative flavors among Chinese consumers. To provide


33

some guidance on new flavors, some popular local flavors in China include red bean,

taro, green tea, sesame, and dates. Other Asian fruit flavors those are unlikely to be

found in Italy, such as lychee or durian, can also be used to form unique gelato

flavors.

In order to educate consumers about gelato, industry experts advise business players

to organize roadshows, gelato competitions, exhibitions, etc. These events will serve

as educational opportunities where both brands and consumers can exchange

information and become educated about each other. As suggested by one distributor,

flagship stores are great marketing and business investments where gelato chefs can

demonstrate the production process and educate consumers. Moreover, cross-

promotion across other industries is a powerful way to enter the market through

partnership growth. One machinery and ingredients provider stated that, in past few

years, their company has setup gelato booths at event venues like the F1 car racing

course and equestrian events with great success.

Another interviewed distributor also proposes reaching a Guinness World Record for

gelato—for example, having the most people eat gelato at the same time. While these

are merely example, the industry experts suggest that involvement in the everyday life

and culture of Chinese consumers will garner attention for the gelato industry through

the public and media. Partnerships with large businesses or even local governments

could go a long way in covering otherwise immense costs of industry-wide events.

Gelato’s success in China will be a combination of business ventures into unknown

territories as well as PR (public relations) strategies to raise awareness and establish a

unique reputation for gelato.

Finally, understanding how to navigate the ever-changing government regulations will

be key for businesses. This is well illustrated by the account of one gelato retailer’s


34

experience in Shanghai. Even as the business worked with an agency to obtain a

business license, they faced unexpected government regulation changes, which caused

a delay of several months. In the end, while the shop was able to open, they had

already missed the summer peak selling season for gelato.

The Chinese government pays a lot of attention to food safety, but the specific

regulations around gelato remain unclear. Businesses will have to continually look out

for updates and guidance on gelato production in the near future as the Chinese

government becomes more familiar with the production process. As suggested by an

interviewee, recruiting the help of a local company may be beneficial in the long run

to help navigate such complex and sometimes political roadblocks.

It is without a doubt that the gelato market in China will continue growing in the near

future. The most important challenges that gelato producers will need to continue

tackling are education, cultural assimilation, and financial feasibility. As suggested by

many industry experts, education on a brand and industry level will act as a catalyst

for faster growth through greater interest in gelato and a higher willingness to pay for

it. Moreover, adapting to cultural norms and localizing the taste of gelato will help

gelato products bypass consumer unfamiliarity and into consumers’ comfort zones.

Lastly, scales of economies should be leveraged to reduce the overall cost of doing

business in China so that more producers, distributors, and retailers are incentivized to

expand access to gelato. Ultimately, the goal is to create a positive cycle of

profitability that will in turn lead consumers to be more frequently exposed to gelato

experiences. The inextricable link between consumer demand and gelato supply will

continue to grow as long as the barriers are addressed on both sides with long-term

prospects in mind.


35

References

Mintel 2017 (1)

http://www.mintel.com/press-centre/food-and-drink/chinese-consumers-increasingly-s

nacking-on-ice-cream

Mintel 2017 (2)

http://store.mintel.com/ice-cream-china-june-2017

Euromonitor 2017

http://www.euromonitor.com/ice-cream-and-frozen-desserts-in-china/report

Business Wire 2017

https://www.businesswire.com/news/home/20170815005772/en/Gourmet-Ice-Cream-

Market---Top-Regions

Marketing To China 2017

https://www.marketingtochina.com/the-ice-cream-market-in-china-the-love-of-brands

/

Daxue Consulting 2017

http://daxueconsulting.com/hot-trend-indulgence-ice-cream-industry-china/

Sohu 搜狐财经 2017

http://www.sohu.com/a/151508689_465354

Cision 2016


36

https://www.prnewswire.com/news-releases/ice-cream-market-trends-in-china-30022

9662.html

China Daily 2016 (1)

http://www.chinadaily.com.cn/business/2016-07/06/content_25981456.htm

China Daily 2016 (2)

http://www.chinadaily.com.cn/food/2016-08/04/content_26345623.htm

The Telegraph 2016

http://www.telegraph.co.uk/news/world/china-watch/business/russian-ice-creams-hot-

in-china/

East Day News 东方网 2016

http://sh.eastday.com/m/20160421/u1a9312426.html

Eurasia Consult 2015

https://chinafoodingredients.wordpress.com/2015/08/21/china-the-worlds-biggest-ice-

cream-market/

Fox Business 2015

http://www.foxbusiness.com/features/2015/07/30/china-scoops-up-top-spot-in-ice-cre

am-market.html


37

SECTION 4：The Pastry and Bakery Market in China

Types of bakery and pastry products in China

In China, the main bakery & pastry products include bread, cakes, mooncakes, pastries

and desserts (according to IBIS World). Accompanying these major categories are

other smaller segments such as biscuits, cookies, crackers, and baking mixes. The

industry has largely been dominated by bread as it represents a common staple with

which Chinese consumers are familiar and consume as a part of their regular diet.

Pastries, on the other hand, are relatively novel in the Chinese market and are thus driven

primarily by “indulgence and affordability”, according to Euromonitor. Common

distribution channels for bakery & pastry products comprise of bakeries, convenient

stores, supermarkets and hypermarkets (combination of supermarket and department

store), and online stores. Artisanal baked goods are mostly sold through bakeries with

constant innovations in terms of products and flavors.

To understand the Chinese bakery and pastry market, it is important to note the

long-standing history that Chinese consumers have with traditional Chinese bakery

products (such as Cantonese bakeries, Suzhou bakeries, and Beijing bakeries), many

of which originated in different regions with their unique styles and flavors. Moreover,

China’s traditional festivals and holidays have a huge influence on market demand for

bakery goods, with a notable example being mooncake. Based on a report from

Bakery and Snacks, Western-style bakery and pastry goods in China are usually

excessively detailed, soft and buttery in texture, and high in sugar and fat content.

