China: the world’s biggest ice cream market

Food historians credit China with inventing ice cream and Marco Polo for introducing it to Italy on his return from the Far East.

Ice cream is believed to have been invented in China, but it’s taken more than 2,000 years for the Asian powerhouse to warm up to the frosty dessert. Their version of ice cream was made from a soft paste of tender overcooked rice, combined with spices and milk and then packed in snow to solidify. It probably was more of a gritty ice milk and less like today’s smooth ice cream. China is now the world’s biggest ice cream market, with sales estimated at 4.3 billion litres in 2016. Half (49%) of urban Chinese consumers eat ice cream at home as a snack, compared to four in 10 (39%) who said the same in 2015.

The Chinese word for this cold tread so loved worldwide is an interesting combination of a Chinese stem and a loan word. Bing is the Chinese word for ‘ice’. The jiling part has entered Mandarin from Cantonese, where it is pronounced something like ‘keeling’ or ‘keelam’, which is a local rendering of the English word ‘cream’.

One third of all ice cream bought globally is consumed in China, which became the largest ice cream market in the world in 2014, beating the US by a lick with USD 11.4 bn in sales compared with USD 11.2 bn.

Chinese people spent 54% more on ice cream in 2014 than they did five years earlier, while the US market managed a more tepid 6.6% growth. However, Americans retained their crown as the most gluttonous ice cream consumers in the world, consuming 18.4 litres of the dairy dessert per capita in a year – more than four times more than the average Chinese person’s annual intake.

Rising incomes are driving the growth in China’s ice cream market, helped by the country’s increasingly developed retail infrastructure and facilities for storing and supplying “cool cargo” such as fresh produce, frozen foods and pharmaceutical drugs.

The pace of development, coupled with the immensity of the population, is having an increasing impact on the Chinese ice cream market. However, the vast array of locally produced, low-price brands present a challenge for global ice cream giants looking to develop there. Top Chinese dairy company Mengniu recently launched China’s first yoghurt ice cream.

MnFrozYoghurt

Just two non-Chinese companies make the list of the country’s 10 most popular ice cream brands. Unilever, which owns Wall’s and Ben & Jerry’s, is the fourth biggest company in China with around 3% of the market, while Nestlé holds 1%.

Sales in China are expected to increase to RMB 83.3 billion (USD 13.4 billion) in 2015 and RMB 125.4 billion by 2020

Regional production

The following table shows the production of ice cream in China in 2017, broken down in major administrative region.

Region mt
National 3,783,321
Henan 596,858
Guangdong 525,317
Jilin 325,367
Hubei 319,049
Sichuan 261,499
Guangxi 210,840
Hunan 194,380
Hebei 173,731
Beijing 155,946
Liaoning 132,678
Shaanxi 132,064
Inner Mongolia 112,137
Jiangxi 90,538
Guizhou 87,176
Anhui 77,032
Zhejiang 73,389
Tianjin 72,683
Heilongjiang 71,494
Shandong 68,827
Shanghai 32,300
Xinjiang 29,590
Yunnan 15,841
Jiangsu 15,701
Fujian 8,884

As is the case with many statistics like these, it is useful to also look at the total figure of the cities Beijing and Tianjin and Hebei province, that are geographically one region. The Chinese government is currently conceiving a development plan to (re)integrate those regions. The total volume for ‘Greater Hebei’ would then be 402,360, making it China’s 3rd ice cream region.

Local flavours

Ice cream makers have adopted the products they market in China to the Chinese palate. Most Nestlé Ice cream has a different flavor than in its Western markets. Not as rich or sweet. For the most part at a Chinese Buffet you can find the typical frozen Ice Cream sections for scooping: chocolate, milk/vanilla, strawberry. Then you have red bean (see photo), taro, green tea, sesame seed, green bean, ginger or red date. There is a plethora of fruits in China like longan, lychee, durian, etc., which can all be used to flavour ice cream. Smaller local companies try to experiment with odd flavours, like: ‘sweet green pea’ and ‘tomato-strawberry’ popsicles, to lure consumers away from the major brands.

RebBeanIC

Innovative flavours

A number of local players has started experimenting with flavours inspired by traditional Chinese cuisine. Wufeng introduced a spicy chocolate flavoured ice cream called Mengxiaola in 2016. Moreover, an ice cream store called Global has squid ink flavour and other unique flavours from across the world. Yolk ice cream can be found in Bonus, a Chinese ice cream store in Shanghai. These are all newly invented flavours and consumers are keen on trying them. On a widely used restaurants review and recommendation app called Dianping, Global scored 8.3 on a scale from 1 to 10 in terms of its flavours, which is a pretty high mark.

Agreeing symbolism

Fonterra’s Tip Top ice cream started to be sold on trial through Tmall in June 2016. one of China’s leading e-commerce providers, operated by Alibaba Group. Distribution will be handled by specialist frozen products distributor Zhuhai Ice Technology. It is still too early to report on the launch’s success, but I expect that Chinese consumers will be attracted by the icecream shown this picture, as the tiger is a symbol of strength and energy in Chinese culture.

tiger-icecream

Artisan involvement

The Chinese ice cream market is now so developed, that it is drawing the interest of international chefs. French chef Gerard Taurin, a pastry chef from Normandy, offered his latest creation at Beijing Galeries Lafayette in June 2015. Most of his ice cream is made with unusual, but very Chinese, ingredients, such as jasmine, goji berries, ginger and Sichuan peppers. Taurin’s selection comprises 10 flavours, including black sesame, tapioca pearl, hawthorn fruit, millet, jujube, cinnamon and eucalyptus. His ingredients are inspired by his travels to Beijing, Hebei, Shanxi and Sichuan provinces. He has shared his ice cream with people on the Great Wall, in the Forbidden City and in Beijing’s hutong alleyways to see how Chinese consumers react to his creations.

Taurin

Memory lane

All these innovative products have pushed away older ice creams that used to be produced in the early days of the PRC. This has created a craving among older consumers for flavours from the good old days. I have reported on the return of old brands in previous posts. One local company in Heilongjiang province has launched Dongbei Daban ice cream,playing the nostalgia card to promote its ice cream. Dongbei uses 1980s style packaging to wrap the same simple shaped cones designed from that era. For older customers, this brings back memories of their childhood.

Dongbei

Less sugar, less fat, healthier ingredients

Considering that China has the largest occurrence of diabetes in the world and that obesity is also on the increase, an increasing number of people are calling for healthy or low-fat diets, which facilitates the creation of new ice cream types. Noticeably, frozen yogurt has also become a popular choice in China. The probiotics found in frozen yogurt help conserve some of the nutritional value in ice cream, which is conducive to maintaining beauty, slimming, and digestion. Another example is the “one egg” ice cream introduced by Deshi in 2016. The special ‘’egg + oats’’ ingredients drew a significant amount of attention. Astoundingly, the average daily sales volume of “one egg’’ (see photo) was 2 million in Northeast China in the beginning of 2017.

DIY experience

As Chinese are putting more focus on experience as opposed to the food itself, ice cream is no longer just seen as a mere treat, but as a product of a modern life style. In traditional Chinese mind-sets, eating very cold food is perceived as adverse to health. However, the considerable impact of Western ice cream has changed perceptions. Nowadays, DIY experience ice cream stores is a new strategy to cater to the requirement of customers. Nestlé, Yili , and the Japanese brand Meiji have together invested over RMB 1 billion for developing new ice cream projects in 2016 to win more shares on the market. In May 2017, Magnum reopened its DIY experience shop called “Pleasure Store” in K11 Shopping and Art Center, Shanghai for the third time, which rekindled the enthusiasm of many ice cream lovers. In other cities like Nanjing, Beijing, Chengdu, Pleasure Store also left footprints in the busiest commercial districts like respectively Jinmaohui , Sanlitun and Taiguli in the last two years. The DIY experience does not only endow ice cream with higher value, but also strengthens the ice cream brand and customers relationship.

