Yoghurt in China – innovative but old is still hip

Yoghurt is the most widely acceptable dairy product among Chinese consumers.

Yoghurt has always been one of the more popular dairy products in China. The value of the Chinese yoghurt market for 2017 is estimated at RMB 89 bln. An important reason is that it is easier to digest by people with lactose intolerance. Yoghurt is also less ‘creamy’ in taste that liquid milk, and lacks the alien smell of most Western cheeses.

The Chinese yoghurt market is dominated by the two Inner Mongolian giants Yili and Mengniu and their Beijing cousin Sanyuan and Shanghai-based Bright as the Benjamin. The following table shows the yoghurt market shares of the major companies in January 2018.

Company Share (%)
Mengniu 28
Yili 27
Sanyuan 21
Bright 15
Tianrun 3
Junlebao 3
Yiguo Fresh 1
Weiquan 1
Others 1

Old yoghurt newly formulated

However, even though a large variety of yoghurts is available in the local supermarkets, Chinese consumers have started to grow bored with the relatively sweet and rather liquid products.

To counter the demand for a new type of yoghurt, a number of Chinese dairy companies started launching more viscous products a year and a half ago, resembling products like Greek yoghurt or quark. In fact, Yili (Inner Mongolia) has launched a Greek yoghurt early 2016 (see photo). They are market as ‘old yoghurt’, trying to create a ‘traditional’ image; yoghurt as it originally used to be.

YIliGreek

 

Huishan Dairy (Liaoning) has launched a type of Russian yoghurt early 2017, branded Wolingka.

After so many food safety incidents, an investigative journalist of the Beijing Evening News purchased old and regular yoghurt of three leading brands, to compare the ingredients used in each product, as listed on the packaging. He has furthermore interviewed a number of experts in this field.

The results allow us to have a look into the kitchen of the present day top producers in this industry in China, and one with a rare degree of detailedness. We will start with offering a translation of the information of the 8 products (4 brands of Old Yoghurt and 4 types of normal yoghurt of the same brands). For each product, the following information will be provided: brand and product name, ingredients, and price. I will then summarise the judgments of the journalist and the experts and end with some comments from my side.

 

Junlebao

Traditional Old yoghurt Raw milk, sugar, whey protein powder, streptococcus thermophilus, lactobacillus bulgaricus additives (HPDSP, gelatin, pectin, monoglyceride, aspartame, acesulfame-k) RMB 2.48/139 gr = RMB 0.018/gr
Yoghurt Raw milk, streptococcus thermophilus, lactobacillus bulgaricus, additives (HPDSP, gelatin, pectin, aspartame, acesulfame-k) RMB 10.50/800 gr = RMB 0.013/gr

 

Bright

1911 100 years Old Yoghurt Raw milk, sugar, whey protein powder, streptococcus thermophilus, additives (HPDSP, gelatin, pectin, agar, food flavors) RMB 4.90/160 gr = RMB 0.031/gr
Yoghurt (sugar free) Raw milk, whey protein powder, streptococcus thermophilus, additives (HPDSP, gelatin, pectin, agar, food flavors) RMB 8.80/800 gr = RMB 0.011/gr

 

Mengniu

Inner Mongolian Old Yoghurt Raw milk, sugar, whey protein powder, thin cream, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin, agar) RMB 3.80/160 gr = RMB 0.024/gr)
Yoghurt Raw milk, sugar, lactobacillus bulgaricus, streptococcus thermophilus, additives (HPDSP, agar, aspartame, acesulfame-k) RMB 8.00/800 gr = RMB 0.01/gr

 

 

Yili

Old yoghurt Fresh milk, sugar, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin, diacetyl tartaric acid ester of mono(di)glycerides, HPDSP, pectin, acfesulfame-k, aspartame) RMB 3.95/15o gr = RMB 0.026/gr
Probiotic plain yoghurt Fresh milk, sugar, whey protein powder, streptococcus thermophilus, lactobacillus bulgaricus, bifidus, lactobacillus acidophilus, additives (HPDSP, pectin, gelatin) RMB 10.90/800 gr = RMB 0.014/gr

 

