Food and Dairy: Consumers are willing to pay for healthy, lifestyle options
Premiumization lifts category growth
The three food and dairy brands ranked in the BrandZ™ China Top 100 drove a 9 percent increase in category brand value, following a 12 percent increase a year ago. The consistent growth reflects changing consumer behavior, specifically willingness to spend more for products that fulfill lifestyle expectations and health and wellness concerns.
Demographic and social factors, including the aging of China’s population and the increase of out-of-home eating, are depressing traditional food sales, however. FMCG sales volume declined, but a 4.6 percent rise in average selling price yielded a 3.3 percent increase in FMCG revenue, the first increase in at least six years, according to Kantar Worldpanel.
The rise in average selling price resulted from the two-speed nature of FMCG revenue growth in China. In some traditional food categories, revenue is declining or growing slowly. At the same time, revenue is rising for food and non-food categories that meet the desire of affluent Chinese consumers for products that promise quality and additional benefits, such as healthiness.
The premiumization trend has also opened opportunities for Chinese brands. Premium variants of instant noodles have driven the revival of a mature sector that had languished over the past several years because more affluent consumers no longer rely on instant noodles for sustenance, although they can be convinced to purchase them for taste.
Of the three food and dairy brands ranked in the BrandZ™ Global Top 100, Shuanghui, China’s largest meat processor, increased 9 percent in value. Shuanghui, which several years ago purchased Smithfield, the US meat producer, has become more consumer focused, although much of the revenue comes from business customers. Two leading dairy brands, Yili and Mengniu, increased 19 percent and 26 percent respectively.
Both Yili and Mengniu have introduced more premium products, such as yogurts, and other products, like cheeses, that appeal to a Chinese palate more open to Western influence. However, heavy competitive price promotion sometimes offsets the revenue boost gained from premiumization.
Mengniu, in particular, leveraged its relationship with Western dairy partners, Danone and Arla. Yili and Mengniu have focused on reaching deeper into lower tier markets, where consumers are becoming more receptive to premium products, and Chinese brands face less competition from multinationals. Yili plans to expand its positioning and become a brand known not only for healthy dairy, but for a broader range of healthy foods, including cereals and snacks.
Meanwhile, the interest in more premium products, and the ability to afford them, has attracted more imports to China, at least in first tier markets. A brand of Greek yogurt entered the Chinese market with a subscription model, for example. In sub-categories, such as infant milk or milk powder, Chinese consumers still prefer imported brands because of residual food safety concerns. And foreign brands continue to dominate the ice cream sector.
Based in Inner Mongolia, both Yili and Mengniu are partly government owned. Both brands are of strategic importance to China’s global ambitions. A bookend to China’s assertion of leadership in technology, strong food and dairy brands demonstrate that China can produce ample safe and healthy food.
Yili and Mengniu are pursing growth opportunities in Southeast Asia, particularly in Indonesia. Yili bought a majority stake of a well-established Indonesian manufacturer of ice cream and other desserts. Mengniu opened a plant in Indonesia to make healthy beverages and yogurts.
Premium sector offers
Opportunities exist in food and dairy. Kantar Worldpanel analysis has identified the emergence of insurgent Chinese brands, growing because of several factors, including: deeper understanding of local demand; faster decision making; and penetration in lower tier cities where incomes are rising, and consumers now are more willing to purchase premium products. The challenge for multinationals is to increase insight into consumer segments and respond with more innovative products, which can mean adding more premium imports. Often Salient (coming to mind quickly when the consumer considers a purchase), food and dairy brands could benefit by being seen as more Different. Food and dairy brands also have an opportunity to build their Salience as meal occasions expand with growth of the out-of-home eating trend.