market overview on gelato, coffee and sweet … · market overview on gelato, coffee and sweet food...
TRANSCRIPT
Market Overview On Gelato, Coffee And Sweet Food In China
1
MARKET OVERVIEW ON GELATO,
COFFEE AND SWEET FOOD IN CHINA
2018
Market Overview On Gelato, Coffee And Sweet Food In China
2
TABLE OF CONTENT
SECTION 1:
SECTION 2:
Executive Summary
General Overview on Gelato, Coffee and Sweet Food
Page 3
Page 7 Market in China
SECTION 3:
The Ice Cream Market in China
Page 11
SECTION 4:
The Pastry and Bakery Market in China
Page 37
SECTION 5:
The Coffee Market in China
Page 53
SECTION 6:
The Chocolate Market in China
Page 62
Market Overview On Gelato, Coffee And Sweet Food In China
3
* SECTION 1:Executive Summary
As a populated country with a fast-paced economy, China’s market for sweet food
and coffee market is experiencing exponential growth due to a rising middle class and
changes in the young generation’s attitudes and consumption behaviors. The Chinese,
accustomed to a salty diet, are adopting the western coffee culture and learning to
appreciate various sweet indulgences, leading to vast opportunities for Italian coffee
and sweet food manufacturers.
The era of globalization presents immense opportunities for brands, especially Italian
ones, to understand and grow with Chinese consumers as they explore a modern
lifestyle enabled by years of socioeconomic improvement.
More encouragingly, third-party research showed a strong trend towards
premiumization and discretionary purchases, which is likely to translate into demand
for premium products. Since “made-in-Italy” coffee and confectionary is often
considered “premium” by most Chinese, the market potential at this time seems
stronger than ever for products of Italian origin.
Among the different sweet food markets, the gelato and coffee markets seem to be
having good potential in China as they are emerging and developing.
*The present market research has been compiled by N‐Dynamic Market Research & Consultancy Ltd.
for Italian Trade Commission Shanghai Office.
Market Overview On Gelato, Coffee And Sweet Food In China
4
There is a high level of cross-pollination between western products such as coffee and
gelato. Currently, there is a trend in which professionals from other industries start
their own coffee and ice cream businesses. In order to maximize sales and offset
significant production and operation costs, small business owners will often stock
diverse product options to cater to as many customers as possible. This has resulted in
the emergence of hybrid stores that can comprise of a gelateria, a café, or even a
bakery.
Ice cream has been integrated into other kinds of food forms. Instead of being a single
product, ice cream has started to extend itself into other food categories. For example,
restaurants might serve ice cream as a dessert along with other sweet food; bakeries
could also sell ice cream in tandem with other products, such as mooncakes, birthday
cakes, etc. Ultimately, the integration of gelato into other kinds of food forms is well
received by Chinese consumers as they love sophisticated products. The promotions
of the new food forms have resulted in higher awareness of and preference for gelato.
One example is the affogato drink, which is promoted heavily by various coffee shops
in China.
While consumers care most about the taste and flavor of their ice cream, the “health”
has almost an equal amount of importance. Interestingly, Chinese consumers’
preference for less sweet products makes it easier to create healthier ice cream without
a significant compromise in taste. Gelato is well positioned to fulfill this unmet
need with its fewer calories. In general, consumers are also seeking more flavors,
and thus investment in research and development is needed. Other suggestions by
consumers include a softer ice cream texture as well as more innovative shapes when
it comes to serving ice cream. These are peripheral product attributes that can be
leveraged to increase differentiation from other ice cream.
Market Overview On Gelato, Coffee And Sweet Food In China
5
Gelato market players need to seek the best competitive advantages to define and
maintain the product’s uniqueness through product innovations and nutritional
messages. From a marketing perspective, gelato producers need to emphasize the
naturalness and authenticity of the product through product attributes as well as
leveraging the well-established reputation of Italy as a producer of gourmet ice cream.
In order to educate consumers about gelato, industry experts advise business players
to organize roadshows, gelato competitions, exhibitions, etc. These events will serve
as educational opportunities where both brands and consumers can exchange
information and become educated about each other. As suggested by one distributor,
flagship stores are great marketing and business investments where gelato chefs can
demonstrate the production process and educate consumers. Moreover, cross-
promotion across other industries is a powerful way to enter the market through
partnership growth. One machinery and ingredients provider stated that, in past few
years, their company has setup gelato booths at event venues like the F1 car racing
course and equestrian events with great success.
Partnerships with large businesses or even local governments could go a long way in
covering otherwise immense costs of industry-wide events. Gelato’s success in China
will be a combination of business ventures into unknown territories as well as public
relations strategies to raise awareness and establish a unique reputation for gelato.
Finally, understanding how to navigate the ever-changing government regulations will
be key for businesses. The Chinese government pays a lot of attention to food safety,
but the specific regulations around gelato remain unclear. Businesses will have to
continually look out for updates and guidance on gelato production in the near future
as the Chinese government becomes more familiar with the production process.
Market Overview On Gelato, Coffee And Sweet Food In China
6
It is without doubt that the gelato market in China will continue growing in the near
future. The most important challenges that gelato producers will need to continue
tackling are education, cultural assimilation and financial feasibility. As suggested by
many industry experts, education on an industry level will act as a catalyst for faster
growth through greater interest in gelato and a higher willingness to pay for it.
Moreover, adapting to cultural norms and localizing the taste of gelato will help
gelato products bypass consumer unfamiliarity and into consumers’ comfort zones.
Lastly, scales of economies should be leveraged to reduce the overall cost of doing
business in China so that more producers, distributors, and retailers are incentivized to
expand access to gelato. Ultimately, the goal is to create a positive cycle of
profitability that will in turn lead consumers to be more frequently exposed to gelato
experiences. The inextricable link between consumer demand and gelato supply will
continue to grow as long as the barriers are addressed on both sides with long-term
prospects in mind.
This market research is a general overview. ITA Shanghai would be pleased to assist Italian companies
and associations to get more specific and detailed information on these sectors, as well as
personalized services to facilitate their entrance into Chinese market.
Market Overview On Gelato, Coffee And Sweet Food In China
7
SECTION 2:General Overview on Gelato, Coffee and Sweet Food
Market in China
As a populated country with a fast-paced economy, China’s market for coffee and
sweet food is experiencing exponential growth due to a rising middle class and changes
in the young generation’s attitudes and consumption behaviors. The Chinese,
accustomed to a salty diet, are adopting the western coffee culture and learning to
appreciate various sweet indulgences, leading to vast opportunities for Italian coffee
and sweet food manufacturers.
While there are only 33 cities with over 1 million people in all of Europe, the number
of cities in China with same population is 303. Furthermore, as shown in the figure
below, there are different tiers of cities in China. Each tier of cities represents a
certain group of consumers with their idiosyncratic attitudes, behaviors, and
preferences. Understanding these nuances will help products with different positioning
find their success in China.
Market Overview On Gelato, Coffee And Sweet Food In China
8
According to the consulting firm McKinsey & Company, rapid growth of disposal
income within China’s middle and upper classes has been occurring since 2012 and is
projected to last until 2022. The figure below demonstrates this growth and the
increased consumer spending as a result. The affluent (annual salary greater than
229,000 CNY [€29,090 EUR]) and upper middle class (annual salary ranges from
106,000 to 229,000 CNY [€13,466 to €29,090 EUR]) groups will have a CAGR
(compound annual growth rate) of 19.6% and 22.4% in the projected period,
respectively. The incremental growth of their annual salaries will drive an expenditure
shift from products to services and from mass to premium segments. In addition,
middle-class growth has been concentrated more so in smaller cities to the north and
west of China, many of which are 3rd tier cities.
China's Rising Middle Class
Source: McKinsey & Company
This transition of focus away from major cities presents a unique opportunity to
capitalize on previously untapped markets. What is interesting is that Italian coffee
and sweet food manufacturers will have the ability to shape the mind of customers,
Market Overview On Gelato, Coffee And Sweet Food In China
9
many of whom have minimal historical exposure to Western products. Less
preconceptions and stereotypes about what Italian products look and taste like means
that Italian producers can more easily assimilate into the local culture. Despite the
recent slowdown of the country’s economic growth, China’s middle-class consumers
are still confident about the prospects for their incomes, which make them more
willing to spend disposable income. More encouragingly, results from a recent survey
and third-party research showed a strong trend towards premiumization and
discretionary purchases, which is likely to translate into demand for premium
products. Since “made-in-Italy” coffee and confectionary are considered “premium”
by most Chinese consumers, the market potential at this time seems stronger than ever
for products of Italian origin.
Chinese consumers’ curiosity towards Western food has continued to expand in
conjunction with middle class income growth. The adoption of a Western lifestyle and
diet is evident through increased imports of foreign food products as consumers
search for avenues of enjoyment. HKTDC’s survey results highlighted the popularity
of international travel among Chinese consumers and their willingness to try new
things, which aligns with the growing appreciation for foreign brands and products
among China’s younger generations. The era of globalization presents immense
opportunities for brands, especially Italian ones, to understand and grow with Chinese
consumers as they explore a modern lifestyle enabled by years of socioeconomic
improvement.
Market Overview On Gelato, Coffee And Sweet Food In China
10
References
China Daily 2017
http://www.chinadaily.com.cn/china/2017-10/02/content_32752727.htm
HKTDC Research 2017
http://economists-pick-research.hktdc.com/business-news/article/Research-Articles/C
hina-s-Middle-Class-Consumers-2017-Survey-Summary-and-Recommendations/rp/en
/1/1X000000/1X0AB8SK.htm
McKinsey& Company 2016
http://mckinseychina.com/the-modernization-of-the-chinese-consumer/
McKinsey& Company 2013
https://www.mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class
Market Overview On Gelato, Coffee And Sweet Food In China
11
SECTION 3: The Ice Cream Market in China
Types of ice cream in China
Currently, the most popular type of ice cream in China is hard ice cream (10% to 18%
milk fat content), which is as known as American ice cream or Philadelphia ice cream.
It is the most common type of industrially produced and branded ice cream that can
easily be purchased in China’s supermarkets and convenient stores. Other varieties of
ice cream, such as gelato (Italian-style ice cream), custard- or egg-based ice cream
(French-style ice cream), sorbet, frozen yogurt, and soft serve ice cream, can be found
in a multitude of distribution channels including ice cream shops, hotels, cafés, and
restaurants. Among all the ice cream types, soft serve ice cream is a particularly
popular in China mainly due to the convenience of making and storing the product
through a soft serve machine. While American ice cream and soft serve ice cream
have gained widespread recognition and large market share in China, gelato has not
grown to the same extent and accounts for only a very small portion of the market.
Market size indicators and trends
Chinese consumers are not known for their love for ice cream—as a matter of fact,
older generations of Chinese believe that cold food is bad for one’s health, let alone
iced food. The projected average consumption per capita for ice cream in China is
only 0.03 kg in volume in 2018 according to Statista. Even so, as of 2014, China is
the world’s largest ice cream market in terms of volume consumption thanks to the
influence of Western lifestyles and rising disposable incomes. The graph below shows
the incredible growth of China’s market volume since 2008: a stark difference
especially when compared against the highly saturated and stagnant US market.