They look very much like Western products but often taste different. In fact, the

evolution of the bakery and pastry market in China has been a result of integration

between traditional Chinese baked snacks and trendy Western products.


38


Based on data from Global Industry Analysts, Chinese consumed an average of 5.8 kg

of bakery products per capita in 2017. This number pales in comparison to 87 kg in

Germany, 47.8 kg in the UK, and 39.2 kg in the US. Even in Japan, where the

traditional staple is rice (same as in China), the average person consumes 22 kg of

bakery products per year. These comparisons illustrate the fact that the Chinese market

is far from saturated and still carries immense potential for growth. Based on a report

by IBIS World, China’s bakery industry has grown at an average pace of 10.6% per

year from 2012 to 2017. In addition, many factors are predicted to accelerate this

growth rate: the urbanization process, the rapid pace of work and study, and

transforming consumption habits of younger generations.

The graph below illustrates the recorded and forecasted revenue for Bread and

Preserved Pastry Goods & Cakes segments in China from 2010 to 2021. While it

demonstrates a steady growth rate in both categories, pastry goods and cakes are

predicted to have greater growth.

Revenue of Baked products in China

Source: Statista 2017


39

According to Euromonitor, pastries are the fastest growing segment with its rich

product portfolio, from traditional Chinese to popular Western products. Currently,

the pastry market is already worth three times that of bread and bread products in

China and projected to continue outperforming. Ken Research forecasts that cookies

will register the fastest value growth in the bakery and pastry industry from 2015 to

2020 in China. More specifically, within cookie products, the brownie mix segment is

expected to gain maximum share growth. A report by Mintel suggests that the growth

of pastries and its sub-categories can likely be attributed to increasing disposable

income and a growing appreciation for high-quality and luxury pastries among

Chinese consumers.

Nevertheless, this projected growth may face major barriers. Rising health-

consciousness, compounded by the unhealthy nature of bakery and pastry products,

will influence Chinese consumer purchase decisions. Pastry and bakery product

manufacturers and brands should prepare to face greater scrutiny of their products.

In fact, Grand View Research has discovered another result of this trend: rising

popularity of natural, healthy, and organic baked products among Chinese

consumers. Moreover, given greater consumer concern over food safety, emphasis on

products with no additives or preservative has grown in recent years throughout the

country.


Based on the Bread and Cake Professional Committee of China Food Industry

Association, the major players in China are Asian brands: Holiland (Chinese), 85C

(Taiwanese), Bakery Christine (Taiwanese), and Bread Talk (Singapore). The bakery

and pastry landscape is unique in that each of these players has widespread brand

recognition in their respective regions but sparse coverage and recognition outside of

their geographical boundaries. This is likely due to the brands’ lack of focus on


40

marketing outside of these regions, as well as poor access to the products outside of

covered regions. Moreover, the presence of regionally-focused businesses means that

the top 10 companies in the bakery and pastry industry in China actually accounted

for less than 15% of retail value share in 2017, according to Mintel. The highly

fragmented landscape of bakeries in China indicates vast opportunities to occupy

specific geographical niches—market players such as Paris Baguette (巴黎贝甜) and

Caffé Bene ( 咖啡陪你 ) have taken this opportunity to fill the gaps between

geographical strongholds of the main players by focusing their efforts on Chinese

customers in large second- and third-tier cities. Nonetheless, as Mintel suggests,

China’s fast-growing pastry and bakery market is likely to experience consolidation,

leading to broader coverage by bigger brands.

Based on import and export data in 2016, imports as a percentage of total retail sales

among bakery products was only 3.56%. Among the importing regions, Indonesia,

Hong Kong, and Malaysia were the top three suppliers of bakery products. Although

the current market share for international pastry & bakery brands is extremely low in

China, research by Mintel shows that 24% of new bakery products (including changes

of existing products on packaging, formulation, and variety/range extensions)

launched between 2012 and 2016 were imported products. As shown in the graph

below, the explosive growth of imported product launches indicates that Chinese

consumers have been receptive to the introduction of foreign products.


41

1800

1600

1400

1200

1000

800

600

400

200

0

New bakery product launches in China

2012 2013 2014 2015 2016

Imported Not imported other

Source: Mintel

The main challenge that bakery and pastry product manufacturers face are the volatile

prices in raw materials for such goods. According to Daxue Consulting (2016), the

gross profitability in the baking industry is about 20%. Due to the increasing cost of

production caused by rising raw materials and labor prices, the average unit price of

baked goods increased by 4% in 2016 while the average price per unit for bread and

bakery products amounted to $3.83 USD (€3.13 EUR) (Statista 2017). Luckily, rising

costs have been offset by increased disposable incomes and demand for premium

baked goods. In fact, based on the 300-respondent consumer survey launched by

N-Dynamic, a majority of respondents (63.3%) were willing to pay more than 36

CNY (€4.56 EUR) for a one-time purchase of bakery and pastry products. This high

willingness to pay is highly advantageous to the industry as manufacturers attempt to

maintain profit margins.


42

How much would you usually pay for one‐time purchase of bakery / pastry?

5.0% 0.6%

20.6%

8.3%

29.4%

13.9%

22.2%

Under RMB 15

RMB 16‐25

RMB 26‐35

RMB 36‐50

RMB 51‐80

RMB 81‐100

More than RMB 100

Grand View Research notes in particular that the operational efficiency of bread

manufacturers is the key challenge in creating economies of scale within countries

such as China. Moreover, the perishability of bakery and pastry goods means

expansion across China will likely start in major cities, where the logistics of

transporting and storing raw materials can be streamlined. Food safety is another

major concern for bakeries — especially within the context of Chinese food scandals

— that makes it imperative for bakeries to carefully manage their logistical expansion.

The structure and growth of the market is, therefore, limited by the geographical complexities

of manufacturing, storing, and transporting such perishable goods.