Prée: extremely tasty and expensive

The best evidence of the money (urban) Chinese are willing to pay for high-end icecream is Prée that opened its doors in Shanghai’s expensive entertainment quarter Xintiandi. This new high-end ice cream lounge claims to use “smart technology” and alleged recipies from “a very low profile three-star Michelin chef”. The cream gets made fresh on site, with black truffles, bourbon, roasted cherries, and other pieces of luxury. The name is said to have been derived from a popular ice cream shop owner in a small Swiss town, on a street called Ai Prée. The owner, this mystery Michelin man, only uses traditional recipes combined with advanced ice-cream technology, the PacoJet. With prices ranging from RMB 42 to 88 for a dressed up ones-scoop cup, it is the most expensive icecream parlour in China, but the customers are raving about the experience. Prée opened a subsidiary in Hangzhou mid 2018.

Trade fair

Ice cream is now big business in China and in particular so for the suppliers of a broad range of ingredients: flavours, sweeteners, emulsifiers, thickeners, etc. This generates a more than enough critical mass for a dedicated trade fair. CICE 2015 – The 11th China International Ice Cream Industry Exhibition will be held in Beijing, April 16-18, 2015. Here, I will only copy the ingredients part of the published scope of this exhibition: specific herbs, flavors and fragrance for ice cream, compound dairy stabilizer for ice cream, natural coloring materials, diet coloring materials, sweetening substances, lactic acid bacteria, specialized & condensed milk essence, special ice cream protein powder & bean powder, other supplements include potato powder, malt essence, fresh cream, dried cheese element, primary dairy products, dairy purification powder, natural fruit powder, chocolate plate, coffee bean, coffee powder, coco fat substitute, nuts, dried fruit.

Downs too – between all the ups

Rising rents and lower profits have forced Haagen-Dazs to close stores in second- and third-tier cities in China in 2015 and 2016 amid a slowdown in the ice-cream market mainly due to a lack of innovation and its inability to keep pace with demand from increasingly sophisticated Chinese consumers. Many Chinese consumers perceive Haagen-Dazs as overpriced. To quote one media article:

‘Two egg-size scoops of Haagen-Dazs icecream costs me RMB 60. I get more value for less by eating two eggs

However, the brand has 380 stores in 84 cities in the country, despite the challenges at markets in second and third tier cities in the country. The company reports it still maintains strong growth in large cities. Revenues in Shanghai and Beijing grew 16% and 13% respectively in June 2016, and it opened more than 60 new stores as well in 2015. Insiders believe that the slowdown is partly due to rising rental and labour costs, which have made it become more conservative regarding expansion. Haagen-Dazs also faces intense competition from many other food service players. Many cafes and coffee shops outperformed Haagen-Dazs thanks to their sophisticated dining environment and rich product availability.

Challenging flavours for the coming year(s)

The authoritative magazine for the Chinese flavour industry ‘Domestic and Overseas Aromachemical Information (Guoneiwai Xianghua Xinxi)’ of June 2016 carries an interesting article on possible new ice cream flavours, based on ideas collected from all over the globe. I will list the flavours mentioned here.

Bacon flavour

Ice cream flavoured with a tincture of bacon, adding a little caramel, to obtain a proper salty-sweet balance.

Beer flavour

An idea from Ireland, reported best in combination with dark chocolate.

Chili flavour

Chili and chocolate already has become an accepted combination, so why not try it in ice cream? Some Mexicans in the US flavour their ice cream with Tabasco. Perhaps Laoganma can get involved in this project.

Celery flavour

The origin of the flavour is closer: Japan. The taste sensation of celery ice cream is reported to be close to that of wasabi.

Garlic ice cream

I have actually tasted this one of my favourite eateries in Amsterdam: the Garlic Queen. It is also a must-eat during the Gilroy Garlic Festival. Chinese are big garlic eaters, so garlic ice cream should have a market there.

TCM ice cream

Last but certainly not least, Tradition Chinese Medicine (TCM) includes a number of herbs that could be used in ice cream. No one would object to turning such a delicacy into a health food.

These ideas provide a rare insight in what Chinese food technologists are thinking about developing new types of ice cream. I will keep you informed about which of these flavours will be turned into a commercial product.

Russian ice cream diplomacy

Russian ice cream has been rapidly gaining popularity in China during the past couple of years. Particularly in vogue are the products of IceBerry and sold in Qing-Feng Steamed Buns (mantou) Shops.

The photo shows a freezer containing the ice creams was labelled “Russia’s national gift”-a phrase which refers to Russian President Vladimir Putin, who brought a few boxes of that as gift for his Chinese counterpart Xi Jinping when they met on the side lines of the G20 Hangzhou Summit in east China’s Zhejiang Province. Some Chinese media are referring to this as ‘ice cream diplomacy”.

The ice cream is priced between RMB 6 to 30, and each store sells an average of 300 ice creams a day. According to Roman Lola, the CEO of IceBerry, the company plans to export 500 mt of ice cream to China in 2017. It will not be an easy trip for the ice cream to travel from Russia to China, as the chilly dessert needs to be moved within a temperature-controlled supply chain. “Compared to high-end ice cream brands in Europe and the US, the Russian ice cream has an obviously benefit on price,” said Wang Xianzhe, a company manager focusing on Russian food imports in China. “The good quality and affordable price, let alone President Putin’s advertising effect, all support the Russian ice cream catching on in China.” IceBerry’s ice cream is reportedly made from high quality milk from the Ural and contains no preservatives or other artificial additives. The Russian export of ice cream to China in 2017 was worth USD 2.7 mln; up 13%.

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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The rise of China’s new coffee culture

You thought that Chinese were tea drinkers? Get on the next plane to China and see them drinking coffee!

Once upon a time every non-Chinese, when asked about the favourite drink of the Chinese, would answer: tea. Foreigners brought coffee with them and introduced that brew to their Chinese friends and business relations. As a result, a number of Chinese in major port cities, where the foreigners were typically concentrated, acquired a taste for that brew as well. Today, tea is still the leader by a massive margin, though coffee is charging forward in leaps and bounds. Manager Wang of Damin Food (Zhangzhou, Fujian), a manufacturer of instant teas and coffees, still remembers that when he was at university in Zhangzhou, there were at most 10 coffee shops in the entire city. When he moved back a couple of years ago, there was one street alone with 10 coffee houses. That’s how things are changing, and we are starting to see real growth outside the metro cities. A trend towards coffee culture has developed over the last half-decade largely through the influence of cosmopolitan Beijing and Shanghai, the drivers of Chinese fashion. Now, the coffee shop has become a common and popular place that many people of moderate income can afford going to. Statistics show that in 2014, China consumed over 500,000 mt of coffee, and the retail sales volume was near RMB 60 billion. There are 13,600 coffee shops, 2,200 associated companies, and 500,000 industry-related employees throughout China. However, the annual consumption amount per capita in China currently is only 5 cups, far behind 300 cups for Japan and Korea, and the world average of 240 cups. This is due to the fact that coffee consumption is large in the cities, but still small to non-existent in the countryside. There is room for an annual increase rate of 15-20% for the coming years.