Market Overview On Gelato, Coffee And Sweet Food In China
12
Market volume of Ice Cream in China and US
Source: Mintel
While Mintel projected the market volume to continue upwards in 2014, the ice cream
category in China actually recorded a decrease in ice cream volume consumption in
2017. To be more specific, based on data from Euromonitor, both take-home dairy ice
cream (-3%) and impulse ice cream (-1%) saw decreased retail volume last year.
Research further indicates that the percentage of Chinese people that do not consume
ice cream rose from 4% in 2012 to 11% in 2017 as Chinese consumers’ preferences
shifted towards healthier eating habits. Considering the strengthening awareness of
healthy diets amongst consumers, overall ice cream sales volume is expected to keep
declining in the next few years while healthier options such as frozen desserts are
predicted to slowly increase in volume based on reports by Euromonitor.
Despite the decrease in volume, China’s ice cream market has continued to grow in
retail market value. According to Statista, revenue in the country’s ice cream segment
is expected to reach $183 million USD (€149.70 million EUR) in 2018 with the
market expanding annually by 3.5% in value from 2018 to 2021.
Market Overview On Gelato, Coffee And Sweet Food In China
13
Revenue Growth of Ice Cream in China
Source: Statista
According to the marketing manager of a machinery producer interviewed by N-
Dynamic Market Research, the overall market size of ice cream is approximately 40
billion CNY (€5 billion EUR) per year. The gelato market share is believed to be less
than 10% of this amount, although the interviewee demonstrated confidence in
gelato’s growth potential: “In the next 5 years, the gelato market should be able to
take off again quickly”. As a gelato producer interviewed by N-Dynamic puts it,
“Even though there was a ‘winter season’ for China’s gelato market in 2015 and 2016,
the 2017 market began to warm up again”.
Furthermore, the growth in value coupled with the decrease in volume points to the
greater demand for high-quality/gourmet ice creams. This trend is likely to remain for
the foreseeable future and will continue to benefit makers and distributors of gelato.
In addition, Technavio published a report on the global market for gourmet ice cream,
covering three segments: gelato (which accounted for 69% of the gourmet ice cream
market in 2016), sorbet, and frozen custard. The report predicted that APAC (Asia
Pacific) will soon become the fastest-growing market for gourmet ice cream products
due to rising demand. Indeed, the explosive growth of China’s emerging middle class
has greatly driven demand for gourmet ice cream, among which gelato plays an
important role due to its viability as a premium and healthier ice cream alternative.
Market Overview On Gelato, Coffee And Sweet Food In China
14
Data on ice cream imports from 2014 to 2017 indicates that imports dropped in 2015
and 2016 and recovered in 2017. More importantly, the 2017 recovery lead to an
importation market value of $64.16 million USD (€52.45 million EUR) by November
2017, a value that already surpassed the market value for the entirety of 2016 ($60.68
million USD [€49.60 million EUR)]. In conjunction with decreased sales volume, this
jump in market value is strong evidence that premium product demand is growing.
According to the Chinese custom ‘s data, the China’s importation of ice cream for the
first three months has increased of 20.54% comparing to the same period of last year.
Currently, the average price per unit for ice cream products in China amounts to $4.90
USD (€4 EUR) based on data provided by Statista. Moving forward, the prices of ice
cream are likely to go up as manufacturers launch more premium product lines and
raise prices to maintain profit margins.
In order to better understand the gelato market in China, N-Dynamic interviewed 6
experts in the industry, including machinery manufacturers, gelato retailers,
distributors, and showcase manufacturers. Their many years of experiences in gelato
production and retail have led to in-depth insights on the market. Based on the
interviews, the most significant difference between the gelato markets in China and in
Italy is the consumer perception of gelato itself — Chinese customers ultimately think
that ice cream is too cold and therefore unhealthy for human bodies. Simultaneously,
they are unaware of gelato’s health benefits. Most importantly, however, many
Chinese consumers cannot differentiate between gelato and ice cream. These cultural
and knowledge gaps among Chinese consumers are significant barriers for gelato
producers and sellers. Of course, the complete opposite is true for Italians—for them,
gelato is native and an essential part of their lives.
“Understanding the markets’ distinctiveness is key to entering China’s gelato market”,
suggested a showcase marketing manager, “so it’s better for foreign companies to hire
Market Overview On Gelato, Coffee And Sweet Food In China
15
Chinese market specialists to implement marketing strategies”. Ultimately, the hope is
that local specialists will be able to tackle the cultural and social nuances of Chinese
consumers. “The high price of gelato makes it a luxury dessert in China’s market, and
the main customers are young people who have travelled abroad, kids who grew up
well-off, young couples, and oversea returnees”, remarked a distributer.
Overall, the interviewed experts think the confectionery industry in China has been
growing in the past few years. The major reason cited is the rising disposable income
of Chinese consumers along with China’s economic growth in general. As a
machinery manufacturer stated, “With rising income, Chinese people started to pursue
higher quality of life including sweet food”. Thanks to the huge population of the
nation, the entire confectionery industry is extremely promising in China. Also,
according to a gelato distributor, “Decades ago, Chinese people simply wanted to
have food to survive, but now people want food not only to be delicious but also to be
good looking, so they can take photos and share on social media platforms”.
With increasing quality of life for the average Chinese consumer, many gravitate
towards food as a means of enjoyment and social reciprocation: “Since more flavors
are invented and more styles are created, food nowadays can even be selected as a
present for friends”. Moreover, according to one distributor, “the offline sales
channels have expanded from street stores to shopping mall centers”, especially as
products have become more mainstream.
The main consumer groups of gelato are young. Born between 1980 and 2000, many
grew up with ice cream and popsicles with the culture of eating ice cream deeply
rooted in their lives. These are the consumers that will continue the cycle of ice cream
consumption as they encourage their children to consume ice cream as well. In the
long term, this self-reinforcing culture will bring a positive influence on the market.
Ultimately, as the interviewed experts all believe, the future of the ice cream market is
Market Overview On Gelato, Coffee And Sweet Food In China
16
being built on a strong foundation of cultural norms established by a young generation
of Chinese consumers and will likely keep growing as they strengthen their long-term
appreciation of ice cream.
Geographically speaking, “both southern and northern regions have good markets. In
the North, ice cream is being sold throughout the year due to the warm heating
systems in the region, while the sales drop in South when it enters winter”. The
experts believe tier-one cities like Shanghai, Beijing, Guangzhou, and Shenzhen have
the most potential for future market development. For example, Starbucks opened its
biggest store Roastery in Shanghai in late 2017, which led to another coffee craze in
the region, causing people to wait in long lines to visit the shop. This is not to say that
lower-tier cities are not worth expanding to: as stated by a machinery manufacturer’s
marketing manager, “People in tier-three and tier-four cities are more conscious of
“face” and consider eating ice cream a fashionable trend, which makes the market in
those cities have growth opportunities”.
Market structure and key players
According to Euromonitor, Inner Mongolia Yili(内蒙古伊利) Industrial Group
continued to lead ice cream and frozen desserts in 2017 with a market share of 13%.
China Mengniu Dairy(蒙牛乳业)Co., Ltd. is another top Chinese dairy company
among the industry leaders. These local giants have maintained their market shares
through strong cross-country distribution and consistent new-product launches. Two
non-Chinese companies also made the list of the country’s top 10 ice cream brands:
Unilever and Nestlé (Eurasia Consult 2015). The success of Unilever’s ice cream
brands in China (Wall’s, Magnum, and Cornetto) proves that international brands can
have strong brand presences that compete well against local players. Aside from these
big players, the market is highly fragmented with a vast variety of locally-produced
and low-price brands all vying against each other in a competitive environment.
Market Overview On Gelato, Coffee And Sweet Food In China
17
Based on results from a recent internet poll, the ice cream brand most favored by
Chinese consumers is Häagen-Dazs, followed by Dairy Queen. The high recognition
of Häagen-Dazs came primarily from its successful positioning as an “experience”
luxury brand as well as its countless marketing campaigns. The company reported
strong growth in large cities (revenues in Shanghai and Beijing grew 16% and 13%,
respectively) in June 2016, despite challenges it faced in other smaller cities. In them,
rising commercial rent and lower profit forced Häagen-Dazs to close stores in second-
and third-tier cities in 2015 and 2016 amid a slowdown in the ice cream market. As
the brand is widely perceived as overpriced by many Chinese people, one of the major
reasons for its failure could have been consumers’ lower willingness to pay for ice
cream in second/third-tier cities. Häagen-Dazs’ failure comes as a lesson that
companies need to proactively manage their pricing strategy in response to consumers’
price sensitivity—this can vary widely based on the city and be a large determinant in
the success of a product in highly individualistic environments.
The Chinese market also sees a high level of cross-pollination between Western
products such as coffee and gelato. As remarked by a gelato machinery and ingredient
distributor, there are a large number of individual market players in China that
contribute to the growth of the coffee and ice cream market. Currently, there is a trend
in which professionals from other industries start their own coffee and ice cream
businesses: “The investors mainly have their own full-time jobs in design or
architecture industry, but they see the opening a café or ice cream shop as a business
investment as well as a way to pursue their own interest and dreams”, said a distributor.
In order to maximize sales and offset significant production and operation costs, small
business owners will often stock diverse product options to cater to as many
customers as possible. This has resulted in the emergence of hybrid stores that can
comprise of a gelateria, a café, or even a bakery.
Market Overview On Gelato, Coffee And Sweet Food In China
18
While distribution and preservation have always been big challenges for frozen food
companies, it is now a better time than ever for gelato market players to enter China
as the country has been strengthening its storage and distribution channels. Moreover,
the growing demand for ice cream has resulted in the expansion of production and
distribution, according to Daxue Consulting—the frozen foods logistics industry was
expected to achieve a 25% increase in market size in 2017.
Based on the in-depth interviews, one of the main challenges for gelato retailers is the
high production costs. As an example, a retailer stated that his store is able to sell 100
cups of gelato every weekday and 400 cups every day on weekends; yet he cannot
solely rely on gelato to sustain his business. He continues to run his coffee and
Cantonese dessert product lines to make a profit: “It is almost impossible to make
money by selling only gelato, because the cost is really high”. These costs include
investments in large fixed purchases such as production machines and showcases as
well as the variable costs of gelato ingredients, labor, rent, and utilities. Imported
production machines, such as Carpigiani, costs around 300,000 to 400,000 CNY
(€38,127 to €50,836 EUR) while imported showcases cost 18,000 to 19,000 CNY
(€2,287 to €2,415 EUR). On the other hand, domestic production machines, like
Kingdom and Easy Best, only costs 20,000 to 50,000 CNY (€2,542 to €6,354 EUR)
and the showcases around 20,000 to 30,000 CNY (€2,542 to €3,813 EUR). Although
these domestic machines would markedly reduce the cost of doing business,
distributors and retailers are not satisfied with the performances of these appliances.
Thus, retailers naturally gravitate towards the idea of purchasing imported machines.
The truth is that many retailers believe the Italian-made machineries would help them
produce better gelato, but the entry price is simply too high for many of them. The
interviewed experts believe that, if machinery and ingredients costs can be reduced,
Market Overview On Gelato, Coffee And Sweet Food In China
19
there would be more retailers to sell higher-quality gelato, starting a cycle of
consumer education and more stringent expectations towards gelato quality.