Sanyuan

Old Beijing plain yoghurt Raw milk, sugar, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin, diacetyl tartaric acid ester of mono(di)glycerides, pectin, xanthan) RMB 3.80/180 gr = RMB 0.021/gr
Plain yoghurt Raw milk, sugar, streptococcus thermophilus, lactobacillus bulgaricus, additives (gelatin) RMB 9.50/800 gr = RMB 0.012/gr

 

The journalist’s findings

Retailers generally like the Old Yoghurt, which they describe as ‘selling itself without any marketing effort’. Most consumers interviewed while buying it state that Old Yoghurt has an ‘original’ taste and ‘reminds one of the past’.

The price difference is significant. It is smallest for Junlebao, but for the other brands, the Old Yoghurt is on the average twice as expensive per gram as the regular variety.

However, these differences in price are not reflected in the lists of ingredients. Actually, these are remarkably similar for the Old and regular varieties. Moreover, the differences between the various brands are also very small. Even more peculiar is that an ingredient that is typical for Old Yoghurt in one brand is typical for the regular variety for competitive brand.

Apparently the only real difference between these two types of yoghurt is that dosage rates of thickeners, giving Old Yoghurt the thick mouth feel that traditional yoghurt used to have.

The experts’ opinion

The journalist has interviewed a number of dairy scientists on this topic. All agree that Old Yoghurt is a ‘concept’ rather than a real product. Real traditional yoghurt was a solidified milk, produced by fermenting raw milk with certain bacterial cultures in stone jars. There is nothing mysterious about it.

All brands of Old Yoghurt described by the journalist contain gelatin; and so do even some of the regular yoghurts. The thicker mouth feel is thus emulated by means of additives. The current Old Yoghurts are certainly not healthier than the average yoghurts.

My comments

This is a fascinating discussion. Actually, in European regular media we rarely find such detailed reporting on the use of food ingredients to ‘construct’ images of food products. Evidently, the food safety incidents that have taken place in China during the past couple of years have sensitised the awareness of Chinese consumers to an extent that consumer associations in Western countries can only dream of.

The issue revealed here by a Chinese journalist is by no means a typically Chinese phenomenon. One can buy semi-finished muffins and other types of cake in Europe, than can be baked at home to enable consumers to serve hot freshly baked muffins to their guests. TV commercials advertise these products showing people in the street smelling that (grand-)mother is baking cake. We are not aware of protests by consumers or consumer associations about such commercials. What European consumers seem to miss is how it is possible to smell a cake being baked from such a large distance.

Our ‘(grand-)mother’s apple pie’ is also emulated with premixes containing artificial flavours. These are further combined with emulsifiers and other additives, to ensure that even the most inexperienced person can bake such a pie or muffin. These additives are all approved for use in food, but so are the ingredients of Old Yoghurt in China. The Chinese journalist is not exposing excessive use of ingredients or the use of illegal additives. He is simply pointing out that consumers need to be aware of the fact that current Old Yoghurt is not related to the traditional thick yoghurt that Europeans use to eat when they were young. In this respect, Chinese consumers and media seem to be a step ahead of their European counterparts.

A few days after this publication on Old Yoghurt, another article appeared interviewing two more dairy experts. Their judgment was significantly milder. Old Yoghurt was first launched by a relatively small company in Qinghai, a region where people are traditional consumers of dairy products. Once that product became a success, it was imitated by dairy companies all over China. However, these companies lacked the skills to produce a thick type of yoghurt in the traditional way. The move to thickeners is then easily made.

The experts further point out that gelatin, starch and most other thickeners are natural products that are used in a large number of foods, and even in the kitchens of many consumers. Their use as food ingredients has been approved and there even is no maximum dosage rate for this kind of ingredients. The dairy experts do point out that there are better ways of producing a thicker kind of yoghurt, like lowering the water content of the milk. This requires more technical skills than adding thickeners. The current problems of Old Yoghurt in China are therefore directly related to the large number of relatively small companies, lacking skilled staff.

