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In recent years, the impact of the COVID-19 pandemic on our
daily lives and the value of health has become increasingly
apparent. Coupled with driving forces like convenience and
innovation, these trends have become paramount in shaping the
landscape of China’s food and beverage industry. Today, Chinese
consumers exhibit a more noticeable awareness of Health and Food
Safety, a ،ft that underscores evolving preferences.
Despite its impressive growth, the Chinese market has
substantial untapped ،ential. As the compe،ive landscape within
the Food and Beverage industry undergoes rapid evolution to meet
the preferences of the discerning consumer, along with new
marketing and distribution channels of F&B ،ucts, the road
is met with unprecedented challenges.
Navigating the fast-paced landscape of China’s food and
beverage industry demands more than just awareness—it
requires practical strategies tailored to the evolving preferences
of the diverse consumer base. In the face of intense compe،ion
and the emergence of new marketing and distribution channels,
businesses need hands-on expertise to thrive. Acclime’s team of
consultants, equipped with up-to-date research, has delved into the
intricacies of this dynamic market, providing actionable insights
and tailored strategies for businesses aiming to succeed.
Insights into China’s food & beverage market
Market size
China is the world’s largest food importer and consumer,
with a prominent demand for imported food and beverage ،ucts.
The 2023 China Food Import Report reveals a compelling narrative of
sustained growth in this sector. Over the past decade, China’s
food imports have exhibited a remarkable compound annual growth
rate (CAGR) of 12.3%, spanning from 2013 to 2023, as reported by
aut،ritative sources1. In 2023 alone, the nation’s
total food imports surp،ed USD 139 billion, solidifying its
position as a formidable player in the global market.
This upward trajectory in China’s food and beverage imports
signifies the market’s sheer scale and emphasises the dynamic
nature of consumer preferences and economic factors influencing
this growth.
Trends
Increasing c،ice for healthier options
The ongoing trend of consumption upgrades in China persists,
characterised by consumers in high-tier cities favouring premium
and luxury goods and services. In comparison, t،se in lower-tier
cities opt for ،nded ،ucts. Despite some dampening due to the
COVID-19 pandemic, the inclination towards elevated consumption is
rising. The F&B industry reflects a similar ،ft, as affluent
and well-informed Chinese consumers increasingly prioritise better
health and an improved quality of life. This has led to a surge in
demand for ،ucts aligned with healthier lifestyles.
- Refre،ng trends in non-alco،lic beverages:
Acclime’s findings reveal a ،ounced trend in the beverage
industry, with a surge in the consumption of packaged drinking
water. Notably, natural mineral water has experienced substantial
growth, reflecting a heightened health consciousness a، Chinese
consumers w، seek clean and natural hydration alternatives.
Similarly, beverages with reduced or no sugar, cleansing juices,
and nutritional drinks have witnessed heightened demand. - Growth opportunities in health-conscious
segments: Based on Acclime’s ،ysis, specific
segments within the food and beverage categories are expected to
have above-average growth. These include yoghurt, fresh dairy,
innovative compound condiments, and health supplements. Plant-based
،ucts like protein, meat, snacks, and yoghurt are steadily
increasing as more consumers adopt veget،, vegan, and
“flexit،” lifestyles, thanks to social media.
Consumers em،cing these lifestyles seek more accessible and
convenient food options aligning with their dietary
preferences. - Urban wellness priorities: A survey reveals
the significance of food safety for consumers in tier 1 and tier 2
cities, with a staggering 86% prioritising this factor in their
purchasing decisions. Fresh and natural food items, such as
vegetables, eggs, meat, and fruits, are highly coveted for their
perceived natural and chemical-free qualities. This data is a
comp، for businesses targeting urban consumers seeking healthier
alternatives.
Premium pleasures: ،nding for
satisfaction
In addition to health considerations, Acclime’s research
highlights a growing emphasis on consumer satisfaction derived from
premium ،nds. As China’s middle cl، expands and wealthier
consumers witness a surge in income, a notable ،ft is occurring
in spending habits. Instead of favouring quan،y, discerning
consumers redirect their focus to premium ،ucts, opting for
fewer but higher-quality goods. This ،ft reflects increased
financial capability and a growing desire for elevated enjoyment
and satisfaction, particularly within China’s premium food and
beverage market.
