NEW YORK, Nov. 20, 2012 /PRNewswire/ -- Rabobank has
published a new research report on China's potential as a growth market for
European and North American processed food brands, and the
importance of distribution channels as the means of doing
so.
In a new report, Rabobank's Food & Agribusiness Research and
Advisory group says that mastering distribution strategies will be
key to the efforts of North American and European food processing
companies to win over Chinese customers.
Rabobank analyst Ivan Choi says
in the report, "The Chinese economic miracle is now part of
business folklore and the conventional wisdom is that, if you are
not operating in China already,
then you have missed out on a massive economic opportunity.
However, Rabobank believes that within the processed food sector,
there are still opportunities for European and North American
brands facing flat growth at home. The key to winning over Chinese
consumers is mastering distribution strategies."
The confectionery market can be seen as a microcosm of the wider
processed food industry in China
and illustrates why it is not too late to enter the market.
Annual growth in some areas of the country is at 10 percent, and
despite market growth of 150 percent in the last decade, Rabobank
believes high growth potential remains. Currently, the Chinese
consume less than 1.2 kg of confectionery per person every year,
against a global average of 2.1 kg, and buy mainly during the
festive seasons, rather than all year round as in other markets.
The key for foreign brands entering this market can be distilled
down to tactics applied for specific sizes of cities within the
country.
China's 22 largest cities,
which include Shanghai,
Beijing and provincial capitals,
offer a market of 54 million households, with a confectionery
sector of Rmb37 billion (4.6 billion euro). Sophisticated urban consumers
want premium confectionery products from North America and Europe, which benefit from the perception that
they are higher quality and 'safe' product. In the big cities,
foreign brands can also take advantage of modern retail
networks.
In the 3.1 billion euro market of smaller cities where
networks are less established, local brands have a stronger
position and the key to success is to choose the right distribution
network. With a relatively low penetration of modern retailers,
traditional stores are still where the majority of customers shop.
It requires a large network of distributors and middlemen, or a
large in-house distribution capacity, to get products into shops.
Companies such as Nestle have successfully partnered with local
brands that have established distribution networks, but an equity
stake is the key to getting the most out of such deals.
Ivan Choi says; "In China, where consumers have limited brand
loyalty and distribution channels are fragmented, the main
competitive differentiator is making products available to a wider
selection of consumers. While distribution is the key to foreign
companies' success in the confectionery sub segment, its importance
is also evident in the broader processed foods sector. This is
partly due to the Chinese retail market being so large and
fragmented, with the top five retailers holding only a small
percentage of the market."
Brands must tailor their strategy to the different sub-markets
within the country. Provinces in China vary greatly in their taste preferences,
spoken languages and cultural practices as well as having different
distribution chains. "Foreign confectionery brands should view
different provinces as different markets and adjust products
accordingly when contemplating a 'China' market entry strategy," Choi
advises.
In a market where consumers place brand name as a secondary
decision factor, European and North American brands are in better
position to trump local Chinese brands with their perceived premium
brand position and safe quality image, but all this will hinge on
these companies identifying their optimal distribution strategy to
succeed in China.
The Rabobank report on the Chinese market potential for European
and North American processed food brands is available to media upon
request.
Rabobank Group is a global financial services leader
providing wholesale and retail banking, asset management, leasing,
real estate services, and renewable energy project financing.
Founded over a century ago, Rabobank is one of the largest banks in
the world, with nearly $1 trillion in
assets and operations in more than 40 countries. In North
America, Rabobank is a premier bank to the food, beverage and
agribusiness industry. Rabobank's Food & Agribusiness
Research and Advisory team is comprised of more than 80
analysts around the world who provide expert analysis, insight and
counsel to Rabobank clients about trends, issues and developments
in all sectors of agriculture.
www.Rabobank.com
SOURCE Rabobank