Recent developments

The most recent development is that the more and more producers are replacing the term ‘old yoghurt’ with other fancy names. Yili has launched a ‘Pureday Clotted Yoghurt’ and Junlebao a ‘Laojuezhuang European Sour Cheese’ (laojuezhuan literally means ‘cheese estate’. The names and design of the packaging shows that the basic proposition, that these are traditional European products, is now emphasised even more than before.

PuredayLaojuezhuang

The formulations have not changed dramatically:

Yili’s ‘Pureday Clotted Yoghurt’ Sugar, whey protein, fresh milk, butter oil, egg yolk powder, additives (gelatin, DATEM, HPDSP, pectin), flavours, streptococcus thermophilus, lactobacillus bulgaricus RMB 5.50/138 gr = RMB 0.039/gr
Junlebao’s ‘Laojuezhuang European Sour Cheese’ Sugar, whey protein, fresh milk, condensed milk, additives(gelatin, DATEM, HPDSP, pectin, xanthan), lactic acid culture RMB 4.70/139 gr = RMB 0.034/gr

Organic yoghurt

Organic yogurts are proving popular for health-conscious office workers and young parents. Discerning shoppers seem willing to pay that little bit more for the right products as supermarkets start stocking an array of upmarket brands. Classy Kiss, a yogurt rolled out from Green’s Bioengineering (Shenzhen) Co Ltd, posted significant sales growth in third and fourth-tier markets. It recently launched an organic brand, which sells at around RMB 14, one of the most expensive products from its dairy range. Earlier, it also launched a yogurt designed to help improve the digestive system after a meal. The company hopes it will be able to cash in on the growing demand for healthy products. Sales of functional and fortified yogurts in China are expected to rise 23% to RMB 43 bln in 2017 compared to 2016. By 2022, sales are expected to surge 56% to RMB 75 bln.

Drinkable yoghurt for the young

Younger Chinese consumers have taken a fancy to creamy, sweet, flavored yogurt and yogurt-based drinks. Category sales have surged about 20% annually since 2014 to reach RMB 122 bln in 2017. Chinese consumers perceive yoghurt as “nutritious”, “helps to boost immunity”, “easy to digest” and “suitable for children and the old”. Yogurt has become a leading product in the domestic dairy market. But compared to other countries, yogurt consumption in China is relatively low at 3.43 kg per person per year (Japan leads with 9.66 kg and the figure for the United States is 4.92 kg). The recent uptrend in yogurt sales in China has positive implications for the larger dairy market. Overall dairy sales in China are expected to exceed RMB 480 bln by 2022 on a compound annual growth rate or CAGR of 6.6%.

Le Pur yoghurt

A noteworthy new arrival on in China’s domestic yoghurt industry is Le Pur. The name embodies the company’s simple and down-to-earth ambition of providing pure and delicious, quality yoghurt. With its dairy imported from countries such as the UK and New Zealand, and other ingredients, such as freshly-picked blueberries sourced from Shandong Province, hazelnut jam from Germany and vanilla from Madagascar, Le Pur aims to provide only “genuine ingredients.” Le Pur’s founder and CEO Denny Liu, a graduate of the Wharton School and a former employee of the Blackstone Group. Liu was also a special adviser to world leading industrial companies like PepsiCo. In late 2014, Liu gave up his career and started to make dairy from scratch. Within a year, he started Le Pur and gained over 40,000 fans on Le Pur’s official Sina Weibo and WeChat public accounts. So far, the number of fans has grown to around 320,000. Just a few months after launching Le Pur, Liu branched out into online to offline operations, and the company’s daily sales volume grew to around 1,000 bottles, according to cyzone.cn, a news platform for start-up businesses in China, on May 10, 2015. One of Le Pur’s marketing strategies is its down-to-earth interaction with consumers. In their concept store in Sanlitun, they showcase the yoghurt’s production line in a 30-square-meter room. The store has never lacked visitors. Le Pur also involves its customers in the choice of flavour and package design.

Salty yoghurt

Terun Dairy (Xinjiang) surprised the market by launching a new type of salty yoghurt late 2018. This flavour fits in with the worldwide vogue for salty sweets, like salty caramel or salty chocolate.