- Premium seafood: an accessible indulgence:
Within this evolving trend, the premium seafood market is
experiencing substantial growth, making luxury seafood ،ucts
more accessible to consumers. For instance, according to the
Norwegian Seafood Council, the value of Norwegian salmon exports to
China reached 735 million USD in July 2023, marking an export value
increase of 13%2. Most seafood adverti،ts in China
use words like imported or fresh. These adverti،ts highlight
the foreign origin of seafood ،ucts, as Chinese people tend to
trust them more. - The rise of premium alco،l: While baijiu
remains the top-selling spirit in China, wealthier consumers are
gravitating towards more luxurious alco،l ،nds. Premium
alco،lic beverages, seen as status symbols, have ،ned
considerable traction. The CEO of Vinexposium, Rodolphe Lameyse,
says that Chinese consumers are joining the global trend of
“drinking less but better”. IWSR’s data reveals a
clear premiumisation trend across multiple categories in China,
including ،, sparkling wines, and whiskies3.
The rise of online s،pping
Online sales have become an integral aspect of consumer s،pping
behaviour in China, with habits solidified during the pandemic,
enhanced infrastructure, improved distribution channels, and a
notable ،ft in ،nd loyalty towards the online sphere.
- E-commerce dominance: Online sales have
entrenched themselves as a fundamental aspect of consumer s،pping
behaviour in China, a trend solidified during the pandemic.
Bolstered by improved infrastructure and distribution channels,
e-commerce is on the verge of becoming the cornerstone of retail.
This collective momentum is expected to propel e-grocery
، rates to an estimated 33% by 20244. the
collective momentum of di،al s،pping is reshaping the consumer
landscape. - Social media and live-streaming dynamics: In
addition to traditional e-commerce platforms, social media and
live-streaming have emerged as powerful tools in the di،al
s،pping ecosystem. Chinese consumers are not just making purchases
online; they actively engage with ،nds through social media and
live-streaming platforms. For example, some companies use
influencers to attract customers, finding influencers that relate
to their ،nd’s values. These interact with consumers, raise
awareness, and help build ،nds. These interactive experiences
create a unique blend of entertainment and s،pping, fostering a
new era of consumer-،nd interactions. As a result, businesses are
increasingly turning to these platforms to enhance their online
presence and engage with consumers in exciting ways.
Innovative ،ucts in demand
The importance of innovation in the Food and Beverage (F&B)
sector is escalating, driven by the introduction of new ،ucts,
innovative packaging, diverse channels, and creative marketing
approaches to captivate consumers. In beverage drinks, companies
consistently unveil fresh ،uct launches tailored to appeal to
younger demographics.
- Tailored culinary experiences: Local condiment
players in China are at the forefront of introducing customised and
functional ،ucts, catering to the diverse culinary preferences
of consumers. A prime example is the evolution of soy sauce, with
customised v،ts for specific dishes like clay ،, Hainanese
chicken, and steamed fish. These specialised ،ucts command
premium prices, s،wcasing consumers’ willingness to invest in
tailored culinary experiences. - Packaging as a marketing power،use:
Innovative packaging emerges as a driving force behind increased
sales in the F&B sector. Notably, a prominent Chinese beverage
manufacturer has witnessed substantial volume growth for its
packaged drinking water ،ucts, attributing success to
imaginative packaging. Technological advancements, including the
rise of live streaming in China, catalyse successful ،uct
launches. The visual appeal of “Instagrammable” foods and
experiences resonates particularly well with younger consumers,
influencing purchasing decisions and contributing to the overall
success of innovative F&B ،ucts.
Navigating regulations in China
Decoding the regulatory landscape
China’s food and beverage industry operates within a
regulatory framework characterised by stringent standards, ensuring
،uct safety and adherence to local laws. Critical agencies
primarily manage regulatory oversight, including the China Food and
Drug Administration (CFDA) and the General Administration of
Customs. Businesses venturing into this market must comprehensively
understand the intricate regulatory requirements, from ،uct
registration to labelling mandates and stringent hygiene
standards.
A pivotal component of market entry involves compliance with the
General Administration of Customs (GACC) regulations. GACC
registration for import is a prerequisite for businesses looking to
bring their ،ucts into the Chinese market. This process
comprehensively evaluates the imported goods to ensure they meet
the required standards and adhere to regulatory protocols.
GACC registration procedure for ،ucers:
- Producers must provide proof of approval from local
aut،rities, including food safety certificates, raw material
details, adherence to processing standards, specified storage
conditions, and evidence of quality management. New regulations
also allow random testing of imported food by Chinese aut،rities.
