The big chance for foreign food producers

By Richard Hoffmann,  ECOVIS Beijing

China is the largest consumer of food and beverage in the world. With its estimated market volume for food of over a trillion Euros in 2015, China overtook the US as the largest market for food and beverages. According to the World Bank, China’s food consumption will continue growing rapidly over the next two decades driven by income growth and changing food consumption patterns.  Foreign food companies in Chinese market have a huge opportunity to grow independently from mature home markets. The Chinese market has higher margins than Western markets and foreign firms can shape the still not fully developed Chinese market. The majority of foreign food companies established in the Chinese market are Western multinational players like Danone, Coka-Cola, Mondelez and Nestle. However, even small and medium-sized enterprises (SME) can benefit from the strong Chinese demand for food and beverages.

 Source: Statista.de

WHAT ARE THE MARKET DRIVERS?

The key market drivers for food and beverage demand are growing disposable income and customer demand for new products not yet available in China. There is also demand for convenience and premium products. After several food safety scandals (e.g. Melamin contaminated infant nutrition), worried Chinese customers, especially the growing middle class can afford and is willing to pay higher prices for imported food. These scandals have destroyed confidence and trust in food production processes and standards. In particular, popularity of processed and packaged food from abroad is increasing which contains certain features such as special health benefits or organic ingredients. Chinese consumer spending on processed, packaged products accounts for only 10% of total expenditure on food, compared with 48% in Japan and 57% in the US. As China catches up to the world, there is a huge market for foreign food makers. Western food producers can benefit from the Chinese consumer’s increasing willingness to spend more on high quality. The main advantages for Western food companies are a good reputation for quality and safety of their products and expert knowledge in food manufacturing in their home markets

High growth rates can especially be found in the following product groups: meat, dairy, bakery products, as well as products which deliver the Western lifestyle.

HOW CAN YOU PARTICIPATE?

For foreign food producers there are several opportunities to participate in the Chinese food boom. In general there are two common approaches to the Chinese’s market: exporting products into China or establishing an enterprise in China starting from marketing facilities up to production in China. However, many opportunities remain difficult for SMEs to exploit as they are not integrated into a global network and might have less experience in foreign market development like multinational companies. It is recommended first enter the Chinese market by exporting a product to survey the costumers demand. If Chinese customers accept the product, local production can make production and selling at quantity more affordable.

Exporters of food and beverages into China and firms setting up production facilities face various barriers to entry  including regulations within the food industry. China has access to  WHO reduced tariffs, but sanitary and labeling requirements stay high. So be aware of these regulations before starting a business in China.

For both, exporters and local producers, finding an appropriate partner can make it easier to navigate the regulatory environment. Before starting cooperation with a Chinese partner Ecovis Beijing can help you carrying out a thorough due diligence check of the target company. A strong and experienced retail partner with a reliable local network can help push your product into the market but could also become your competitor if he registered your trademark first.

The Chinese food and beverage market is not homogenous, with overlapping markets separated by geography, culture and demographics. It is suggested that new firms focus on one area first that fits their product best. Key areas of interest include the urban east, the southern coast, and the metropolitan region of greater Beijing. These areas have sufficient networks of import agents, developed distribution chains and a strong customer demand. Besides choosing an area of market entry, finding the right partners and responsibly registering a company are necessary for a healthy business.

OPPORTUNITIES FOR SMALL AND MEDIUM-SIZED ENTERPRISES

Even though the food & beverage market is growing, more firms are entering the market. For SMEs it can be difficult to compete with the power of multinational food companies on mass-market foodstuff which becomes increasingly price-driven. But there are niche markets where the quality and novelty wins over the price. The market for high-end gifts and gourmet food, like sweets and sprits in attractive designs, is compared to the food market size of China proportionally small but can show significant growth rates and covers huge potentials for European SMEs in particular.

As shown, the Chinese food market is still an attractive place for foreign food producers to grow. However, for your success on this challenging market a clear strategy and the support of an experienced partner with deep insights in Chinese’s business helps to succeed. Ecovis Beijing can help you to find the right company structure, set up your business and let you concentrate on your business. For more information please contact

with contribution of Brigitte Both (ECOVIS Beijing)

	Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV. Contact: richard.hoffmann@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call  +86 10-65616609 (ext 811/806)   or contact us directly via Beijing@ecovis.com