Official data shows that China’s largest food processing companies made a combined profit of 535.96 trillion yuan (or 82.92 Billion U.S. Dollars) in the first eleven months of 2020. This was 6.8% more than last year.
According to the Ministry of Industry and Information Technology, (MIIT), profit growth in these enterprises, which have annual revenues exceeding 20 million yuan, was 4.4 percentage point higher than all other industrial sectors.
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MIIT data revealed that combined profits of agricultural and sideline product processing companies reached 169.35 trillion yuan. This is 8.9 percent more than the company’s annual earnings. However, the combined profits of tea, liquor and beverage manufacturers increased 5.6 percent to 208.02 trillion yuan.
Retail sales of beverages jumped 21.6% year-on-year in November 2020. Grain, oil, and food commodities saw a 7.7 percent increase.
China Food industry
The combined profits of China’s largest food processing companies increased 9.4 percent in the first ten months of 2020 to 485.26 billion Yuan.
Find the right snacks to sell in China
The growth of the snacks market in China is due to both increased spending power and consumer willingness to eat, According to Qianzhan the Chinese snack market will continue to grow at a compound rate of more than 6%. It was valued at 2.7 billion Yuan in 2020 and is projected to reach 4 trillion yuan by 2025. The popularity of meal replacements has increased in China’s snack market.
Snacking Habbits in China
Important factor is nutrition more than 80% respondents place health first when selecting snacks. 88% of them are millennials; 78% pay attention to freshness. The millennial generation accounted for 85% of this percentage. These are just a few reasons why people snack. Eating snacks is a great way to strengthen relationships by sharing food.
China’s fast-growing food and beverage (F&B), market is impressive. Revenue is projected to reach US$176bn in 2021. This represents 63% of global F&B revenues. The annual revenue growth rate between 2021-2025 is 8.38%.
These are our three key areas for growth and change in the F&B sector. F&B brands with a strong brand image and differentiated products will have an advantage over their competitors.
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Ongoing consumption upgrade in China
China’s current consumption upgrade trend is not new. High-end consumers in cities of high quality and luxury are buying more brand-name products, while those living in lower-tier cities are opting for cheaper products. The trend is continuing and growing, even though the COVID-19 pandemic may have slowed spending. Similar trends are being observed in the F&B sector. Consumers from China are more educated and wealthy and have a greater focus on their health and better quality of living. Products that promote healthier lifestyles are in high demand.
This trend is apparent in all sectors of the beverage industry. China’s largest beverage segment is packaged water. Purified water holds the largest share, but natural water and natural minerals have seen a rapid growth in recent years due to growing health consciousness. In recent years, demand for nutritional drinks, cleanse juices, and teas with less sugar or none has been higher.
A survey on food reveals that 86% consumers in tier 1 and 2 cities consider food safety when buying food. Fresh foods such as fruits and vegetables are high-demand because they are natural and free of chemicals. Natural healthy packaged food like salads is another area of growth.
Consumers’ F&B choices are influenced by safety and health, but there is also a preference for the satisfaction that comes with consuming premium brands. Consumers are increasingly valuing experience and enjoyment when it comes to alcohol beverages and will pay more to get the products they want. Premium baijiu will see a higher growth rate in 2021, and beyond. However, premiumisation is the main driver of Chinese beer brewers’ profit growth.
Companies that offer a comprehensive and premium range of products which focus on the “authentic, natural, healthy and quality” themes are in the sweetest spot for catering to Chinese consumers’ premiumisation demand in the F&B segment.
E-Commerce in China a good way to make money in China
Online shopping isn’t a new trend like the consumption upgrade trend. The COVID-19-induced lockdowns have accelerated the adoption of online shopping among consumers. With a penetration rate at 30% by 2020, e-commerce is now an integral part of Chinese consumer shopping behavior.
However, e-grocery penetration rates have remained at 10%. This is likely because fresh produce has a short shelf life and there is a high demand for logistics and convenience stores that sell on-demand products. However, the growth of online shopping habits and the expansion of distribution channels will allow for e-grocery penetration to increase to 33% by 2025.
Opportunities in Franchises in China
The majority of F&B revenue in China comes from non-franchised establishments. This leaves a lot of opportunity to grow franchised brands.
The China Chain Store & Franchise Association estimates that China’s food & beverage (F&B), sector grew 7.8 percent in 2019 compared to 2018.
The U.S. fast-service restaurant (QSR), franchises in China are strong, but they face increased competition from Chinese franchises in categories such as leisure drinks and takeout restaurants.
China’s smaller, less developed Tier 3 or 4 cities may offer less competition for franchisors.
Below is a graph that compares growth rates of franchise stores in China’s larger cities and smaller ones. These stories can be grouped by type: leisure drinks, local-flavor snacks and hotpot and barbecue, bakery and desserts, fast foods, and snacks.
The convenience and quality of online grocery shopping are what younger digitally-savvy consumers want. This shift is not only being adopted by consumers in Tier 1 and 2 cities, but also shoppers in Tier 3-5 cities. They are expected to account for more than half the increase in the egrocery market between 2019-2025.
Challenges in China
-Economic slow down: F&B restaurants are one of the hardest-hit industries by the COVID-19 pandemic. Nearly all restaurants saw a sharp drop in revenue during the first quarter 2020.
-Local Franchise Chains -Chinese brands hold the majority of market share in the Leisure Drinks and Local Flavor Snacks subsectors.