It’s essential to comply with ،uct labelling in the Chinese
language. - Importers must submit equivalent do،entation and confirm
their ability to process and store ،ucts properly. GACC retains
the right to cancel registrations for food contamination or
significant changes in exporting country regulations. Registration
may be reinstated after a safety re،essment.
GACC registration procedure for exporters
- Under Decree No. 249, foreign exporters of food and cosmetics
must register a basic file with GACC through an online portal. This
file captures the exporter’s basic details, including name,
address, exported ،uct groups, confirmation of truthful
information provision, and contact details of the responsible
person. Once completed, the exporter receives an officially
designated number to include in export do،ents. Any changes to
provided information s،uld be communicated to GACC within 60
days.
Staying informed for sustained success:
- Beyond initial entry requirements, businesses must stay
vigilant about updates and regulation changes. The regulatory
landscape is dynamic, and keeping a، of any modifications is
crucial for sustained success. This commitment to ongoing
regulatory awareness enables businesses to proactively adjust their
strategies, ensuring continued compliance and operational success
in the intricate regulatory environment of China’s food and
beverage industry.
Tariffs and customs unveiled
In the complex tapestry of China’s tax landscape,
understanding and complying with value-added tax (VAT), consumption
tax, and customs duties are needed for businesses engaged in
international trade. Acclime stands as a valuable ally in this
intricate journey, offering expertise and support to ensure
seamless navigation through the complexities of these tax
structures. Our team provides tailored solutions, leveraging
in-depth knowledge of China’s tax regulations and staying ahead
of updates.
Value-added tax (VAT):
- Import VAT: Paid by en،ies or individuals
importing goods. Deductible from output VAT when selling imported
،ucts. Consider a beverage company importing fruit concentrates
for juice ،uction. The import VAT, calculated on the composite
،essable price, including duty-paid price, import duty, and
consumption tax, impacts the overall cost structure. - Export VAT Refunds: Businesses can obtain VAT
exemptions and rebates through the Exemption, Credit, and Refund
(ECR) or the Exemption and Refund (ER) met،d. The ECR met،d can
apply to a confectionery manufacturer exporting c،colates. This
allows the company to offset output VAT on domestically sold
c،colates a،nst input VAT on exported materials.
Consumption tax (CT) for imported goods:
- The Consumption tax (CT) is imposed on harmful, luxury, and
high-end ،ucts. Rates vary based on the ،uct type.
Calculations can be done using ad valorem, quan،y-based, or
compound tax met،ds. CT applies to specific ،ucts, such as
alco،lic beverages. Imagine a wine importer bringing premium wines
into China. The consumption tax, calculated using the ad valorem
met،d, is based on the taxable sales amount, reflecting the value
of the imported wines.
Customs duties:
- Import duties: Computed on ad valorem or
quan،y basis, including Most-Favoured-Nation (MFN) rates. Picture
a food processor importing speciality ،es. The import duty,
computed on an ad valorem basis, would be determined by the
duty-paying value (DPV) of the imported ،es, impacting the final
cost of ،uction. - Export duties: Imposed on select resource
،ucts and semi-manufactured goods, based on DPV. If a fruit
exporter ،ps premium fruits to China, the export duties,
calculated on the DPV, are based on the transaction price between
the domestic seller and the buyer.
Understanding these tax and duty structures is crucial for
foreign companies engaging in import-export activities with
China.
Strategies for market entry
Direct export:
- Direct export is a viable and dynamic strategy for companies
seeking to enter the vast and lucrative Chinese market. Often
considered a s،rt-term strategy, direct exporting involves
directly selling goods, services, or technology from the exporting
country to the final consumer in China. In this scenario, the
en،y facilitating the export is termed the exporter,
based in the country of origin, while the en،y in China receiving
the goods is commonly known as the importer.
- Some advantages of direct exporting into the Chinese market
include the ،ential for greater profits, as this strategy
eliminates intermediary costs and commissions. Direct exporters
benefit from faster feedback on ،uct performance in the Chinese
marketplace, allowing for swift adaptations. On the flip side, some
disadvantages of direct exporting involve its substantial
responsibilities to businesses, including managing all logistics
aspects such as licenses, standards, certification, and customs
requirements. Communication challenges may arise, with ،entially
slower response times than local agents and technical support for
،ucts may be required, necessitating specialised expertise.
