When assessing the market for health food products in China, one must recognize that traditional Chinese cooking is actually fairly healthy. The foods contain very little diary and carbs (aside from rice and noodles) and always contain lots of green vegetables. This traditional eating, however, is quickly being overtaken by fast foods and convenient pre-packaged foods being consumed by the overworked young white collar worker. These pre-packaged foods are generally less fresh and less healthy, but their convenience has made them an integral part of many Chinese youth’s daily lives. Fortunately, we’ve noted a rise in people’s awareness of the these food’s dangers. In addition, tainted milk scandals have led Chinese to reflect on the quality of their own food products.

Just as luxury spending is spinning out of control with $4,000 Gucci purses in China, I think luxury-meets-food is a market ripe for growth. In addition to a perceived increase in demand, China has also been greatly expanding its domestic organic farming, which is mainly being used for exporting to the European market. I see a huge opportunity to tap into both consumer demand and domestic organic supply chains in the near future. A localized Whole Foods is inevitable, who will be first to market?

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Since the 80′s generation first got inundated with snacks in the early 1990s, both by

Tingyi share price from Marketwatch

foreign and local brands, the Chinese fast food and processed food industries has grown into $186 billion market. As we have noted throughout the week, competition is fierce. Local brands, pan-asian brands, and western brands have all been experimenting with packaging (design and size), localized flavors, and various marketing campaigns–both online and offline. The industry is about to hit an inflection point (in a positive manner) as China emerges from the global economic crisis.

Two forces are going to continue to expand this market at its historical 10% or greater per year:

1. Distribution is key in Tier 3-5 markets

Pan-asian and local brands have been expanding their distribution into tier 3-5 markets over the past 5 years in order to expand beyond the saturated  Tier 1 – 2 markets. As noted in this article, Taiwan based Master Kong formed a joint venture with Hebei Zhongwang Food in order to better penetrate rural markets. During the recession, they increased sales by focusing on lower priced products, such as RMB 1 packet noodles to attract rural and lower tiered consumers, and refining their processes (an absolutely fascinating supply chain article).

Master Kongs main competitor Want Want, the largest rice based snack seller in China, is also hoping that by, “using existing brands to boost sales and continu[ing] to expand distribution networks in rural China”, they can recover losses made in Q1 2009. (see Want Want’s China footprint below)

Now, as purchasing power is on the rise again and China is placing an even higher emphasis on domestic consumerism, the brands that have been focusing on distribution will continue to saturate these lower tiered markets and will gradually introduce higher priced items into these markets, resulting in greater sales and profitability. Couple this with a continued advertising push and an appeal to the taste of the fickle 90s generation, the battle will be won in these markets.

2. A new health wave in Tier 1-2 markets is imminent in the next 2-3 years

The 90′s generation is even more eager than their predecessors to try everything at least once–similar to Gen Y in the US. As is characteristic of their generation, they are breaking from the customs and norms and developing their own tastes and habits. I believe that this savvy, super wired, and riskier generation will push the industry in a new direction over the next 2-3 years.

As health factors continue to be a concern for Chinese parents and the rates of obesity continue to rise (23% of the population is overweight), the 90′s generation and their parents will begin to focus on health variants in the snacks and foods they eat. As this great Reuters piece highlights, China has been in a bit of a honeymoon period over the past 10-15 years allowing the desires for modernism and foreign indulgences to take precedent over health concerns. But if history is any indication, “where high calorie junk food goes, health food follows close behind, those in the industry say, predicting solid growth for health products in Asia in the next few years.”

The 70′s and older generations hold true to very traditional views on food. They believe certain foods have healing properties and also have strong beliefs about seasonal food preferences. A return to these values will resurface as a well connected youth market become more knowledge about the high sugared, low health snacks surrounding them continue to increase.

Packaging claiming “low-sugar” and Calcium Enriched (Danone) have helped companies get a foothold in the snack market but further innovation into further health benefits such as cooling properties could yield greater market share.

Globally we are starting to see this trend and this is exactly the type of movement that will continue to catch on with the 90′s generation. Brands should take note and begin further testing and research into the attitudes of the 90′s generation and their parents within Tier 1-2 markets. This could give them a head start on the trend and differentiate their offerings in a crowded and competitive market.

John Solomon is the co-founder and director of enoVate. In addition to posts throughout the week on various topics, John synthesizes the data and analysis developed by the enoVate Insights and Strategy Team and provides readers with the key trends and future indicators for brands, agencies, and investor to be aware of within the snacking industry. For our full brief on the topic, please do not hesitate to contact us.

