Dairy in China

Prospects

Growing range of products targeting children

Children’s cheese remains the most popular segment in other processed cheese. Offering a light cheese taste often supplemented by fruit flavours, providing a source of calcium and offered in fun, cute packaging, other processed cheese is often successfully positioned as a snack for children.

Unprocessed cheese increasingly targeting snacking trend

The busy character of modern urban living and the accompanying erosion of traditional eating habits have led to a growing demand for products compatible with snacking in the Chinese market. In terms of cheese, this has primarily involved processed products.

Foodservice innovation leading to greater exposure to cheese

Cheese manufacturers are increasingly targeting the foodservice sector with professionally-orientated product innovation. Foodservice professionals are significantly more open to innovation in cheese than retail consumers, who generally lack awareness of cheese and its potential uses in cooking.

Competitive Landscape

Bongrain responding to increasing competition and evolving demand

Bongrain (Tianjin) Foods Co Ltd remained the leading player in cheese in 2019, despite experiencing continued share erosion during the year. The company’s Milkana brand benefits from the popularity of its other processed cheese products amongst children and parents.

Major players Yili and Mengniu entering cheese

As demand increases, a growing number of players are entering the cheese category. Major Chinese dairy producers, Yili and Mengniu, are amongst those that are looking to take advantage of cheese’s low penetration and compatibility with trends towards nutritious, natural food products.

Milkground displaying growing commitment to retail

The growing potential of cheese in retail is highlighted by Milkground’s determination to increase its focus on the development of its presence in retail channels. The company originally established itself in cheese primarily as a supplier to foodservice with the provision of processed mozzarella to small-scale baking and pizza outlets.

Prospects

Fresh milk sees strong growth driven by major new entrants

Fresh milk saw robust growth at the end of the review period, as the category was boosted by the entry of major domestic dairy producers and well-known international brands looking to compensate for the sluggish performance of shelf stable milk. Fresh milk was originally dominated by regional players because their local production facilities meant that transportation distances for this perishable product were kept short.

Flavoured milk drinks responding to growing competition from yoghurt

Flavoured milk drinks saw continued decline in both volume and value terms in 2019 as it faced ongoing strong competition from ambient yoghurt. Children are the key consumers of flavoured milk drinks, but, in an increasingly health-aware environment, the category has suffered from perceptions that such products contain too many additives.

Soy drinks growing but facing significant challenges

Soy drinks would seem to be well-placed to benefit from prevailing conditions in the Chinese market because of long-standing traditions of soy consumption, a growing interest in plant-based nutrition and the convenience offered by such products. However, while the category continued to show significant growth at the end of the review period, it lacked the dynamism seen in other markets for a number of reasons.

Competitive Landscape

Yili targets upmarket shift in demand

Inner Mongolia Yili Industrial Group Co Ltd maintained the lead in drinking milk products in 2019. The company is tapping into the premiumisation trend in the category, with its Satine premium shelf stable milk brand playing an important role in expanding its share towards the end of the review period.

Bright working to fend off growing competition in fresh milk

Bright Dairy & Food Co Ltd is the eighth largest player in overall drinking milk products but the leader in fresh milk. The company looked to take advantage of rising demand for fresh milk and fend off growing competition in the category towards the end of the review period.

Nestlé maintains share growth in powder milk

Nestlé (China) Ltd continued to gain share in powder milk in 2019, maintaining a trend that persisted throughout the review period. The company benefited from the growing influence of online channels and the expansion of internet retailing as its Nido brand was recommended by Chinese actress Qi Wei on the well-known internet sharing and shopping platform, Xiaohongshu.

Prospects

Manufacturers look to new flavours to boost ambient drinking yoghurt

Ambient drinking yoghurt remained the driving force in yoghurt at the end of the review period, but saw its rate of growth slow as a result of increasing maturity. Ambient products have enabled manufacturers to overcome restrictions on transportation and storage, greatly widening the potential retail distribution area.

Trend towards 100ml bottles in probiotic drinking yoghurt

Probiotic drinking yoghurt saw a trend towards small bottles at the end of the review period. Yakult introduced a 100ml bottle, which appealed to consumers because it was considered both cute and convenient.

Yoghurt employed to generate a healthy image in other packaged food categories

Yoghurt’s healthy image has encouraged packaged food manufacturers to employ it in cross-category innovation aimed at targeting health-conscious demand. Yili has been at the forefront of this trend, launching a yoghurt variant of its Gemice high-end ice cream brand in 2018, while its premium ice cream brand, NOC, introduced a product made with Greek yoghurt in order to reinforce its high-end positioning and promote a healthy image.

Competitive Landscape

Yili reinforces leading position through innovation and expanding distribution

Inner Mongolia Yili Industrial Group Co Ltd strengthened its leading position in yoghurt in 2019, maintaining a trend of value share growth that persisted throughout the review period. The company has successfully implemented a multi-brand strategy in the category, with each signature brand playing an important role in its particular segment and helping the company to achieve balanced growth.

Bright working to meet challenge of major rivals’ expansion

Bright Dairy & Food Co Ltd, the leading player in yoghurt at the beginning of the review period, saw continued share decline in 2019, falling one place to fourth in the rankings. The company has suffered from increasing competition from major domestic rivals, particularly Yili and Mengniu, which have made significant efforts to target growing demand in the category and also benefit from much stronger distribution.

New Hope maintains dynamic expansion

New Hope Dairy Co Ltd maintained its dynamic expansion in yoghurt in 2019. Following the success of its ambient yoghurt, Air Snow, New Hope launched a new chilled yoghurt called Chu Xin.

Prospects

Premium image of ice cream boosts interest in cream as key ingredient

Dairy ice cream grew in popularity in both retail and foodservice at the end of the review period. Dairy ice cream is regarded as healthier and tastier than non-dairy alternatives.

Specialist coffee shops undermine demand for coffee whiteners and condensed milk

While coffee whiteners and condensed milk saw modest growth in both volume and current value terms in 2019, both categories continued to be hampered by the expansion of specialist coffee shops. With rising personal incomes, growing numbers of consumers, particularly younger consumers, preferred to enjoy freshly brewed coffee instead of instant coffee, undermining sales of instant coffee, and dampening growth in coffee whiteners.

Emphasis on quality rather than price benefits cream

Whipping cream is the most common variety of cream in China, with chilled whipping cream becoming increasingly popular. The popularity of chilled cream is underpinned by perceptions that it is fresher than alternatives.

Competitive Landscape

Brand strength and distribution underpin Nestlé’s dominance

Nestlé consolidated its dominant position in other dairy in 2019 as it benefited from significant levels of brand awareness and strong distribution through both online and store-based channels. The company is able to build on brand strength established in other product areas and notably bundles coffee whiteners with its instant coffee products in order to boost recognition and sales.

Growing retail demand leading to new packaging launches

As cream is dominated by non-retail sectors, most brands focus primarily or solely on foodservice channels, with 1 litre packaging being the most common size. With the rise of online communities such as Xia Chu Fang, consumers have far greater access to recipes than previously.

Yili enters cream

Domestic dairy giant, Yili’s expansion beyond core categories included entry into cream, which is dominated by imported brands, in 2018. As Yili’s main area of distribution is in North China, the company has focused on the development of shelf stable products that can be easily distributed to the core markets for cream in East and South China, where consumers prefer home-baking and sweet food.

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