MaanCoffee

Vietnam major source

Vietnamese coffee beans accounted for 35% of those imported by China in 2017. However, other coffee exporting nations like Colombia and Brazil have all set up promotion offices in China. Chinese coffee imports grew by 16% year-on-year in 2017, compared with about 2% in the United States, the world’s largest coffee consumer.

Market on the rise

China’s currently low average rate of coffee consumption, in tandem with its status as the most populous nation on earth, add up to real market potential, especially as sales of ready-to-drink (RTD) coffee products are soaring. Research carried out earlier this year shows that thus far the most significant strides have occurred in the instant coffee market, which reached over US 1 billion in retail sales in 2012. However, since 2011, RTD coffee has consistently boasted the strongest volume growth of any Chinese beverage category. The RTD coffee segment growth of 22%. Fresh coffee, though, remains a niche product. Its demand, due largely to its convenience, is mostly from recent adopters who tend to be unfamiliar with fresh coffee preparation methods and who often lack the appliances needed to make it. In terms of flavour, instant coffee’s ability to be packaged as a mix with sweeter and other additives appeals to the Chinese palate, which generally prefers milder, milkier coffee to the stronger, acid profiles often evoked by fresh coffee. Indeed, the most popular type of instant coffee in China, which accounted for 52% of the segment’s sales in 2012, are three-in-one mixes that include a mix of instant coffee, creamer and sweetener. Nestlé’s Nescafé is the dominant player in both instant and RTD markets, accounting in 2012 for half of the entire RTD market, and just shy of three-quarters of the instant market. While the brand has a global instant share of 46%, its strength in China is unsurprising, though the strength of its RTD sales in the country is very different to its global weight of just 3% share.

The competing forces

According to analysts, currently, on China’s coffee shop market, there are three distinct competing forces: Chinese domestic, European and American, and Korean and Japanese. They are engaging in different strategies to strengthen themselves. For instance, Sculpting in Time is trying to take the advantage of e-commerce. In December 2014, it established a professional coffee website, Hello Coffee, where visitors can see all relevant information about coffee making and consumption. Hello Coffee says it is China’s first B2C coffee website. Starbucks places more emphasis on fast coffee serving in the shop. It also takes measures to encourage consumption outside of the coffee shop. Mid 2018, Starbucks is present in 147 Chinese cities with a total of 3362 outlets, including 7 cities with 100+ outlets. Shanghai is the largest with 663 stores. Starbucks has announced that it intends to run 6000 outlets by 2022. Costa Coffee, a British multinational, plans to open 900 more stores in China by 2020, which will give it 1344 shops in the country.

Korean coffee shops are dedicated to business alliance. What is more, Korean coffee shops, such as Caffe Bene, Maan Coffee and Zoo Coffee, have entered China’s market. However, this business alliance mode does not seem to work smoothly. In the course of 2015, Caffe Bene started to show cash flow problems and soon the Chinese mother company stopped injecting further capital in the venture. You can still see several Caffe Bene outlets operating in Beijing, but shops in other cities have closed down one after another. Insiders believe that the chain will disappear complete during the first months of 2016. Zoo Coffee is also reporting problems in developing the Chinese market. The management has decided to quit the franchising system and only operate wholly owned outlets. It has also stated that it wants to alter its ‘Korean’ image to avoid Zoo Coffee running in the same problems as Caffe Bene.

Industry insiders believe that chain coffee shops should be prepared to face the challenges from fast-food restaurants and convenience stores as well as milk tea stores. According to these analysts, coffee shops should focus on their unique service rather than size, since consumers might stay there for a long time, thus increasing their operating costs. Also, they suggest coffee shops host some activities in order to boost their business and advertise themselves. Actually, there is also a third force emerging in this market: the private coffee shop. It needs a lot of courage, but there are single Chinese coffee entrepreneurs who do not want to tie themselves to one of the big names and set up their own, often single-store, coffee shop. One of my favourites is Taoyuan Miaoji, located in an alley opposite the main gate of the University of International Business and Economics (UIBE). It is an ideal spot for a quiet talk with friends.

TiaoyuanMiaoji

Starbucks as measure for development

The site Dudihui is a blog consisting of infographics about Beijing. A blog posted mid 2018 compares the size and development of the various districts of Beijing. One of the dimensions in that infographic is the number of Starbucks outlets in the district. It is shown in the following picture.

It is the strongest sign of the symbolic value of coffee shops on present day China. An interesting detail is that the Chaoyang Distr. with its foreign embassies and CBD has more coffee shops that the university district Haidian.

The German connection: from Hannover to Changde

Coffee is often associated with Italy, but Germany has played an outsized role in its history too. The paper filter was invented by a Dresden housewife, and the city of Emmerich am Rhein was home to one of the first automated drum roaster. Now, there’s another reason to turn to Deutschland for your java fix, with the arrival of Hanover Coffee in China. Founded by Andreas Berndt in 2011, the former marketing man opened the first premium coffee bar and bean shop in Hanover, which has since grown to supply private customers, high-class hotels, restaurants, companies, and cafés in Germany with over 30 different types of coffee beans. Last year, Berndt’s sons, Fabian and Flemming, came out to China to set up their first overseas branch. Now operating out of a roastery in Changde, Hunan province, where a ‘German Town’ has been erected (the photo shows the roastering plant in that town). They use a the medium roast, also known as a Vienna roast, which is not too light or dark. The coffee beans are roasted at around 190 degrees Celsius, or as low as possible, to preserve the full aroma. They use a Probat drum roaster from Germany. Their green beans are checked in Germany before they’re shipped to China and checked again.

Luckin Coffee – playing the nationalist card

The nationalist trend in Chinese politics is also entering the fierce competition in the coffee market. Newcomer Luckin (Ruixin) Coffee, with its HQ in the coastal city of Xiamen, opened 525 stores in the first four months of 2018. It has wooed more than 1.3 million customers and created an internet frenzy by challenging coffee giant Starbucks. With investment of more than RMB 1 billion from Lu Zhengyao, CEO of car rental company Ucar Inc, and other founding members, Luckin Coffee aims to grab some of Starbucks’ market share with a combination of delivery services, lower prices and smaller-sized stores-a brand strategy it calls Any Moment. Qian Zhiya, CEO and founder of Luckin Coffee, and previously an executive at UCar, said the goal is to offer Chinese consumers an alternative to Starbucks. “The market will not only have Starbucks. Every country has their own coffee brand,” Qian said. Luckin Coffee said their secret ingredient for creating “a decent cup of coffee” is their select Arabica coffee beans, world-leading coffee machines and professional baristas. Of its stores already in operation, 294 are brick-and-mortar cafes between 30 to 50 square meters in size. Some 231 receive delivery orders only. Qian said, in the future the delivery kitchens will comprise less than 15 percent of the total.

Luckin Coffee even started to involve the courts in its competition with Starbucks in May 2018. Luckin accused Starbucks of monopolistic activities, because it prohibits owners of properties in which it has set up shop to also sell space to competitors. This case will be hard to win for Luckin, as I can name numerous locations in various cities in China where Costa Coffee or Pacific Coffee have opened outlets very close to a Starbucks shop. However, it will be interesting to see how the court reacts. It seems as if Luckin is trying to cash in on the nationalist trend in China, emphasising the foreign nature of Starbucks.

Luckin Coffee announced on July 11, 2018 that it had raised USD 200 million in a fundraising round that values the company at USD 1 billion. Investors are said to include Singapore sovereign wealth fund GIC. The company intends to open another 2500 outlets in 2019.

