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Foodservice Profile – China

January 2020

Executive summary

China is the most populous country in the world with 1.38 billion people (2018). China is also the world's second-largest economy with a gross domestic product (GDP) of US$12.2 trillion (2018) and the world's largest merchandise exporter. The Chinese economy has seen strong growth with per capita GDP growing at around 10.0% between 2012 and 2018. China is also the world's second-largest importer of agri-food and seafood products.

Foodservice growth has been buoyed by an increase in urbanization: growing urban populations has meant that more consumers are able to visit foodservice outlets on a regular basis. Rising levels of disposable income is also driving consumers to be willing to spend greater amounts in discretionary foodservice channels.

The four 'key' foodservice channels in China are: full service restaurants (FSR), quick service restaurants (QSR), coffee and tea shops (CTS), and pubs, clubs, and bars (PCB). All restaurant channels are expected to grow through 2017-2022, with CTS forecast to grow the fastest to US$ 7.7 billion or a compound annual growth rate (CAGR) of 4.8%, followed by FSR (3.4%) and QSR (3.4%).

The FSR channel dominates the Chinese foodservice market, accounting for almost 74% of total profit sector sales in 2017. The majority of revenue in all major channels is attributable to independent operators and dine-in transactions. QSR is the next largest channel representing 10% of total revenue in 2017, followed by PCB (4.2%), and CTS (0.5%).

Trade overview

China imports from Canada

China is a net importer of agri-food and seafood products. In 2018, China's agri-food and seafood trade deficit was Can$75 billion with imports valued at Can$176 billion, and Can$101 billion in exports. China's agri-food and seafood imports increased at a CAGR of 3.0% from 2014 to 2018. China's top agri-food and seafood imports in 2018 were soybeans, baby food, frozen boneless beef, palm oil, and cotton. Key supplying countries were Brazil, the U.S., Australia, Canada, and New Zealand. Canada was China's fourth-largest supplier of agri-food and seafood products in 2018, with a 5.8% market share.

Canada's agri-food and seafood exports to China were valued at Can$10.5 billion in 2018, representing 38% of Canada's total exports to China (Can$27.6 billion). Agri-food and seafood has grown to be one of Canada's largest and most active trading sectors with China, with a CAGR of 19.0% between 2014-18. Canada's top agri-food and seafood exports to China were oilseeds (45%), fish and crustaceans (11%), animal/vegetable fats & oils (11%), grains/cereals (11%), vegetables and pulses (7%), and meat and edible meat offal (6%). Canada also registered an agri-food and seafood trade surplus of Can$8.5 billion with China.

Pulses, wheat and barley remain Canada's top exports to China. Canada has long been China's main supplier of pulses, with nearly 90% market share. Recently, Canada's fish & seafood exports to China have been experiencing double-digital growth. Lobsters, cold-water shrimps, and crab products are in highest demand.

Canada was China's 6th largest supplier of beef products with exports valued at Can$89 million and 1.4% market share in 2018. Although Canada has consistently ranked as the 6th largest supplier over the past 4 years, the total value of exports has been significantly decreasing since 2015.

China's top agri-food and seafood imports from the world, 2018
Commodity Import value Can$ millions Top suppliers and market share Canada's share %
1 2 3
Soybeans 49,355 Brazil: 76.1% United States: 18.1% Canada: 2.0%
Baby food 6,351 Netherlands: 33.7% New Zealand: 17.9% Ireland: 14.9% 0.0
Frozen boneless beef 5,509 Brazil: 35.9% Argentina: 18.6% Australia: 18.5% 1.6
Palm oil 4,400 Indonesia: 66.6% Malaysia: 33.4% Thailand: 0.0% 0.0
Cotton 4,115 United States: 33.2% Australia: 28.7% Brazil: 11.7% 0.0
Greasy shorn wool 3,809 Australia: 77.0% South Africa: 9.2% New Zealand: 5.5% 0.1
Food preparations 3,530 Australia: 23.7% United States: 22.3% Germany: 7.1% 2.6
Wine 3,332 France: 39.2% Australia: 27.9% Chile: 10.5% 0.4
Fish meal 2,895 Peru: 55.6% Vietnam: 7.4% Chile: 6.7% 0.0
Canola seed 2,750 Canada: 99.4% Australia: 0.6% Russia: 0.0%
Source: Global Trade Tracker, 2019

China's processed food imports were valued at Can$84 billion in 2018. Canada's share was 4.2%. New Zealand, the U.S., Australia, Indonesia, and France were the largest suppliers of processed food to China in 2018, providing 36.9% of the market. China's processed food imports grew by a CAGR of 11.7% from 2014 to 2018.

