China’s Healthy Glow
China’s middle class is becoming richer and more health-conscious. This, coupled with recent food scandals regarding domestic food products, means that Chinese consumers are now more willing than ever to splurge on foreign imports and healthy foods. Consumers are also searching for other ways to lead healthier lifestyles, evidenced by the spike in gym memberships and participation in sports. This creates new opportunities for foreign investors and companies in China.
In wake of major domestic food scandals and increasing income levels, Chinese consumers have begun turning to foreign foods. Popular imported products include protein products, such as oil, meat, dairy food and grains – purchases of imported meat, including beef, pork and mutton has increased 40%. Non-protein products have also benefited – vegetables, fruits and sugar sales rose at a rate of 27%. Dried fruits and nuts have also grown, with imports seeing a 16.8% increase. Overall, the value of China’s food imports has soared, rising over 75% from 2010 to 2014 to $105.26 billion.
The popularity of foreign foods has partly been driven by e-commerce. By using online channels, producers avoid paying various shelf, marketing, sales and distribution fees and helps consumers access the foods they want at affordable prices. Tmall Global, Alibaba’s e-commerce platform that specializes in selling foreign goods, grew its popularity through a series of joint promotions with trade offices of foreign governments. Traditionally, Chinese New Year was the “peak time” for imported food sales, generating 30-35% of sales for entire year. Tmall tied discounts to the holiday and 25 countries participated in the first round of promotions. By the end of the Spring Festival, more than 120,000 consumers had spent over 20 million RMB on imported foods. Now, e-commerce sites are hoping to transform that buzz into year-round demand. Tmall has seen a 500% surge in sales of imported food.
The “Health foods” sector has also seen dramatic growth. The government is concerned about its peoples’ health – according to the “2015 China National Nutrition and Chronic Diseases Report” the obesity rate was 11.9 % (68% increase versus 2002). Obesity rates for children aged 6 to 17 have doubled and deficiency of nutrients such as calcium, iron, vitamin A and vitamin D is prevalent. Market sources estimate that China’s health food and nutritional supplement market is worth over 1 trillion RMB.
In response to high-profile food scandals, organic food items, in particular, have huge potential for growth, and studies estimate the subsector’s average annual growth will be close to 20%. These estimates are supported by ground-level surveys – 71% of respondents to a China Briefing survey in Beijing and Shanghai were ready to pay a 20-50% premium for organic products and the top five reasons for buying organic were all related to food quality and safety. The government has also introduced new laws and harsher penalties for safety violations. However, it may be fighting an uphill battle. A soil survey in 2014 revealed that up to 40% of rivers and 20% of land in China is polluted. These pollutants make their way into produce and eventually into consumers’ foods. The situation is improving, but until Chinese producers can offer 100% safe organic food, domestic products will find it hard to compete with foreign imports.
Local stores in tier-1 cities are catching onto the health food trend. Stores in Shanghai such as Green & Safe, Hunter Gatherer and Sproutworks are popular not only for their health-awareness but also for their holistic approach to “going green”. These restaurants also have stores that offer health snacks and drinks, eco-friendly home décor and personal hygiene items, clothing made from recyclable materials, and cooking seminars on how to eat healthy. The end-goal for these stores is to source 100% of their products from within China, but currently only 15% of their goods are China-grown/made as domestic producers cannot meet their needs. This growing demand from both stores and end-consumers is available for anyone’s taking.
The shift toward healthier lifestyles is also translating into a sport and fitness boom. China’s government is i) targeting to increase the amount of parks, gyms and stadiums (900,000 by 2025), ii) host China’s first Ironman competition and iii) grow the amount of races and events held across the country. A recent BCG study reported that Chinese are flocking to gyms – health club revenue has doubled over the past 5 years and is expected to total more than $5 billion this year. The total number of gym attendees in 70 major Chinese cities has increased by 5 million each year since 2011.
Clear opportunities exist around sportswear and fitness-related products. The Chinese sportswear market is estimated to be worth $22 billion and forecasted to grow to $28.4 billion by 2018. Boosted by the 2008 Olympic Games, the annual growth rate reached double digits and the growth rate is expected to continue its upward trajectory with Beijing hosting the 2022 Winter Olympics. While Nike (14.3% market share) and Adidas (13.8% market share) are dominant in China, other competitors should not be discouraged from entering the market, as it is forecasted to continue growing, driven by the trend of “athleisure”, a mix of athletic and casual clothing that has resulted in nearly 20% of Chinese consumers’ closets being sportswear.
Chinese consumers are increasingly aware of their health, and what steps they can take to improve it. As a result, they are turning to a wide range of health foods and organic goods, and are engaging in physical exercise. Their gaze for consumer products does not stop at China’s borders, and they are increasingly looking towards foreign products to fill the void.