I am studying visual communication at University…
Sometimes when I was working on design, I couldn’t think of any good ideas,then I will listen to music and eat snacks…
Actually this is a good way to relax, eat snacks just as same as listening to music to relax …
When I was thinking about a problem for long time, my brain is like a wind-tight room, eating snacks is like opening a window so I can get some fresh air…

我叫Win,是一个视觉传达设计专业的学生…
有时候做设计,但脑袋空空,想不到东西,,就会听些轻松的音乐,找些零食咬一下..
其实算是给大脑一个放松的机会,吃零食,吃糖果,就跟听音乐放松道理一样…
想问题想了很久,脑袋就像一个缺氧的房间密不透风,来点零食,就像打开一个窗户,让新鲜的空气投入进来…

1. Danone
2. Master Kong
3. Oreo
4. Ritz/Pacific Crackers
5. Wang Wang
6. Jiashili (嘉士利 )
7. Dali (达利)
8. Qingdao Foods (青食)
9. Hsu Fu (徐福记)
10. Garden (嘉顿)

The top five is shared by overseas brands, with American brand Kraft foods claiming first, third and fourth spots while Taiwanese brands Master Kong and Wang take second and fifth respectively. One user reflects on the list by saying,

“the data shows that foreign and Taiwanese biscuit brands have monopolized the mid and high levels of the Chinese biscuit market, the Chinese brands mainly have a foothold in the low ranks of the biscuit market.”

There was a great deal of nostalgia in user comments towards local brands and their products, such as Qingdao Foods’ Calcium Milk Crackers.

“Out of the eighties generation of Shandong’s men and women, many of them grew up eating these/We’re really attatched to it.”

Transversely, others mention that they have never heard of the brand or that they can no longer find their products.

“I never saw them sell well, the packaging struck me as bad.”

Overall, whilst users expressed their own personal favourites and tastes, on the whole there was no contention as to the order in popularity of the brands by any of the group’s 1000+ members.

As this week is snack week at enoVate we asked one member from each generation about their favorite snacks, purchasing habits, and healthy snacking.

Wen Huijuan, a member of the 70’s generation from Changsha, a Tier 2 city west of Shanghai, as a child especially enjoyed eating dried fig, pressed rice crackers, sour plum powder, and gluttonous rice. Most of these snacks are only found on street markets in smaller cities today. Nowadays, as a 30 yr old accountant, her present day favorite snacks all consist of pre-packaged snacks such as Hsu Fu Chi cookies, Oishi seaweed flavor peanuts, and White Rabbit milk candy. In a typical month Wen Huijuan spends over 200RMB on snacks, an average of 6RMB / day. The reasoning of her snack purchases is mainly based on personal taste as well as friend’s recommendations and magazine advertisements. Health is definitely an issue when buying snacks. Wen Huijuan considers the sugar and fat content along with other elements of the nutritional composition before making a purchase.

Qin Shan is a member of the 80’s generation and resides in Shanghai. She is a student at Shanghai’s Ocean University in her Senior year studying marketing. As a child her favorite snacks included Wangwang biscuits, fruit jellies, and dried fried noodles. Now that she is older she prefers Lai Yifen (a local snack chain, primarily in Shanghai) and Lays Potato chips. She typically spends around 100RMB to 200RMB per month on snacks. Her main purchasing influences are advertisements, friend’s suggestions and online comments. She is health conscious when buying snacks and also mentions that she doesn’t like to try new products but trusts the brands that she knows.

19 year old, Yang Hui, is a student from the tier 3 city of Yongjiu northwest of Shanghai. Her favorite snacks as a child are markedly different from older generations. She identified Coke, Sprite, Robust, Wahaha, Oishi candies and Pan Pan chips as her favorite childhood snacks. Today her favorite snacks include Yogurts, Lay’s, Tropicana, Oreo cookies, and duck’s neck. These represent a more modern array of youth snacks. She spends on average, 10RMB per day or 300RMB per month. She is heavily influenced by packaging, advertisements as well as friend’s suggestions. Yang Hui rarely acknowledges healthy snacking and only cares if the food tastes good.

There are clear differences and similarities between members of each generation. Buying snacks directly from the street remains a strong sales channel for each person. Eating Chinese style snacks along with international snacks is also a popular option. The variety of snacks eaten has evolved from loose street snacks into more pre-packaged snacks. This also follows a trend of eating more modern style Chinese snacks rather than traditional style snacks. The most common purchasing influencer between all generations remains suggestions from friends. We attribute this to a strong Chinese snack sharing attitude. We commonly see co-workers buying snacks not only for themselves, but also to share with others. Nostalgia remains an interesting trend to look at both in terms of packaging and types of food eaten. When asked about snacks eaten as a child, happy nostalgic stories seem to define their answers. Health is a factor when purchasing snacks though it’s not because of brand promotion. Snacks such as dried fruits, peanuts and other local snacks are deemed healthier than other snacks. Also the traditional Chinese mentality of having a healthy balance of hot and cold definitely plays a role in snack purchasing. An example of this is Lays Potato chips placing their Cool Cucumber flavor next to the Barbecued steak flavor. Hot and cold, sweet and sour, these have a strong presence in traditional Chinese foods and this translates into modern snacking.

This third segment is particularly interesting. They have had the advantage of having a better grasp of the Chinese palette than American/European competitors and have had the means and know how to better brand and mass market their products, than local competitors.

Taiwanese brands like Wang Wang and Master Kang are well established snack brands in China. Their ranges of biscuits and candies have resonated with the eighties generation who grew up with them. Now with new ‘sweeter’ western competition, how do these brands still compete? Largely they still rely on the good ol’ telly box.