Interest in imported food and beverage products is strong, partly due to perceived higher safety and quality compared to domestic food products. Dairy products are the most popular imported food products due to several domestic food safety incidents in 2008 and 2010. Processed food and beverage imports increased at a CAGR of 11.7% over the period from 2014 to 2018. The fastest growing imports in the last five years were frozen shrimp, frozen beef, baby food, and food preparations.

China's top ten processed food and beverage imports from the world in Can$ millions
Products 2014 2015 2016 2017 2018 CAGR* % 2014-2018
Total 54,272.3 62,637.9 67,796.2 74,593.7 84,427.3 11.7
Baby food 1,732.1 3,245.7 4,071.6 5,265.0 6,351.7 38.4
Frozen beef 1,109.9 2,572.9 2,913.7 3,506.5 5,508.9 49.3
Palm oil 4,843.0 4,733.2 3,791.8 4,516.4 4,400.3 −2.4
food preparations 1,116.5 1,672.9 1,969.1 2,356.6 3,530.6 33.4
Wine 1,506.8 2,411.1 2,917.9 3,306.4 3,331.7 21.9
Fish meal 1,722.6 2,312.2 2,127.5 2,889.9 2,894.5 13.9
Powdered milk 3,636.5 1,199.1 1,420.1 1,971.6 2,245.2 −11.4
Frozen pork offal 1,545.1 1,602.2 3,228.4 2,737.8 1,962.4 6.2
Frozen pork 836.1 1,285.2 2,921.9 1,979.9 1,957.1 23.7
Frozen shrimp 330.3 571.7 591.4 611.2 1,769.2 52.1

Source: Global Trade Tracker, 2019

*CAGR: Compound Annual Growth Rate

Consumer profile and trends

China is the most populous country in the world with 1.38 billion people (2018). China is also the world's second-largest economy with a gross domestic product (GDP) of US$12.2 trillion (2018) and is the world's largest merchandise exporter. China is also the world's second-largest importer of agri-food and seafood products.

Growth in the foodservice sector has been driven by a growing urban population, which has meant more consumers are able to visit foodservice outlets on a regular basis. Rising levels of disposable income is also driving spending on foodservice. In 2010, the country's urban population surpassed its rural population for the first time. Now, more than 55% of the population live in urban centers, a number that is expected to reach 63% by 2022. Urbanization is forecast to continue to 2022, as more countryside residents are forced into cities in search of better economic prospects.

Overall, higher earners are far more likely to live in larger cities in China and are the main targets for foodservice operators. First tier cities (Shanghai, Beijing, Shenzen) have average income levels similar to income seen in developed economies and are primarily located on the countries' east coast. The Guangdong region is China's largest in terms of total consumer spending due to its large population and strong economy.

At 202 million people, China's middle class is the country's fastest growing social class and expected to remain so through to 2030. Average annual disposable income per rural and urban Chinese household is US$11,713 and US$19,498 (2017) respectfully. In comparison, average annual disposable income for rural and urban Canadian households is US$54,606 and US$67,382 respectfully.

Rural areas will often have extremely low incomes and little access to foodservice outlets at all. For foodservice operators there is greater potential for growth in China's under-developed interior, but investment and expansion is far more difficult in these regions due in-part to a lack of infrastructure. Consumer spending in Tianjin and Ningxia regions is forecasted to grow the fastest between 2018 and 2030, owing to a rise in manufacturing investments.

The overall China foodservice market

The four 'key' foodservice channels in China are: full service restaurants (FSR), quick service restaurants (QSR), coffee and tea shops (CTS), and pubs, clubs, and bars (PCB). In 2017 there were over six million foodservice outlets in China, reflecting the countries' huge population. Outlets vary from tiny, locally run QSR outlets that serve only a few customers a day to large multi-zonal establishments in major cities.

The FSR channel dominates the foodservice market, accounting for almost 74% of total profit sector sales in 2017. The majority of revenue in all major channels is attributable to independent operators and dine-in transactions, although revenue generated by chain operators and takeaway transaction is forecast to grow faster to 2022, reflecting both consolidation and an increased focus on convenience in the market.

