When China’s infamous One Child Policy was reformed in 2015, some commentators expected a massive boom in the number of babies being born. Although there was a peak shortly afterward, the numbers soon fell to below previous levels the lowest level in seven decades in 2019 as most Chinese parents decided that a second child wasn’t for them.
However, no matter the demographic vicissitudes, the market for baby food has been steadily increasing and is set to do so for the coming years, with the market estimated to be worth the equivalent of $30.1 billion dollars in 2020 and growth unaffected by the pandemic. A more important driver than the birth rate is the changing lifestyles of Chinese parents and their changing attitudes, which look set to produce positive growth in this category in the years ahead.
Safety Concerns
Imported infant formula has been widely popular in China since the infamous and tragic melamine scandal in 2008 that left 6 babies dead and over 300,000 infected with contaminated formula. Consumers’ impressions of domestically produced food & drink products, especially for babies, are only just recovering now and it’s still the case that most parents who can afford imported formula will buy it.
However, the saturation of the market for formula in China and gradual increase in breastfeeding mean that there are limited prospects for growth and it is the market for prepared baby food where growth in demand is highest, with plenty of room for further growth going forward.
Increased confidence in the safety of these products is a big driver of this market. Chinese parents, especially those outside of the cosmopolitan first tier cities, have traditionally mostly used home-made food to feed their babies, thinking that store-bought prepared baby food could not be as safe and nutritious as that prepared at home.
However, this perception has been rapidly changing with government legislation a key reason for this. In 2018, a new law passed to ban high levels of common heavy metals in baby food products, which had been detected in the past. This has led to an increased level of consumer confidence in these products.
Health Consciousness
Accompanying consumers’ high concern regarding food safety is a generally heightened level of health consciousness in Chinese society over recent years. This one the number way in which Chinese buyers thought consumers would adjust the shopping habits in the coming year, according to ADN’s own research.
This health consciousness includes paying close attention to the nutritional content of baby food and consumers consistently favour brands that they believe fulfil a child’s nutritional requirements. Chinese parents have shown that they are very willing to pay for high quality baby food and this household expense is unlikely to go down even if a family suffers a reduction in income, meaning the pandemic will not negatively affect sales in this category.
Time Pressed Parents
Another trend in this that points to an increase in the prepared baby food market is the fact that Chinese parents are living increasingly busy lives with long working hours and long commutes. This means that more and more Chinese parents do not have the time to prepare baby food, or even cook for themselves, at home. This is especially the case in China’s massive megacities with commute times averaging 52, 51 and 46 minutes one-way in Beijing, Shanghai and Guangzhou respectively (China’s average commute time is 28 minutes).
Time pressed parents is one of the driving factors behind instant and convenience food being rated the second biggest trending category behind healthy food among the buyers ADN interviewed for our own research. Given that Chinese mums are only eligible to 98 days of paid maternity leave, many households will have two working parents and so baby food that combines health and convenience is likely to be very appealing to these families.
Sales Channels
Baby food sales are split between various different types of retailers, with no channel dominant among consumers. The market in first tier cities is more saturated and people there are more willing to try premium domestic brands. E-commerce’s share of the market has been steadily increasing from 17% of sales in 2015 to 24% in 2019. This is especially so in lower tier cities where the range of options available in bricks and mortar retailers may be less.
In fact, lowered tiered cities and online sales are a huge and relatively untapped market for international brands in China; bear in mind there are over 100 cities with a population of more than 1 million in China and many parents are willing to pay a premium for high quality baby food. While dozens of brands will be competing for shelf space in first tier cities, the number of choices will be fewer elsewhere.
Furthermore, while consumers in the first tier cities are more willing to try domestic brands, elsewhere in China many consumers continue to have the mindset that an imported brand is automatically superior to domestic competitors. In order to reach these consumers, it’s important to have a strong digital presence so they can find out information about your brand and working with distributors with reach across various different sales channels, including online.
Domestic Competition
As previously alluded to, just as the preference for imported goods first started in China’s major cities and spread throughout the country, the opposite trend has now begun with consumers in the richer cities more likely to consider domestic brands. It’s certainly no longer the case that imports will be naturally favoured. A big reason for this is the 2018 regulation regarding baby food that has given consumers more confidence in locally produced products.
A company that is both benefitting from and encouraging this trend if Heilongjiang Feihe Dairy. The company positions its products as tailor-made for the particular nutritional needs of Chinese babies and has a well earned reputation as the only major domestic company to have survived with its reputation intact from the 2008 melamine scandal (see here).
Feihe mainly produces formula, but is rapidly expanding into other types of baby food. The company’s massive domestic distribution networks and promotion of its extensive localisation efforts mean that it should be the dominant local player for years to come.
The market for prepared baby food in China looks set for strong growth over the coming years fuelled by increased consumer confidence and increased purchasing power in lower tiered cities meaning that millions of families across the country are switching from home prepared food. A strategy that targets these consumers and builds a brand’s reputation online as trustworthy, healthy and safe will be crucial to succeed against both international and domestic competition.
ADN‘s research report on the post-COVID food & drink market in China looks interviews food & drink buyers to analyse trends and prospects in the market in the coming 12-24 months. You can download the report here: https://adnimports.com/report/