Dairy in China

Prospects

Processed cheese continues to outperform unprocessed cheese in volume terms

The most important category within cheese, processed cheese posted continued strong retail growth in 2018, thanks to the diverse formats and acceptable flavours and textures. Flavour is the most important factor why processed cheese is winning over unprocessed cheese.

Segmentation boosts other processed cheese due to healthy snackification

Amidst increasing awareness of children’s diets, cheese snacks have been well-received by parents. Amongst all the cheese categories, other processed cheese is most often used for children’s cheese, due to the well-accepted light flavour.

Foodservice sees high potential for cheese consumption

Consumption patterns are changing from eating at home to eating out, with consumer foodservice booming in 2018. As a result, more manufacturers expanded their businesses to foodservice.

Competitive Landscape

Bongrain (Tianjin) Foods continues to lead

As the first player to see the potential of children’s cheese, and following the launch of Milkana children’s cheese sticks, Bongrain (Tianjin) Foods has grown to become the main player in this segment and in overall cheese, seeing rapid expansion in the review period. However, the competition is increasing, as more players entered this segment in 2017, such as Beijing San Yuan Foods.

Fonterra Commercial Trading (Shanghai) strengthens its brand reputation

The overall performance of Fonterra Commercial Trading (Shanghai) is outstanding, particularly in foodservice. Although the company’s retail business does not heavily invest in campaigns or marketing, its rapid expansion in foodservice plays a strong role in retail by strengthening its brand reputation.

Milkland (Tianjin) Foods Technology gains share by extending to retail

A foodservice provider at the beginning, Milkland (Tianjin) Foods Technology increasingly leaned towards retail in the review period. Although its retail share is still low, it has high potential.

Prospects

Other milk alternatives rebounds thanks to product innovation

Although suffering a current value decline from 2014, other milk alternatives registered slow recovery in 2018, mainly thanks to multiple launches by various leading players to adapt to the growing demand for premium products featuring innovative flavours and fashionable packaging. For instance, Hebei Yangyuan Zhihui Beverage introduced a new walnut milk series made by CET cold brewed technique in 2018, which used the walnut seed and peel to strengthen the nutritional value.

Premium soy milk is on the rise owing to its nutritional value

Noting the high lactose intolerance rate in China, to better satisfy the need of Chinese consumers Fujian Dali Food launched a premium soy milk brand, Dou Ben Dou, in April 2017, initiating a strong wave of premium soy milk across China. Following Dali, other local packaged food giants, including Inner Mongolia Yili Industrial Group, also successively entered soy milk by introducing premium-positioned brands in late 2017 and early 2018.

Fresh milk continues to outpace shelf stable milk because of its fresh positioning

Fresh milk, benefiting from its fresh and accordingly premium positioning, continued to register strong growth in 2018, and noticeably outpaced shelf stable milk. Fuelled by consumers’ pursuit of fresh and nutritious drinking milk products, fresh milk experienced rapid growth and growing popularity across the country.

Competitive Landscape

Inner Mongolia Yili maintains its lead in drinking milk products

Inner Mongolia Yili Industrial Group continued to lead drinking milk products in 2018, primarily owing to the strong growth of its premium shelf stable milk brand Satine. Responding to the stronger demand for premium dairy products with guaranteed quality, as well as the gifting tradition in China, Satine managed to impress consumers with its high-end positioning and exquisite gift wrapping, and was accordingly considered amongst the most popular gift options in dairy in China.

New Hope Dairy witnesses strong growth thanks to the popularity of fresh milk

Thanks to its strength in fresh milk, New Hope Dairy directly benefited from the strong performance of fresh milk over the review period, witnessing strong growth in its entire range of drinking milk products in 2018. On the one hand, by consistently acquiring various regional dairy players across the country, New Hope managed to widen the distribution of its fresh milk, and accordingly strengthened its awareness and reputation in the Chinese market.

Hebei Yangyuan Zhihui Beverage rebounds in 2018

Hebei Yangyuan Zhihui Beverage, despite seeing serious value declines in 2016 and 2017, witnessed strong growth in 2018, primarily thanks to the upgrading of its product portfolio, with the launch of more premium and fashionable products targeting the younger generation, along with the renewal of the company’s branding strategy. To better impress consumers with its new products, Yangyuan invited Wang Yuan, one of the most popular teenage idols in China, to be its brand ambassador, which enabled the brand to completely refresh its image with a trendy young positioning.

Prospects

Drinking yoghurt continues to outpace spoonable yoghurt due to its convenience

Drinking yoghurt continued to record the strongest performance within yoghurt and sour milk products in 2018, primarily thanks to the rapid growth of ambient yoghurt and probiotic drinks, which constituted the majority of drinking yoghurt in China. On the one hand, featuring superior convenience, ambient yoghurt directly broke through the restrictions of transportation and storage, and greatly widened the retail distribution area, enabling these products to rapidly penetrate lower-tier cities and remote rural China.