Related items in this post:

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

 

 

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Infant formulae in China – a showcase of Chinese food policy

If you want to understand the basics of Chinese food policy, in particular in relation with foreign products, study this post.

Developments in this business have been literally dramatic, and it is directly related to the most precious item of the majority of adult Chinese: their only child.

Melamine

A synopsis of what had happened from 2008 up to the present day.

In the year of the first Chinese Olympics it was discovered that several brands of domestic infant formulae contained melamine, a compound that make the protein content of milk appear higher in the standard tests as conducted by dairy companies. It caused about 300,000 babies to get seriously ill, with a small number of deaths.

As a result, the market share of the domestic brands dropped even lower that it already was at that time.

Hubris

Foreign brands believed that a Golden Age had come, in which they could virtually set the market price of formulae in China. European and American brands increased their prices almost every couple of months, without naming a valid reason.

Chinese consumers were so eager to get their hands on foreign products, that Chinese on foreign trips were asked by the relatives to buy up any formulae they could get their hands on, as products there were much cheaper than in Chinese supermarkets. In countries like the UK or The Netherlands, quotas were promulgated for the number of packagings single customers could buy at one time.

Then the gods punished the foreign suppliers for their hubris. Fonterra came with the news that of its whey powder could have been contaminated with botulism. That shocked China.

Leveling the playing field

The Chinese authorities grabbed the momentum of the falling consumer confidence in foreign formulae to start a media campaign trying to restore the reputation of domestic product.

To support this, they launched an investigation into monopolistic activities by foreign suppliers of infant formulae. Most of them were found guilty, and those who have not fully cooperated with the investigation, were heavily penalized.

The most recent problem are the accusations against Danone that it had bribed hospital staff to feed babies first with their Dumex formula, to get them hooked on that brand.

Yesterday, a news item in the Chinese media reporting about a survey among young parents noted that the latter are still more confident in foreign formulae.

Who are the guilty parties here then? I believe all of them.

The domestic suppliers have forfeited their favourite position with relatively low cost to produce good, generic perhaps, but good, infant formulae.

The foreigners have been too greedy. The constant price hikes increased the financial burden for young parents. Without those unreasonable price increases the authorities would probably have left their high market shares untouched.

The peculiar contamination incident at Fonterra was the dead blow for the reputation of imported formulae. It is not only something a market leader should never let escape attention, the time elapsed between the first signals about possible contamination and the publication by Fonterra was measures in months.

Chinese companies like Sanlu were heavily criticized in the Western press for at first trying to hide the first reports about health problems, not to spoil the national Olympic party. The same media were a lot milder towards Fonterra.

The Dairy Association of China (DAC) has begun to promulgate ‘state endorsed milk powder manufacturers’. Here, ‘milk powder’ mainly refers to infant formulae. 12 have so far been stamped this way. Others are allowed to produce as well, but the state guarantees the quality of the suppliers on its shortlist. It will surprise no one that China’s top dairy company Yili (see the item on China’s top brands of 2014) heads the list.

The best that can come out of this mess is that there now is finally an opportunity that the Chinese market for infant formulae becomes a level playing field in which domestic and foreign brands can compete fairly.

The latest measure, promulgated in January 2016, is that infant formula makers are not allowed to be active in China with more than 3 brands or 9 different products.

First victims of the new policy

The first victims of the new playing field (level or not) have already presented themselves. Yashili International Holdings Ltd the Dumex infant milk formula unit from Danone SA in July 2015. Yashili is 25% by Danone and one of China’s top 10 infant formula makers by sales. Financial terms weren’t disclosed, but Danone will use proceeds to buy shares in milk producer China Mengniu Dairy, which owns an indirect 51.04% stake in Yashili.

Inbound foreign investment- new style

Recent statistics seem to confirm that it works. China has imported 78,893 mt of infant formulae during the first 8 months of 2014. This is happening in spite of recurrent media reports about batches of imported infant formulae being rejected by the Customs inspections.

A number of international players try circumvent those problems at the customs through setting up local production.