Consumer needs, attitudes, and behaviors

According to Euromonitor, Chinese consumers’ tastes have shifted towards

international products due to the increased popularity of western lifestyles and diets

among younger generations who prefer baked goods as a part of their daily meals. In

fact, based on the online survey conducted by N-Dynamic, most respondents

purchased imported pastries and bakery products at least once a week (46.9%) or

several times a month (46.9%). More interestingly, online purchasing of pastries


43

and baked goods was almost as significant a channel as supermarkets and

hypermarkets.

How often do you purchase imported bakery, pastry?

5.5% 0.8%

46.9%

46.9%

Once / week times/month Once / month 2‐3 times every 3 months

Where do you usually shop for imported foods?

Large chain super market (Carrefour, Walmart, etc.)

90.6%

Imported food supermarkets 87.8%

Online 86.7%

Local shops (bakery, pastry, restaurants, etc.) 36.7%

Daigou (Ask someone else to buy for you) 31.7%


Based on the survey results, Italy is unsurprisingly conceived as a place for “Delicious

food” by most of the surveyed consumers. This impression extends to bakery and

pastry goods, which was cited as a popular Italian-produced food by 61.7% of surveyed

consumers. However, when asked specifically about their favorite country of origin


44

for pastries and baked goods, more respondents cited France as their country of choice.


45

When heard of the country “Italy”, what comes to your mind?

Delicious food 79.4%

Luxury goods, like clothes, handbags, etc 70.6%

The Renaissance (Culture & arts, museums, etc.) 67.2%

Delicate wine 58.9%

Football 53.3%

Beautiful landscape 43.9%

Racing cars 38.3%

What kind of food do you think Italy produces?

Pasta 82.2%

Pizza 72.2%

Ice cream 68.9%

Bakery, pastry 61.7%

Alcoholic drinks 57.8%

Cheese

Chocolate

Coffee

Olive oil

Prosciutto


46

Which country’s bakery & pastry are your favorite?

France 67.2%

Italy 53.3%

United States 35.6%

New Zealand 31.7%

Australia 31.1%

Japan 30.0%

China 29.4%

South Korea 21.1%

When it comes to the reason of purchase, a majority of people (66.1%) indicated that

they would purchase bakery & pastry products because of new flavors, which is

consistent with what they also consider to be the most important purchase decision

factor. Unsurprisingly, flavor, taste, and appearance are the top three factors when

choosing a pastry or bakery product. What’s interesting, however, is that almost 50%

of respondents consider brand and even country of origin when making purchase

decisions.


47

66.1%

Why would you purchase bakery & pastry?

52.8% 51.7%

48.3% 47.2%

41.7%

38.9% 38.3%

Attracted to To purchase Purchase for Just want to Random Serve as Serve as Attracted to

the new flavor from a certain afternoon tea have purchase for dessert after dessert after the

brand/bakery shop I am fond

of

dessert/sweet foods

breakfast meals when dine out

meals at home appearance of the bakery /

pastry

When you purchase bakery / pastry, which factors would you find important?

78.3% 76.1%

63.9%

55.0%

48.9%

40.0% 38.9%

28.3%

Flavor Taste Appearance Brand The country Package of Decoration Price

of the of origin of the product and hygiene product ingredients of the bakery / pastry shop

The channel mix for Chinese consumers is particularly interesting. Based on the chart

below, not only are consumers shopping for pastries and baked goods at the

traditional retail stores, but almost half of respondents cited they that they use digital

channels such as apps. Given the digital-savvy nature of Chinese consumers, Italian

manufacturers should not overlook the vast opportunities to market to Chinese


48

consumers through digital mediums. Moreover, the survey results show that the time


49

of day is not a big factor on purchase and consumption decisions—those brands that

choose to build a strong online presence will unlikely need to worry about lack of

interest even when their product is advertised during unconventional hours.

Where do you usually purchase bakery/pastry?

Bakery / pastry shop 83.9%

Large chain super market (Carrefour, Walmart, etc.) 65.0%

Cafe

Apps for just bakery / pastry

Online platform 37.

Restaurant 31.1%


Food delivery apps 27.2%

Hotel 18.3%

In which occasions would you eat bakery / pastry?

Eat at home for breakfast 64.4%

Serve as a dessert after meals when dine out 59.4%

Serve as a dessert after meals at home 58.9%

Eat at workplace for afternoon tea 53.3%

Eat at a hotel, restaurant or café for afternoon tea 52.8%

Eat at a café for breakfast

When walk by a bakery / pastry shop and just purchase randomly

50.6%

48.9%


50

Furthermore, the results of the online survey demonstrate that there are areas of

improvements across multiple product attributes that could drive success. Most

important is the health factor of the product, which 33.33% cited in their suggestions.

This research complements findings by Mintel that show a rise in preference for

plain-flavored baked and pastry goods—the theory is that consumers are gravitating

towards products that have less sugar or fat content. The quantitative survey also

shows that developing new flavors is a huge attractor for Chinese consumers. From a

texture perspective, Chinese consumers also tend to prefer soft bakery and pastry

products over hard ones. Appearance continues to be a large factor for decision-

making as many consumers choose based on package design or even the decoration

of the pastry or baked good itself.

Improvement Suggestions on Bakery (part 1)


51

Improvement Suggestions on Bakery (part 2)

Top Five Flavors of New Bakery Product Launches

300

250

200

150

100

50

0

2012 2013 2014 2015 2016

Unflavored/Plain Chocolate Milk Sesame Egg

Source: Mintel

Implications

Chinese consumers’ growing demands for international bakery and pastry products

present enormous opportunities for Italian companies, who are known for their

excellence in ingredients, semi-finished products, and finished products.

As observed by Bakery and Snacks at the Bakery China trade show in 2017, Western-

style products that adapt to Chinese consumers’ taste buds, such as soft


50

European bread, were prevalent at the show. To appeal to a wider population, it is

important for Italian bakery and pastry producers to cater to Chinese’s taste, which

have a less sweet palate and a preference for salty baked goods when compared to

Western consumers.

