China Food and Beverage Industry

China Food and Beverage Industry

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Summary

Food and beverage manufacturing is one of the most important sectors of China’s economy, as it provides sustenance to almost 20% of the world population. The sector also provides an impetus for the development of related industries such as agriculture, transportation, machinery and vehicle manufacturing and retail. The food and beverage sector’s profit had been growing at a double-digit rate in the past, however, the 2014-2015 economic slowdown resulted in a slackened growth pace. Moreover, the industry was hit by recent food safety scandals, a problem that has been haunting the sector for quite a while now. The industry is under pressure to modernise and to guarantee better accountability of food origin. The government responded by issuing new laws on food safety with more severe penalties but their implementation is yet to be seen.

 

Prospect

The food and beverage sector is entering a period of laggard growth in line with the overall slowing down of China’s economy. The revenues are expected to increase by an average of just below 6% a year in 2015-2019 while the average annual growth of profits will be below 5%. Although the projections are somewhat on the conservative side, they take into account the increasing cost pressure that the industry is expected to face in the process of reaching compliance with the latest food quality standards as well as the rising competition from imports. On the positive side, the main drivers of growth will be the development of new market segments and niches together with modern distribution channels.

 

Growth factors

The Chinese economic boom resulted in rapidly growing disposable incomes and rising consumption, a trend that was further bolstered by the government-supported effort to increase urbanisation rate in the country. In 2014, some 55% of the population lived in the cities against 43% in 2005. Although the share of food expenditure per capita declined to 30% of urban consumption in 2014 compared to almost 36% in 2010, food consumption actually increased in nominal terms, as food spending per capita went up by almost 25% in 2014 against 2010 in the cities. Consumer patterns have also changed significantly and high-end and non-staple foods are becoming more and more popular.

 

The improved purchasing power of Chinese consumers has resulted in a change of their diet and tastes. The consumption of meat went up, and the dairy market is considered a profitable market niche. Industry segments such as sweets, chocolate and various liquors and beverages were also given a boost. Local consumers are also displaying a growing interest in organic foods, a segment which has been registering record growth rates in the past several years. The popularity of organic and bio foods is fuelled to an extent by the nagging doubts over the quality of regular food.

New distribution channels have been developed. Among them is the online-to-offline (O2O) channel that allows producers to receive orders online and deliver directly to the final consumers. That practice is also highly used by various catering services, additionally expanding the market for food manufacturers. Organic and bio food manufacturing are especially fond of this type of distribution as it serves their segment well in terms of access to potential consumers and better quantity management.

Industry Forecast  2015-2019

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Publish Date: November 2016

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