Growth in the FSR sector between 2015 and 2017 was driven mainly by growth in transaction numbers than growth in outlets. This reflects the country's growing economy, rising disposable incomes and increasing urbanization of China. Overall transactions grew at a CAGR of 3.3% between 2015 and 2017, this is forecast to slow to a CAGR of 2.4% to 2022.

The FSR channel dominates the Chinese profit foodservice sector, representing almost three quarters of total revenue (74.3%) in the sector in 2017. QSR is the next largest channel representing 10% of total revenue in 2017, followed by PCB (4.2%), and CTS (0.5%).

Between 2015 and 2017, all channels saw impressive growth in China. The slowest growing channel, ice cream parlors, still grew at a CAGR of 4.0%. The coffee and tea shop channel posted sector leading CAGR between 2015 and 2017 with a rate of almost 7.0%. The large FSR and QSR channels grew at a CAGR of 5.7% and 5.4% respectively.

Value sales and growth of China's foodservice by channel, in US$ millions
Outlet 2015 2017 2022 CAGR* % 2015-2017 CAGR* % 2017-2022
Full service restaurants 435,180 448,135 609,630 1.5 6.3
Quick service restaurants 59,395 60,838 81,965 1.2 6.1
Pubs, clubs, bars 25,225 25,435 33,476 0.4 5.6
Coffee and tea shops 2,884 3,034 4,268 2.6 7.1

Source: GlobalData, 2019

*CAGR: Compound Annual Growth Rate

Forecast growth in the China foodservice market is expected to be driven by an increasing amount of transactions rather than by outlet growth. As transaction growth outpaces outlet growth, outlets are increasing efficiency in serving more consumers per outlet, making each outlet work harder and service an increasing number of transactions by offering 'everything to everyone'.

Full service restaurants

Measure 2015 2017 2022 CAGR* % 2015-2017 CAGR* % 2017-2022
Sales US$ (millions) 435,180 448,135 609,630 1.5 6.3
Transactions (millions) 87,543 93,356 104,748 3.3 2.3
Average transaction (US$) 4.97 4.8 5.82 −1.7 3.9
Outlets 3,563,131 3,752,005 4,212,817 2.6 2.3

Source: GlobalData, 2019

*CAGR: Compound Annual Growth Rate

FSR sales grew by a CAGR of 1.5% from 2015 to 2017, reaching US$448.1 billion in 2017. This represented 74.3% of the sector, making it the largest channel. FSR growth is expected to accelerate by a CAGR of 6.3% between 2017 and 2022.

The FSR channel has the highest number of outlets of any channel in the Chinese foodservice sector. Outlet numbers saw a CAGR of 2.6% between 2015 and 2017, which has been driven by increasing urbanization, incomes, and consumers than can afford to eat out more frequently. As China becomes increasingly urbanized, the rate of outlet openings is forecast to fall slightly as both outlets and consumers become more geographically concentrated.

Majority of Chinese consumers prefer to prepare their own food from scratch at home rather than visiting a restaurant. This creates higher expectations of quality and value from consumers, especially in higher-cost, experiential channels like FSR. The FSR channel is especially popular amongst families. Chinese consumers who eat out are also very driven by the reputation of the FSR that they visit. With that being said, they show a preference for independent operators with a local reputation.

As well, Chinese consumers increasingly want to draw the maximum amount of value out of a product or service that they have paid for. Things like price the level of convenience offered and service, are always on the mind of Chinese consumers. FSR operators need to make their restaurants very accessible to families, arguably the consumer segment that visits this channel the most.

As well, food safety conscious Chinese consumers are becoming more interested in the health benefits of food. As well, consumers are also becoming more adventurous as an increasing number can afford to eat out frequently. Chinese families are becoming increasingly wary of the unhealthy food served in the majority of QSR outlets and are thus turning to FSR to provide them with healthier options and are willing to pay a premium for an enhanced product offering.

The FSR channel is dominated by independent operators, which is a reflection of the country's regional and diverse cuisine. Some large national players exist including YumChina, Xiao Wei Yang and Xiao Nan Guo, but none of these players control more than 0.3% of the channel by revenue.

Yum China is China's largest operator of restaurants in the FSR channel, which operates the Pizza Hut and Little Sheep chains. In 2017, 2100 pizza hut restaurants existed in over 400 cities, with both delivery and sit down restaurant configurations. Little Sheep is one of China's largest chains of Sichuan and Mongolian style hot pot restaurants. Xiao Wei Yang is also China largest chain of Hot pot restaurants with more than 300 outlets in all major Chinese cities. Hot pot is popular with large groups due to the communal nature of the meal and has become the default option for informal dining.