As consumers in China prioritize healthy products, bakeries must be able to offer

fresh and health-oriented products, especially in a country where food safety is a

highly important factor. Ensuring that the packaging or marketing has a clear health

message such as “no additives” can go a long way with health-focused consumers.

Finally, in order to keep up with local competitor brands as well as a growing number

of international brands, market players need to understand and adopt protocols for

maintaining product variety and innovation. Investment on both a product and

packaging level will be crucial in differentiating the brand as consumers seek out

premium and novel experiences in their search for the enjoyment of bakery and pastry

goods.


51

References

Global Industry Analysts 2017

http://www.strategyr.com/MarketResearch/Bakery_Products_Baked_Goods_Market_

Trends.asp

IBIS World 2017

https://www.ibisworld.com/industry-trends/international/china-market-research-report

s/manufacturing/food/bread-bakery-product-manufacturing.html

Statistica 2017

https://www.statista.com/outlook/40050000/117/bread-and-bakery-products/china#ma

rketStudy

Agriculture and Agri-Food Canada 2017

http://www5.agr.gc.ca/eng/industry-markets-and-trade/international-agri-food-market

-intelligence/asia/market-intelligence/sector-trend-analysis-bakery-products-in-china/

?id=1512649817208

Bakery and Snacks 2017

https://www.bakeryandsnacks.com/Article/2017/06/12/Penchant-for-Western-product

s-supports-China-s-bakery-boom

Ken Research 2016

https://www.kenresearch.com/food-beverage-and-tobacco/general-food/consumer-insi

ghts-bakery-cereals-china/69626-11.html

Grand View Research 2016


52

https://www.grandviewresearch.com/industry-analysis/bakery-products-market

Daxue Consulting 2016 (1)

http://daxueconsulting.com/bread-consumption-in-china/

Daxue Consulting 2016 (2)

http://daxueconsulting.com/bakery-market-china/

Bakery and Snacks 2016

https://www.bakeryandsnacks.com/Article/2016/09/14/China-s-fragmented-bakery-m

arket-likely-to-consolidate-Mintel

Euromonitor 2014

http://www.euromonitor.com/bread-cakes-and-pastries-a-global-market-overview/rep

ort


53

SECTION 5: The Coffee Market in China

Types of coffee in China

There are mainly two types of coffee in the Chinese market: fresh coffee and instant

coffee. While fresh coffee is often made with roasted and ground coffee beans, instant

coffee is made with soluble coffee powders. Most instant coffee in China comes from

Vietnam, where Robusta, a cheaper variety of coffee, is predominately grown. They

are usually packaged in boxes containing individual sachets, among which a so-called

“3-in-1 type”—containing coffee, sugar and creamer—is particularly favored by

Chinese coffee drinkers. In the pre-made coffee category, iced/hot coffee is another

popular product in China. One can easily find them in convenient stores, packaged in

cans or bottles at retail stores, or online in bulk. Other coffee products such as drip

coffee bags, coffee capsules, and coffee pods are also gaining popularity in China.

Different Coffee Products in China


With an average growth rate of 16% per year between 2003 and 2013 as per data

published by the International Coffee Organization, China has become one of the

fastest-growing coffee consumption markets in the world. Even more recent data

released by the USDA shows Chinese import demand continuing strong growth at an


54

Consumption (thousand 60‐kg bags)

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

average rate of 17% between 2013 and 2017. Although annual consumption per capita

is estimated to be around 21 cups according to 2017 USDA data, China’s coffee

industry is still at a very early stage with large potential to grow when compared to

the world consumption annual average of 240 cups per capita. The graph below shows

the coffee consumption in China from 1994 to 2017, which demonstrates the

explosive growth rate of coffee imports in recent years.

4500

4000

3500

3000

2500

2000

1500

1000

500

0

Chinese Coffee Consumption from 1994‐2017

According to Statista, the largest category in the Chinese coffee market is instant

coffee. Indeed, as of 2017, instant coffee still takes up around 99% of retail sales by

volume and 98% by value of the Chinese coffee market. Although the green/roasted

coffee market share has been going up in recent years, most of the imported beans are

actually brought to processing facilities in China for instant coffee production.

Even so, fresh coffee consumption is still growing at a faster rate and is likely to

sustain this trajectory due to a rapidly increasing middle-class population in China. As

a matter of fact, the growth of single-cup coffee sales is faster than any other coffee

category (single-cup coffee sales grew by 156% between 2013 and 2014 whilst other

categories grew by 3.3% per year at average), according to data from Euromonitor.

This trend is a strong indication that consumers are seeking out premium coffee.


55

Euromonitor expects the market size for coffee served in cafés to hit 20 billion CNY

(€2.54 billion EUR) in 2016, compared with 1.1 billion CNY (approximately €140

million EUR) 10 years ago. The rising popularity of cafés suggests that consumers

will also have more exposure to premium coffee options, leading to a self-reinforcing

cycle of growth. With an influx of returning Chinese expatriates, the leading players

in the coffee industry have begun to see more profit growth in premium products. In

addition to premium coffees, espresso-based products also experienced strong demand

growth in China. Starbucks, currently with more than 3,000 stores in China, plans to

open another 2,000 by 2021. This demand growth represents a large opportunity for

Italian espresso-based coffee market players, including growers, exporters, roasters,

retailers, and equipment suppliers.

Sales Revenue for Coffee Shops in China (in billion CNY)

25

20 20

15

10

5 1.5 1.8 2.4 3

7 4.8

16.5

13

10

0

2006 2008 2010 2012 2014 2016 2018

Source: Euromonitor


The main player in the instant coffee market is Nestlé with an absolute dominance of

66% market share in 2017, based on a report by Euromonitor. While instant coffee is

mostly consumed at home or in the office, a majority of Chinese drink fresh coffee at

a café. According to 2014 data from statistica.com, China is surrounded by the big

coffee chains such as Starbucks, Costa Coffee (Whitbread), UBC, McDonald’s, and C


56

Straits Cafe. It leaves one fourth of the market occupied by smaller coffee shops that

have the liberty to choose which roasted/ground coffee brands to serve.