Snacks need to be marketed on a mass level, there’s no room for niche snacks (local street sellers see to that). Thus, TV still provides the means to reach a mass target audience, with little regard to location or economic stature.

Kang Shifu has always relied heavily on brand endorsement from (Taiwanese)celebrities.

Popular Taiwanese Boy Band, Fahrenheit

Popular Taiwanese girl band, S.H.E.

Recruiting celebrities is often the go to marketing method for larger brands when targeting a broad base of Chinese youth. Effectiveness is measured from sales, market permeation, and brand connection. Master Kong last quarter saw its net profits increase $249million USD. They have achieved this by targeting middle to high end consumers in both urban and rural areas through TV commercials and price promotions. These areas are a more traditional marketing route and all of the credit cannot be given to a celebrity endorsement.

Wang Wang’s logo can be said to be synonomous with snacks in China as they are the largest producer of rice cakes in China. They have a strong TV presence in which they stress product and feeling over celebrity endorsement.

This playful commercial shows how Wang Wang has also looked to update and repackage older traditional snacks and sweets. Traditional fruit jelly snack ‘guobing’(果冰) is refitted for a younger generation in the format of the Yappy Jelly Tube. The Wang Wang website says, “The latest trend in eating jelly is to eat it out of a tube!”.

While many of the eighties generation will have grown up with Wang Wang and the other popular Taiwanese and HK snack brands, these companies must reinvigorate product and marketing for them to maintain a connection with a younger audience who are surrounded by an even wider array of snack choices from domestic Chinese competitors.

The above two viral videos showcase some of the online marketing efforts of Doritos in China. The first represents a campus promotion carried out in 2007 before a rebranding effort as seen the proceeding video. The first was a more simple on site marketing promotion at universities in Shanghai aswell as Beijing. This helped establish doritos initially establish itself amongst China’s young and hungry student population.

In an effort to rebrand due to an increasingly competitive snack market, 2008 saw Doritos appropriate a more rebelious edge. This rebranding has included redesigned flavors, packaging, television spots and live events.
They have used multiple online platforms such as xiaonei and popular forum’s such as MOP to launch the campaign and enlisted the services of renegade eighties generation spokesperson Han Han as their spokesperson.

Despite elaborate campaigns both online and offline, Doritos could be facing a simpler problem in successfully establishing themselves within the young Chinese psyche. A quick fire survey as to what resounded with young Chinese upon hearing the name “duo-li-duo-ci”, were met with blank stares. Upon briefly explaining packaging and the chip itself, only then was a connection made. Although these results only reflect a small sample group, it still shows what could be a fundamental and longstanding issue in the continued branding of Doritos.

We feel that while multi-platform, strategic marketing plans can be effective in deepening brand connection when used in the right way, if fundamentals (e.g. brand name) aren’t rock solid then effective branding, regardless of format, becomes difficult.

While credit must be paid to this campaign for its vigourous and no doubt expensive push, future marketing must pay closer attention to asssociate greater meaning with product and product name. After all, if a product can’t be named, why bother having a xiaonei site to promote it?!

It’s not only foreign or wacky snacks that consumers are purchasing off of Taobao, a majority remains traditional Chinese snacks. During the first week of September the total sales of Moon Cakes peaked at over 3 million RMB, an increase of over 120% from this time last year, according to a report from Finance QQ.com. Other traditional Chinese snacks are breathing new life into their brands by capitalizing on the prominence of Taobao snack shopping. Brands such as 知味观 (Zhiweiguan), 杏花楼(Xinhualou), 稻香村(Daoxiangcun), 采芝斋(Caizhizhai) all have set up online shopping platforms.

Young entrepreneurs are also beginning to capitalize on this trend. Zhou Luo, a young man from Shenzhen created theB2C snack website 24小食 (http://www.24food.net) to help satisfy his girlfriend’s love of international snacks. Zhou Lou’s business model is not unique of other international product importers, however through a combination of guaranteed 24 hour delivery and the availability of cash payments, after six months, 24小食 is beginning to see a profit and they have a consumer base of over 600,000. (source: sznews.com)

As always at enoVate our first port of call when doing any research is market immersion. This being snack-week it might be more apt to call this ‘mini-market’ immersion. We headed to our local supermarket and convenience stores to see what snacks were on the shelves. After taking a look, we digested the information and came back with some brief insights:

• The scope of snacking is varied. Snacks can be hot or cold, sweet or savoury, wet or dry. A single snack run to family mart could yield, fish balls, dried meat and a bar of chocolate!
• Western brands tend to stick largely to their well known product. Lays, Oreos, Dove, Kinder Bueno all have a strong presence and remain largely in their original formats.
• Traditional Chinese snacks hold a large amount of shelf space. All manner of dried fruit, meat and fish aswell as nuts, seeds and traditional candies are all well stocked throughout stores. These products tend to be all local (non)brands.
• The strongest brand presence amongst the snacks comes from the Asian snack and beverage companies such as Master Kong(Taiwan), 3+2 biscuits, Orion(Korea), chocopie and Oishi (Phillipines), Prawn Crackers.

Stay tuned to the enoVate blog for further insights into how these brands create and maintain relevance amongst Chinese youth.