With high production costs, the gelato industry suffers from overpriced products—a
single scoop of gelato costs between 25 ~ 40 CNY (€3.18 ~ 5.08 EUR)—which deters
customers who cannot afford it or are not willing to pay for it. “In order to reduce the
cost”, the retailer comments, “We need to develop our own recipes. 50% of the
material cost [could be saved] if we invented new flavors on our own”. Another
distributor suggested opening a gelato factory to reduce the production and operation
cost for retailers. The expert indicates that she and her partner plan to set up a gelato
production factory while relying on a third-party shipping provider to efficiently
deliver the fresh gelato to major cities like Shanghai or Beijing. Purchasing gelato
directly from a factory itself would effectively reduce the cost for retailers because
they would not need to purchase gelato production machines nor the recipe
ingredients themselves. This centralized production system would utilize scales of
economy to lower cost for all market players and create an affordable solution for
Chinese consumers. Another way to help retailers reduce costs would be to simplify
the gelato production process through innovative recipes: in fact, an interviewed
ingredient distributor remarked that they have started to sell new ingredients to gelato
retailers that do not require expensive machinery to process, thus saving on the large
fixed costs that a normal gelateria would incur.
Consumer needs, attitude and behavior
As Chinese consumers become more sophisticated and further refine their tastes and
preferences for ice cream, new formats of ice cream made from organic and natural
ingredients—such as gelato, sorbet, and other reduced fat products—are becoming
more popular. Based on recent research conducted by Mintel, more than half of urban
Chinese consumers are willing to buy 100% natural ice cream products and are
Market Overview On Gelato, Coffee And Sweet Food In China
20
willing to pay more for them, owing likely to increased health-consciousness. Yet, it
was also pointed out in the research that consumers did not want a compromise
between a product’s taste and its healthiness. As a result of its balance between
healthy ingredients and rich taste, gelato is gaining more and more attention in the
Chinese market and is well positioned to grow in the ice cream market.
Moreover, Mintel published a recent study indicating that consumers in Shanghai
demonstrate a strong interest to eat ice cream products that are made on the spot when
they are hanging out or craving something sweet. The freshly-made format seems to
be popular among the consumers in tier-one cities like Shanghai, which aligns
perfectly with the nature and tradition of gelato. As a matter of fact, a number of ice
cream boutiques have appeared in China in recent years that are likely a result of
growing demand for instant-made ice cream like gelato.
Meanwhile, more and more Chinese are buying ice cream products in winter
compared to several years ago, suggesting a behavioral shift to year-round
consumption that is not dependent on season. The shift can possibly be attributed to
Chinese consumers perceiving ice cream more and more as a sweet indulgence rather
than just a summertime treat.
When it comes to sweet food (especially ice creams and desserts), an interesting
observation can be made about Chinese consumers: they tend to display herd behavior
and fall for all kinds of internet fads. For example, WIYF is an ice cream shop in
Shanghai, which is now “the most popular ice cream” place in the city with people
lining up for hours just to try their ice cream, according to China Daily. Based on
interviews conducted by East Day News, a number of its customers actually came
“for a selfie rather than the ice cream” itself just because of a viral post that introduced
WIYF on the internet. Another example of fad-driven success is the
Market Overview On Gelato, Coffee And Sweet Food In China
21
growing popularity of Russian ice cream in China. This was a result of the Russian
President, Vladimir Putin, bringing them as gifts for his Chinese counterpart, Xi
Jinping, during the 2016 G20 summit in Hangzhou. In the end, however, viral fads are
simply unpredictable and unsustainable marketing tactics that require astute and timely
identification of internet trends: something that companies are unlikely to achieve
consistently. Even WIYF and Farine, its sister French bakery, were forced to shut
down in March 2017 due to issues with their ingredient procurement, demonstrating
the barriers to running an ice cream shop despite nation-wide fame.
N-Dynamic’s online survey of 300 respondents has shed light on additional Chinese
consumer needs, attitudes, and behaviors. First of all, as shown below, all surveyed
consumers purchase imported ice cream at least once a month while a third of
respondents said they purchase once a week. These respondents are distributed evenly
across three major cities—Shanghai, Guangzhou, and Beijing—and their reported
behavior support earlier findings that urban citizens regularly consume ice cream.
How often do you purchase imported ice cream?
22.2%
33.3%
44.4%
Once / week times/month Once / month
Market Overview On Gelato, Coffee And Sweet Food In China
22
Similar to the preferences for baked products when it comes to country of origin, Italy,
France and United States rank among the top three. When it comes to ice cream,
however, a majority (68.3%) of the surveyed consumers preferred Italy more than the
other two countries, demonstrating the strong preference for Italian ice cream products
in China.
Which country’s ice cream is your favorite?
Italy 68.3%
United States 51.7%
France 46.1%
New Zealand 38.9%
Australia 35.0%
Japan 35.0%
China 22.2%
South Korea
Others
18.
0.6%
3%
More than half (58.9%) of the respondents claimed to know the differences between
gelato and industrial ice cream. The percentage is quite high considering the
penetration of gelato in China and is likely a result of the demographic present in this
survey: Chinese consumers in major metropolitan areas with exposure to Western
culture. Nevertheless, the results demonstrate that there continues to be a knowledge
gap, as only 60% of Westernized Chinese consumers understand the difference.
Extrapolation to more rural populations or those in second/third-tier cities will likely
mean that a majority of Chinese consumers in those areas do not know the difference
between gelato and industrial ice cream.
Market Overview On Gelato, Coffee And Sweet Food In China
23
Do you know what gelato is? Do you know the differences between gelato and industrial ice cream?
2.8% 2.8%
I don’t know gelato
58.9%
35.6%
I know gelato, but it should be the same as other ice cream
I know gelato, but not sure what’s the different between gelato and industrial ice cream
I know gelato and I know the differences between gelato and industrial ice cream
More specifically, however, when asked about the actual differences between gelato
and industrial ice cream, almost half (49.1%) of whom claimed to know the difference
think gelato contains more milk and air than industrial ones, when, in reality, gelato is
actually denser with less air in it. This finding shows the misperception of Chinese
consumers and the knowledge gap that must be addressed to position gelato as a
premium product. Additionally, during the in-depth interviews, almost every expert
stated that Chinese consumers do not fully understand the product of gelato, nor can
they perceive the differences between gelato and industrial ice cream. “The industry
needs a leading company to educate the consumers”, a showcase sales manager claims,
“There is no competitive gelato brand on the market, no outstanding brand at all.” The
interviewees believe if Chinese consumers could understand the uniqueness of gelato,
they would be willing to pay the price for it. The healthiness factor of gelato, as
mentioned, continues to be a highly relevant consideration for all market players: “The
media should educate the public about the advantages of gelato, it’s fresh,
Market Overview On Gelato, Coffee And Sweet Food In China
24
healthy, with absolutely no additive”, says the gelato retailer. He thinks that, with the
right message, consumers would jump at a chance to try gelato.
What do you think is different between gelato and industrial ice cream?
27.4%
Gelato contains less milk but more air than industrial ice cream
Gelato contains less milk and air than industrial ice cream
49.1%
10.3%
13.1%
Gelato contains more milk and air than industrial ice cream
Gelato contains more milk but less air than industrial ice cream
Fortunately, even without a proper understanding of gelato, Chinese ice cream
consumers already perceive gelato as a superior product in terms of taste and
healthiness when compared to industrial ice cream. In their minds, gelato is viewed as
a healthier and fresher type of ice cream. 40% of the surveyed consumers also cited it
being more expensive than regular ice cream.
Comparing with industrial ice cream, what do you think about gelato?
91.7%
76.7% 76.7%
40.0%
15.0%
3.3%
Gelato tastes Gelato is Gelato is fresher Gelato is more Gelato helps lose Gelato makes me
better healthier expensive weight gain more weight
Market Overview On Gelato, Coffee And Sweet Food In China
25
The results of the survey show that indulgence is the biggest reason for eating ice
cream—respondents cited “feeling happy” (78.3%) and “releasing some stress”
(72.8%) as the top two reasons for consuming ice cream. There is also a large
percentage (66.7%) of respondents whom eat ice cream primarily to spend time with
family and friends, and to “reward themselves” (64.4%). The motivations behind ice
cream purchases are highly useful in informing marketing strategies used to attract
target consumers. Since these motives range from personal to social, there is a large
range of emotions that brands can appeal to in order to build long-term consumer
loyalty. Another interesting finding is that almost half (47.2%) of the surveyed
consumers eat ice cream because they think it’s “fashionable”—this aligns with the
previous observation of Chinese herd mentality as well as the positioning of some of
the most famous imported ice cream brands (such as Häagen-Dazs) in China.
Why do you eat ice cream?
78.3% 72.8%
66.7% 64.4%
47.2%
0.6%
Eating ice cream Eating ice cream Eating ice cream Eating ice cream Eating ice cream Others
makes me feel happier
helps me release stress
with family and friends is a joyful
thing
is one way to reward myself
is fashionable
The distribution breakdown (chart below) shows the potential of each distribution
channel for the sale of gelato. Other than supermarkets, which gained the highest vote
chiefly due to industrial ice cream sales, dessert shops (63.9%), cafes (39.4%) and
bakeries (31.1%) are also popular locations where consumers go to purchase ice
Market Overview On Gelato, Coffee And Sweet Food In China
26
cream besides actual ice cream shops (63.9%). The popularity of these non-dedicated
shops are a useful consideration for distribution and partnership strategies—the
diverse retail experience in China means that there are plentiful and innovative
opportunities to promote gelato on a product and brand level. Indeed, during the
in-depth interviews, a showcase manufactory sales manager mentioned that ice cream
has been integrated into other kinds of food forms. Instead of being a single product,
ice cream has started to extend itself into other food categories. For example,
restaurants might serve ice cream as a dessert along with other sweet food; bakeries
could also sell ice cream in tandem with other products, such as mooncakes, birthday
cakes, etc. The interviewee emphasized that Chinese consumers prefer sophisticated
food products. Ultimately, the integration of gelato into other kinds of food forms and
its promotions have resulted in higher awareness of and preference for gelato. One
example is the affogato drink, which is promoted heavily by various coffee shops in
China.
Where do you usually purchase ice cream?
Large chain super market (Carrefour, Walmart, etc.) 73.9%
Dessert shops 63.9%
Ice cream shops 63.9%
Cafes 39.4
Online platforms (Tmall, Taobao, etc.) 35.6%
Convenience stores 35.0%
Bakeries 31.1%
Ice cream wholesale stores 28.3%
Food delivery apps (Eleme, Meituan, etc.) 23.3%
Hotels 15.0%
In terms of purchase factors, flavor (83.3%) and texture (79.4%) are the two most
important factors while choosing ice cream, as one would expect. On top of that, the
Market Overview On Gelato, Coffee And Sweet Food In China
27
brand and the ingredients’ origins are also highly valued by Chinese consumers
possibly because of their need for reassurance when it comes to food quality and
safety. Price being the least important factor implies that Chinese consumers are ready
for discretionary purchases, especially in major metropolitan cities.
When you choose ice cream, which factors would you find important?