Over 80% of coffee imports in China come from the five countries shown below.

Vietnam produces almost half of the coffee imports in China, which is in line with the

large consumption of instant coffee. Aside from these five major import origins,

imports from Colombia and Central America have been increasing significantly in

recent years and now make up about 5% of the total market share. This is possibly

due to greater curiosity among Chinese consumers regarding coffee varieties. The

growing popularity of Colombian coffee—which is perceived as unique and of high-

quality—could be indicative of rising demand for personalized premium coffee.

Origins of coffee imports by China (Average: 2009/10 to 2013/14)

Expanding appreciation of coffee in China has led to a rise not only in consumption

but also in domestic production. 95% of China’s local coffee is produced in Yunnan, a

province located in Southwestern China with geographical characteristics ideal for

growing Arabica. Even so, coffee growing techniques are still nascent in a country

with a long-standing culture in tea consumption, and the quality of coffee produced

may not be at the same level as producers with decades, if not centuries, of experience.

The biggest Italian coffee market players in China are Illy and Lavazza. In 2016, Illy

registered the highest growth in China with a year-over-year increase of up to 60%.


57

The huge success of Illy demonstrates a promising market for more Italian coffee

products/brands to enter China.

Consumer analysis

Coffee consumption in China is mainly driven by a young generation that grew up

with the influence of western culture. Among this group are women under 30, whom

contribute the most to coffee consumption and its growth. At the moment, a majority

of Chinese coffee consumers still prefer to drink mostly instant coffee at home. This

landscape is changing rapidly with the rising income of Chinese consumers as they

demonstrate a stronger interest in spending more time and money on coffee in

restaurants and cafés. This trend continues to grow despite the relatively high cost of a

single cup of coffee (average prices are between $2.50 and $5 EUR, which is

equivalent to the cost of a whole meal in China). This price insensitivity is likely due

to successful promotions by global coffee brands, especially Starbucks, that aim to

transform coffee from just a beverage choice to one that is about lifestyle.

Chinese consumers have very different consumption habits from those in countries

with a much more developed coffee-drinking culture. First of all, they do not drink

coffee on a daily basis. In fact, according to Mintel’s Coffee – China 2016 report, less

than 30% of coffee consumers drink coffee once a day or more. Second, Chinese tend

to use coffee as an energy booster when feeling tired instead of having it in the

morning to start the day. This is evidenced by coffee shop opening times, which are

usually after 9 am with foot traffic increasing later in the day. Third, Chinese consumers

have a sweeter palate for coffee. They generally prefer comparatively mild, milky, and

sweet coffee rather than bitter coffee, which is reflected in the popularity of 3-in-1

instant coffee. Global coffee chains like Starbucks and Costa have adjusted their coffee

flavors in China accordingly. Last but not least, the coffee drinking experiences at

cafés are usually within a social context, such as when hanging out


58

with friends or having a business conversation. Thus, to a majority of Chinese, the

environment of a café is somewhat more important than the quality of coffee itself. As

young Chinese consumers further develop an appreciation café environment and form

a habit of daily coffee consumption, having the right ambiance for regular coffee

enjoyment will be a valuable asset.

The coffee bean’s origin has become a key selling point in the Chinese market. While

most Chinese consumers don’t understand differences between coffee regions, Italy,

as a coffee origin, is preferred. This perception is likely established by the translation

of Espresso in Chinese, which is literally “Italian Concentrated Coffee” (意大利浓缩

咖啡). On the biggest Chinese online shopping platform, Taobao, various coffee

products can be found branded with the word “Italy”. Most of these brands, however,

neither originate from Italy nor use Italian coffee beans. Milan Gold (金米兰) is one

such example of a successful Chinese local coffee brand that leverages the Italian halo

effect—it is the authorized brand in many high-end hotels and international events.

The name of the local brand also indicates the positive association Chinese people

tend to make between coffee and Italy. The trend favoring Italian coffee could

potentially benefit the Italian vendors, but differentiation must be taken seriously in

order to separate authentic Italian coffee from those sold through false claims.

Implications

The opportunities are vast in the Chinese coffee market. Coffee consumption will

most likely increase with growth potential in areas where retail and distribution are

not yet readily available. Moreover, consumers in urban areas are already learning to

appreciate high-end coffee, providing a large advantage to countries with an

established perception of luxury.


59

From a production aspect, local sourcing could be a potential solution for well-

established brands looking to save on cost. Yunnan Province is one such place—in

fact, brands such as Nestlé and Starbucks have already created coffee factories there

to process most of their production.

Coffee growers and roasters will need to develop coffee beans with flavors catered to

the Chinese tastes—less bitter and with less caffeine. Distributors and retailers will

also need to select coffee beans with less intense flavors. Forming partnerships with

these local businesses—many of which are seeking higher-end coffee products—can

be a huge driver of growth for Italian coffee brands. Finally, the growing appreciation

for quality coffee experiences means that there is an ever-growing demand for Italian

coffee baristas and technology in China.

To compete with local and global coffee brands in China, it is important to

differentiate Italian coffee from others through branding and packaging, as well as the

taste and quality of coffee. Marketing will play a very important role in Chinese

coffee market as a means to build loyal customers among the younger Chinese

generation. To compete, Italian coffee manufacturers can utilize Chinese social media

to directly build rapport with Chinese consumers and better understand their wants.

Content marketing will also be key in differentiating Italian coffee brands from other

country origins by promoting Italian coffee-drinking history and culture. Education

around traditional Italian brewing techniques will also drive further appreciation of

high-end coffee experiences. Ultimately, unification of the brand experience through

packaging, marketing, and personal communication will be as important as the product

itself, especially in the saturated Chinese marketplace.


