Yogurts have become one of the most popular food products in the world; they have been attracting consumers around the world searching for healthy food, balanced diet and tasty dairy products. Yogurts contain the nutrients present in milk and lactobacillus that are essential for a strong immune system. Yogurts have even started to appear in online social media, where an increasing amount of people are promoting their care for health with photos of their yogurts on personal Instagram accounts.
Today, liquid and powder milk products dominate the dairy market in China. The competition for this market has become increasingly fierce because domestic, Australian and New Zealand brands are rising fast. Haihe, Xinxiwang, Junlebao and Jiabao have been increasing their market share by more than 20% compared to the previous year. Despite the very competitive market, the dairy market remains very attractive thanks to its size and growth. In addition the dairy sector is accompanied by governmental policies reducing barriers for importers, while probiotics yogurt drinks and other fully developed yogurt product have reached 50% profit ratio.
Growth of the Yogurt Market in China
Large & Expanding
By 2016, China will become the 3rd biggest consumer of dairy drinks. The large and growing market per capita compensates for the low consumption. In fact, the volume of drinking yogurt is expected to exceed all milk alternative drinks. Studies show that the growth of drinking yogurts reached 110% in 2013 and the yogurt market will attain 10.16 billion dollars in 2016 (rising from 8.25 billion dollars in 2013). During the last few years, the annual growth rate of global yogurt consumption has been increasing at a rate of 20%. Dairy products including flavoured milk drinks and yogurts are developing even faster according to Euromonitor International. Yogurt consumption is increasing at an annual rate of 30% in China and flavoured ones are growing at over 40%.
In China, the most popular yogurts are the drinkable yogurts. Using spoons to eat thicker yogurts isn’t nearly as common. Those two categories together are expanding more than the explosive powder milk growth which occurred in 2005. Furthermore, the high potential of the market can be measured by comparing current European and Chinese consumption: Europeans consumed 20kg of yogurt per person in 2013 while Chinese consumers only managed 1.8kg. Even if Chinese consumers only increase their consumption to 5 or even 10 kgs, the scale of the country’s population presents huge opportunities for yogurt manufacturers.
Competitive & Fragmented
The competition in the yogurt market is becoming more and more important as the concentration of brands is increasing at an important pace. As a result the market remains fragmented and brands are testing many new products. To respond to this situation, domestic and foreign dairy enterprises are accelerating their expansion in China, to capture a larger yogurt market share. Some major dairy production companies have started to form joint ventures and alliances, particularly after 2012, while dairy farmers are getting together to support and fuel the Chinese yogurt industry. A significant event was the establishment of the joint venture between the French corporation Danone (1.7% of the Chinese market share in 2012) and Mengniu Dairy Co. Ltd., which accounts for 17% of the Chinese market share in 2012, largest yogurt company in China. This trend of building alliances is increasing impact and influences of those larger groups but the market still is very segmented.
Just the beginning: A high potential market
The success of yogurts in China is mainly attributed to significant sustainable investments in the market. This seems to be the result of large past investments that are expected to persist at least until 2019. In addition to this, the higher income of middle class Chinese is increasing the population’s purchasing power and enabling fast growth for new products such as yogurts. As yogurts are highly marketed as beneficial for health, the Chinese are willing to spend and try those products out. Food scandals which occurred in the last several years have resulted in higher awareness from the Chinese consumer concerning nutritional benefits and many blogs or communities discuss and promote yogurts as a health food. Food safety has become one of the priorities of middle class Chinese consumers. They are now searching for healthier and green products in China.
Several key players are currently dominating the industry. China Mengnui Dairy, General Mills, Danone and Nestle are sharing the sector, though many opportunities are still open for new products looking to penetrate the market. When comparing Chinese dairy consumption to neighbour countries, China’s market shows an important gap in purchase frequency for yogurts. As the market is getting mature, dairy products consumption will expand. If China follows broadly similar product preferences as Korea, the average expenditure will double and the frequency will nearly triple. Consumption of those yogurts will also increase as the population gets educated and learns that consuming those products is healthy. Yogurts cover only 15% of dairy products consumption in China, with lactobacillus yogurts below 5%. Nowadays, since the average wage is increasing, consumers desire to upgrade their consumption. Habits are getting modified along with higher consumption habits and standards. Consumers are willing to spend more to get higher quality. Blending yogurt brands with Chinese habits and values will develop the yogurt consumption culture very quickly. The largest segments consuming yogurts in china are young, female, with a high income, and well educated, but the diversified market of China is now observing demand from new segments. Developing different kinds of yogurt products with specific prices will satisfy the new rising demand and diversified income levels..
In addition to those factors, products with health benefits are getting very popular. This trend will persist and get more attention in consumer choice as the government is supporting education around health care (including elderly care in China), manufacturers continue innovating and population continues ageing. The Chinese love trying out new products especially in cutting-edge industries. 3D printing, to name an innovative example, could be an opportunity to deliver new experiences to customers and add a fun aspect to yogurts. Bocusini, a start up company based in Germany, will soon start developing 3D printed food including yogurts, and we’re sure to see similar uses of 3D printing in China if some company can overcome the hygiene concerns of customers.
A welcoming environment for innovation
A brand prompting products blending health benefits, an innovative positioning and related to yogurts would have a huge opportunity for development in China. Today, consumers show great willingness to try out new products since they are used to changing environments. This is putting pressure on manufacturers to bring new concepts and surprise clients. New packaging, specific shapes or textures and different tastes are demanded. In order to satisfy clients, companies are moving towards more international cooperation and overseas brands are dominating the Chinese market. In 2013, the market share for international brands was 40%, Chinese local brands captured 15% and the remaining 45% are attributed to so-called cooperation brands, collaborations between foreign and Chinese brands. This is very visible by the fact that yogurt importation has grown from 500 tons in 2003 to 8000 tons in 2012, a growth ratioof 60%. By 2019 sales of yogurts are expected to reach 605 million RMB. The most demanding market in the future will be the Southern, Northern and Western market because they are still undeveloped and have disparate requirements.
An example of a successful innovating yogurt product in China is the iced yogurt. The Chinese particularly enjoy eating ice-creams, so it’s no surprise, iced yogurts are getting a lot of attention and their popularity is growing every year; its growth was 40% last year. This emerging category of iced yogurt in China is successfully riding the health trend wave and the popularity of ice-creams in China.
As the market is particularly fragmented and competitive, reaching consumers in China is a real challenge for new entrants. There is no unified media used by the Chinese yogurt consumers and preferences vary a lot according to regions, ages and income. As a result, marketing in this changing environment requires expertise and deep analysis after accurate segmentation. While it’s well known it’s difficult to know how to implement a brand in China, an efficient way to target the young Chinese consumers would be to advertise though phone ads, and online shopping phone applications since those means of communication are intensively used in China and will get more important in the coming years. As the Chinese are particularly sensitive to price changes and discount, campaigns including QR codes and promoting social media communities with specific healthy lifestyle would be perfectly adapted to get noticed and maintain more loyalty compared to competitors.
Internal case study 2015 yogurts in China