83.3%
79.4%
63.9% 60.6%
52.8% 49.4%
38.3% 35.0%
30.0%
Flavor Taste (is it Brand The If it's good Color and Package of Decoration Price
(vanilla, strawberry, coffee, etc.)
smooth?) country of origin of
ingredients
for health look of the the product ice cream
and hygiene of the store
The survey results reveal a strong consensus that Chinese consumers tend to eat ice
cream spontaneously. Whether they are physically passing by an ice cream store or
finding a place for indulgence with friends, Chinese consumers make impulsive
decisions about eating ice cream. Consequently, gelato makers should invest more
into the appearances of not only the products, but also the decorations of the shops to
attract customers. Marketing tactics could also be tailored to appeal towards the joy
and excitement that comes with being spontaneous.
Market Overview On Gelato, Coffee And Sweet Food In China
28
In which occasions would you eat ice cream?
When walking by an ice cream shop on the street 72.2%
When craving for a certain brand of ice cream 66.1%
When relaxing at home alone 65.6%
Serve as a dessert after meals when dine out 63.9%
Ice cream date with friends at the shop 62.8%
Serve as a dessert after meals at home 49.4%
“Chinese consumers prefer classic flavors”, observed by an ingredient distributor,
“flavors such as chocolate, strawberry, vanilla, and mango are very popular.” The
survey results, shown below, align perfectly with the industry insider’s comments.
“On the other hand, Chinese people are also willing to try new things: durian and
matcha are the new trends of popular flavors in China”. At the same time, it is
important to heed customer needs and stay conscious of their preferences: As a
retailer remarks, “Chinese customers complain the products being too sweet for them,
although I have already controlled the sugar around 27%. They also express concern
about the product being too colorful; they are afraid too much color is not good for
health”.
Market Overview On Gelato, Coffee And Sweet Food In China
29
Which ice cream flavor do you like?
Chocolate
Vanilla
Milk
Strawberry
Matcha
Coffee
Melon
Cheese
Hazelnut
Pistachio
Wine
Mint
Others
0.6%
27.8%
26.1%
24.4%
44.4%
42.2%
40.0%
36.7%
34.4%
57.2%
65.6%
62.8%
73.9%
The middle-tier price range that target consumers would pay for one-time purchase of
ice-cream is between 36 and 50 CNY (€4.58 to 6.35 EUR). There is also an
outstanding 13.8% of consumers willing to pay more than 81 CNY (€10.29 EUR)—a
possible signal that receptivity is growing towards high-quality gourmet ice cream.
How much would you usually pay for one‐time purchase of ice cream?
4.4%
1.7%
9.4%
10.0%
Under RMB 15
RMB 16‐25
20.6%
21.7%
RMB 26‐36
RMB 36‐50
RMB 51‐80
32.2%
RMB 81‐100
More than RMB 100
Market Overview On Gelato, Coffee And Sweet Food In China
30
While consumers care most about the taste and flavor of their ice cream, the “health”
has almost an equal amount of importance based on the online survey results.
Interestingly, Chinese consumers’ preference for less sweet products makes it easier
to create healthier ice cream without a significant compromise in taste. Gelato is well
positioned to fulfill this unmet need with its fewer calories. In general, consumers are
also seeking more flavors, and thus investment in research and development is needed.
Other suggestions by consumers include a softer ice cream texture as well as more
innovative shapes when it comes to serving ice cream. These are peripheral product
attributes that can be leveraged to increase differentiation from other gelato brands.
Improvement Suggestions on Ice Cream (part 1)
Market Overview On Gelato, Coffee And Sweet Food In China
31
Implications
Improvement Suggestions on Ice Cream (part 2)
International brands and products entering China have enormous and varied
advantages, including a reputation for superior food quality and safety as well as
authenticity through experience. Due to increasing demand for healthier and more
varied ice creams, coupled with the premiumization trend, gelato has become
increasingly popular among Chinese consumers. Nevertheless, competition is fierce
due to rising interest in this segment, and challenges exist in gaining market share.
With the dominance of the online shopping market in China, artisan gelato
manufacturers must combat digital sales of industrial ice cream makers and drive
customers back into brick-and-mortar stores. Gelato market players need to seek the
best competitive advantages to define and maintain the product’s uniqueness through
product innovations and nutritional messages. From a marketing perspective, gelato
producers need to emphasize the naturalness and authenticity of the product through
Market Overview On Gelato, Coffee And Sweet Food In China
32
product attributes as well as leveraging the well-established reputation of Italy as a
producer of gourmet ice cream.
Based on the industry expert interviews, two schools of thought exist in regards to
flavor innovation. One school of thought believes in localization of flavors through
new developments (e.g., durian and matcha) that help drive adoption among Chinese
consumers. The other school of thought is to retain the tradition and authenticity of
gelato by maintaining and asserting the original flavors upon new customers. Whether
a gelato producer chooses to keep only traditional flavors or localize flavors with
local ingredients, the product and brand must convey a unified message so that
customers know what to consistently expect. A traditional brand may tout the
luxuriousness and authenticity of their gelato while a localized brand may message
about their farm-to-fork process of gathering local ingredients. Either way, to further
drive success, gelato manufacturers will need to understand and adapt to Chinese
culture and trends.
Major international ice cream brands such as Nestlé all have different ice cream
flavors in China than in Western markets—often times, the products are made not as
rich or sweet, aimed at satisfying Chinese palates. Integrating local flavors has also
been shown to be effective in terms of bringing excitement to potential consumers.
When French chef Gerard Taurin offered his latest creation in Beijing back in June
2015, most of his ice creams were made with unusual but very Chinese ingredients,
such as jasmine, goji berries, ginger and Sichuan peppers. Moreover, according to
China Daily, Huangjiu Bangbing (黄酒棒冰; Huangjiu is a type of Chinese wine), a
new type of ice cream, has taken the market by storm in 2016 with its infusion of
traditional Chinese wine flavors; their remarkable sales (more than 40,000 sticks sold
in one summer in Ningbo, a city in East China's Zhejiang province) indicates the
popularity potential of innovative flavors among Chinese consumers. To provide
Market Overview On Gelato, Coffee And Sweet Food In China
33
some guidance on new flavors, some popular local flavors in China include red bean,
taro, green tea, sesame, and dates. Other Asian fruit flavors those are unlikely to be
found in Italy, such as lychee or durian, can also be used to form unique gelato
flavors.
In order to educate consumers about gelato, industry experts advise business players
to organize roadshows, gelato competitions, exhibitions, etc. These events will serve
as educational opportunities where both brands and consumers can exchange
information and become educated about each other. As suggested by one distributor,
flagship stores are great marketing and business investments where gelato chefs can
demonstrate the production process and educate consumers. Moreover, cross-
promotion across other industries is a powerful way to enter the market through
partnership growth. One machinery and ingredients provider stated that, in past few
years, their company has setup gelato booths at event venues like the F1 car racing
course and equestrian events with great success.
Another interviewed distributor also proposes reaching a Guinness World Record for
gelato—for example, having the most people eat gelato at the same time. While these
are merely example, the industry experts suggest that involvement in the everyday life
and culture of Chinese consumers will garner attention for the gelato industry through
the public and media. Partnerships with large businesses or even local governments
could go a long way in covering otherwise immense costs of industry-wide events.
Gelato’s success in China will be a combination of business ventures into unknown
territories as well as PR (public relations) strategies to raise awareness and establish a
unique reputation for gelato.
Finally, understanding how to navigate the ever-changing government regulations will
be key for businesses. This is well illustrated by the account of one gelato retailer’s
Market Overview On Gelato, Coffee And Sweet Food In China
34
experience in Shanghai. Even as the business worked with an agency to obtain a
business license, they faced unexpected government regulation changes, which caused
a delay of several months. In the end, while the shop was able to open, they had
already missed the summer peak selling season for gelato.
The Chinese government pays a lot of attention to food safety, but the specific
regulations around gelato remain unclear. Businesses will have to continually look out
for updates and guidance on gelato production in the near future as the Chinese
government becomes more familiar with the production process. As suggested by an
interviewee, recruiting the help of a local company may be beneficial in the long run
to help navigate such complex and sometimes political roadblocks.
It is without a doubt that the gelato market in China will continue growing in the near
future. The most important challenges that gelato producers will need to continue
tackling are education, cultural assimilation, and financial feasibility. As suggested by
many industry experts, education on a brand and industry level will act as a catalyst
for faster growth through greater interest in gelato and a higher willingness to pay for
it. Moreover, adapting to cultural norms and localizing the taste of gelato will help
gelato products bypass consumer unfamiliarity and into consumers’ comfort zones.
Lastly, scales of economies should be leveraged to reduce the overall cost of doing
business in China so that more producers, distributors, and retailers are incentivized to
expand access to gelato. Ultimately, the goal is to create a positive cycle of
profitability that will in turn lead consumers to be more frequently exposed to gelato
experiences. The inextricable link between consumer demand and gelato supply will
continue to grow as long as the barriers are addressed on both sides with long-term
prospects in mind.
Market Overview On Gelato, Coffee And Sweet Food In China
35
References
Mintel 2017 (1)
http://www.mintel.com/press-centre/food-and-drink/chinese-consumers-increasingly-s
nacking-on-ice-cream
Mintel 2017 (2)
http://store.mintel.com/ice-cream-china-june-2017
Euromonitor 2017
http://www.euromonitor.com/ice-cream-and-frozen-desserts-in-china/report
Business Wire 2017
https://www.businesswire.com/news/home/20170815005772/en/Gourmet-Ice-Cream-
Market---Top-Regions
Marketing To China 2017
https://www.marketingtochina.com/the-ice-cream-market-in-china-the-love-of-brands
/
Daxue Consulting 2017
http://daxueconsulting.com/hot-trend-indulgence-ice-cream-industry-china/
Sohu 搜狐财经 2017
http://www.sohu.com/a/151508689_465354
Cision 2016
Market Overview On Gelato, Coffee And Sweet Food In China
36
https://www.prnewswire.com/news-releases/ice-cream-market-trends-in-china-30022
9662.html
China Daily 2016 (1)
http://www.chinadaily.com.cn/business/2016-07/06/content_25981456.htm
China Daily 2016 (2)
http://www.chinadaily.com.cn/food/2016-08/04/content_26345623.htm
The Telegraph 2016
http://www.telegraph.co.uk/news/world/china-watch/business/russian-ice-creams-hot-
in-china/
East Day News 东方网 2016
http://sh.eastday.com/m/20160421/u1a9312426.html
Eurasia Consult 2015
https://chinafoodingredients.wordpress.com/2015/08/21/china-the-worlds-biggest-ice-
cream-market/
Fox Business 2015
http://www.foxbusiness.com/features/2015/07/30/china-scoops-up-top-spot-in-ice-cre
am-market.html
Market Overview On Gelato, Coffee And Sweet Food In China
37
SECTION 4:The Pastry and Bakery Market in China
Types of bakery and pastry products in China
In China, the main bakery & pastry products include bread, cakes, mooncakes, pastries
and desserts (according to IBIS World). Accompanying these major categories are
other smaller segments such as biscuits, cookies, crackers, and baking mixes. The
industry has largely been dominated by bread as it represents a common staple with
which Chinese consumers are familiar and consume as a part of their regular diet.