60

References

Euromonitor International 2017

http://www.euromonitor.com/coffee-in-china/report

Australian Food News 2016

http://www.ausfoodnews.com.au/2016/12/14/china-insights-report-coffee-opportuniti

es-in-china.html

Mintel 2017

http://www.mintel.com/blog/drink-market-news/encouraging-chinese-consumers-to-w

ake-up-and-smell-the-coffee

Bloomberg Markets 2017

https://www.bloomberg.com/news/articles/2017-08-08/china-millennials-swap-tea-for

-coffee-as-starbucks-pushes-east

BBC 2016

http://www.bbc.com/capital/story/20160628-yuan-more-coffee-chinas-lucrative-caffei

ne-craze

CCTV.com 2017

http://english.cctv.com/2017/07/10/ARTIdkwfLrmh6FZ7G8jqrVlB170710.shtml

Marketing To China 2016

https://www.marketingtochina.com/coffee-market-explodes-china/

What’s on Weibo 2015


61

https://www.whatsonweibo.com/chinas-growing-coffee-culture/

International Coffee Organization 2015

http://www.ico.org/documents/cy2014-15/icc-115-7e-study-china.pdf

UKnowledge 2016

https://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1039&context=agecon_etds

Italian Food Net 2016

https://www.italianfood.net/2016/06/24/illycaffe-report-strong-growth-emea-markets/

Reuters 2015

https://www.reuters.com/article/us-coffee-illycaffe/illycaffe-sees-strong-chinese-dema

nd-growth-for-espresso-blends-idUSKBN0ME03H20150318

CNBC 2017

https://www.cnbc.com/2017/12/05/starbucks-is-opening-a-store-in-china-every-15-ho

urs.html

Statistica, Oct 2017

https://www.statista.com/outlook/30010000/117/coffee/china#

USDA, Dec 2017

https://apps.fas.usda.gov/psdonline/circulars/coffee.pdf

Bean and Beyond 2015

http://www.cafedecolombia.com/bb-fnc-en/index.php/comments/why_china_represen

ts_a_great_opportunity_for_colombian_coffee/


62

SECTION 6: The Chocolate Market in China

Types of chocolate in China

Chocolate in China comes in all types, including the classic milk chocolate, dark

chocolate, and white chocolate. The emergence of a new kind of chocolate—ruby

chocolate—in late 2017 was the result of innovative efforts by a Swiss company

specializing in chocolate and cocoa products, Barry Callebaut. Nevertheless, the

potential adoption of this new type of chocolate by Chinese consumers remains to be

seen.

Based on Mintel’s categorization for chocolate, the most common category in China

is chocolate tablets (bars or blocks). They come in a wide range of sizes and sometimes

contain nuts or raisins. Countlines, which are full-size individual chocolate bars (e.g.,

Snickers), is another popular category of chocolate consumed in China. In additional

to the chocolate’s physical presentation, packaging plays a large role in the function of

chocolate among Chinese consumers. For example, individually wrapped chocolates

such as Ferrero Rocher’s chocolate truffles are popular as gift purchases. On the other

hand, non-individually wrapped chocolates, such as the Chinese household brand,

M&M’s, tend to be self-consumed. Other forms of cocoa products such as cocoa

powder, chocolate syrup/sauce, chocolate biscuits, chocolate wafers, and chocolate

beverage are also commonly seen in the market.

The biggest Chinese online shopping platforms, Taobao (淘宝) and Tmall (天猫),

have generated unique keywords for people whom are looking to buy chocolate,

including “office snacks”, “wedding chocolates”, and “fancy gifts”. These keywords

indicate that Chinese consumers often find uses for chocolate other than self-

consumption.


63


Although it has been long since chocolate was viewed as an exotic treat in China,

China’s chocolate market is still, by and large, untapped. According to Euromonitor

International, Chinese consumed 0.2 kg of chocolate per capita in 2014; compared

against 2.2 kg per capita in the United States, it is evident that Chinese consumers

have yet to adopt chocolate as a mainstream food product.

Retail Sales of Chocolate in China (In billion USD)

3

2.5

2

1.5

2

1.7

2.2

2.6

2.9 2.8 2.8

1

2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Statistica

The chart above shows the chocolate retail sales in China from 2009 to 2017 based on

data from Statista. Sales increased slowly but steadily until 2015, when it encountered

negative growth. According to Mintel, lackluster performance in the chocolate

industry has been due to a slowdown in new product innovation. At the same time,

economic and environmental factors could have contributed to the growth decrease.

As observed by Euromonitor, the Chinese chocolate market in 2017 continued

downhill with a 2% decline in the volume sales of chocolate confectionery, caused

purportedly by an ever-strengthening consumer awareness of healthy diets. As

chocolate is generally regarded as one of the biggest triggers of weight gain, interest

from more health-conscious consumers shifted away from chocolate. Instead,

popularity for healthier options such as yoghurt and nuts has boomed. According to

Kantar Worldpanel, although the chocolate category as a whole showed decline,


64

market sales of imported products actually enjoyed 3% growth during the 12-month

period ending September 2016. This growth among importers demonstrates the upward

potential of the Chinese chocolate market despite recent slowdowns in growth. In order

to succeed, however, chocolate manufacturers should keep up with innovations and

find ways to adapt to a culture of health consciousness.

China is projected to have the highest chocolate market growth from 2015 to 2020

(along with India), according to a study conducted in 2017. The market for chocolate

in China is expected to grow in value to 40 billion CNY (approximately €5.09 billion

EUR) by 2020 based on estimates from Ebrun, a Chinese data analysis platform.

Interestingly, the President of Barry Callebaut commented on the South China

Morning Post, a leading newspaper in Hong Kong, that the chocolate market is

changing now because of the coffee culture: “We see more and more changes in the

way chocolate is used. It’s more about chocolate with something else, like bakery

products, pastries and ice-creams”. Additionally, recent research results suggest that

new products can be very well received in China’s market and that Chinese

consumers are willing to pay a premium for innovative products.

