Several speakers at the Food and Beverage Innovation Forum in Shanghai agreed that the market could no longer be sustained by traditional sales growth.
According to Veronique Yang from Boston Consulting Group, sales rises from lower tier cities – which have powered the industry in recent years – had started to slow.
“Five years ago much of the growth was driven by lower tier city expansion. It used to be easy to get double digit growth for most categories, but the limit of that growth has now been achieved,” she said.
“Now it is a battlefield and we have competition. Tier one and two growth is still driven by trading up and we are now waiting for that to filter down to lower cities too.”
She said most traditional categories were growing at below 5% each year, with the biggest gains now coming in health and wellness products, energy drinks, functional foods and dietary / nutrition products, all of which are increasing by between 10-15% per year.
“Innovation is needed in this changing market environment to meet these new demands,” she said.
“New products need to be more healthy and green.”
According to Zhou Li from beverage brand Nongfu Spring, firms need to tap into this by adopting the principles of Traditional Chinese Medicine (TCM).
“The TCM approach is that no one size fits all,” he said.
“When it comes to nutraceuticals and functional foods we can do the same. We have more consumer data and information to help us respond more effectively.
“I believe customer needs are getting higher and more personal and this will increasingly drive innovation around healthier products.”
E-commerce expansion
In terms of retail platforms, Yang said supermarkets and hypermarkets were seeing a slowdown in sales.
“In the past two years, these are the most challenged formats where growth is only at 5%,” she said.
These are losing market share to e-commerce, which increased by 42% last year, and to convenience stores.
“People won’t make the effort to go to a supermarket just to save a few yuan,” she added.
“This is difficult for the industry, because we need to alter sales, marketing and distribution channels.”
From 2015 to 2020, 42% of urban private consumption growth will go online, while convenience and vending machine sales are forecast to continue to increase.
This was underlined by Alibaba vice president Jet Jing who said 500m consumers were active on its platforms each day, with 82% of people accessing it via a mobile device.
“In past year many leading FMCG food companies have visited us to understand how a brand can develop their business and innovate in our ecosystem,” he said.
“The data we have can help food companies work on product innovation as well as helping them market their new products.”