Pastries, on the other hand, are relatively novel in the Chinese market and are thus driven
primarily by “indulgence and affordability”, according to Euromonitor. Common
distribution channels for bakery & pastry products comprise of bakeries, convenient
stores, supermarkets and hypermarkets (combination of supermarket and department
store), and online stores. Artisanal baked goods are mostly sold through bakeries with
constant innovations in terms of products and flavors.
To understand the Chinese bakery and pastry market, it is important to note the
long-standing history that Chinese consumers have with traditional Chinese bakery
products (such as Cantonese bakeries, Suzhou bakeries, and Beijing bakeries), many
of which originated in different regions with their unique styles and flavors. Moreover,
China’s traditional festivals and holidays have a huge influence on market demand for
bakery goods, with a notable example being mooncake. Based on a report from
Bakery and Snacks, Western-style bakery and pastry goods in China are usually
excessively detailed, soft and buttery in texture, and high in sugar and fat content.
They look very much like Western products but often taste different. In fact, the
evolution of the bakery and pastry market in China has been a result of integration
between traditional Chinese baked snacks and trendy Western products.
Market Overview On Gelato, Coffee And Sweet Food In China
38
Market size indicators and trends
Based on data from Global Industry Analysts, Chinese consumed an average of 5.8 kg
of bakery products per capita in 2017. This number pales in comparison to 87 kg in
Germany, 47.8 kg in the UK, and 39.2 kg in the US. Even in Japan, where the
traditional staple is rice (same as in China), the average person consumes 22 kg of
bakery products per year. These comparisons illustrate the fact that the Chinese market
is far from saturated and still carries immense potential for growth. Based on a report
by IBIS World, China’s bakery industry has grown at an average pace of 10.6% per
year from 2012 to 2017. In addition, many factors are predicted to accelerate this
growth rate: the urbanization process, the rapid pace of work and study, and
transforming consumption habits of younger generations.
The graph below illustrates the recorded and forecasted revenue for Bread and
Preserved Pastry Goods & Cakes segments in China from 2010 to 2021. While it
demonstrates a steady growth rate in both categories, pastry goods and cakes are
predicted to have greater growth.
Revenue of Baked products in China
Source: Statista 2017
Market Overview On Gelato, Coffee And Sweet Food In China
39
According to Euromonitor, pastries are the fastest growing segment with its rich
product portfolio, from traditional Chinese to popular Western products. Currently,
the pastry market is already worth three times that of bread and bread products in
China and projected to continue outperforming. Ken Research forecasts that cookies
will register the fastest value growth in the bakery and pastry industry from 2015 to
2020 in China. More specifically, within cookie products, the brownie mix segment is
expected to gain maximum share growth. A report by Mintel suggests that the growth
of pastries and its sub-categories can likely be attributed to increasing disposable
income and a growing appreciation for high-quality and luxury pastries among
Chinese consumers.
Nevertheless, this projected growth may face major barriers. Rising health-
consciousness, compounded by the unhealthy nature of bakery and pastry products,
will influence Chinese consumer purchase decisions. Pastry and bakery product
manufacturers and brands should prepare to face greater scrutiny of their products.
In fact, Grand View Research has discovered another result of this trend: rising
popularity of natural, healthy, and organic baked products among Chinese
consumers. Moreover, given greater consumer concern over food safety, emphasis on
products with no additives or preservative has grown in recent years throughout the
country.
Market structure and key players
Based on the Bread and Cake Professional Committee of China Food Industry
Association, the major players in China are Asian brands: Holiland (Chinese), 85C
(Taiwanese), Bakery Christine (Taiwanese), and Bread Talk (Singapore). The bakery
and pastry landscape is unique in that each of these players has widespread brand
recognition in their respective regions but sparse coverage and recognition outside of
their geographical boundaries. This is likely due to the brands’ lack of focus on
Market Overview On Gelato, Coffee And Sweet Food In China
40
marketing outside of these regions, as well as poor access to the products outside of
covered regions. Moreover, the presence of regionally-focused businesses means that
the top 10 companies in the bakery and pastry industry in China actually accounted
for less than 15% of retail value share in 2017, according to Mintel. The highly
fragmented landscape of bakeries in China indicates vast opportunities to occupy
specific geographical niches—market players such as Paris Baguette (巴黎贝甜) and
Caffé Bene ( 咖 啡 陪 你 ) have taken this opportunity to fill the gaps between
geographical strongholds of the main players by focusing their efforts on Chinese
customers in large second- and third-tier cities. Nonetheless, as Mintel suggests,
China’s fast-growing pastry and bakery market is likely to experience consolidation,
leading to broader coverage by bigger brands.
Based on import and export data in 2016, imports as a percentage of total retail sales
among bakery products was only 3.56%. Among the importing regions, Indonesia,
Hong Kong, and Malaysia were the top three suppliers of bakery products. Although
the current market share for international pastry & bakery brands is extremely low in
China, research by Mintel shows that 24% of new bakery products (including changes
of existing products on packaging, formulation, and variety/range extensions)
launched between 2012 and 2016 were imported products. As shown in the graph
below, the explosive growth of imported product launches indicates that Chinese
consumers have been receptive to the introduction of foreign products.
Market Overview On Gelato, Coffee And Sweet Food In China
41
1800
1600
1400
1200
1000
800
600
400
200
0
New bakery product launches in China
2012 2013 2014 2015 2016
Imported Not imported other
Source: Mintel
The main challenge that bakery and pastry product manufacturers face are the volatile
prices in raw materials for such goods. According to Daxue Consulting (2016), the
gross profitability in the baking industry is about 20%. Due to the increasing cost of
production caused by rising raw materials and labor prices, the average unit price of
baked goods increased by 4% in 2016 while the average price per unit for bread and
bakery products amounted to $3.83 USD (€3.13 EUR) (Statista 2017). Luckily, rising
costs have been offset by increased disposable incomes and demand for premium
baked goods. In fact, based on the 300-respondent consumer survey launched by
N-Dynamic, a majority of respondents (63.3%) were willing to pay more than 36
CNY (€4.56 EUR) for a one-time purchase of bakery and pastry products. This high
willingness to pay is highly advantageous to the industry as manufacturers attempt to
maintain profit margins.
Market Overview On Gelato, Coffee And Sweet Food In China
42
How much would you usually pay for one‐time purchase of bakery / pastry?
5.0% 0.6%
20.6%
8.3%
29.4%
13.9%
22.2%
Under RMB 15
RMB 16‐25
RMB 26‐35
RMB 36‐50
RMB 51‐80
RMB 81‐100
More than RMB 100
Grand View Research notes in particular that the operational efficiency of bread
manufacturers is the key challenge in creating economies of scale within countries
such as China. Moreover, the perishability of bakery and pastry goods means
expansion across China will likely start in major cities, where the logistics of
transporting and storing raw materials can be streamlined. Food safety is another
major concern for bakeries — especially within the context of Chinese food scandals
— that makes it imperative for bakeries to carefully manage their logistical expansion.
The structure and growth of the market is, therefore, limited by the geographical complexities
of manufacturing, storing, and transporting such perishable goods.
Consumer needs, attitudes, and behaviors
According to Euromonitor, Chinese consumers’ tastes have shifted towards
international products due to the increased popularity of western lifestyles and diets
among younger generations who prefer baked goods as a part of their daily meals. In
fact, based on the online survey conducted by N-Dynamic, most respondents
purchased imported pastries and bakery products at least once a week (46.9%) or
several times a month (46.9%). More interestingly, online purchasing of pastries
Market Overview On Gelato, Coffee And Sweet Food In China
43
and baked goods was almost as significant a channel as supermarkets and
hypermarkets.
How often do you purchase imported bakery, pastry?
5.5% 0.8%
46.9%
46.9%
Once / week times/month Once / month 2‐3 times every 3 months
Where do you usually shop for imported foods?
Large chain super market (Carrefour, Walmart, etc.)
90.6%
Imported food supermarkets 87.8%
Online 86.7%
Local shops (bakery, pastry, restaurants, etc.) 36.7%
Daigou (Ask someone else to buy for you) 31.7%
Convenience stores 31.7%
Based on the survey results, Italy is unsurprisingly conceived as a place for “Delicious
food” by most of the surveyed consumers. This impression extends to bakery and
pastry goods, which was cited as a popular Italian-produced food by 61.7% of surveyed
consumers. However, when asked specifically about their favorite country of origin
Market Overview On Gelato, Coffee And Sweet Food In China
44
for pastries and baked goods, more respondents cited France as their country of choice.
Market Overview On Gelato, Coffee And Sweet Food In China
45
When heard of the country “Italy”, what comes to your mind?
Delicious food 79.4%
Luxury goods, like clothes, handbags, etc 70.6%
The Renaissance (Culture & arts, museums, etc.) 67.2%
Delicate wine 58.9%
Football 53.3%
Beautiful landscape 43.9%
Racing cars 38.3%
What kind of food do you think Italy produces?
Pasta 82.2%
Pizza 72.2%
Ice cream 68.9%
Bakery, pastry 61.7%
Alcoholic drinks 57.8%
Cheese
Chocolate
Coffee
Olive oil
Prosciutto
Market Overview On Gelato, Coffee And Sweet Food In China
46
Which country’s bakery & pastry are your favorite?
France 67.2%
Italy 53.3%
United States 35.6%
New Zealand 31.7%
Australia 31.1%
Japan 30.0%
China 29.4%
South Korea 21.1%
When it comes to the reason of purchase, a majority of people (66.1%) indicated that
they would purchase bakery & pastry products because of new flavors, which is
consistent with what they also consider to be the most important purchase decision
factor. Unsurprisingly, flavor, taste, and appearance are the top three factors when
choosing a pastry or bakery product. What’s interesting, however, is that almost 50%
of respondents consider brand and even country of origin when making purchase
decisions.
Market Overview On Gelato, Coffee And Sweet Food In China
47
66.1%
Why would you purchase bakery & pastry?
52.8% 51.7%
48.3% 47.2%
41.7%
38.9% 38.3%
Attracted to To purchase Purchase for Just want to Random Serve as Serve as Attracted to
the new flavor from a certain afternoon tea have purchase for dessert after dessert after the
brand/bakery shop I am fond
of
dessert/sweet foods
breakfast meals when dine out
meals at home appearance of the bakery /
pastry
When you purchase bakery / pastry, which factors would you find important?
78.3% 76.1%
63.9%
55.0%
48.9%
40.0% 38.9%
28.3%
Flavor Taste Appearance Brand The country Package of Decoration Price
of the of origin of the product and hygiene product ingredients of the bakery / pastry shop
The channel mix for Chinese consumers is particularly interesting. Based on the chart
below, not only are consumers shopping for pastries and baked goods at the
traditional retail stores, but almost half of respondents cited they that they use digital
channels such as apps. Given the digital-savvy nature of Chinese consumers, Italian
manufacturers should not overlook the vast opportunities to market to Chinese
Market Overview On Gelato, Coffee And Sweet Food In China
48
consumers through digital mediums. Moreover, the survey results show that the time
Market Overview On Gelato, Coffee And Sweet Food In China
49
of day is not a big factor on purchase and consumption decisions—those brands that
choose to build a strong online presence will unlikely need to worry about lack of
interest even when their product is advertised during unconventional hours.
