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Demanding Chinese Consumers Trade Up to Premium Products
Due to a widening consumer focus on health, as well as rising household incomes, health and wellness continued to see steady double-digit value growth in 2015. The growth has slightly slowed down as some product areas showed signs of maturity. The growth in a number of consumers stems from both top- and lower-tier cities. All over China people are trading up to health and wellness packaged food and beverages, with some trading up to premium products such as organic rice and organic milk.
What spurs the growth of the health and wellness industry?
The lifestyle of Chinese men and women is becoming busier and busier. Chinese people have many things to do, but not enough time to do them all. Hence growth is being driven by a rising demand for the energy-boosting and general wellbeing benefits offered by health and wellbeing products. Red Bull energy drinks are for example benefiting from its anti-fatigue positioning and form offering a quick energy boost. Such products are particularly popular amongst millennials and young people in general, as they must often work overtime or study late.
Consumers are not only demanding energy but also wish to enhance their wellbeing. Together with growing household incomes and an increased focus on health, consumers are demanding health-enhancing products. Hence biscuits offering nutritious ingredients such as calcium and iron are proving popular, with such biscuits experiencing a 20% value growth in 2015.
More and more Chinese consumers are concerned with obesity, as alongside improved living standards and rising household incomes, the number of overweight and obese people in China is also increasing. This has resulted in increased consumer demand for healthier food and beverages, e.g. reduced fat packaged food and reduced sugar beverages. This health trend has also affected products that are vital and traditional part of Chinese cuisines, such as soy sauce. Companies such as Lee Kum Kee and Haday have launched reduced salt soy sauce in order to cater to the needs and growing demands of health-conscious consumers.
Market Composition – Fragmented and segmented
The health and wellness industry has been fragmented, with no brands enjoying a dominating position. There has been little change in the market shares enjoyed by different brands. The largest brands in the Chinese health and wellness industry is Jiaduobao and Yili, which enjoyed 4.5% and 3.7% of the market, respectively, in 2015.
Most of the players in the health and wellness industry sell their products to supermarkets and hypermarkets. Indeed, with the increasing influence of modern grocery retailers such as supermarkets and hypermarkets in china, sales through these channels are steadily rising. Independent small groceries continue to lose share to larger chains. However, internet retailing, with its convenience of home delivery, round-the-clock shopping, and lower costs, is closing the gap with robust growth rates. As internet retailing continues to gain prominence, firms in the health and wellness industry are forced to reconsider their supply chains and how to optimally serve the digital consumer.
Recent Trends in the Health and Wellness industry in China
Because of the growing purchasing power and rising health awareness among Chinese consumers, many of them are trading up to healthier and more premium products in food and beverages. This trend is encouraging consumers to switch from carbonates to NH bottled water or from NH spring water to NH natural mineral water. As a result, NH natural water and NH spring water recorded value growth of 22% and 10% respectively in 2015. This trade-up has also led to an increased demand for naturally healthy packaged food, with these products experiencing strong growth as well.
According to a recent market research conducted in 2014, Chinese are the most health-conscious people in the world. Taken together with family values enjoying a strong position in Chinese culture, organic baby food has become very popular. This niche segment grew considerably last year. Health and wellness firms are increasingly targeting
Health and wellness businesses are narrowing their scope
In order to remain competitive and satisfy the demands of increasingly sophisticated consumers, health and wellness manufacturers are increasingly targeting specific groups with customised offerings. Examples of this include Inner Mongolia Yili’s Yili Shuhua Milk aimed at the elderly and Yili QQ Star Children Milk targeted at children.
Forecast – Steady Growth Ahead
Health and wellness products are expected to continue their growth and is driven by increasing health consciousness and purchasing power, as noted previously in this article. The bulk of the growth is likely to be from more nutritious food and beverages that seek to make Chinese consumers healthier.
In conclusion, there are many opportunities for penetrating the health and wellness market in China, especially for premium offerings. Internet retailing is poised to change the dynamics of distribution, offering opportunities for low-cost manufacturers as the market matures. However, currently, a marketing strategy that leverages delivering value to a niche segment are likely to be more successful, due to consumers becoming more sensitive to the health and nutritional benefits of products, rather than their cost.
Case Study: Food and Beverage Industry
A leading brand in the sports beverage industry contacted Daxue Consulting to launch two new drinks in China. The brand has developed and supported its sports beverages with ongoing research to meet the hydration requirements for different athletes.
The objective was to understand the Chinese sports beverage market and to propel the brand to the preferred beverage of active individuals in China. Daxue Consulting conducted a consumer panel for the client in order to gather and analyse the feedback of potential consumers. This first connection from the customer to the product helped elevate the product the eyes of the customers.
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