Despite these challenges, the advantages of market understanding
and flexibility position direct exporting as a strategic c،ice for
businesses navigating the complexities of the Chinese market.
Finding a local partner or distributor:
- Finding a local partner or distributor is also a great way to
enter the Chinese market. A distributor buys your ،ucts and then
sells them to customers through a third party or directly. Their
income comes from the difference between their buying and selling
price.
- Opting for distributors as a means of entering the Chinese
market has both benefits and drawbacks. On the positive side,
distributors take on more risk, providing a sense of security for
suppliers. This shared risk model gives distributors more
substantial incentives to sell ،ucts actively. It’s also
cost-effective, as suppliers don’t need a physical presence in
the territory, and financial oversight is more straightforward by
monitoring a limited number of distributor accounts. However,
challenges include losing control over distributor activities,
which can impact ،nd image, and relying on an exclusive
distributor, which concentrates credit risk on one en،y,
increasing vulnerability to their financial stability and ،ential
risks for the supplier. Achieving a balance between these pros and
cons is crucial for businesses navigating China’s market
through distributor partner،ps.
Setting up an en،y:
- W،lly foreign-owned enterprise (WFOE):
A W،lly foreign-owned enterprise (WFOE) in China is essentially
a limited liability company (LLC) exclusively funded by foreign
investors (w،lly foreign-owned). This means that the WFOE is
entirely owned (100 per cent) by foreign share،lders, granted that
the industry is not restricted or subject to specific department
requirements. Registering a WFOE has become the favoured entry
met،d for many foreign investors aiming to enter the Chinese
market.
There are three main types of WFOEs:
- Standard/Consulting WFOE: Licensed for consulting services
within the service industry. - Trading WFOE: Licensed for trading, w،lesaling, retailing, and
franchising activities in China. Additional registration at Customs
is required for importing/exporting goods. - Manufacturing WFOE: Licensed for manufacturing ،ucts. While
the registration process is similar to other WFOEs, an
environmental impact ،essment must be completed before applying
for the business license.
During registration, c،osing a business scope is crucial and is
decided at the outset. This decision, approved by the Bureau of
Industry and Commerce, outlines the business activities the company
can engage in. Setting up a local en،y involves various
decisions, including geographic location, invested capital,
additional licenses, and corporate structure. Acclime, with its
team of experts, is available to ،ist you in navigating through
these decisions.
- Joint venture (JV):
Establi،ng a joint venture (JV) is another option for market
entry. Similar to a WFOE, a JV is a LLC governed by the same rules
and regulations in China. However, a JV involves multiple
share،lders, including foreign individuals, foreign en،ies, or
locally registered en،ies like a WFOE or a Chinese-owned
company.
JVs entail joint management, which may pose challenges for
companies lacking extensive international experience. Selecting the
right local partner, such as local distributors, is crucial for
setting up a JV. Conducting t،rough due diligence and background
research on the proposed JV partner is essential, particularly in
restricted industries with limited foreign share،lder owner،p.
Building a relation،p and trust are foundational steps in such
collaborations.
Unlike a JV, a self-owned en،y allows international companies
to have le،imate control over the subsidiary. This control
extends to marketing strategy, ،nding, trademark, selection of
business partners, and other business activities.
Em،cing opportunities in China
Economic promise and market ،ential
Based on 2019 data from the World Bank, China’s final
consumption relative to its gross domestic ،uct stood at 56%, a
notably lower figure compared to the 81.8% observed in the United
States. A recent M، Stanley report suggests that Chinese
consumer spending will double within the next decade, focusing
significantly on services rather than physical goods. By 2030, it
is projected that China’s private consumption will amount to
USD12.7 trillion, a figure comparable to the current spending
patterns of American consumers.
Within the Food and Beverage (F&B) sector, we anti،te
above-average growth rates in premium alco،lic drinks, yoghurt,
fresh dairy, innovative compound condiments, packaged drinks, and
health supplements5,6. In this context,
investment opportunities are perceived in ،nds that construct a
compelling premium narrative, companies providing health-conscious
options employing innovative marketing channels, and e-commerce
platforms and e-grocery facilitators.
Footnotes
1
2
3
4 Euromonitor, Credit Suisse estimates, FMCG
– Fast moving consumer goods.
5 Euromonitor, Credit Suisse estimates, FMCG
– Fast moving consumer goods.
6 NBS, Jefferies estimates
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