Where do you usually purchase bakery/pastry?
Bakery / pastry shop 83.9%
Large chain super market (Carrefour, Walmart, etc.) 65.0%
Cafe
Apps for just bakery / pastry
Online platform 37.
Restaurant 31.1%
Convenience stores 31.1%
Food delivery apps 27.2%
Hotel 18.3%
In which occasions would you eat bakery / pastry?
Eat at home for breakfast 64.4%
Serve as a dessert after meals when dine out 59.4%
Serve as a dessert after meals at home 58.9%
Eat at workplace for afternoon tea 53.3%
Eat at a hotel, restaurant or café for afternoon tea 52.8%
Eat at a café for breakfast
When walk by a bakery / pastry shop and just purchase randomly
50.6%
48.9%
Market Overview On Gelato, Coffee And Sweet Food In China
50
Furthermore, the results of the online survey demonstrate that there are areas of
improvements across multiple product attributes that could drive success. Most
important is the health factor of the product, which 33.33% cited in their suggestions.
This research complements findings by Mintel that show a rise in preference for
plain-flavored baked and pastry goods—the theory is that consumers are gravitating
towards products that have less sugar or fat content. The quantitative survey also
shows that developing new flavors is a huge attractor for Chinese consumers. From a
texture perspective, Chinese consumers also tend to prefer soft bakery and pastry
products over hard ones. Appearance continues to be a large factor for decision-
making as many consumers choose based on package design or even the decoration
of the pastry or baked good itself.
Improvement Suggestions on Bakery (part 1)
Market Overview On Gelato, Coffee And Sweet Food In China
51
Improvement Suggestions on Bakery (part 2)
Top Five Flavors of New Bakery Product Launches
300
250
200
150
100
50
0
2012 2013 2014 2015 2016
Unflavored/Plain Chocolate Milk Sesame Egg
Source: Mintel
Implications
Chinese consumers’ growing demands for international bakery and pastry products
present enormous opportunities for Italian companies, who are known for their
excellence in ingredients, semi-finished products, and finished products.
As observed by Bakery and Snacks at the Bakery China trade show in 2017, Western-
style products that adapt to Chinese consumers’ taste buds, such as soft
Market Overview On Gelato, Coffee And Sweet Food In China
50
European bread, were prevalent at the show. To appeal to a wider population, it is
important for Italian bakery and pastry producers to cater to Chinese’s taste, which
have a less sweet palate and a preference for salty baked goods when compared to
Western consumers.
As consumers in China prioritize healthy products, bakeries must be able to offer
fresh and health-oriented products, especially in a country where food safety is a
highly important factor. Ensuring that the packaging or marketing has a clear health
message such as “no additives” can go a long way with health-focused consumers.
Finally, in order to keep up with local competitor brands as well as a growing number
of international brands, market players need to understand and adopt protocols for
maintaining product variety and innovation. Investment on both a product and
packaging level will be crucial in differentiating the brand as consumers seek out
premium and novel experiences in their search for the enjoyment of bakery and pastry
goods.
Market Overview On Gelato, Coffee And Sweet Food In China
51
References
Global Industry Analysts 2017
http://www.strategyr.com/MarketResearch/Bakery_Products_Baked_Goods_Market_
Trends.asp
IBIS World 2017
https://www.ibisworld.com/industry-trends/international/china-market-research-report
s/manufacturing/food/bread-bakery-product-manufacturing.html
Statistica 2017
https://www.statista.com/outlook/40050000/117/bread-and-bakery-products/china#ma
rketStudy
Agriculture and Agri-Food Canada 2017
http://www5.agr.gc.ca/eng/industry-markets-and-trade/international-agri-food-market
-intelligence/asia/market-intelligence/sector-trend-analysis-bakery-products-in-china/
?id=1512649817208
Bakery and Snacks 2017
https://www.bakeryandsnacks.com/Article/2017/06/12/Penchant-for-Western-product
s-supports-China-s-bakery-boom
Ken Research 2016
https://www.kenresearch.com/food-beverage-and-tobacco/general-food/consumer-insi
ghts-bakery-cereals-china/69626-11.html
Grand View Research 2016
Market Overview On Gelato, Coffee And Sweet Food In China
52
https://www.grandviewresearch.com/industry-analysis/bakery-products-market
Daxue Consulting 2016 (1)
http://daxueconsulting.com/bread-consumption-in-china/
Daxue Consulting 2016 (2)
http://daxueconsulting.com/bakery-market-china/
Bakery and Snacks 2016
https://www.bakeryandsnacks.com/Article/2016/09/14/China-s-fragmented-bakery-m
arket-likely-to-consolidate-Mintel
Euromonitor 2014
http://www.euromonitor.com/bread-cakes-and-pastries-a-global-market-overview/rep
ort
Market Overview On Gelato, Coffee And Sweet Food In China
53
SECTION 5: The Coffee Market in China
Types of coffee in China
There are mainly two types of coffee in the Chinese market: fresh coffee and instant
coffee. While fresh coffee is often made with roasted and ground coffee beans, instant
coffee is made with soluble coffee powders. Most instant coffee in China comes from
Vietnam, where Robusta, a cheaper variety of coffee, is predominately grown. They
are usually packaged in boxes containing individual sachets, among which a so-called
“3-in-1 type”—containing coffee, sugar and creamer—is particularly favored by
Chinese coffee drinkers. In the pre-made coffee category, iced/hot coffee is another
popular product in China. One can easily find them in convenient stores, packaged in
cans or bottles at retail stores, or online in bulk. Other coffee products such as drip
coffee bags, coffee capsules, and coffee pods are also gaining popularity in China.
Different Coffee Products in China
Market size indicators and trends
With an average growth rate of 16% per year between 2003 and 2013 as per data
published by the International Coffee Organization, China has become one of the
fastest-growing coffee consumption markets in the world. Even more recent data
released by the USDA shows Chinese import demand continuing strong growth at an
Market Overview On Gelato, Coffee And Sweet Food In China
54
Consumption (thousand 60‐kg bags)
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
average rate of 17% between 2013 and 2017. Although annual consumption per capita
is estimated to be around 21 cups according to 2017 USDA data, China’s coffee
industry is still at a very early stage with large potential to grow when compared to
the world consumption annual average of 240 cups per capita. The graph below shows
the coffee consumption in China from 1994 to 2017, which demonstrates the
explosive growth rate of coffee imports in recent years.
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Chinese Coffee Consumption from 1994‐2017
According to Statista, the largest category in the Chinese coffee market is instant
coffee. Indeed, as of 2017, instant coffee still takes up around 99% of retail sales by
volume and 98% by value of the Chinese coffee market. Although the green/roasted
coffee market share has been going up in recent years, most of the imported beans are
actually brought to processing facilities in China for instant coffee production.
Even so, fresh coffee consumption is still growing at a faster rate and is likely to
sustain this trajectory due to a rapidly increasing middle-class population in China. As
a matter of fact, the growth of single-cup coffee sales is faster than any other coffee
category (single-cup coffee sales grew by 156% between 2013 and 2014 whilst other
categories grew by 3.3% per year at average), according to data from Euromonitor.
This trend is a strong indication that consumers are seeking out premium coffee.
Market Overview On Gelato, Coffee And Sweet Food In China
55
Euromonitor expects the market size for coffee served in cafés to hit 20 billion CNY
(€2.54 billion EUR) in 2016, compared with 1.1 billion CNY (approximately €140
million EUR) 10 years ago. The rising popularity of cafés suggests that consumers
will also have more exposure to premium coffee options, leading to a self-reinforcing
cycle of growth. With an influx of returning Chinese expatriates, the leading players
in the coffee industry have begun to see more profit growth in premium products. In
addition to premium coffees, espresso-based products also experienced strong demand
growth in China. Starbucks, currently with more than 3,000 stores in China, plans to
open another 2,000 by 2021. This demand growth represents a large opportunity for
Italian espresso-based coffee market players, including growers, exporters, roasters,
retailers, and equipment suppliers.
Sales Revenue for Coffee Shops in China (in billion CNY)
25
20 20
15
10
5 1.5 1.8 2.4 3
7 4.8
16.5
13
10
0
2006 2008 2010 2012 2014 2016 2018
Source: Euromonitor
Market structure and key players
The main player in the instant coffee market is Nestlé with an absolute dominance of
66% market share in 2017, based on a report by Euromonitor. While instant coffee is
mostly consumed at home or in the office, a majority of Chinese drink fresh coffee at
a café. According to 2014 data from statistica.com, China is surrounded by the big
coffee chains such as Starbucks, Costa Coffee (Whitbread), UBC, McDonald’s, and C
Market Overview On Gelato, Coffee And Sweet Food In China
56
Straits Cafe. It leaves one fourth of the market occupied by smaller coffee shops that
have the liberty to choose which roasted/ground coffee brands to serve.
Over 80% of coffee imports in China come from the five countries shown below.
Vietnam produces almost half of the coffee imports in China, which is in line with the
large consumption of instant coffee. Aside from these five major import origins,
imports from Colombia and Central America have been increasing significantly in
recent years and now make up about 5% of the total market share. This is possibly
due to greater curiosity among Chinese consumers regarding coffee varieties. The
growing popularity of Colombian coffee—which is perceived as unique and of high-
quality—could be indicative of rising demand for personalized premium coffee.
Origins of coffee imports by China (Average: 2009/10 to 2013/14)
Expanding appreciation of coffee in China has led to a rise not only in consumption
but also in domestic production. 95% of China’s local coffee is produced in Yunnan, a
province located in Southwestern China with geographical characteristics ideal for
growing Arabica. Even so, coffee growing techniques are still nascent in a country
with a long-standing culture in tea consumption, and the quality of coffee produced
may not be at the same level as producers with decades, if not centuries, of experience.
The biggest Italian coffee market players in China are Illy and Lavazza. In 2016, Illy
registered the highest growth in China with a year-over-year increase of up to 60%.
Market Overview On Gelato, Coffee And Sweet Food In China
57
The huge success of Illy demonstrates a promising market for more Italian coffee
products/brands to enter China.
Consumer analysis
Coffee consumption in China is mainly driven by a young generation that grew up
with the influence of western culture. Among this group are women under 30, whom
contribute the most to coffee consumption and its growth. At the moment, a majority
of Chinese coffee consumers still prefer to drink mostly instant coffee at home. This
landscape is changing rapidly with the rising income of Chinese consumers as they
demonstrate a stronger interest in spending more time and money on coffee in
restaurants and cafés. This trend continues to grow despite the relatively high cost of a
single cup of coffee (average prices are between $2.50 and $5 EUR, which is
equivalent to the cost of a whole meal in China). This price insensitivity is likely due
to successful promotions by global coffee brands, especially Starbucks, that aim to
transform coffee from just a beverage choice to one that is about lifestyle.