FrieslandCampina of the Netherlands entered into a joint venture with Huishan Dairy (Liaoning) to jointly produced infant formulae in October 2014. The joint venture will own Huishan’s facility in Xiushui (Liaoning). During the obligatory ceremony, the Dutch partner’s CEO said that he was ‘proud that FrieslandCampina will be part of the first joint venture between a Chinese and a foreign dairy company that will locally source, manufacture, market and distribute infant milk formula’. That statement called for correction, as a number of international investors have preceded FrieslandCampina, with varying results. A few years later, mid 2017 to be precise, the joint venture got into serious problems, when the Chinese partner Huishan was accused of fraud. FrieslandCampina opted to buy out their local partner early 2018 and now operate a wholly foreign owned company alongside their partner. This situation is far from ideal, as it renders FrieslandCampina’s local production in China extremely vulnerable.

Later that same month October 2014, Danone announced that it was to subscribe to a private placement by Yashili, one of China’s leading infant milk companies. Upon completion of the subscription, Mengniu, currently Yashili’s majority shareholder, will hold a 51.0% equity interest and Danone will hold 25.0%. Danone and Mengniu want to use this expanded alliance to grow Yashili and develop a wide range of products that meet the very highest standards in this category. Through their alliance, Danone, Mengniu and Yashili intend to expand and strengthen their cooperation in the infant milk formula business in China. The parties will study the possibility of a minority equity investment by Yashili in Danone’s subsidiary Dumex China.

Outbound foreign investment – recent but rapid

A number of Chinese companies try to overcome the problems in the industry by acquiring foreign infant formula producers. Formulae imported from those plants then have a hybrid Chinese and foreign identity.

Bright Dairy & Food (Shanghai), China’s third-biggest dairy company by volume, has bought a majority stake in Canterbury milk processor Synlait Milk for $82 million in 2010. Synlait, which abandoned a planned $150 million share sale in 2009 due to a tepid response, is a joint owner of its processing company with Bright Dairy, while keeping and operating its farms through a separate company.

In 2014, Bright bought a majority stake in the Israeli manufacturer of infant formulae Tnuva.

September 2014, Guangdong real estate group Evergrande (which also owns the province’s main football team) acquired the New Zealand company Cowala Dairy.

Internet interaction analysis

An interesting development is that the China Statistical Information Service Centre (CSISC) has started analysing online consumer interaction about brands. CSISC published the following table showing consumer interaction about infant formulae in the 2nd quarter of 2014 today (19/9/2014).

infform-ConsumDisc14-9

The brand most discussed is Junlebao (also featuring in my blog on old yoghurt), followed by Dumex and Mead Johnson. The brands that the central government has been heavily supporting in the above described campaign, like Yili, ranks 7. Obviously, brands can also turn up high in this graph, because consumers may share negative experience with it. Still, CSISC analysts believe that this outcome shows that newcomer Junlebao’s low price strategy is reaping results. Junlebao received class A certification of EU’s BRC Food Safety Global Standards in September 2014. Junlebao’s milk powder would be qualified to enter CIES’ 200 supermarket groups in the world. I would like to add that it also proves the central authorities right: the Chinese market for infant formulae is a level playing field now. The international brands are still favourites, but local entrepreneurs have ample space to move, as long as the get their strategy right.

Top imported formulae of 2016

In spite of all the attempts to invigorate the domestic industry, imported formulae remain strong. The following the table shows the development of those import in the past few years.

Period Volume (mt)
2014 121,000
2015 176,000
2016 221,000
2017 Jan – Sept. 200,000

Here is the list of top imported formulae of 2016 as published on a major Chinese food site.

Rank Brand
1 Aptamil
2 Nutrilon
3 Babybio
4 Hipp
5 Bellamy’s organic
6 Karicare
7 Abbott
8 Wyeth
9 A2

More babies, bigger market

The market for infant formulae has changed in China, when the government decided that couples who both were only children were aloud to have 2 children. Even though fewer eligible couples responded positively than expected during the first few years after the decision, this is now gradually leading to a small baby boom. That and the continuing growth of an affluent middle class, has boosted the sales of most players in this market. However, this does not mean that China will once more become the paradise of multinationals in this field. It is a genuine level playing field now, and a growing one, with opportunities for all companies that are willing to play by the rules.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

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