The market for dairy alternatives in China is heating up as health and environment conscious consumers look for different sources of protein. Following a similar trajectory to the Western market, these products are becoming established in coffee shops and starting to become popular in premium retailers. The market is set for massive growth in the coming years with new entrants large and small benefitting from the leadership of Oatly in educating the market.
Dairy alternatives are nothing new to China; soy milk, the original dairy milk alternative, actually has Chinese origins. However, soy milk is an already established product that is widely available at a very cheap price. Few Chinese consumers would consider buying a premium imported soy milk brand when they can buy essentially the same product for a few cents at a street stall, or cheap and well-established local brands at the supermarket.
Dairy Issues
In 2006, then-Premier Wen Jiabao set out a vision for a China in which “every Chinese person, especially children, can drink one jin (500g) of milk per day”. The fact is, that by most projections, both domestic and international dairy supply cannot provide enough to keep up with the requirements for that vision. The dairy market was already worth $61bn in 2019 (up from $27bn in 2009) and is expected to continue rising fast, with major investment from SOEs in new giant dairy farms to try to keep up with demand.
Add in the fact that, according to the Chinese Medical Journal, 80% of the Chinese population are lactose intolerant, it seems incoherent that the entirety of that demand could, or indeed, should be met by cow’s milk, especially as many plant-based dairy alternatives can provide the same health benefits that cow’s milk does.
Drivers of Demand
New plant-based dairy alternatives, however, offer a great opportunity to satisfy the demand of a growing segment. The early adopters are the small but important group of consumers interested in ecological issues. These consumers are, much like their Western counterparts who have led the dairy alternative boom, young, affluent and environmentally conscious – the key combination of early adopter factors for any new trend to take off.
Although environmental consciousness is rising among young people in China, it is the dedication to healthy eating and drinking that is shared by both the avant-garde and mainstream consumers that will be the main driver of growth of plant-based products going forward, including dairy substitutes. Quite frankly, getting ill is expensive in China and so most people would prefer to have a healthy diet than to need to visit the doctor.
This rising health consciousness was already one of the key consumer trends in China before the COVID-19 pandemic and the pandemic has made this trend, especially boosting immunity, even more important. According to ADN’s own recent research interviewing food and drink buyers, an increased and sustained focus on health will be one of the key changes brough about by COVID and buyers are actively looking to source such products.
Oatly
The global leader of the plant-based dairy alternative surge has been Sweden’s Oatly and China is falling for their charms as well. Its expansion into China has been massively helped by receiving investment from China Resoruces Corporation (CRC) in 2016, a major SOE with interests in real estate, energy, food and drink among other sectors.
Beyond CRC’s investment, Oatly has taken the strategy and brand ethos that has worked so well elsewhere and localised their approach for China. They also took their time to understand the market, setting up an office in Shanghai in 2018 and making it their APAC HQ.
One innovative element of Oatly’s approach was to create a brand new Chinese character for ‘new milk’ to describe the new breed of plant-based alternatives and boost consumer awareness. The character (shown in headline picture) combines elements found in the characters for ‘plant’ and ‘milk’, showcasing the unique elements of the category. It also clearly shows consumers that the product is meant to be used in the same way as milk.
In terms of sales channels, Oatly first targeted coffee shops, which was greatly helped by its Chinese shareholder owning the Pacific Coffee chain. The brand also reached a deal to be stocked nationwide by Starbucks earlier this year. Vegan/vegetarian restaurants were another key target market and the brand has also started to roll out in selected premium retailers.
As for localising its offering, Oatly has used smaller packaging for retail. It has also sought out crossover tie-ins with similar brands and used a targeted approach in partnering with KOLs, picking a select few lifestyle influencers who fit the brand’s ethos.
A Segment Ready to Take Off
Local, long-established non-soy competitors are also doing very well, such as Lulu’s Almond Milk and Yangyuan’s Walnut Milk. The booming coffee shop market is a boon for everyone is the segment. While coffee shops in Western Europe would have a range of milk alternatives available, China is at the very start of this wave with a lot of room to grow.
The bustling coffee shop market, along with the consumer education and the work to establish the category in the premium sector being done by Oatly, presents a big opportunity for brands and suppliers in the dairy alternative space. Key factors for success are an engaging, creative and informative brand proposition, with attractive packaging to support it.
Just as we have seen with dairy alternatives in the West, just throwing products into a growth market is not good enough. Consumers are demanding more from brands in what was once a niche market, to justify exactly why they are buying that brand in particular. Taking a coordinated and well-researched approach to the market with the right local partners is key to success.
ADN is seeing growing interest in plant-based products from the buyers we work with. The segment will see huge growth in the coming years, so get in touch if you’d like to find out more.