How to succeed in China's food and beverage market

From functional foods to plant-based milks, Andrew Cameron, Head of Insights and Strategy at The Silk Initiative, tells RedFern Digital about the current trends in the food and beverage market in China, and what new brands entering the market need to know

What general developmental trends are you seeing in the food and beverage category in China?

One trend I’d like to discuss is the growth of functional foods and beverages. When we asked consumers the kind of functional benefits that they expected from food & beverage products, the responses ranged from ‘boosting energy’ and ‘relieving tiredness’, to ‘increasing immunity’ and ‘boosting digestion.’

A unique characteristic about functional food and beverages that we hear from consumers has to do with beauty. As an example, years ago, we were working with a probiotic brand and spoke to a woman who had been having digestive and constipation issues for about five years. The only reason she finally acted on it was that it started to impact her beauty and her skin. This example highlights the importance of beauty for a subset of consumers, which means that these consumers expect or look for food and beverages that can add extra benefits addressing this point.

We are also seeing more brands starting to speak on sustainability in China, with varied success. We’ve done studies on sustainability, speaking to consumers to understand what it means to them, how they view brands that act sustainably, and what brands they consider to have acted sustainably. Broadly, we see that there isn’t much detailed knowledge on what really counts for sustainability, so we saw a lot of consumers talk about Starbucks, for instance, because they changed their straws from plastic to paper recently. That was a tangible initiative towards sustainability, so many consumers held Starbucks up as the gold standard for sustainability, leaving aside the fact that they use a lot of plastics for the cups.

To test the impact of calling out sustainability on purchasing desire, we presented Chinese consumers with products that have a sustainability call out and the same product without a sustainability call out. We found that speaking to sustainability doesn't yet seem to change anything when it comes to purchase intent or product appeal. However, we did see some differences in the emotional perceptions that consumers had of the brand. This may not be enough to convince someone directly to go out and spend money on the product, but it can help to build up the brand image and may be more of a long-term play.

Finally, we’ve noticed a big shift in the way that Chinese consumers perceive foreign brands compared to domestic brands.?Five to ten years ago, a foreign dairy brand could come into China and be able to rest on its laurels, just by the fact that it was foreign. This is no longer possible thanks to rising quality standards and local brands being more in tune with the market.

As a result, foreign brands are more willing to take their time with coming to China, spending more time and budget getting to know the market and determining whether China will be a worthwhile investment. These brands are trying to do it right from the get-go.

What are some of the key differences between the food and beverage industry in China and other countries?

Pace is certainly one difference. There is so much new product development in China compared to foreign markets. Within the food and beverage industry, this means new flavours or brand-new products. Consumer appetite for novelty and trying new things remains strong, so brands looking to succeed need to have a local team that’s empowered to make decisions, or at least local partners on the ground that can help with decision-making.

Channels are another big difference between China and other countries. Obviously, the offline channel is still important in China, but the online channel plays a much larger role across food and beverage compared to elsewhere. An example is Hema, which uses an O2O (offline to online) system to take what would normally be a grocery purchase and convert it into a digital experience.

The final key difference for the food and beverage category in China, compared to other countries, is Chinese consumers themselves. Chinese consumers are often very well researched. I’ve sat in focus groups and one-on-one interviews and heard Chinese mums explain the figures of how many grams of each different nutrients should be given to their babies. They often already know which brands meet their standards and which brands don't. I’ve learned so much just from speaking to these consumers, especially in understanding what it is they’re looking for from products.

What are the most important factors that consumers will consider prior to making a purchase?

Some of the key trends are safety, popularity and taste.

Safety tends to be more of a hygiene factor versus something that brands can actually differentiate on. However, safety does tend to be one of the top three purchase drivers for consumers across the board in food and beverage. This is especially true among consumers aged 50 and above, who tend to find safety a little more important and are also more likely to trust brands from overseas.

An interesting one we see a lot of is buzz, which means a brand that is talked about a lot. Chinese consumers place a lot of stock in online reviews and will often conduct research on both positive and negative ones to really understand how a brand is being received in market.

Finally, there is taste. When working with brands and brands that can speak to health claims, it can be easy to lose sight of the fact that at the end of the day, we’re in the food and beverage industry. The job of most food and beverage products is to taste good. We see that across the board, some product concepts that we test for might be great, but that taste factor still needs to always be kept in mind.

When entering the China market, what steps should brands take to localise?

One of the big questions we get asked at the start of China market entry is: “Do I need a local Chinese name?”. Typically, we say that a local name is recommended. This is because it makes it easier to facilitate word-of-mouth recommendations among friends, which we know to be one of the top purchase drivers. A Chinese name also makes it easier for Chinese consumers to search for the brand online, an important channel when it comes to the food and beverage category in China. There is also the fact that, if you don’t give yourself a Chinese brand name, the consumers or your distributors will.

A big part of what will help to ensure success is having a team or partner on the ground that you trust and can be relied on to roll out these changes and inform you of what's happening in market.

Innovation moves fast here, so for brands keen to enter China and keep up with that pace, they need to have a team or partner to act as their eyes and ears on the ground, noticing changes in trends and then being empowered enough to take steps to act on it. That’s often where we see some brands fail. Either they don’t have enough of an on-the-ground team, or the team was not empowered enough to act, localise and develop in China.

Are there any benefits to having limited-run editions of products, as opposed to long-term staple products?

Definitely. These products go towards the element of Chinese consumers wanting novelty. There’s a really big benefit to having news to tell consumers about and being able to bring something new to market. Typically, as long as the brand has a strong set of core flavours that are in-market at all times, having that flexibility and speed to bring in a new short-term limited range of flavours can be beneficial. These flavours are often quite seasonal as well. Sakura (cherry blossom) flavours always peak around spring, and coconut flavours in the summer, for example.

Are there any case studies of successful brands over the past few years that you could briefly discuss? What has given these brands an edge against the rest of the market?

One interesting case study is Oatly, which has done a great job of opening up the territory of plant-based milk in China. The brand came into the market and was able to differentiate itself from traditional unbranded soybean milk.

It’s quite a challenge to come in and try to grow a new category at the same time as growing your brand, but Oatly was still able to present a consistent and appealing brand image. The brand tapped into the consumer trend around coffee, really pushing the barista side of it. Often, consumers might use the same brands and products, in this case, plant-based milk, as the baristas. This is not because the consumers think it makes better coffee than what they’ve been using in the past, but because of the perception that if it’s the barista version, it’s better.

What should new entrants be aware of when entering the China market?

There’s so much opportunity for brands, particularly in the food and beverage category in China. Nevertheless, foreign brands can no longer rely on their country of origin to stand out, and market entrants need to be aware that there are so many other brands doing the same thing. As an example, if you’re an Australian milk brand coming in, not only are there other Australian milk brands speaking to clean and green dairy, but there are also brands from New Zealand, Germany, the Netherlands, etc.

Therefore, success in China is really about making sure that you have a compelling point of difference as to why consumers might want to purchase your product over others. However, market entry will take time and more money than you would think. China is not really somewhere you can become successful overnight.

Brands need to understand branding and positioning, their target consumers and how to reach them, and channels that the brands may need. To succeed in China, brands need to be aware that it’s going to take time, investment, and commitment.

This article first appeared in the sixth edition of RedFern Digital’s magazine, The Red Edition