More domestic coffee entrepreneurs are following the example of Lucking Coffee. A newcomer worth watching is Coffee Box. This chain emphasises coffee drinking as a total experience. Coffee Box picks business districts of major cities as the locations for its ‘experience shops’. A more locally concentrated chain is Buzztime Coffee in Shanghai. This chain opens relatively small outlets in areas where restaurants and small shops are concentrated, as a more homely alternative for the more crowded and noisy coffee shops. Shanghai-based Unibrown Coffee is playing the high-end ‘specialty coffee’ card. Greybox Coffee and Soloist fall in the same category, but then geared to those who are passionate about coffee. Soloist baristas do not want to be addressed with ‘waiter (fuwuyuan)’ but with ‘coffee master (kafeishi)’, in an effort to link the Chinese term for barista to their own brand. A lesser known newcomer is Beijing-based Coffee08. Minicoffee (Xiaojia) specialises in milk coffees. Uin Coffee positions itself as a high tech coffee maker. ParCoffee is also based in Shanghai, with its most famous coffee cup shaped outlet near Huashi Plaza. The number and speed of new coffee concepts launched in China is so high, that keeping this post up-to-date is a genuine challenge. A catching feature of Fish Eye Coffee (see following photo) is filter coffee; you can watch your brew appear drip by drip.

Coffee without baristas

Laibei Kafei, a transliteration of the Chinese expression for ‘give me a cup of coffee’, is China’s first supplier of coffee vending machines. Supermarkets, shopping malls, etc., can place them in suitable locations to provide coffee to their patrons,  with all the issues that come with establishing a coffee corner with life baristas.

New coffee shop adds modern flavour to Palace Museum

The Palace Museum opened a coffee shop for the modern-day guests of Chinese emperors over the weekend-the Corner Tower Cafe-and it quickly became a hot spot for visitors, bringing traditional cultural heritage closer to the younger generation. The cafe serves more than 30 kinds of coffee, tea and other drinks-priced between 22 and 45 yuan-for 40 guests at a time. Visitors don’t have to buy tickets for the museum to enter the cafe. Officials said a restaurant, also called Corner Tower, will open soon near the museum entrance. This move is slightly controversial. Some years ago, Starbucks was not allowed to open an outlet in the Palace Museum, because ‘a coffee shop does not fit into that historic ambiance’.

Lots of cash but little time

RTDs and instant products are driving coffee’s ascendency, perhaps because, as we are informed often, the Chinese are becoming increasingly cash rich and time poor. While this is clearly a marketer’s dream statement, largely designed to flatter consumers into believing the hype, it is also reflective of the coffee market. Chinese don’t have time any more to learn to brew real coffee. It’s just quicker and easier to empty a three-in-one sachet and add water or open a bottle. For consumers, it takes too long to grind the beans and brew the coffee. People like things that are mixed already. However, this is more by culture than necessity. Ever since Nestlé opened up China’s pre-mixed powder market with Nestea relatively recently, consumers have got in the habit of keeping things simple. According to Damin’s Wang, instant coffee volumes have been growing slowly, with an increase in consumption that is nowhere near as fast as is being found in coffee shops. “[Malaysian brand] Old Town White Coffee has played a big part in pushing instant coffee to China. Before that, there was only one real choice over the past few years, and that was Nestlé. Now we have many more brands, both good and bad,” says Wang. It’s safe to say that tea is not currently under any threat from the rise of the coffee granule, and its market is still growing. Indeed, China is forecast to account for half of all global growth in tea demand through to 2017, according to Rabobank, and tastes are changing among traditionalists too. Wang, whose company also supplies tea to trade customers, says ice tea has been the packaged segment leader, though its prominence is slipping. “The most popular tea drink is ice tea, though this in in decline because unsweetened or zero-calorie teas are on the rise as people become more aware of health issues,” he says. “Traditional tea drinking continues to increase, though. And now young people have the opportunity to choose what they need, be it packaged tea, three-in-one coffee or traditional China tea. “Coffee needs about 10 more years to grow before it becomes a big market in China.”

Expensive tastes

While coffee is a staple everyday purchase for most office workers in the UK, it is considered a premium product in China and is a luxury out of reach of most average workers. In Starbucks, a medium latte is RMB 30. Starbucks has come under fire by state media in China for their high prices, especially as the cost of doing business is generally considered to be cheaper in China. The average monthly wage in Shanghai is RMB 5891, less than a third of the average wage in London, making a RMB 30RMB cup of coffee a luxury most can’t afford. However, a high price is considered a sign of quality in China. The more expensive the better. There is still this concept in China, and Starbucks and Costa realise this. They want to brand themselves as premium chains, that’s why they price slightly higher in China. Most of the coffee on sale in coffee outlets in China comes from imported beans. However, China is also growing as a producer of coffee, with the majority grown in Yunnan province in southern China. You can read more about that in my special post on coffee and tea in Pu’er.

From 2017, several new coffee shop chains have popped up in China. Most of them position themselves in the higher end of the business. A good example of this type of coffee shops is Greybox Coffee that likes to set up shop in business districts in major cities. Japanese niche coffee shop Doutor has also set up shop in China, in a joint venture with a local partner TANSH Global Food Group which runs the Shanghai Min and Maison De L’Hui restaurants. With a 65% stake in the venture, Shanghai-based TANSH facilitates Doutor’s mainland operations.

   

Coffee exchange

The Shanghai Free Trade Zone has just established a Coffee Exchange Centre to boost the China trade for what is the oldest intercontinentally traded commodity in the world. It is not compulsory for companies to trade in the center, but those which do will benefit from Free Trade Zone’s duty-free and foreign exchange policies. By the end of 2015, both companies and individual customers will be able to buy coffee beans on the center’s website. The new center is projected to conduct transactions worth RMB 120 billion by 2018, and aims to overtake Singapore as Asia’s largest coffee exchange.

Nostalgic coffee

Besides the wide array of international and domestic coffee chains that are popping up in China’s major cities, some coffee places of the old days are being revived. A recent example is White Horse Coffee, a coffee shop established in the Jewish quarter of Shanghai, when a large number of Jewish refugees settled there in the 1930s. Hongkou district’s government decided to rebuild the “White Horse Coffee” as part of Shanghai Jewish Refugees Museum’s extended exhibitions. The new “White Horse Coffee” will be located opposite the Shanghai Jewish Refugees Museum. The design and decoration of the new “White Horse Coffee” will stay as close to the original as possible to provide a glimpse into the life of Jewish refugees of that period.

Ethnic coffee

A Tibet-inspired coffee shop, Charu, has recently opened in Chengdu (Sichuan). The place is spacious, outfitted with aged wood panels, edgy houseplants, and dangling Edison-style bulbs. It’s staffed by young people and the couches are upholstered in different shades of blue—the sort of patterns you would expect from a swanky Malibu patio by the beach. The word charu refers to the toggle that links yaks together, according to Tsehua, one of the owners. It connects the tents and the yaks together. Like the charu, this cafe to connect people together.

Tsehua comes from a family of nomadic herders from Hongyuan County in the Amdo Region of Tibet, located in modern-day Sichuan. They live in black tents fashioned from yak hair and rotate around the grasslands according to the seasons.

CharuCoffee

Charu has a beverage menu of yak-based drinks—among which is yak milk coffee, decorated with the cafe’s logo. The milk is brought in weekly, sent overnight from Tsehua’s nomadic village of Hongyuan. There’s yogurt, which is made in the same place, and as an option, it can be supplemented with highland barley and raisins. The menu also features a juice squeezed from sea buckthorn, a berry from the Himalayas that tastes like a cross between a mango and an orange.