Both revenue and transactional growth are expected to continue during 2017-2022. Future growth in the FSR channel will only be slightly bolstered from an increase in takeaway transactions, even though takeaway makes for just 7.8% of the channel's value. Advancements in mobile technology and the emergence of delivery companies like Deliveroo in the UK have allowed FSR operators to provide or expand home delivery services to more locations.

Quick service restaurants

Measure 2015 2017 2022 CAGR* % 2015-2017 CAGR* % 2017-2022
Sales US$ (millions) 59,395 60,838 81,965 1.2 6.1
Transactions (millions) 20,284 21,409 23,801 2.7 2.1
Average transaction (US$) 2.93 2.84 3.44 −1.5 3.9
Outlets 1,422,489 1,475,924 1,603,429 1.9 1.7

Source: GlobalData, 2019

*CAGR: Compound Annual Growth Rate

The QSR market grew by a CAGR of 1.2% between 2015 and 2017 to US$60.8 billion in 2017. Rate of growth is forecast to increase at a forecasted CAGR of 6.1%, reaching US$23.8 billion by 2022. This represented 11.2% of the total restaurant channel making it the second largest channel.

Growth in the sector between 2015 and 2017 was driven to a greater extent by growth in transaction numbers than growth in outlets. Transactions saw a CAGR of 2.7% between 2015 and 2017, which is forecast to slow to 2.1% CAGR by 2022. This growth reflects increased urbanization in China as more consumers are within reach of a QSR outlet. The average transaction value in the channel fell by a CAGR of −1.5% between 2015 and 2017, and is forecast to grow at a CAGR of 3.9% by 2022.

In 2017, there were over 6 million foodservice outlets in China, this huge number of outlets reflects China's huge population. The total number of outlets grew by a CAGR of 1.9% between 2015 and 2017 with growth in outlet numbers also forecast to reduce slightly to 1.7% by 2022 as the Chinese foodservice sector matures.

QSR in China is dominated by large, international operators YumChina and McDonald's China and locally grown players Pala, LEM Hamburger, and Hua lai Shi. Yum! Brands KFC is the largest QSR chain by revenue in China and the country's largest foodservice operator overall. Yum! was the first major American fast food operator to enter the Chinese foodservice market, opening the first KFC in Beijing in 1987. As of 2017 there were 5,600 KFC outlets in over 1200 cities across China and is one of the most recognized foreign brands in China.

Many consumers consider branded, chain operators a safe haven from China's repeated food adulteration scandals. Branding and reputation are key in the Chinese QSR channel. Consumers value a consistent and safe product and will seek out operators that have a good reputation. Keeping tight control over supply chains to avoid negative publicity is key to building a brand image in China. Many operators have been victim of food scandals in China, therefore consumers take a keen interest in food safety. As well, an increasingly developed and branded QSR channel, and higher numbers of consumers gaining access to the channel, means operators are having to compete on price and value to differentiate themselves.

For example, in September 2017, following growing health concern about obesity among consumers KFC opened a new 'K PRO' restaurant in Hangzhou. The store got a complete makeover from its color scheme with green and white to its seasonal menu offerings which include healthy offerings like salad, smoked salmon, crayfish, chicken, sandwich, and Japan's asahi beer among others. Furthermore, the outlet is equipped with digital technology like 'smile to pay' to give this new generation a modern dining experience.

Pubs, clubs, and bars

Measure 2015 2017 2022 CAGR* % 2015-2017 CAGR* % 2017-2022
Value US$ (millions) 25,225 25,435 33,476 0.4 5.6
Transactions (millions) 2,899 3,099 3,535 3.4 2.7
Average transaction (US$) 8.7 8.21 9.47 −2.9 2.9
Outlets 173,064 182,485 203,869 2.7 2.2

Source: GlobalData, 2019

*CAGR: Compound Annual Growth Rate

The PCB channel was the third highest valued channel in 2017 at US$ 25.4 billion. Although sales were flat from 2015 to 2017, they are forecast to grow at a CAGR of 5.6% from 2017 to 2022.

