Yogurt - China - December 2012
All yogurt makers in China have to deal with a sceptical public whose confidence in domestically produced dairy products has been eroded by a seemingly unending series of food and safety scandals. Mintel’s survey results reveal that consumers are looking for spoonable yogurts that reflect wholesomeness and naturalness. Though flavoured yogurts do have a substantial and growing following, natural, textured and pure spoonable yogurts products are the base from which new and anxious consumers will develop an enduring attachment to yogurt in their daily lives..”
– David Huang – Senior Research Manager
Despite scandals plaguing China’s dairy sector, the country’s market for yogurt products has continued to grow. The continued macroeconomic growth of China’s economy overall, the development of the country’s tier 3 through to tier-5 cities, and the steady increase in income levels of the Mainland’s burgeoning consumer class have been primary drivers of the momentum for yogurt consumption.
Agriculture is one of the strategic development sectors for the Chinese central government. As such they have championed the development of three state-owned dairy enterprises that effectively control 60% of the domestic yogurt market. Mengniu, Yili and Bright control most of the largest farms and national distribution networks in the country, they also dominate China’s chilled distribution chain for dairy products, key to ensuring yogurts get to stores with sufficiently long shelf-lives to be attractive to shoppers.
Since the melamine scandal of 2008 the government has also encouraged consolidation of the dairy industry to reinforce quality standards and streamline upstream milk production. The government has also pushed its largest dairy product makers to develop agreements with foreign companies to upgrade technologies and processes involved in the safety and distribution of products.
However, regional strongholds remain where smaller dairies still control the supply chain of milk, local distribution channels and even shelf space. For instance, Sanyuan yogurts are popular with consumers in Beijing, while Weiquan has a very sizable consumer base in Shanghai.
By dominating the production, distribution and retail channels, domestic producers have made it difficult for international players like Danone and Yakult. While Danone pulled out of production in the Shanghai market and retrenched in Beijing to focus on a more affluent consumer, Yakult has taken a more studied approach to the marketplace by gradually building up factories in major tier 1 cities with an extensive and highly localized sales network that extends into fast-growing tier 3 and tier 4 cities.
Nevertheless, all yogurt makers in China have to deal with a sceptical public whose confidence in domestically produced dairy products has been eroded by a seemingly unending series of food and safety scandals. Mintel’s survey results reveal that consumers are looking for spoonable yogurts that reflect wholesomeness and naturalness. Though flavoured yogurts do have a substantial and growing following, natural, textured and pure spoonable yogurts products are the base from which new and anxious consumers will develop an enduring attachment to yogurt in their daily lives.
The industry’s single greatest challenge in China is engendering trust: the trust of consumers who are new to dairy products and regaining the trust of buyers who have grown cynical about the dairy industry at large.
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