It is this type of new hip spaces that multinationals like Haagen-Dazs find it hard to compete with recently. The ice cream maker has started cooperating with Illy in China. Its outlets can now also function as alternative for the crowded coffee shops.

Coffee as metaphor

Coffee has now become so popular, that the word is gradually transforming into a symbol for a modern leisurely lifestyle. A traditional Chinese medicine (TCM) store in Hangzhou (Zhejiang) has developed ‘herbal coffee‘ to wrap that traditional product in a modern package.

Coffee as flavouring

As coffee is growing more and more popular, many Chinese producers of foods and beverages are developing coffee flavoured varieties of their products. A good example in an earlier post is: coffee flavoured plums.

Snack producer Sanquan (Zhengzhou, Henan) has launched a coffee-flavoured zongzi in 2018.

One of my personal favourites is affogato, one or two scoops of basic vanilla icecream soaked in strong espresso. I first found it in China in some häagen-dazs outlets, but was not impressed by it, mainly because the coffee wasn’t strong enough. I was pleasantly surprised to find a decent affogato in a new (not yet opened) hotel at the north end of Wangfujing Street in Beijing during in September 2018.

Chinese investment in Argentina

A Chinese investor based in China’s northernmost city Harbin (Heilongjiang) is investigating the possibilities of investing in a 400 hectares coffee farm in Argentina, in cooperation with a local overseas Chinese partner. The coffee is to be roasted in Harbin, using technology imported from Brazil. I will keep you informed about the developments of this project. The Harbin region currently consumes about 60 mt of coffee beans per year.

Coffee Expo in Hainan

2017 Hainan International Coffee Congress and Beverage Expo (2017 ICoffee Expo) will be held 1 – 3 Dec., 2017 at Hainan International Convention & Exhibition Center and Haikou Marriott Hotel. The event aims at high-end, internationalisation, and professionalisation. In the background of international positive response to the Belt & Road (OBOR) Initiative, Hainan, as the beginning station of Maritime Silk Road along which line locates considerable coffee growers is recognized with its coffee products and relevant cultural communication.

More than coffee

Coffee has now become such an important item in the lives of more and more Chinese that domestic coffee companies have started looking at expanding their activities to related products. Hogood Coffee (Yunnan) announced the development of a healthier alternative for vegetable fat, the main ingredient for coffee creamers, based on walnut protein.

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.

Is China the future for chocolate?

Chocolate is one the most appreciated gifts to friends in East Asia

The confectionery industry is a sweet line of business by itself, but it can be even sweeter in China, where market potential and a growing confectionery culture is leading to a new bonanza of sweets and chocolates.

Chocolate sales in China grew 58% from 2009-2013. They are expected to expand to USD 4.3 billion by 2019, rising nearly 60% from USD 2.7 billion in 2014, lifted by outstanding demand from the growing urban population, Bert Alfonso, president of Hershey International, forecast in a recent webcast at the Consumer Analyst Group of New York conference.

China has become such an important market for chocolate suppliers, that Barry Callebaut had chosen Shanghai as the place to introduce its inhouse-developed ruby chocolate to the world in September 2017. Barry has further opened a new Chocolate Academy in Beijing in 2019 – the company’s 22nd globally – to meet demand and better serve the Chinese market.

High-end market

Sales of China’s chocolate and confectionery boomed over the past five years after a handful of Western brands began entering the country in the 1980s. The maturing chocolate culture has prompted Chinese consumers to begin asking for a greater variety of premier products. China’s chocolate consumption is increasing 10% to 15% a year, as living standards rise and there is a growing acceptance of Western lifestyle.

So far, the top 20 chocolate makers have already presented themselves in the market. In a common supermarket in Shanghai, you can easily find over 70 brands of chocolate. Most of them are foreign brands. The big four (biggest four companies in China chocolate market: Dove, Ferrero, Cadbury and Leconte) have taken over 70% of the market. Of these, only Leconte is a local brand (Owned by COFCO, possibly Nestlé’s main international challenger). Among the three foreign brands, Dove alone has taken one-third of the market. Dove has charmed Chinese consumers by its special taste. Secondly, Dove chocolate has nice packaging with a neat wrap which leaves a deep impression of delicious and good quality in the consumers’ mind. In addition, Dove always produces new products with special packaging which propose meaningful designs. Chinese consumers care about the packaging of a product, because chocolate is also a good choice to buy as a present. How the chocolate appearance has been the most vital factor for the purchasing decision as a gift.

Foreign players go into lengths to ensure the quality of their products on the Chinese market. E.g., Hershey’s indicates on its packaging that it uses 100% imported milk.

HersheyImpMilk

Major potential

China’s current per capita chocolate consumption is very low at about 100 grams a person, compared with more than 10 kilograms in Europe. Even in Japan and South Korea, the figure is close to 2 kg. However, by 2016, 340 million Chinese will be middle class – more than the population of Western Europe – creating a huge market. Greater purchasing power – and the growth of large foreign retail chains – will boost consumption. This leaves plenty of room for business growth in China.

Milk chocolate is still the favourite flavour with Chinese consumers. However, in some developed regions of China, such as in the east, sophisticated customers are more likely to choose dark chocolate as it has an image of being healthier. This flavor’s share of retail value has more than quadrupled in five years to 34% in 2013. Of all the chocolate fillings, nuts are the most popular.

Selling Points of Chocolate

What are the factors to getting Chinese people buying chocolate ? A report shows that the No.1 factor Chinese consumers consider is the taste (30%), following by brand (18%) and price (7%).

  1. Taste

It’s true that in China, taste is the most important factor, but compared to western consumers, Chinese consumers don’t care about the taste nearly as much. A report shows 66% western consumers put taste as the most important factor, while only 30% of Chinese consumers think it’s the top factor.

  1. Brand

When chocolate came to China’s market, it was branded as an exotic food product which is an added extra value. And now the brand has become even more important. First of all, a big part of imported chocolates purchased in China are for gifts or ceremonial use like wedding candy.

For young Chinese men, chocolates, especially luxurious delicately packed chocolates have become a must to show their love to their girlfriends. During the Chinese Valentines’ Day this year, half of the top 10 items sold online were chocolates. That’s why imported chocolates are sold as high class food product.

Apart from their fancy look, imported chocolates also enjoys a fame of high class ingredients. With the growing concern for health and food safety, consumers are becoming more careful about the ingredients of chocolates and imported chocolate are trusted for containing more coco or milk.

  1. Price

When chocolate first appeared in China, the price for a box of imported chocolates was sky-high. Today, chocolate has become a common food product that most people can afford. But some chocolate brands are still famous for their high price such as Ferrero because Ferrero targets on high class chocolate market where price is an important tool to show its value.

A Chinese consumer can easily find reasons to buy a box of imported chocolate for its taste, brand and price. And what chocolate makers need to do is to produce nice chocolate, promote its brand and label with a suitable price.

Local players

Local competitors are still finding it hard to set up a premier brand recognition among Chinese consumers and adopted cheaper compounds to secure price competitiveness.

LeConte holds 6.7% market share and another local company, Golden Monkey (Shanghai), with 1.5% market, was acquired by Hershey in 2015 (after acquiring an 80% stake in the previous year). However, Hershey sold the Chinese subsidiary again in July 2018 to a local party Yuxiang Food Technology (Henan), a company co-founded by Xizang Cangying (literally: Tibet Goshawk) Investment Management Company and Henan-based Youshi Foods, which has become one of the biggest bakeries in central China.