Snackification leads product innovation in yoghurt and sour milk products

Noting the stronger demand amongst local consumers for healthy but tasty food, manufacturers of yoghurt and sour milk products in China focused on the development of snack-like yoghurt products in 2018. Trendy and niche flavours were increasingly widely introduced: in March 2018, Bright Dairy & Food introduced a new launch under its spoonable yoghurt brand YoGreek in apple and cinnamon flavour, whilst Shijiazhuang Junlebao and Xinjiang Tianrun both introduced yoghurt in cheese flavour.

Supermarkets and hypermarkets dominate distribution

Supermarkets and hypermarkets together continued to dominate the distribution of yoghurt and sour milk products in China in 2018, mainly because of the wide shelf space and cold storage facilities in these channels. On the other hand, thanks to the rapid explosion of ambient yoghurt, as well as the rapid development of cold chain logistics, internet retailing (regardless of its current limited share) witnessed strong expansion in 2018.

Competitive Landscape

Inner Mongolia Yili strengthens its lead in yoghurt

Inner Mongolia Yili Industrial Group continued to lead yoghurt and sour milk products in 2018, thanks both to the consistent dynamic growth of its ambient yoghurt brand Ambrosial and product innovation and development of its other popular yoghurt brands, such as Changqing and Mei Yi Tian. Ambrosial further consolidated its lead in ambient yoghurt in China by rapidly extending into lower-tier cities and rural areas.

Bright Dairy & Food declines because of the poor performance of Momchilovtsi

Bright Dairy & Food, after continuous growth over the review period, witnessed a value decline in 2018, mainly due to the poor performance of its ambient yoghurt brand Momchilovtsi. Although it introduced ambient yoghurt in the Chinese market, Momchilovtsi failed to compete with Ambrosial by Inner Mongolia Yili and Just Yoghurt by Inner Mongolia Mengniu from 2016, as Bright Dairy’s distribution network was inferior to these two national dairy giants.

Xinjiang Tianrun Dairy maintains strong growth with innovative new launches

Xinjiang Tianrun Dairy continued to register dynamic growth in yoghurt and sour milk products in 2018, owing to its stronger expansion into markets outside Xinjiang and superior product innovation. On the one hand, Tianrun further developed its distribution network across the country, both online and offline, to strengthen its exposure and access to consumers, from top-tier cities to rural areas.

Prospects

Coffee whiteners and condensed milk are hampered by specialist coffee shops

Coffee whiteners and condensed milk suffered sluggish current value growth in 2018, mainly dampened by the boom in specialist coffee shops. With rising personal incomes, more consumers, particularly younger consumers, preferred to enjoy freshly brewed coffee instead of instant coffee, leading to the contraction of sales of instant coffee in China towards the end of the review period, and only slow growth in coffee whiteners.

Cream sees a robust performance in foodservice

Cream showed dynamic growth in China in 2018, but only in the foodservice channel, thanks to the development of cream-topped freshly brewed tea, also called cheese tea or milk cap tea, and dubbed as the Asian Cappuccino, represented by Hey Tea. Targeting mainly younger people, born in the 1980s, 1990s or even 2000s, cream-topped freshly brewed tea enables consumers to enjoy two different tastes in a single tea product – creamy on the top and refreshing on the bottom.

Supermarkets dominates distribution

Supermarkets dominated the distribution of other dairy products in 2018. Supermarkets and hypermarkets accounted for the overwhelming majority of retail value sales, further squeezing distribution in independent small grocers and other grocery retailers.

Competitive Landscape

Nestlé (China) further consolidates its lead in other dairy

Nestlé (China) continued to dominate other dairy in 2018, and even increased its lead, mainly thanks to the withdrawal of its largest competitor, Maxwell House (Mondelez China) from the market in 2017. Nestlé (China) also bundles coffee whiteners with its instant coffee products, in addition to benefiting from established brand awareness and a good reputation amongst local consumers.

Multinational brands dominate the retail market

Multinational brands, represented by Coffee-mate, Eagle and Carnation, all under Nestlé (China), dominate the retail market for other dairy, owing to their dominance in instant coffee in China, taking into consideration the fact that coffee whiteners and condensed milk are used in instant coffee. On the other hand, domestic manufacturers were late-comers in these saturated categories, with little room for further development.

Domestic manufacturers develop more vigorously in the foodservice channel

Although facing an unfavourable situation in the retail market for other dairy, domestic players are making efforts in the foodservice channel, jumping on the bandwagon of the cream-topped tea craze in China. Zhejiang Panda Dairy Products takes the lead amongst domestic players, benefiting from its successful marketing and development in stores offering cream-topped tea and desserts.

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