With the great expansion of internet users in China, chocolate brands have started to

focus on social media and seasonal innovation with unique opportunities in China’s

e-commerce channels. A notable example is US-based Mondelez, a company that

began to build a presence on Tmall in early 2016. Furthermore, to drive sales in China,

innovators are also gaining traction by catering to holidays and special occasions. For

the Chinese Mid-Autumn Festival, Belgium’s Godiva chocolate company released a

successful seasonal product: Chinese moon cakes made in chocolate (see picture

below).


65

Chocolate "Moon Cake" by Godiva


The chocolate market in China is dominated by foreign brands with a high percentage

of import products. While the top 20 global chocolate brands all have share in China’s

market, close to 70% of chocolate brands in the country are European brands based on

a report published by Research and Markets. Meanwhile, local brands are suffering

primarily due to consumers’ distrust in the quality of local products as well as their

poor marketing efforts. As demonstrated in the chart below, key players in China’s

chocolate market include Mars Foods, Nestle S.A., Ferrero Rocher, Mondelez

International Inc., and Pladis.


66

Key Players in Chinese Chocolate Market in 2017

Mars has maintained its leading position in the market with a well-balanced brand

portfolio, targeting a wider population than any other market players. Its three main

brands—Dove, M&M’s, and Snickers—successfully appeal to different consumer

groups: young women, teenagers, and those whom need an energy boost, respectively.

Through this effective marketing strategy, the company has been able to maintain

stable market share over the last five years. Even as a market leader, however, Mars

experienced a slight loss of market share in 2017. Other brands positioned within the

low- to mid-price range (the average retail price for chocolate in China amounts to

approximately $21.21 USD [€17.34 EUR] per kg) such as Hershey’s were also

affected, indicating a shift towards more premium products. Indeed, according to

Mintel’s report, mainstream chocolate brands are losing out to premium brands in

China. Godiva represents just one benefactor of this premiumization trend, which

registered their strongest sales growth (193%) in 2017 according to Euromonitor.


67

Major international players are also revving up their expansion plans to gain more

market shares through a multitude of strategies, including introducing new product

lines and localizing production in China. For example, Belgian chocolate maker Godiva

plans to triple its 100 retail outlets in China by 2020 to capture growing demand

for premium chocolate. Mondelez’s also introduced a premium-priced brand, Milka,

to China’s market in 2016 with the intention of tailoring to evolving tastes. In

conjunction with a premium pricing strategy, the company has also marketed and

intensely advertised Milka’s “aspirational positioning and tender values”. Italian

chocolatier Ferrero Rocher started building factories in Hangzhou—a city in Zhejiang

province—back in 2014 while Hershey’s acquired the Chinese confectionary

company Golden Monkey (金丝猴) in the same year. These examples demonstrate

the effort with which international companies are vying for market share. However,

not all are winners--Hershey’s market share has been going down ever since the

acquisition, though the company blamed the slowing Chinese economy for its poor

performance.

Data provided by OEC and Kantar Worldpanel suggests a growing trend for imported

chocolate products in 2017 with those of European origins leading the growth.

European brands’ close association with luxury chocolates in China and their

significant growth are yet more signs of market premiumization that has been driven

by greater disposable income. Based on OEC’s dataset (see chart below), Italy is the

biggest importer of chocolate in China. Overall, China’s well-built supplier network

and high consumer brand awareness of Italian chocolates presents great opportunities

for Italian manufacturers to enter China’s market.


68

China 2016 Chocolate Import by Country

$100m

$80m

$60m

$40m

$20m

$0m

$92m

$44m

$27m $26m $26m

$16m $10m $10m $9m $9m

Consumer analysis

Chinese consumers have strong awareness of chocolate brands and tend to make

purchase decisions based on brand. As suggested by a study conducted in 2016, brand

information and rapport influences the tasting experience of Chinese chocolate

consumers—on average, Chinese consumers tend to prefer imported brands over

domestic brands or locally-sourced foreign brands. This stems from an innate distrust

of the quality of home-grown food products, concerns about food safety issues, and a

deep-seated perception that high-quality chocolate tends to come from abroad. A

report generated by Mintel suggests that healthiness is, in fact, a more important

purchase factor than a product’s premium status. Interestingly, mood enhancement

and stress relief have been cited as primary reasons for consuming chocolate as well,

which go hand-in-hand with increasing health-consciousness of consumers. Aside

from health considerations, taste remains the most important factor in chocolate brand

purchases while price is the least—this is a result of price-insensitive consumers that

consume chocolate mainly for enjoyment.

Observations made by Research and Markets show that Chinese consumers are more

conservative compared to consumers in other countries—they tend to choose more

familiar brands and flavors. Thus, it is important for foreign brands cater their products

to local tastes when entering the Chinese market. Cadbury’s and Oreos are


69

examples of two western confectionary products that have adapted themselves to

Chinese consumers’ tastes by subtly reducing sweetness. Just as a Berenberg analyst

told Reuters regarding China’s chocolate market, “Chinese consumers are getting

sophisticated, [and] they want their own tastes and own variance.” This is evidenced

by the growth in consumption particularly in urban tier-1 cities. Consumers in these

areas are highly interested in luxury packaging and more curious about a wider range

of flavors and inclusions, representing a unique opportunity to develop novel flavors

that satisfy urban palettes.

With the continued rise of health awareness in China, particularly in regards to

childhood obesity, chocolate manufacturers and brands should focus on the healthy

attributes of chocolate. The ever-greater snack options for children and teenagers

means that chocolate brands will have to differentiate themselves on a healthiness,

taste, and emotional level.

Implications

The opportunities for Italian chocolate producers are manifold. First of all, the growth

of imported chocolate products, especially from European countries, means that Italian

brands have a large opportunity to capture additional market share in the next few

years. Secondly, with the existing network and local management talent built by earlier

Italian market players, market entry barriers are lower for newcomers. However, on

the same token, early market penetration by major Italian players has led to intense

competition that companies must overcome. Based on the success of current leading

brands in China, the best opportunities to capture market share seem to derive from

having a clear in-depth understanding of consumer desires and a product that can

satisfy them.