Rising incomes and levels of urbanization have increased the number of consumers with disposable income to spend on higher-priced discretionary channels, benefitting PCBs. Most consumers visit the channel for drinks and few consumers associate the channel with food offerings. Beer sales dominate and light food that is offered is mostly local or locally influenced. Independent operators dominate the channel generating 99.1% of sales in the channel in 2017.

Growth in overall transactions in the PCB channel has been driven by increasing urbanization and an increasing number of consumers with disposable income to spend in the channel. The population of China's largest metropolitan areas has increased significantly in the last decade, greatly increasing the number of potential customers in a given outlet's footprint. Outlet growth is still strong in the channel however, with a CAGR of 2.7% between 2015 and 2017.

With a CAGR of −2.9% between 2015 and 2017, the average transaction value in PCBs has decreased compared to overall transaction numbers. An increased number of operators competing for the same consumers has led to price competition.

Premiumization in PCBs, such as wine and craft beer, is expected to drive transaction growth and value. Western style outlets such as brewpubs and sports bars are appearing in larger cities and will expand to 2022 as consumers demand a more premium experience from the channel.

Coffee and tea shops

Measure 2015 2017 2022 CAGR* % 2015-2017 CAGR* % 2017-2022
Value US$ (millions) 2,884 3,034 4,268 2.6 7.1
Transactions (millions) 1,514 1,647 1,932 4.3 3.2
Average transaction (US$) 1.91 1.84 2.21 −1.7 3.7
Outlets 85,050 90,058 102,011 2.9 2.5

Source: GlobalData, 2019

*CAGR: Compound Annual Growth Rate

Despite the Chinese CTS channel being relatively small compared to the QSR and FSR channels, the CTS channel is growing rapidly in China. The channel saw a CAGR in revenue of 2.6% between 2015 and 2017. This growth is forecast to continue at a CAGR of 7.1% to 2022, outperforming the wider sector.

Outlet growth in the CTS channel was relatively strong at a 2.9% CAGR between 2015 and 2017, highlighting the still relatively unsaturated state of the market. The channel is set to retain healthy outlet growth to 2022. CTS locations have grown in step with China's rapidly expanding urban population: CTS outlets are often located inside malls and close to large urban workplaces, and the growth in these sectors has in turn provided new locations for the CTS channel. The channel is dominated by large players including Starbucks, with a channel share of almost 40%, and local operators UBC, Liangan and Happy Lemon, who all control significant channel shares.

Consumers' rising spending power and financial confidence will also continue to drive healthy transactional growth to 2022, at a CAGR of 3.2%, well above the 2.4% average across all profit sector channels. Consumers in the CTS channel are highly brand focused. Consumers are prepared to seek out their favorite operator and visits to a favorite operator are ingrained into consumers lives.

China is traditionally a tea drinking culture and coffee remains regarded by many as a premium product. Operators are using this novelty to charge a premium price. Enhancements include the provision of iced coffee and adding toppings and syrups to coffee based drinks. Consumers in the channel are not motivated by value, so can easily be persuaded to trade up to more expensive purchases. CTS' will increasingly blur channel lines by offering food comparable to other channels. Future value growth will be driven through an increasing average transaction price as key operators compete on quality and innovation, rather than price.

Conclusion

Overall revenue in the Chinese foodservice sector grew at a CAGR of 1.4% between 2015 and 2017 to a total sector value of over US$ 603.3 billion. Growth is forecast to continue to 2022 at a CAGR of 6.3%, this will result in a forecasted total sector value of over US$819.9 billion by 2022.

The Chinese economy has seen strong growth with per capita GDP at around 10% between 2012 and 2017, buoyed by an increase in urbanization: growing urban populations means that more consumers are able to visit foodservice outlets on a regular basis. Rising levels of disposable income is also driving consumers to be willing to spend greater amounts in discretionary foodservice channels.

Greater urbanization is driving new construction of malls and entertainment complexes, especially in second and third tier cities, which has provided the foodservice sector with opportunities for outlet growth. Property construction and purchasing is a cornerstone of the Chinese economy and is expected to remain strong, especially in the countries' underdeveloped interior.

The majority of revenue in all major channels is attributable to independent operators and dine-in transactions, although revenue generated by chain operators and takeaway transaction is forecast to grow faster to 2022, reflecting both consolidation and an increased focus on convenience in the market.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

For additional information on Food and Hotel China 2019, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and Agri-Food Canada
ben.berry@canada.ca

Resources

Foodservice Profile – China
Global Analysis Report

Prepared by: Kris Clipsham, Market Analyst

© Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2020).

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