Western brands look at China and see 1.4 billion consumers, but there is more to this market than population. China is one of the most dynamic beverage markets, with changing trends and innovative competition from both domestic players and well-established multinational companies. Too often foreign entrants underestimate local competitors. This year, Chinese dairy giant Yili joined Nestlé and Danone to be among the world’s top ten most valuable food brands, quite an achievement considering the impact of safety scandals on the Chinese dairy industry ten years ago.
Here, Joel Bacall from The Silk Initiative, a China-based brand insight and strategy consultancy specialising in food and beverages, discusses trends that offer opportunities and challenges for beverage brands to compete in China.
What beverage category would you consider offers the best opportunity for success at the moment?
This is a bit of a trick question because it touches across multiple categories. For one, protein. I think it is time for protein beverages to enter the market. A few years ago we were speaking to a European client about introducing a milk-based protein drink, but the market wasn’t ready yet. Consumers weren’t sure what a protein drink was. They associated extra protein with more calories, not muscle building.
Now, we are seeing more people going to the gym and switching beverage choices to products with natural protein even if it isn’t marketed as a protein drink. We are seeing some beverage brands begin to promote protein claims, but not to the degree of, say, brands like MaxiMuscle or Muscle Milk common in the West. The protein claims are more health and wellness focused, especially for growing children. Health has been an F&B trend for a while, but now fitness in addition to health is playing a key role in consumer beverage choices. You can also see it in the success of non-F&B brands like Under Armour and Lulu Lemon, or boutique fitness centres such as Cross-Fit and TRX. Protein beverages will play into that well. It could be whey, nut, soy, egg, plant, or even marine protein incorporated into beverages. The slate is blank.
Do you often look beyond the food and beverage market when analysing beverage trends?
Of course! We look at what is happening in apparel, music, automotive, and other industries. Any consumer category can give signals that will influence beverage choices. We also look at government programmes such as Healthy China 2030 or changing the one child policy to a two child policy. Having twice as many children in each home will have a major influence on beverage purchasing behaviour. It will also affect most consumer industries, even real estate.
We look at what is happening abroad as well. Often trends in Japan and South Korea will have a strong influence on China. The craft beer movement in the U.S. made a big impact on the Chinese beer scene. I was listening to a talk by the country manager of Goose Island, part of AB/InBev. He mentioned they underestimated the craft beer movement in the U.S. by continuing to focus on their mass-market brands, but learned from that experience and are successfully tapping into the China craft beer movement with Goose Island and other craft brands.
Which beverage category is showing innovation that would surprise a Western audience?
I always say if you want to learn about China F&B and see how fast it is moving, just look at the dairy shelf. Look at yogurt and look at milk. The flavours, brand communications, even textures are really interesting. There’s quinoa milk, avocado and banana yogurt, as well as countless concepts that appear and disappear really fast. Dairy is fragmented and getting more so each day. The widespread product range on Chinese shelves is a new thing.
A few months ago we talked about fizzy milk, which still surprises our Western clients even though it has become old news here in China. If you want to see the pace of change, just walk up to the dairy shelf.
If you were considering getting into this category, what advice would you give a brand wanting to launch a dairy drink, for example, in China?
It’s tough. Your product needs to have a direct benefit that answers an actual need. Looking at some of the imported dairy products, the packs look very nice and fresh, but if you look at the Chinese dairy shelf you will see claims for real functional benefits like better eyesight, better digestion, or better skin. A product can no longer just have an innovative flavour or concept. Now, it also has to answer “so what?” What do I get from it? It needs to answer that question and it has to be relevant, which takes us back to protein. A couple years ago it wasn’t relevant, but now it is.
What category is really difficult for new entrants?
Tea. There is a lot of tea. I don’t know how much more tea China needs. There are really premium teas, fresh teas, mid-range flavoured teas, inexpensive RMB 2 teas in little boxes, and the list goes on. You have to be faster at innovation than the Chinese players, which is nearly impossible to do given the country’s history with tea. Also, there isn’t a strong preference for imported brands like we see in other categories. Tea is a major part of Chinese culture, and many consumers trust Chinese brands to meet their tea needs more than foreign.
The only tea space where we have seen some traction for new entrants is in the international/expatriate market in tier 1 cities like Shanghai, Beijing, and Guangzhou. Papp’s Tea, a foreign-owned China-based start-up, is starting to gain traction through on-trade channels in Western cafes, primarily in Beijing and Shanghai. They recently launched a line of flavoured kombucha which is playing into the fresh tea category with the direct benefit of improved gut bacteria. Again, a product that addresses a direct need.
To close, how would you sum-up capitalising on these trends?
Don’t get caught up in gimmicks. Just the other day a client asked us, “what is the top color for this year?” That kind of fad has no staying power. Trends that matter are based on real consumer needs. Ask yourself, what need does my brand solve and how can I do it better than anyone else? That’s good advice for launching any brand into any market.
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