LeConteMCGM-mchoc

Ingredients listed on the packaging of domestic chocolates:

  • LeConte milk chocolate: sugar, cocoa butter, whole milk powder, cocoa mass, skimmed milk powder, lactose, food additives (soybean lecithin, food flavour), cocoa butter 35% min., cocoa solids 40% min., milk solids 26% min. The cocoa beans are imported from Ecuador.
  • Golden Monkey milk chocolate (cocoa butter alternatives):sugar, hydrogenated vegetable oil, cocoa powder, milk powder, whey powder, salt, food additives (lecithin, polyglycerol ricinoleic acid ester), food flavour.

On the other hand, the higher prices of global players also scare away Chinese customers, who do not have the purchasing power of their Western counterparts. There is still room for growth in second-tier cities dominated by these lower-end products. This applies particularly to China’s vast rural population. The challenge for domestic players is to develop affordable chocolate products that apply to the various local tastes and habits.

Perhaps foreign tourists can be charmed into buying chocolate replicas of the famous terra cotta soldiers from Xi’an.

chocolateWarriors

Russian chocolate making progress

Chinese imports of foods and beverages from Russia have been rising during the past few years and chocolate is one of the favourite categories. One Russian chocolate, Krokant, chocolate filled with toffee crunch, is hard on the way to become the most popular chocolate in China. Chinese refer to it as ‘Purple Candy’ due to its purple wrapper. Similar Russian products are also available.

Eurasia Consult’s database of the Chinese food industry includes 123 producers of chocolate products.

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.

 

Are you Ready To Drink coffee in China?

Coffee has been reported on before in my post on Pu’er. People have been talking about the Chinese market for ready to drink coffee a lot since then. Apparently it is a topic that is on people’s minds, so I have bundled their remarks in this dedicated post.

An emerging coffee nation

China is gradually emerging as a coffee producing nation. The country’s current annual production is approximately 100,000 mt, 98% of which takes place in Yunnan, the home province of Pu’er, and the remaining the island province of Hainan.

By the end of 2010, China had 135 coffee processing companies, the geographic distribution of which is can be found in the following table.

Region companies
Shanghai 37
Guangdong 26
Yunnan 18
Beijing 17
Hainan 11
Other 26

This shows that the processing still mainly takes place in the most developed regions and not in the locations where the coffee is grown. However, the Pu’er post shows that the main multinational players have set up shop in Yunnan.

The Chinese have never acquired a habit of brewing coffee at home, which creates a fertile ground for two types of products: coffee shops where you can enjoy your favourite brew (see my post on that market), and Ready To Drink (RTD) coffee products, introduced in this post.

Applying the Chinese instant tea model to instant coffee

Between 2008 and 2013, instant tea has been the driving force in the Chinese tea market, increasing sales by USD 1.7 billion. To date, the popularity of instant tea is almost entirely a Chinese phenomenon, as China accounted for 92% of Asia-Pacific’s instant tea sales in 2013. Instant coffee on the other hand, is immensely popular throughout the region, with China accounting for just 15% of the overall market in 2013. As instant coffee shares many of the attributes that have driven the success of instant tea in China, namely the replication of foodservice options, flavour malleability, convenience, and a young consumer base, applying the innovative packaging of instant tea to coffee may spell further success for Asia’s already booming instant coffee market.

Instant tea in China is composed almost entirely of instant ‘milk teas’ that aim to replicate the sweet flavours of popular street stall/kiosk and café operators like Happy Lemon, Jack Hut, and ChaTime. Popular flavours include red bean and jasmine green, while some also include bobas (tapioca pearls found in bubble tea) for added texture. To make the beverage accessible through retail channels, manufacturers use single-serve packaging of on-the-go paper cups filled with a sealed pouch of instant tea and a straw.

The sweet flavour profile of these milk teas, and economical price tag compared to their on-trade equivalents, makes them particularly popular with younger Chinese consumers. The accessible format and price of instant tea enables young consumers to partake, albeit indirectly, in fashionable foodservice.

Aware of the influence of younger demographics, Chinese manufacturers including the Guangdong Strong and Zhejiang Xiangpiaopiao are deliberate in their marketing, positioning the products specifically to Chinese youth, through fun packaging, and celebrity endorsements. Xiangpiaopiao is awaiting approval for its IPO before the end of 2015.

ChineseRTDcoffee

Is China the future for instant coffee?

In the past decade, the instant coffee market has actually expanded at rates of 7 to 10% a year, according to the Global Coffee Report; the International Coffee Organization projects a 4% global volume growth between 2012 and 2017.

The country that historically drank about two cups of coffee per year per person is now the fourth-largest global market for ready to drink coffee in terms of volume. The reason? Convenience. A 2012 poll found that 70% of Chinese workers said they were overworked and more than 40% stated they had less leisure time than previous years. Plus, most new buyers are used to boiling water to make tea, often owning just a teapot and not the appliances needed to make a fresh pot of coffee. By 2017, the Chinese RTD coffee market is projected to increase by 129% in volume. A recent study estimates that the value of the Chinese RTD coffee market will be RMB 18.6 bln by 2020.

Like many food innovations, the origin of instant coffee has several claimants.

Instant coffee is tapping into a new market: tea drinkers. As of 2013 in Great Britain, tea bag sales dropped 17.3% while sales of Nescafé instant coffee went up in supermarkets by more than 6.3%. The country known for it’s tea and crumpets may be making a similar transition to China’s tea-drinking population.

Nestlé SA led the Chinese market with 70.8% share in 2017, followed by Suntory at 4.9%, Uni-President at 3.3%, and Starbucks at 3.1%. Coca-Cola re-entered the category with its Georgia brand. Its marketing has improved the brand image and the product’s visibility. Nestlé’s Nescafé, a strong category leader, hired Chinese actress Angela baby for TV advertisements, which boosted sales. Starbucks and Ting Hsin (PepsiCo’s local distributor and bottler) agreed to jointly produce and distribute RTD coffee. Suntory and Huiyuan also set up a joint venture to market RTD coffee and RTD tea. In 2015, Hui Yuan was the largest local player in off-trade volume sales terms.

In terms of flavor, the most popular one is latte, accounting for over 54% of off-trade volume sales in 2015.

Coffee as ingredient

Europeans still mainly think of coffee as a beverage made by infusing ground coffee beans with boiling water. The real coffee lovers drink it black, hot and bitter. Those who find that a little too intimidating can dilute it with milk. As most Chinese still have a problem with pure coffee, even with the heavily diluted americanos served by Starbucks or Costa Coffee, a number of coffee flavoured beverages have appeared on the Chinese market. The most recent one Maoyuan Coffee by Wahaha (Hangzhou, Zhejiang).

Multinationals follow suit

A recent development in this market is a strategic alliance between Starbucks and Tingyi. Tingyi, a leading food and beverage producer, has signed an agreement with  Starbucks to manufacture and distribute the latter’s RTD products on the Chinese mainland. Tingyi is a well-known supplier of instant noodles and biscuits. According to the agreement, Starbucks will help Tingyi, which makes the well-known Master Kong brand of instant noodles, with coffee expertise, brand development and future product innovation. Tingyi will manufacture and sell the Starbucks RTD portfolio in China, said a statement from Starbucks.

But it will take a lot more than a fancy Starbucks product to convince Americans to drink products like this one sold in China: Nestlé’s instant coffee with jelly.

Coffeebev

A multinational like Coca Cola cannot afford to miss out on the popularity of tea beverages in China. The company is marketing its RTD coffee brand Georgia in China.