Chinese consumers have very different consumption habits from those in countries
with a much more developed coffee-drinking culture. First of all, they do not drink
coffee on a daily basis. In fact, according to Mintel’s Coffee – China 2016 report, less
than 30% of coffee consumers drink coffee once a day or more. Second, Chinese tend
to use coffee as an energy booster when feeling tired instead of having it in the
morning to start the day. This is evidenced by coffee shop opening times, which are
usually after 9 am with foot traffic increasing later in the day. Third, Chinese consumers
have a sweeter palate for coffee. They generally prefer comparatively mild, milky, and
sweet coffee rather than bitter coffee, which is reflected in the popularity of 3-in-1
instant coffee. Global coffee chains like Starbucks and Costa have adjusted their coffee
flavors in China accordingly. Last but not least, the coffee drinking experiences at
cafés are usually within a social context, such as when hanging out
Market Overview On Gelato, Coffee And Sweet Food In China
58
with friends or having a business conversation. Thus, to a majority of Chinese, the
environment of a café is somewhat more important than the quality of coffee itself. As
young Chinese consumers further develop an appreciation café environment and form
a habit of daily coffee consumption, having the right ambiance for regular coffee
enjoyment will be a valuable asset.
The coffee bean’s origin has become a key selling point in the Chinese market. While
most Chinese consumers don’t understand differences between coffee regions, Italy,
as a coffee origin, is preferred. This perception is likely established by the translation
of Espresso in Chinese, which is literally “Italian Concentrated Coffee” (意大利浓缩
咖啡). On the biggest Chinese online shopping platform, Taobao, various coffee
products can be found branded with the word “Italy”. Most of these brands, however,
neither originate from Italy nor use Italian coffee beans. Milan Gold (金米兰) is one
such example of a successful Chinese local coffee brand that leverages the Italian halo
effect—it is the authorized brand in many high-end hotels and international events.
The name of the local brand also indicates the positive association Chinese people
tend to make between coffee and Italy. The trend favoring Italian coffee could
potentially benefit the Italian vendors, but differentiation must be taken seriously in
order to separate authentic Italian coffee from those sold through false claims.
Implications
The opportunities are vast in the Chinese coffee market. Coffee consumption will
most likely increase with growth potential in areas where retail and distribution are
not yet readily available. Moreover, consumers in urban areas are already learning to
appreciate high-end coffee, providing a large advantage to countries with an
established perception of luxury.
Market Overview On Gelato, Coffee And Sweet Food In China
59
From a production aspect, local sourcing could be a potential solution for well-
established brands looking to save on cost. Yunnan Province is one such place—in
fact, brands such as Nestlé and Starbucks have already created coffee factories there
to process most of their production.
Coffee growers and roasters will need to develop coffee beans with flavors catered to
the Chinese tastes—less bitter and with less caffeine. Distributors and retailers will
also need to select coffee beans with less intense flavors. Forming partnerships with
these local businesses—many of which are seeking higher-end coffee products—can
be a huge driver of growth for Italian coffee brands. Finally, the growing appreciation
for quality coffee experiences means that there is an ever-growing demand for Italian
coffee baristas and technology in China.
To compete with local and global coffee brands in China, it is important to
differentiate Italian coffee from others through branding and packaging, as well as the
taste and quality of coffee. Marketing will play a very important role in Chinese
coffee market as a means to build loyal customers among the younger Chinese
generation. To compete, Italian coffee manufacturers can utilize Chinese social media
to directly build rapport with Chinese consumers and better understand their wants.
Content marketing will also be key in differentiating Italian coffee brands from other
country origins by promoting Italian coffee-drinking history and culture. Education
around traditional Italian brewing techniques will also drive further appreciation of
high-end coffee experiences. Ultimately, unification of the brand experience through
packaging, marketing, and personal communication will be as important as the product
itself, especially in the saturated Chinese marketplace.
Market Overview On Gelato, Coffee And Sweet Food In China
60
References
Euromonitor International 2017
http://www.euromonitor.com/coffee-in-china/report
Australian Food News 2016
http://www.ausfoodnews.com.au/2016/12/14/china-insights-report-coffee-opportuniti
es-in-china.html
Mintel 2017
http://www.mintel.com/blog/drink-market-news/encouraging-chinese-consumers-to-w
ake-up-and-smell-the-coffee
Bloomberg Markets 2017
https://www.bloomberg.com/news/articles/2017-08-08/china-millennials-swap-tea-for
-coffee-as-starbucks-pushes-east
BBC 2016
http://www.bbc.com/capital/story/20160628-yuan-more-coffee-chinas-lucrative-caffei
ne-craze
CCTV.com 2017
http://english.cctv.com/2017/07/10/ARTIdkwfLrmh6FZ7G8jqrVlB170710.shtml
Marketing To China 2016
https://www.marketingtochina.com/coffee-market-explodes-china/
What’s on Weibo 2015
Market Overview On Gelato, Coffee And Sweet Food In China
61
https://www.whatsonweibo.com/chinas-growing-coffee-culture/
International Coffee Organization 2015
http://www.ico.org/documents/cy2014-15/icc-115-7e-study-china.pdf
UKnowledge 2016
https://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1039&context=agecon_etds
Italian Food Net 2016
https://www.italianfood.net/2016/06/24/illycaffe-report-strong-growth-emea-markets/
Reuters 2015
https://www.reuters.com/article/us-coffee-illycaffe/illycaffe-sees-strong-chinese-dema
nd-growth-for-espresso-blends-idUSKBN0ME03H20150318
CNBC 2017
https://www.cnbc.com/2017/12/05/starbucks-is-opening-a-store-in-china-every-15-ho
urs.html
Statistica, Oct 2017
https://www.statista.com/outlook/30010000/117/coffee/china#
USDA, Dec 2017
https://apps.fas.usda.gov/psdonline/circulars/coffee.pdf
Bean and Beyond 2015
http://www.cafedecolombia.com/bb-fnc-en/index.php/comments/why_china_represen
ts_a_great_opportunity_for_colombian_coffee/
Market Overview On Gelato, Coffee And Sweet Food In China
62
SECTION 6: The Chocolate Market in China
Types of chocolate in China
Chocolate in China comes in all types, including the classic milk chocolate, dark
chocolate, and white chocolate. The emergence of a new kind of chocolate—ruby
chocolate—in late 2017 was the result of innovative efforts by a Swiss company
specializing in chocolate and cocoa products, Barry Callebaut. Nevertheless, the
potential adoption of this new type of chocolate by Chinese consumers remains to be
seen.
Based on Mintel’s categorization for chocolate, the most common category in China
is chocolate tablets (bars or blocks). They come in a wide range of sizes and sometimes
contain nuts or raisins. Countlines, which are full-size individual chocolate bars (e.g.,
Snickers), is another popular category of chocolate consumed in China. In additional
to the chocolate’s physical presentation, packaging plays a large role in the function of
chocolate among Chinese consumers. For example, individually wrapped chocolates
such as Ferrero Rocher’s chocolate truffles are popular as gift purchases. On the other
hand, non-individually wrapped chocolates, such as the Chinese household brand,
M&M’s, tend to be self-consumed. Other forms of cocoa products such as cocoa
powder, chocolate syrup/sauce, chocolate biscuits, chocolate wafers, and chocolate
beverage are also commonly seen in the market.
The biggest Chinese online shopping platforms, Taobao (淘宝) and Tmall (天猫),
have generated unique keywords for people whom are looking to buy chocolate,
including “office snacks”, “wedding chocolates”, and “fancy gifts”. These keywords
indicate that Chinese consumers often find uses for chocolate other than self-
consumption.
Market Overview On Gelato, Coffee And Sweet Food In China
63
Market size indicators and trends
Although it has been long since chocolate was viewed as an exotic treat in China,
China’s chocolate market is still, by and large, untapped. According to Euromonitor
International, Chinese consumed 0.2 kg of chocolate per capita in 2014; compared
against 2.2 kg per capita in the United States, it is evident that Chinese consumers
have yet to adopt chocolate as a mainstream food product.
Retail Sales of Chocolate in China (In billion USD)
3
2.5
2
1.5
2
1.7
2.2
2.6
2.9 2.8 2.8
1
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Statistica
The chart above shows the chocolate retail sales in China from 2009 to 2017 based on
data from Statista. Sales increased slowly but steadily until 2015, when it encountered
negative growth. According to Mintel, lackluster performance in the chocolate
industry has been due to a slowdown in new product innovation. At the same time,
economic and environmental factors could have contributed to the growth decrease.
As observed by Euromonitor, the Chinese chocolate market in 2017 continued
downhill with a 2% decline in the volume sales of chocolate confectionery, caused
purportedly by an ever-strengthening consumer awareness of healthy diets. As
chocolate is generally regarded as one of the biggest triggers of weight gain, interest
from more health-conscious consumers shifted away from chocolate. Instead,
popularity for healthier options such as yoghurt and nuts has boomed. According to
Kantar Worldpanel, although the chocolate category as a whole showed decline,
Market Overview On Gelato, Coffee And Sweet Food In China
64
market sales of imported products actually enjoyed 3% growth during the 12-month
period ending September 2016. This growth among importers demonstrates the upward
potential of the Chinese chocolate market despite recent slowdowns in growth. In order
to succeed, however, chocolate manufacturers should keep up with innovations and
find ways to adapt to a culture of health consciousness.
China is projected to have the highest chocolate market growth from 2015 to 2020
(along with India), according to a study conducted in 2017. The market for chocolate
in China is expected to grow in value to 40 billion CNY (approximately €5.09 billion
EUR) by 2020 based on estimates from Ebrun, a Chinese data analysis platform.
Interestingly, the President of Barry Callebaut commented on the South China
Morning Post, a leading newspaper in Hong Kong, that the chocolate market is
changing now because of the coffee culture: “We see more and more changes in the
way chocolate is used. It’s more about chocolate with something else, like bakery
products, pastries and ice-creams”. Additionally, recent research results suggest that
new products can be very well received in China’s market and that Chinese
consumers are willing to pay a premium for innovative products.
With the great expansion of internet users in China, chocolate brands have started to
focus on social media and seasonal innovation with unique opportunities in China’s
e-commerce channels. A notable example is US-based Mondelez, a company that
began to build a presence on Tmall in early 2016. Furthermore, to drive sales in China,
innovators are also gaining traction by catering to holidays and special occasions. For
the Chinese Mid-Autumn Festival, Belgium’s Godiva chocolate company released a
successful seasonal product: Chinese moon cakes made in chocolate (see picture
below).
Market Overview On Gelato, Coffee And Sweet Food In China
65
Chocolate "Moon Cake" by Godiva
Market structure and key players
The chocolate market in China is dominated by foreign brands with a high percentage
of import products. While the top 20 global chocolate brands all have share in China’s
market, close to 70% of chocolate brands in the country are European brands based on
a report published by Research and Markets. Meanwhile, local brands are suffering
primarily due to consumers’ distrust in the quality of local products as well as their
poor marketing efforts. As demonstrated in the chart below, key players in China’s
chocolate market include Mars Foods, Nestle S.A., Ferrero Rocher, Mondelez
International Inc., and Pladis.
Market Overview On Gelato, Coffee And Sweet Food In China
66
Key Players in Chinese Chocolate Market in 2017
Mars has maintained its leading position in the market with a well-balanced brand
portfolio, targeting a wider population than any other market players. Its three main
brands—Dove, M&M’s, and Snickers—successfully appeal to different consumer
groups: young women, teenagers, and those whom need an energy boost, respectively.