70

In terms of market and channel strategy, e-commerce in China is one of the most

promising platforms for new chocolate brands due to its fast growth and differentiation

from brick-and-mortar stores. Because Chinese consumers tend to make chocolate

purchase decisions based on the brand, robust advertisement strategies are crucial to

success. Thus, developing a presence on e-commerce is further justified with the

increasing amount of time that Chinese consumers spend on the internet. Online

marketing, which includes building a social media presence and retargeting tactics,

will be a valuable tool for chocolate industry players in the years to come.

Chocolate package labels can also be improved to better indicate the country of origin.

Emphasis on foreign heritage and superior product quality can attract consumers on

an emotional level. In addition to leveraging the halo effect of foreign brands, it is

essential for international chocolate manufacturers to localize and diversify their

product flavors. By incorporating local and traditional Chinese trends, such as gifting

chocolates, market players can create opportunities to make a deeper impression on

Chinese consumers on an experiential rather than product level.

Finally, innovation on a product level can be game-changing for market players.

Capitalizing on the current health and premiumization trends will be key to success,

such as the development of low-fat chocolate or bean-to-bar chocolate. Moreover,

package design will continue to be a driver for differentiation as consumers continue

to appreciate chocolate both taste-wise and visually. No matter the choice, developing

brands that truly cater to the experiential and cultural needs of Chinese consumers’

will ultimately be rewarded with longevity in the Chinese chocolate market.


71

References

Euromonitor International 2017

http://www.euromonitor.com/chocolate-confectionery-in-china/report

Business Wire 2017

https://www.businesswire.com/news/home/20170612005536/en/Study-Chinas-Choco

late-Market-2017---Research

Reuters 2017

https://www.reuters.com/article/us-hershey-results/hersheys-sales-miss-as-china-conti

nues-to-struggle-idUSKBN15I1JT

Mintel 2017

http://reports.mintel.com/display/838281/

Statista 2017

https://www.statista.com/statistics/315303/retail-sales-of-chocolate-in-china/

Kantar Worldpanel 2017

https://www.kantarworldpanel.com/cn-en/news/Chinas-chocolate-market-faces-both-c

hallenges-and-opportunities

Confectionery news.com 2017(1)

https://www.confectionerynews.com/Article/2017/02/08/Fake-Ferrero-and-Mars-choc

olate-seized-in-China

Confectionery news.com 2017(2)


72

https://www.confectionerynews.com/Article/2017/09/01/M-M-s-Dove-and-Snickers-

maintain-chocolate-market-lead-in-China

Newsweek 2017

http://www.newsweek.com/world-first-dark-milk-white-or-ruby-chocolates-fourth-di

mension-unveiled-china-659792

Research and Markets 2017

https://www.researchandmarkets.com/research/8pwvfv/a_study_of

OEC 2016

https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/chn/show/1806/2016/

Mintel 2016

http://store.mintel.com/chocolate-confectionery-china-june-2016

Oxford Scholarship Online 2016

http://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780198726449.001.000

1/acprof-9780198726449-chapter-9

Financial Times 2016

https://www.ft.com/content/d7db745e-52a3-11e6-9664-e0bdc13c3bef

South China Morning Post 2016

http://www.scmp.com/business/companies/article/2110537/new-generation-chocoholi

cs-may-turn-china-major-chocolate-market

Mintel 2016


73

http://www.mintel.com/press-centre/food-and-drink/chocolate-eaters-full-of-beans-co

nsumers-around-the-world-value-the-psychological-benefits-of-the-treat

William Reed 2016

https://www.confectionerynews.com/Article/2016/01/12/China-s-chocolate-brands-fin

d-it-hard-to-enter-the-market

Ebrun 2016

http://www.ebrun.com/20160923/193881.shtml

Daxue Consulting 2016

http://daxueconsulting.com/chocolate-industry-in-china/

The Silk Initiative 2015

http://thesilkinitiative.com/chocolate-in-china/

中国商务新闻网 2017

http://www.comnews.cn/focus/5a0199f4cd91893036a4c4df


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Italian Trade Agency – ITA

Italian Trade Agency - ITA is the government organization which promotes the internationalization of Italian companies,

in line with the strategies of the Ministry of Economic Development.

ITA provides information, support and advice to Italian and foreign companies, helps to develop, facilitate and promote

Italian economic and trade relations with foreign countries, focusing on the needs of SME, their associations and

partnerships.

ITA operates worldwide from a large network of Trade Promotion Offices linked to Italian embassies and consulates

and working closely with local authorities and businesses. ITA provides information, support and consultancy to Italian

companies on foreign markets, promoting and fostering export and cooperation in all areas - capital goods, consumer

goods and services – with the target of increasing and making more effective their presence on international markets.

ITA provides a wide range of services overseas helping Italian and foreign business to connect with each other:

identification of possible business partners; bilateral trade meetings with Italian companies, trade delegation visits to

Italy; official participation in local fairs and exhibitions; forums and seminars with Italian experts.

The Italian Trade Agency - ITA has been in the People’s Republic of China for 52 years with now 4 offices respectively

in Beijing, Shanghai, Canton, Hong Kong organizing hundreds of promotional activities every year to enhance the

relationship between China and Italy.

The Italian Trade Agency - ITA Offices in China

北京代表处 BEIJING

6th floor, Unit 1, Sanlitun Diplomatic Residence Compound, 1 Gongren Tiyuchang North Road, Chaoyang district,

Beijing 100600

Tel: (010) 6597 3797 E‐mail: [email protected] Website: www.italtrade.com

上海代表处 SHANGHAI

Room 1902 ‐ 1903, The Center, 989 Changle Road, Shanghai 200031


广州代表处 GUANGZHOU

Unit 3203, International Finance Centre (IFC) No.5 Zhujiang West Avenue, Guangzhou 510623


香港代表处 HONGKONG

Suite 4001, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong


market overview on gelato, coffee and sweet … · market overview on gelato, coffee and sweet food...

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