- An FT Confidential Research survey found surprisingly strong cheese demand among urban households, but low per-capita consumption levels suggest significant potential for growth.
- A taste for cheese may have begun in fast-food restaurants, but it has now spread to the home. Marketing the nutritional value of eating cheese is helping drive consumption growth, particularly among young children.
- Foreign brands are well set to capitalise on this growth, with wide distrust of domestic dairy companies due to scandals over tainted milk, though the cheese market remains young and niche.
Cheese occupies a small but growing part of the Chinese diet. It is not part of the Han Chinese gastronomic tradition and remains a culinary challenge for many. But urban appetites for cheese are growing, helped by the proliferation of western food outlets.
The Dairy Association of China estimates that the country consumed 80,000-100,000 tonnes of cheese in 2015. In per-capita terms, that is just 0.058-0.073kg, compared with 2.26kg in Japan and 2.57kg in South Korea. Were China to eat volumes of cheese at the level of developed Asia, relative to its income, consumption would be nearer 0.7kg a person, with imports well over $3bn a year.
An FT Confidential Research survey of 1,000 urban consumers found relatively robust demand. 2.2 per cent of respondents said they eat cheese daily, while 20.0 per cent said they eat cheese 2-3 times a week (see chart). Unsurprisingly, richer urbanites and those living in first-tier cities ate cheese most frequently.
We expect cheese consumption to continue to grow rapidly from such a low base. Rising disposable incomes and increased openness to western lifestyles will translate into more adventurous palates. Growing awareness of cheese’s nutritional benefits will also broaden consumption of dairy beyond milk and yoghurt.
Growing opportunities in retail
Our survey also found a shift in Chinese cheese consumption patterns, with implications for how manufacturers market their goods. Restaurants serving hamburgers, pizza and cheesecake initially helped foster a taste for cheese among consumers – and outlets such as fast-food and bakery chains remain the biggest clients of cheese manufacturers in China. Though there is no official data, industry insiders estimate that sales to food service clients account for more than half of the total market.
But this proportion is shrinking, and our survey found that consumers are increasingly buying cheese directly from supermarkets and convenience stores. Previously, cheese was exclusively stocked at specialist retailers of western goods, but it can now frequently be found at mainstream retailers as Chinese consumers begin to eat western-style food at home.
According to our survey, urban residents purchased cheese an average of 7.3 times over the past 12 months. Only 12 per cent of respondents said they only eat cheese when it comes as an ingredient at restaurants, versus the 88 per cent who said they eat it as a standalone item, or add it to sandwiches or hamburgers. Children are an important driver of sales. Cheese marketed for children accounted for 38 per cent of overall retail sales volume in 2015, according to CTR, a market research firm. Leading cheese brands in China, such as France’s Savencia Fromage & Dairy, Bel and domestic dairy manufacturer Bright Dairy, have all launched products marketed at children. Marketing campaigns frequently highlight that cheese is a good source of protein and calcium.
Foreign brands have biggest slice of market
Savencia (previously known as Bongrain)’s Milkana is the most popular brand in China, holding a 20.7 per cent market share last year, according to Euromonitor (see chart). Bright Dairy is the only domestic brand to appear in the top five. Bright, formerly market leader, is now ranked second, with a 20.5 per cent share. Despite dominating in milk, domestic giants Yili and Mengniu’s cheese market shares were only 3.7 per cent and 3.3 per cent, respectively.
Foreign brands enjoy a first-mover advantage in a fledgling market. Unlike other categories that have already reached saturation point, cheese is a relatively young market and western brands have not really faced a strong challenge from local players – with the exception of Bright. Scandals involving tainted milk products have damaged consumer trust in domestic brands, giving foreign brands a solid advantage.
Savencia moved into China very early, establishing a factory in Tianjin to produce its Milkana products locally. In addition, brands such as Milkana and the Laughing Cow have been actively localising products to cater to the tastes of Chinese consumers. Most have introduced processed cheese products, including fruit or chocolate flavours that lack the pungency of traditional cheeses, to entice newbies.
Beyond retail, some foreign brands are also actively developing food service channels. New Zealand’s dairy cooperative Fonterra claims its cheese is on half of all pizzas sold in China and in 2016 launched a specialised service company called Anchor Food Professionals to distribute its products to businesses across the country.
Imports rise, prices drop
Cheese imports rose an average 26 per cent from 2013 to 2016 and the country now accounts for 6.82 per cent of global shipments, up from just 1.36 per cent in 2008.
Average unit prices of imported cheese fell to $4.30/kg in the first five months of this year from $5.20/kg in 2014. Falling prices are helping drive demand, making cheese more affordable for Chinese households. Imports were up 23.6 per cent year-on-year year-to-date in May.
New Zealand and Australia are the top exporters to China, accounting for a combined 73.1 per cent of cheese imports in the year to May (see chart). Free trade agreements between China and these countries have helped boost imports in recent years.
However, imports from the EU are catching up after the union abandoned milk production quotas in 2015. In addition, the ban on European cheese in Russia in 2014 helped redirect supplies towards China. In the first five months of 2016, the EU recorded the fastest growth in cheese exports to China of any major import region, up 43.6 per cent year-on-year, according to the General Administration of Customs.
Given the trends our survey identified, we expect such stellar growth to continue.