Through this effective marketing strategy, the company has been able to maintain
stable market share over the last five years. Even as a market leader, however, Mars
experienced a slight loss of market share in 2017. Other brands positioned within the
low- to mid-price range (the average retail price for chocolate in China amounts to
approximately $21.21 USD [€17.34 EUR] per kg) such as Hershey’s were also
affected, indicating a shift towards more premium products. Indeed, according to
Mintel’s report, mainstream chocolate brands are losing out to premium brands in
China. Godiva represents just one benefactor of this premiumization trend, which
registered their strongest sales growth (193%) in 2017 according to Euromonitor.
Market Overview On Gelato, Coffee And Sweet Food In China
67
Major international players are also revving up their expansion plans to gain more
market shares through a multitude of strategies, including introducing new product
lines and localizing production in China. For example, Belgian chocolate maker Godiva
plans to triple its 100 retail outlets in China by 2020 to capture growing demand
for premium chocolate. Mondelez’s also introduced a premium-priced brand, Milka,
to China’s market in 2016 with the intention of tailoring to evolving tastes. In
conjunction with a premium pricing strategy, the company has also marketed and
intensely advertised Milka’s “aspirational positioning and tender values”. Italian
chocolatier Ferrero Rocher started building factories in Hangzhou—a city in Zhejiang
province—back in 2014 while Hershey’s acquired the Chinese confectionary
company Golden Monkey (金丝猴) in the same year. These examples demonstrate
the effort with which international companies are vying for market share. However,
not all are winners--Hershey’s market share has been going down ever since the
acquisition, though the company blamed the slowing Chinese economy for its poor
performance.
Data provided by OEC and Kantar Worldpanel suggests a growing trend for imported
chocolate products in 2017 with those of European origins leading the growth.
European brands’ close association with luxury chocolates in China and their
significant growth are yet more signs of market premiumization that has been driven
by greater disposable income. Based on OEC’s dataset (see chart below), Italy is the
biggest importer of chocolate in China. Overall, China’s well-built supplier network
and high consumer brand awareness of Italian chocolates presents great opportunities
for Italian manufacturers to enter China’s market.
Market Overview On Gelato, Coffee And Sweet Food In China
68
China 2016 Chocolate Import by Country
$100m
$80m
$60m
$40m
$20m
$0m
$92m
$44m
$27m $26m $26m
$16m $10m $10m $9m $9m
Consumer analysis
Chinese consumers have strong awareness of chocolate brands and tend to make
purchase decisions based on brand. As suggested by a study conducted in 2016, brand
information and rapport influences the tasting experience of Chinese chocolate
consumers—on average, Chinese consumers tend to prefer imported brands over
domestic brands or locally-sourced foreign brands. This stems from an innate distrust
of the quality of home-grown food products, concerns about food safety issues, and a
deep-seated perception that high-quality chocolate tends to come from abroad. A
report generated by Mintel suggests that healthiness is, in fact, a more important
purchase factor than a product’s premium status. Interestingly, mood enhancement
and stress relief have been cited as primary reasons for consuming chocolate as well,
which go hand-in-hand with increasing health-consciousness of consumers. Aside
from health considerations, taste remains the most important factor in chocolate brand
purchases while price is the least—this is a result of price-insensitive consumers that
consume chocolate mainly for enjoyment.
Observations made by Research and Markets show that Chinese consumers are more
conservative compared to consumers in other countries—they tend to choose more
familiar brands and flavors. Thus, it is important for foreign brands cater their products
to local tastes when entering the Chinese market. Cadbury’s and Oreos are
Market Overview On Gelato, Coffee And Sweet Food In China
69
examples of two western confectionary products that have adapted themselves to
Chinese consumers’ tastes by subtly reducing sweetness. Just as a Berenberg analyst
told Reuters regarding China’s chocolate market, “Chinese consumers are getting
sophisticated, [and] they want their own tastes and own variance.” This is evidenced
by the growth in consumption particularly in urban tier-1 cities. Consumers in these
areas are highly interested in luxury packaging and more curious about a wider range
of flavors and inclusions, representing a unique opportunity to develop novel flavors
that satisfy urban palettes.
With the continued rise of health awareness in China, particularly in regards to
childhood obesity, chocolate manufacturers and brands should focus on the healthy
attributes of chocolate. The ever-greater snack options for children and teenagers
means that chocolate brands will have to differentiate themselves on a healthiness,
taste, and emotional level.
Implications
The opportunities for Italian chocolate producers are manifold. First of all, the growth
of imported chocolate products, especially from European countries, means that Italian
brands have a large opportunity to capture additional market share in the next few
years. Secondly, with the existing network and local management talent built by earlier
Italian market players, market entry barriers are lower for newcomers. However, on
the same token, early market penetration by major Italian players has led to intense
competition that companies must overcome. Based on the success of current leading
brands in China, the best opportunities to capture market share seem to derive from
having a clear in-depth understanding of consumer desires and a product that can
satisfy them.
Market Overview On Gelato, Coffee And Sweet Food In China
70
In terms of market and channel strategy, e-commerce in China is one of the most
promising platforms for new chocolate brands due to its fast growth and differentiation
from brick-and-mortar stores. Because Chinese consumers tend to make chocolate
purchase decisions based on the brand, robust advertisement strategies are crucial to
success. Thus, developing a presence on e-commerce is further justified with the
increasing amount of time that Chinese consumers spend on the internet. Online
marketing, which includes building a social media presence and retargeting tactics,
will be a valuable tool for chocolate industry players in the years to come.
Chocolate package labels can also be improved to better indicate the country of origin.
Emphasis on foreign heritage and superior product quality can attract consumers on
an emotional level. In addition to leveraging the halo effect of foreign brands, it is
essential for international chocolate manufacturers to localize and diversify their
product flavors. By incorporating local and traditional Chinese trends, such as gifting
chocolates, market players can create opportunities to make a deeper impression on
Chinese consumers on an experiential rather than product level.
Finally, innovation on a product level can be game-changing for market players.
Capitalizing on the current health and premiumization trends will be key to success,
such as the development of low-fat chocolate or bean-to-bar chocolate. Moreover,
package design will continue to be a driver for differentiation as consumers continue
to appreciate chocolate both taste-wise and visually. No matter the choice, developing
brands that truly cater to the experiential and cultural needs of Chinese consumers’
will ultimately be rewarded with longevity in the Chinese chocolate market.
Market Overview On Gelato, Coffee And Sweet Food In China
71
References
Euromonitor International 2017
http://www.euromonitor.com/chocolate-confectionery-in-china/report
Business Wire 2017
https://www.businesswire.com/news/home/20170612005536/en/Study-Chinas-Choco
late-Market-2017---Research
Reuters 2017
https://www.reuters.com/article/us-hershey-results/hersheys-sales-miss-as-china-conti
nues-to-struggle-idUSKBN15I1JT
Mintel 2017
http://reports.mintel.com/display/838281/
Statista 2017
https://www.statista.com/statistics/315303/retail-sales-of-chocolate-in-china/
Kantar Worldpanel 2017
https://www.kantarworldpanel.com/cn-en/news/Chinas-chocolate-market-faces-both-c
hallenges-and-opportunities
Confectionery news.com 2017(1)
https://www.confectionerynews.com/Article/2017/02/08/Fake-Ferrero-and-Mars-choc
olate-seized-in-China
Confectionery news.com 2017(2)
Market Overview On Gelato, Coffee And Sweet Food In China
72
https://www.confectionerynews.com/Article/2017/09/01/M-M-s-Dove-and-Snickers-
maintain-chocolate-market-lead-in-China
Newsweek 2017
http://www.newsweek.com/world-first-dark-milk-white-or-ruby-chocolates-fourth-di
mension-unveiled-china-659792
Research and Markets 2017
https://www.researchandmarkets.com/research/8pwvfv/a_study_of
OEC 2016
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/chn/show/1806/2016/
Mintel 2016
http://store.mintel.com/chocolate-confectionery-china-june-2016
Oxford Scholarship Online 2016
http://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780198726449.001.000
1/acprof-9780198726449-chapter-9
Financial Times 2016
https://www.ft.com/content/d7db745e-52a3-11e6-9664-e0bdc13c3bef
South China Morning Post 2016
http://www.scmp.com/business/companies/article/2110537/new-generation-chocoholi
cs-may-turn-china-major-chocolate-market
Mintel 2016
Market Overview On Gelato, Coffee And Sweet Food In China
73
http://www.mintel.com/press-centre/food-and-drink/chocolate-eaters-full-of-beans-co
nsumers-around-the-world-value-the-psychological-benefits-of-the-treat
William Reed 2016
https://www.confectionerynews.com/Article/2016/01/12/China-s-chocolate-brands-fin
d-it-hard-to-enter-the-market
Ebrun 2016
http://www.ebrun.com/20160923/193881.shtml
Daxue Consulting 2016
http://daxueconsulting.com/chocolate-industry-in-china/
The Silk Initiative 2015
http://thesilkinitiative.com/chocolate-in-china/
中国商务新闻网 2017
http://www.comnews.cn/focus/5a0199f4cd91893036a4c4df
Market Overview On Gelato, Coffee And Sweet Food In China
74
Italian Trade Agency – ITA
Italian Trade Agency - ITA is the government organization which promotes the internationalization of Italian companies,
in line with the strategies of the Ministry of Economic Development.
ITA provides information, support and advice to Italian and foreign companies, helps to develop, facilitate and promote
Italian economic and trade relations with foreign countries, focusing on the needs of SME, their associations and
partnerships.
ITA operates worldwide from a large network of Trade Promotion Offices linked to Italian embassies and consulates
and working closely with local authorities and businesses. ITA provides information, support and consultancy to Italian
companies on foreign markets, promoting and fostering export and cooperation in all areas - capital goods, consumer
goods and services – with the target of increasing and making more effective their presence on international markets.
ITA provides a wide range of services overseas helping Italian and foreign business to connect with each other:
identification of possible business partners; bilateral trade meetings with Italian companies, trade delegation visits to
Italy; official participation in local fairs and exhibitions; forums and seminars with Italian experts.
The Italian Trade Agency - ITA has been in the People’s Republic of China for 52 years with now 4 offices respectively
in Beijing, Shanghai, Canton, Hong Kong organizing hundreds of promotional activities every year to enhance the
relationship between China and Italy.
The Italian Trade Agency - ITA Offices in China
北京代表处 BEIJING
6th floor, Unit 1, Sanlitun Diplomatic Residence Compound, 1 Gongren Tiyuchang North Road, Chaoyang district,
Beijing 100600
Tel: (010) 6597 3797 E‐mail: [email protected] Website: www.italtrade.com
上海代表处 SHANGHAI
Room 1902 ‐ 1903, The Center, 989 Changle Road, Shanghai 200031
Tel: (021) 6248 8600 E‐mail: [email protected] Website: www.italtrade.com
广州代表处 GUANGZHOU
Unit 3203, International Finance Centre (IFC) No.5 Zhujiang West Avenue, Guangzhou 510623
Tel: (020) 8516 0140 E‐mail: [email protected] Website: www.italtrade.com
香港代表处 HONGKONG
Suite 4001, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
Tel: (00852) 2846 6500 E‐mail: [email protected] Website: www.italtrade.com