Taiwan-based manufacturer of snack food, Want Want, had already started looking for divesting opportunities in the beverage industry, when it launched its own RTD coffee brand ‘Mr. Bond’ in 2018. When I am writing this (June 2018), it is still too early to judge the success of this product.

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.

 

Will Nestlé’s challenger be Chinese?

Nestlé is still the world’s leading food company, but for how long? It is very active in China, but China’s own giant is occupying Nestlé’s markets too, one by one, step by step.

The increasing Chinese appetite for high end foreign products is not a new issue. The economic problems in Europe and North America now seem to push China even faster in the position of top region for investment, and in both directions: inward and outward. The two giants, Beijing based COFCO (China Oils & Foodstuffs Corporation) and Bright from Shanghai, continue their race in acquiring foreign companies. Unlike many of their Western counterparts, they have the money to spend and they are the top food makers for more than 1.3 billion domestic consumers. COFCO claims to provide food products to one-fourth of the world’s population, around 1.8 billion customers. COFCO rose to the 121th position in the World Top 500 companies of 2016.

COFCO’s revenue amounted to RMB 216.12 billion ($32 billion) in the first half of 2017, up 7% year-on-year. Its net profit in the same period also reached RMB 5.51 billion, surging 112% from the same period a year earlier.

Moreover, while most Chinese overseas investors are constrained by lack of financing, COFCO has received large infusions of credit from Chinese policy banks. These include a RMB 30 bln line of credit from the Agricultural Development Bank of China for investment in grain-related projects in 2011; RMB 30 bln in financing over 5 years from the China Development Bank; and another commitment in 2016 from the Agricultural Development Bank to finance projects related to food security, food safety, and agricultural modernization.

Simultaneously, we see multinationals like the two Colas, Nestlé, Unilever, etc., increase their stake in their respective Chinese markets. These corporations as well have no choice. If they do not invest now, there will not be enough of the pie left for them. Nestlé is very frank in admitting that it finds it harder than before to keep its market share in China, let alone increasing it. And in our current troubled world, losing market share in growing market like China equals losing market share worldwide.

COFCO has become a genuine powerhouse. Following Donald Trump’s announcement about putting high import duties on imported steel and aluminium, COFCO’s President Patrick Yu alluded in an interview that he, as the world’s largest importer of soybeans, was able to harm the US by stopping to source that product from the US.

Nestlé

Nestlé was one of the earliest multinational investors in China with an infant formula plant in Heilongjiang in the 1980s. The company is now active in the country with most of its product groups, like coffee, biscuits, or breakfast cereals.

After 13 years of talks, Nestlé was formally invited into China in 1987 by the government of Heilongjiang province. Nestlé opened a plant to produce powdered milk and infant formula there in Acheng in 1990, but quickly realized that the local rail and road infrastructure was inadequate and inhibited the collection of milk and delivery of finished products. Rather than make do with the local infrastructure, Nestlé embarked on an ambitious plan to establish its own distribution network, known as milk roads, between 27 villages in the region and factory collection points, called chilling centers. Farmers brought their milk— often on bicycles or carts—to the centers where it was weighed and analyzed.

Unlike the government, Nestlé paid the farmers promptly. Suddenly the farmers had an incentive to produce milk, and many bought a second cow, increasing the cow population in the district by 3000, to 9000, in 18 months. Area managers then organized a delivery system that used dedicated vans to deliver the milk to Nestlé’s factory. Although at first glance this might seem to be a very costly solution; Nestlé calculated that the long-term benefits would be substantial. Nestlé’s strategy is similar to that undertaken by many European and American companies during the first waves of industrialisation in those countries. Companies often had to invest in infrastructure that we now take for granted to get production off the ground. Once the infrastructure was in place in China, Nestlé’s production took off. In 1990, 316 mt of powdered milk and infant formula were produced. By 1994, output exceeded 10,000 mt, and the company decided to triple capacity. Based on this experience, Nestlé decided to build another two powdered milk factories in China and was aiming to generate sales of USD 700 million by 2000. Nestlé already operates three “milk districts” in China, in Shuangcheng (Heilongjiang), Laixi (Shandong) and Hulunbeier (Inner Mongolia).

Nestlé has signed an agreement with a local government in north China’s Inner Mongolia region to build a 2,000 cow dairy farm in the area. The company says the farm will be “a transitional solution between small and individual farmers and a large modern farm”. Nestlé rarely invests in its own dairy production, preferring instead to develop supply chains with local farms or to import powdered milk on the global market. Its moves in China follow those of New Zealand’s Fonterra, the world’s largest milk producer and a major supplier of powdered milk to Nestlé.

Nestlé is also keen on developing products particularly suiting the Chinese market. A find example is ‘milk powder for elderly’, enriched with medium-chain triglycerides (MCT). It is marketed with the slogan ‘gas station for the brain.’

Since 2010, Nestlé has formed a bottled water venture with Yunnan Dashan Drinks Co. and bought controlling stakes in candy maker Hsu Fu Chi International and Yinlu Foods Group, producer of congee, saqima and a peanut-milk beverage. Through the alliances, Nestlé has tripled its China headcount to 47,000 employees. With 31 factories across the country, 90% of the products it sells in China are made there.

Nestlé plans to build R&D centers at facilities owned by Hsu Fu Chi and Yinlu, where researchers will focus on ready-to- drink beverages and baked goods. The Swiss company already has a research center with Totole, a Chinese bouillon maker in Shanghai in which Nestlé has an 80% stake. Another facility in Beijing focuses on nutrition and food technology.

COFCO

Still, an intriguing thought for us to dwell upon every now and then is this: how many years are we away from the moment that Nestlé will start feeling competition from COFCO in Europe? For Nestlé, actually, this is not an issue to dwell upon, but to act on, by increasing its investment in COFCO’s home land.

COFCO, formed through a series of mergers of state food and animal husbandry companies in the 1950s, has successfully transformed itself to a top national player in the food industry. E.g., COFCO controls 90% of China’s wheat imports. Nowadays, COFCO claims to provide food products to one-fourth of the world’s population, around 1.8 billion customers.

COFCO plans to build new warehouses and processing facilities in countries including Myanmar, Kazakhstan, Ukraine and Indonesia to enhance its ability to acquire global food resources. COFCO has already purchased and built ports, logistics companies and storehouses in the world’s main grain-producing areas such as Australia, South America and the Black Sea region. Wan Zaotian, COFCO’s vice-president, said China has become the world’s largest market for food trade. Supported by the Belt and Road Initiative, food trade between China and its partners is expected to grow rapidly. It is critical for the group to build efficient global supply and logistics networks.

In 2011, COFCO took control of Australian sugar producer Tully Sugar Ltd, but it lost a bid for Proserpine Cooperative Sugar Milling Association, another Australian company, in November of that year.

In the wine sector, COFCO bought Chateau Viaud in Bordeaux, France, in February 2011 after investing USD 18 mln on a large swathe of Bisquertt, one of the Chile’s most upmarket brands in 2010.

To put the competitive relationship between the world’s top food giant and China’s domestic one, I have compiled a simplified table of the major food groups and Nestlé and COFCO’s participation in each industry.

Image

(-: not applicable; +: a broad range of products)

COFCO’s foreign-oriented activities since the publication of this blog:

14/1/2014: COFCO is said to be on speaking terms with China’s second largest meat processor Jinluo Group to acquire the latter.

