According to a scientific study from 1984, over 90% of the Chinese adult population is lactose intolerant. In this context, one would think there is no space for the Chinese cheese market. However, driven by policies and consumer preferences, the demand for cheese in China continued to grow, reaching an aggregate demand of about 301,400 tonnes in 2021, up 16.51% year-on-year. Although the proportion of cheese imports in the past was large, with the rising demand and the continuous expansion of local cheese enterprises’ capacity, cheese production in China has been increasing steadily. Indeed, supply is gradually catching up with demand.
In 2020, the average cheese consumption in China was 0.9 USD/person, while French people spent about 158.6 USD/person during the same period. Regarding cheese/liquid milk consumption, the proportion in China is still low compared to developed countries (only 4% of Chinese consume it regularly), therefore there is still great room for development in the Chinese cheese industry.
Cheese market segmentation in China
Chinese cheese industry segments include processed cheese and cheese lollipops made with processed, fresh, or hard cheese. In terms of market size, cheese lollipops dominate China’s cheese retail consumption, boasting a compound annual growth rate of 28.3%, jumping from 17.1 thousand tonnes in 2016 to 59.4 thousand tonnes in 2021. Moreover, the cheese lollipop segment is expected to reach 70.1 thousand tonnes in 2022. In addition, kid’s cheese plays a significant role in the Chinese cheese retail market, which accounted for 64% of sales in 2020, followed by family table cheese. However, family cheese and cheese for adults accounted for only 33% and 3%, indicating that children are the primary cheese consumers in China.
However, according to Euromonitor, the catering sector holds a dominant share of China’s cheese sales, reaching 155,600 tonnes in 2021, and accounting for more than 60% of the total sales volume for consecutive years, with a compound annual growth rate of 14.8% from 2007 to 2021. Cheese sales in catering were approximately twice as large as retail sales from 2020 to 2021, but B2C sales are growing fast: retail cheese sales were only one-third of cheese sales in catering before 2020.
Who is buying cheese in China
Chinese youngsters who have studied or lived abroad are the main consumers of cheese in China. In addition to health awareness, the rapidly growing middle class and the openness and admiration towards western food are inducing Chinese people to taste different dishes having cheese inside.
According to Kantar, the penetration rate of cheese in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen is significantly higher than in other regions. However, the penetration rate of cheese is increasing rapidly nationwide. By 2021, the penetration rate of cheese in first-tier cities had risen to 38.0%, while in provincial capital cities such as Nanjing, Xiamen and Hangzhou, it reached 30.6%.
The rapid development of the Chinese dairy industry policy and regulation
Since the scandal of Sanlu milk adulterated with melanin in 2008, Chinese people have been cautious about the milk products’ quality. From 2019 to 2022, the Chinese government vigorously promoted the sustainable development and food safety of dairy products to accelerate the construction of a modern dairy industry in China. After the China State Council released its “Suggestions on accelerating the development of the dairy industry and ensuring the quality and safety of dairy products“, the China State Administration for Market Regulation (SAMR) immediately imposed an “Action to improve the quality and safety of dairy products” in 2020. The document aimed to improve dairy product safety supervision and legal framework and enhance product quality in the Chinese dairy market.
In 2022, the SAMR and the National Health Commission of the People’s Republic of China (NHC) set new national standards for the cheese industry to promote the standardised development and competitiveness of cheese products nationwide. Meanwhile, the Dairy Association of China (DAC) launched a “Three-year Action Plan for Cheese Innovation and Development to Enhance Dairy Industry Competitiveness (2023-2025)“. Driven by the mentioned policies, the Chinese cheese industry is expected to develop with higher requirements and thus offer better and safer products to local consumers.
Growing health awareness and new trends boost cheese demand in China
With the rising popularity of western food culture in China, the bakery and the pizza market have thrived and further stimulated the increasing demand for cheese. Moreover, there are more and more occasions for using cheese since numerous innovative products having it as an ingredient are also popping up on the market.
Several milk tea brands joined the “Cheese tea” trend and invested in the R&D of new cheese tea combinations or cheese-flavored milk tea. For instance, the famous new-style tea shop chain Heytea (喜茶) created a new tea recipe combining green or black tea with a foam made from cheesy cream.
On the other hand, famous bakery brands are launching cheese-based products as well. In 2018, Holiland’s (好利来) “Half-baked cheesecake” went viral online due to its dense texture and rich cheese flavor, thus generating more than 100 million sales.
Meanwhile, Chinese parents, as well as both the central and local governments, are paying increasingly more attention to children’s diet. Nanjing Education Bureau’s Guidelines for nutritional lunch for primary and middle school students in Nanjing (2021 edition) suggested including cheese in the school’s daily meals to improve the nutritional intake of all school children. At the same time, given the lactose intolerance of some students, schools were advised to incorporate cheese into cooked dishes to increase daily calcium intake.
Milkground: the new king of the Chinese cheese market
Before 2018, foreign brands dominated the domestic cheese market. Cheese imports primarily came from Europe, North America, Australia, and other longstanding cheese-producing areas.
Most brands, such as Fonterra, Lactalis, and Arla Foods, were imported directly from abroad and distributed mainly through domestic distributors. The remaining brands were Chinese companies that used foreign factories for contract manufacturing, such as Gough’s SUKI line. In addition, some foreign enterprises directly set up production plants in China. The most representative one was Savencia Group’s Baijifu brand.
In terms of domestic brands, since 2018, Mengniu, Yili, Sanyuan and other domestic dairy enterprises have set up their own cheese divisions. New brands Miaofei and Sikeqi also obtained financing. In addition, Milkground, an emerging domestic brand that started with the cheese lollipops market, surpassed the French leader Baijifu, dominating the cheese industry with a 27.7% market share in 2021, according to Euromonitor. In the first half of 2022, Milkground’s market share of cheese sales reached 35.5% and dominated the cheese lollipops market with a 40% market share, according to Kantar.
Unraveling the secret behind the fast growth of cheese in China
- Chinese cheese production has been increasing, cutting dependence on imports.
- The average cheese consumption in the PRC is lower than that in developed countries, but B2C sales are growing fast.
- Cheese lollipops (mainly targeting kids) dominate China’s cheese retail consumption.
- Chinese government is vigorously promoting sustainable development and new safety standards for dairy products to accelerate the construction of a modern dairy system.
