INSIGHTS
Monthly Digest: China Food Sector in July 2022
BY Ye ChenAug 09, 2022
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Market events

1.       One of China’s top e-commerce platforms, JD, released its 2022 Imported Consumption Trend Report at the 2nd China International Consumer Products Expo. The report shows that young people are the leading consumption group for imported products, accounting for about 50%. The 46-55 age group’s consumption enthusiasm for imported brands quickly rose. Compared with 2019, the transaction value of imported products produced by the 46-55 age group has increased by 283%.

Also, the high-tier market is still the main consumption power for imported consumer products. In the first half of 2022, the turnover of imported brand goods in the first- and second-tier markets accounted for 55%.

2.       Recently, Tmall Global launched a probiotics global supply chain plan. The plan unites global health product companies (such as Life-Space, Nestle, ISDG, etc.), the world’s six major probiotic producing companies (such as IFF, Novozymes, etc.), and five major probiotics factories (such as Aland, ADM, etc.), to accelerate the development and customization of probiotics products for Chinese consumers. The target is to develop 1,000 new imported probiotic products in the next three years.

Company dynamics

1.       Chinese domestic nutrition brand UNOMI completed its Pre-A round financing. It focuses on providing nutrition solutions for young consumers. Now its products cover whiten pills, collagen peptides, eatable probiotics, etc., with sales reaching about 100 million yuan last year.

2.       Coffee brand Manner cooperated with the high-end skincare brand Helena to launch a successful co-branding campaign. HR successfully improved its exposure, among young consumers, and its WeChat index increased by 2,123.30% during the campaign. As a boutique coffee brand targeting young consumers who live a fashionable and high-end life, Manner has become a popular cooperator for many brands that want to access young consumers in China.              

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MANNER’s themed coffee shop with HR

3.       Eurbest successfully registered two goat infant formula brands, Zhuoyang and Nuo You Yang, after being acquired by Danone Group four months ago. These two brands are Danone’s first batch of goat milk powder products that meet the new national standard for infant formula, implying this baby nutrition giant’s expansion in the goat infant formula market.

4.       Chinese emerging chocolate brand Chocday completed two consecutive financing rounds of over 100 million yuan in 2022Q2. Focusing on low fat and healthy diet, Chocday has been ranked Top 1 in Tmall’s black chocolate category for three consecutive years, with an average monthly sales of over 10 million yuan. Besides the excellent online performance, it has entered over 100,000 offline distribution channels.

5.       Pepsi officially entered the metaverse by launching a series of campaigns, including releasing its virtual idols, building a virtual world, and launching NFT products. Through cooperated with TMELAND, a virtual music carnival, Pepsi exclusively created its first show in China, Metaverse Live House. In the live show, Pepsi’s virtual idols, TEAM PEPSI, performed Pepsi’s first metaverse theme song – “Pepsi Cypher”. In addition, Pepsi released four NFT products that consumers can get through its WeChat mini program and Tmall store.

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Pepsi's virtual world

6.       Chinese dairy giant Yili and Netherlands dairy giant Royal Friesland Campina have reached an agreement that Yili would acquire the latter’s infant nutrition production base in Shenyang. This production base is Friesland Campina’s only infant formula manufacturing factory in China, implying that all infant formula products from Friesland Campina sold in China will be imported from overseas in the future.

7.       According to a strategic cooperation between Tims China and Easy Joy Coffee, Tims Coffee will open mini coffee shops in some Easy Joy coffee stores. Also, the two parties will jointly develop a ready-to-drink coffee through IP cooperation, which will be sold in Easy Joy convenience stores nationwide.

Tims China owns the exclusive franchise rights of the Canadian coffee brand Tim Hortons in mainland China, Hong Kong S.A.R, and Macau S.A.R. Easy Joy is China’s largest convenience store chain fully controlled by Sinopec Group, with more than 27,800 stores and 190 million members in China.

8.       On July 28, 2022, Coca-Cola announced that starting from August 1, Sprite, one of Coca-Cola’s biggest brands, is transitioning from its classic green bottle to clear colorless plastic to increase the material’s likelihood of being remade into new beverage bottles. More details on ChemLinked.

9.       American yogurt giant Chobani has a specific plan to enter the Chinese market. The first product in China will be the “Pot” series, mainly distributed online. Besides, it will cover the offline channels in southeastern China first.

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Chobani’s products

Interesting & noteworthy new products

1.       French cheese giant Kiri released a new product in the Chinese market, Cheese Cube (奶酪小方). The calcium content in Cheese Cube is about 3 times that of ordinary milk, and its protein content is about 2.5 times that of ordinary milk.

According to Euromonitor, in 2021, China's cheese retail market sales reached 12.3 billion yuan, with a compound annual growth rate (CAGR) of 23.85% in the past five years. According to the China Dairy Association, the domestic cheese market will reach 15 billion yuan in 2022. However, the main consumption scenes for cheese in China is catering and children snack, so the cheese market still has much room to explore.

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Cheese Cube from Kiri

2.       The ultra-high-end milk powder brand Nestle BEBA has released a liquid milk product for infants on Tmall Global. This product contains five major HMO active nutrients. Also, its production and packaging follow the German safety standards, using UHT sterile can and packed in a vacuum environment with negative pressure. Regarding logistics, Nestle BEBA uses SF’s most advanced cold chain to transport products from overseas. With such a high cost, its price is also high, about RMB 200/ bottle (200 ml), targeting high-net-worth families in China.