28/2/2014: COFCO to buy 51% of Dutch grain trader Nidera. The Nidera purchase gives Cofco a strong platform to produce grain in Brazil, Argentina and Central Europe. All regulatory approvals to close the transaction whereby an investment consortium led by COFCO, consisting of Hopu Investment, Temasek, IFC, Standard and Chartered Private Equity, has acquired 51% of Nidera have been obtained in October 2014.

4/3/2014: COFCO has acquired Noble’s agribusiness arm. With Noble’s agribusiness COFCO has gained grain elevators in Argentina and sugar mills in Brazil, as well as oilseed crushing plants in China, Ukraine and South Africa.

29/4/2014: COFCO is setting up a huge vegetable oil plant in the port city of Tianjin.

6/6/2014: COFCO Meat attracts a capital injection from a consortium of investors composed of KKR, Baring Private Equity Asia, HOPU, and Boyu.

8/10/2014: COFCO unveiled plans for an initial public offering (IPO), in a move that would allow it to compete with leading U.S. agribusinesses, according to several news reports. The planned IPO would include assets recently acquired Nidera and Noble. COFCO said its goal with the acquisitions was to connect large grain production areas, including those in South America and the Black Sea region to Asia. These investments are meant to will allow COFCO to compete with the traditional big-four trading houses from the west that are collectively known as ABCD: Archer Daniels Midland, Bunge Ltd, Cargill Inc and Louis Dreyfus Commodities BV as rising incomes drive up food demand in China.

10/11/2014:  COFCO has signed an agreement with New Zealand Government-owned food safety firm AsureQuality and PricewaterhouseCoopers (PwC) to enhance the country’s food safety and quality.

Oct. 2015: COFCO announces plans to construct two warehouses (100,000 MT capacity each) in Russia’s Mikhailovsky priority development territory in southern Primorsky Krai.

22/12/2015: Embattled commodities trader Noble Group has reached an agreement to sell its 49% stake in Noble Agri to COFCO International for $750 million. With this move, COFCO will pose an even bigger challenge to ABCD (see 8/10/2014 above).

October 2016: COFCO signs an agreement with Australia’s Monash University. Under the deal, Monash University’s new Food Innovation Centre – and Australian food businesses – will now have access to the COFCO research arm’s resources, in-depth knowledge of Chinese consumers and regulatory expertise to fast-track supply opportunities for exporters. The university said the new centre would enable businesses to expand and target export markets, including China.

19/10/2016: Cofco Meat Holdings Ltd, a pork producer part-owned by KKR & Co, is seeking to raise as much as $333 million in a Hong Kong initial public offering.

8/11/2016: COFCO launches a power drink called Big Bang in cooperation with Refresco (Netherlands) to compete with Red Bull and similar beverages.

18/2/2017: New Zealand’s AgResearch has signed a collaboration arrangement in Beijing with the Nutrition and Health Research Institute of COFCO and with the College of Food Science and Nutritional Engineering of China Agriculture University (CAU). They would explore opportunities to work together formally in the name of a “joint international research center for food science to promote international exchange, research and productivity, with a particular focus on further enhancing a China-New Zealand relationship.”

May 2017: Loch Lomond Group, based in Alexandria in Scotland, has entered into a partnership with COFCO for the distribution in China of their whiskies, including Loch Lomond, Glen Scotia and Littlemill.According to the Scotch Whisky Association, the value of exports to China increased 0.5% to 41 million pounds in 2016.

June 2017: DGB Pty Ltd, South Africa’s largest independent wine, spirits and craft beer producer, announces an exclusive distribution agreement with COFCO. COFCO will, in the initial phase, exclusively import DGB brands Boschendal and Tall Horse, with the expectation to later expand the portfolio with other brands from the DGB wine stable.

15/8/2017: COFCO partners with the Illinois-based farm cooperative Growmark Inc. they will jointly own and operate a truck, rail and barge terminal in Cahokia, Illinois, on the Mississippi River, the main pipeline that supplies exporters along the US Gulf Coast with corn and soybeans. The facility can receive about 180,000 bushels (4572.24 mt) of corn per hour, delivered by truck and rail, and can load two river barges simultaneously at a rate of about 60,000 bushels per hour.

Feb. 2018: Cofco International Ltd., the trading arm of China’s largest food company, is building a soft commodities hub in Dubai. About 10 employees will trade sugar, coffee and cotton.

Summer 2018: Cofco launches an energy drink of its own, jointly developed with Refresco (The Netherlands), marketed under the Big Bang brand.

Nestlés activities in China since the publication of this blog:

8/5/2014: Nestlé announces intent to invest in coffee growing in Pu’er (Yunnan).

9/5/2014: fertiliser producer China Green Agriculture has entered a cooperation agreement with Nestlé (China) Co., Ltd. to jointly develop a direct sales program, as a mutual effort to supply the Company’s fertilizer products to coffee bean farmers in China.

16/6/2014: The University of Wisconsin-Madison, US, will develop the curriculum for a $400m Nestlé dairy training center in China.

17/6/2014: Nestlé has officially inaugurated its latest Chinese research and development facility in Dongguan (Guangdong). The R&D facility will support its partnership with Hsu Fu Chi and focus on research in confectionery and ice cream.

15/10/2014: Nestle opens China Dairy Farming Institute; Nestlé has inaugurated a “dairy farming institute” in Shuangcheng ( near Harbin, Heilongjiang) as part of ongoing efforts to foster the development of sustainable dairy production in the market in order to secure the supply of raw milk. The project involves an investment of CHF30 mln and is one of its biggest dairy investments in China. GEA Group will contribute its expertise to this institute. From February 2015 onwards, some 17 different courses about milking will be taught with direct involvement of the GEA Farm Technologies Academy.

20/11/2014: Nestlé Research Centre Beijing organizes a joint symposium with The 25th Great Wall International Congress of Cardiology (GW-ICC). The symposium focuses on nutritional approaches for cardiovascular and metabolic health.

8/5/2015: Nestlé China helps building a school in the earthquake stricken region of Sichuan. The company deftly combined the opening of the school with the “Food Safety Week into Campus” launched by the State Food and Drug Administration.

18/5/2015: Chinese Nutrition Society’s “12th National Nutritional Science Conference” was recently held in Beijing May 2015. Nestlé organized a “Start Healthy Stay Healthy” forum during the conference, inviting leading experts to deliver keynote speeches revolving around the latest developments in maternal and child nutrition research.

4/8/2015: Nestlé has invested RMB 50 mln in improving the cold storage facility of its ice cream plant in Guangzhou. The new installation is more environment friendly and will facilitate Nestlé serving the regional market better.

8/6/2016: Nestlé and Alibaba have launched a digital commerce and marketing campaign. It will feature 154 products from 30 brands, 67 of which will be introduced to Chinese consumers for the first time.

12/9/2016: National Institute of Nutrition and Health and Nestlé Research Center partner as sponsors for a symposium on nutrition and eating behaviours in Chinese children and adolescents. For the first time in China, findings from the Kids Nutrition and Health Study (KNHS) were presented at a national symposium held on September 11, 2016 in Xian.

29/12/2017: Nestlé announces plans to sell its dairy factory in Hulunbuir (Inner Mongolia), as part of the company’s efforts to reduce its local output of raw milk powder.

16/5/2018: Nestlé announces a partnership with technology company Xiaomi to support health through technology and explore digital nutrition.

May 2018: Nestlé has finalised the move of its industrial milk powder production from Hulunbuir in Inner Mongolia to Saishang Dairy in Ningxia.

Other opinion

Interestingly, in a recent article, a Chinese insider is wondering whether Dali Group will become the ‘Chinese Nestlé’. We will hold that thought and see.

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.