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Liquid milk from BEBA

3.       Chinese bakery chain brand Holiland cooperated with Harry Potter to launch its Middle-autumn Festival limited gift box. With the theme of “You Can Always Trust Magic,” this gift box adopts many magic elements from Harry Potter, such as Golden Snitch, Hedwig, and Chocolate Frog.

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Holiland’s gift box

4.       Oat milk giant OATLY has expanded its business to other categories by cooperating with other famous brands:

OATLY and KFC co-launched oat milk ice cream with a selling point of low fat.

OATLY and WANDA CINEMA, the famous Chinese chain cinema brand, co-launched oat milk popcorn. According to the ad, this new product is rose-flavored, plant-based, non-fried oat milk popcorn, with dietary fiber, but without trans fatty acids and added flavors and colors.

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Left: ice cream  Right: popcorn

5.           Emerging consumer brand WEFAY launched “fragrance water”, which is a healthy and aromatic drinkable water. By launching this product, WEFAY plans to break the border between beverage and perfume to develop a drinkable perfume to help people with bad breath. image008-2.png

WEFAY’s fragrance water

Some impressive data

1.       In 2022H1, Thailand exported over one million tons of fruits to China. Thailand’s fruit accounted for about 50% market share of the Chinese imported fruit market. China mainly imports durian, coconut, and longan from Thailand.

2.       According to Tmall data, the sales of coffee on Tmall increased by 22% YoY in 2022. Coffee liquid performed extremely well, up by 215% YoY.

3.       According to Tmall, more and more consumers are paying attention to and choosing hypoallergenic milk powder. In 2021, the turnover growth rate of Tmall hypoallergenic milk powder on Tmall was 18 times that of ordinary milk powder. The sales of moderately hydrolyzed milk powder sales increased by 500% YoY. The sales growth of deeply hydrolyzed milk powder was as high as 1,000% year-on-year.

Financial results

Nestle   2022H1

1.       Total reported sales increased by 9.2% to CHF 45.6 billion.

2.       Zone Greater China reported low single-digit organic growth (2.3%), impacted by COVID-19-related movement restrictions. Growth was supported by robust demand in e-commerce channels and continued innovation.

In Greater China, by product category, coffee posted mid-single-digit growth. Starbucks products and Nescafé soluble coffee saw continued momentum. Culinary reported mid-single-digit growth, helped by increased distribution and new product launches. Confectionery recorded mid-single-digit growth, led by strong sales development of Shark wafer chocolate and solid demand for Hsu Fu Chi. Purina PetCare posted high single-digit growth, with particular strength of Mon Petit, Fancy Feast, and recently launched DentaLife. Growth in Infant Nutrition turned positive, with improving market share trends. The business saw a strong recovery in the second quarter, particularly for NAN and illuma. Nestlé Professional reported a sales decrease, reflecting restrictions on out-of-home channels.

Friesland Campina 2022H1

1.       Revenue rose from 5.5 billion to 6.6 billion euros. Operating profit increased from 130 million to 328 million euros. Net profit increased by 77 million euros to 139 million euros due to higher commodity dairy prices and the recovery in infant nutrition activities.

2.       Revenue of the Specialised Nutrition business group increased by 18.6 percent to 612 million euros compared to the same period of the previous year (first half of 2021: 516 million euros). Although Friso’s market share remained stable, revenue and profit in China rose significantly, in part due to the strong growth of Friso Prestige. The revenue and market share of the growing ultra-premium segment improved due to the further expansion of distribution to smaller cities in China.

Regulatory compliance

1.       On July 1, 2022, China National Center for Food Safety Risk Assessment (CFSA) announced to solicit public feedback for one new food raw material, one new food-related product, and eight new food additives. More details on ChemLinked.

2.       On July 1, the General Administration of Customs of China (GACC) issued an announcement allowing the import of fresh citrus from Zimbabwe that meets relevant requirements, including sweet oranges, tangerines, grapefruits, lemons, limes, etc.

3.       On July 12, 2022, the Administration for Market Regulation (SAMR), together with China’s Ministry of Agriculture and Rural Affairs (MoARA), China National Health Commission (NHC), and the GACC, released "Provisions on Investigating and Punishing the Illegal Acts of Manufacturing Foods Containing Gold/Silver Powder or Foil," which comes into effect on the same day. More details on ChemLinked.

4.       On July 8, 2022, GACC announced that emergency preventive measures to suspend import declaration would no longer be implemented for overseas food manufacturers whose cold-chain foods exported to China have tested COVID-19 positive. In the meantime, GACC released a notification to improve the COVID-19 prevention and control measures over imported cold-chain food products, so as to ensure the safety of supply chains. More details on ChemLinked.

5.       On July 28, 2022, NHC jointly with SAMR unveiled 36 new national food safety standards and 3 amendment sheets. The 36 new GB standards include one standard for contaminants limit, three for food products, three for food-related products, nine for nutritional fortifiers, nine for food testing methods and 11 for food additives. More details on ChemLinked.

Ye Chen
ChemLinked Research Analyst
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