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Health and Wellness Series - Functional Foods and Beverages in China

January 2017

Health and Wellness Series - Functional Foods and Beverages in China (PDF Version, 580KB) | Help with downloadable formats

Contents

Executive summary

Fortified/functional (FF) foods and beverages are products with ingredients that are added for specific health benefits that are beyond basic nutrition. These types of products are gaining popularity in China as lifestyles move at a faster pace and consumers have less time to prepare healthy meals from scratch.

While Chinese consumers are becoming increasingly aware of health and nutrition, rising incomes mean that they can also splurge on the products with attributes that they value. Examples of attributes that Chinese consumers seek include: rich in protein, and immune or energy boosting.

Canadian manufacturers of FF products may also have an advantage in the Chinese market seeing as many consumers have low trust in the Chinese food supply and prefer purchasing imported products.

Introduction

China's population was 1.36 billion in 2015 and is expected to increase 2.9% by the year 2020, reaching 1.4 billion people. The population growth and increase in income, combined with rising awareness of health and nutrition, are contributing to the popularity of healthier foods and beverages.

Fortified/functional (FF) foods and beverages are products that contain added ingredients which have a potentially positive effect on health, beyond basic nutrition. In China, using such familiar ingredients could increase consumption as there is a long history of using herbal medicine.

Market characteristics

Recent food scandals in China, such as the melamine in milk products scandal, have pushed consumers toward imported products. Imported products are not only perceived to be more trustworthy, but also to be of higher quality and to have more advanced key functional ingredients.

FF baby food was the largest category within FF foods and beverages in 2015, representing almost 50% total market share. The growing value of this category may be due to the relaxation of the one-child policy by the Chinese government. As incomes rise and consumers become more aware of health and nutrition, there is also a trend towards premiumisation, especially within the FF baby food category.

It is important for Canadian companies to know that the updated Advertising Law in China requires companies not to actively advertise baby formula on any occasion, and prohibits marketing baby formula as a substitute for breastfeeding. According to Euromonitor International, official websites must state that breastfeeding is best, and that the World Health Organization suggests breastfeeding for at least six months. Additionally, the Baby, Infant and Toddler Milk Formula Registration Regulation became effective in October 2016, requiring companies to manufacture products under a maximum of three brands and terminate the production of the rest of their brands. There is also increased scrutiny of baby food from the China Food and Drug Administration.

Retail sales of FF beverages grew 7.1% in 2015. This growth may be due to increasingly busy lifestyles and awareness of health and nutrition. Consumers are seeking more nutritious beverages that are also convenient to replenish their energy and nutrients, such as vitamin C-fortified water, instead of plain water in an attempt to boost immunity. Students have also been turning to energy boosting FF beverages when studying, and drivers during long journeys. Plant-based hot drinks such as cereal drinks, oatmeal drinks, and soybean powder drinks offer protein and/or fibre. Given the popularity of energy boosting beverages, there may also be an opportunity for plant-based hot drinks that also contain caffeine. The only relevant national standards are General Standards for Beverages.

As consumer's are increasingly suffering from eye health concerns due to the use of smartphones and tablets, products positioned as boosting vision health may see strong new product development. Additionally, the aging population may create an opportunity for products positioned as beauty from within and anti-aging.

Retail sales

Retail Sales of Fortified/Functional (FF) Packaged Foods in China, by Segment - Historic Retail Value in US$ Millions - Current Prices – Fixed 2015 Exchange Rates
Categories 2011 2012 2013 2014 2015 % CAGR 2011-15
FF Baby Food 10,097.0 12,256.6 14,797.3 17,053.7 19,801.4 18.3
FF Dairy 8,196.1 9,565.9 11,207.7 12,893.9 15,144.7 16.6
FF Confectionery 1,431.4 1,678.3 1,912.7 2,158.5 2,417.0 14.0
FF Biscuits and Snack Bars 478.9 554.1 648.6 899.8 1,076.7 22.5
FF Breakfast Cereals 569.1 648.6 730.6 814.1 903.1 12.2
FF Oils and Fats 122.9 148.0 171.9 178.9 186.6 11.0
FF Bread 107.8 120.2 131.8 144.1 155.4 9.6
Total FF Packaged Foods 21,003.1 24,971.8 29,600.6 34,143.0 39,684.8 17.2
Source: Euromonitor International, 2016.
Compound Annual Growth Rate (CAGR)
Fortified/Functional (FF)
Retail Sales of Fortified/Functional (FF) Packaged Foods in China, by Segment - Forecasted Retail Value in US$ Millions - Current Prices – Fixed 2015 Exchange Rates
Categories 2016 2017 2018 2019 2020 % CAGR 2016-20
FF Baby Food 23,322.8 27,826.5 33,057.0 39,061.0 45,959.1 18.5
FF Dairy 17,427.7 19,988.8 22,930.9 26,123.7 29,606.0 14.2
FF Confectionery 2,691.1 2,992.9 3,326.3 3,685.1 4,072.3 10.9
FF Biscuits and Snack Bars 1,277.3 1,507.9 1,767.3 2,053.6 2,365.9 16.7
FF Breakfast Cereals 989.0 1,083.7 1,187.2 1,299.2 1,419.2 9.4
FF Oils and Fats 199.4 214.8 232.7 253.3 277.1 8.6
FF Bread 167.3 179.8 192.6 205.4 218.3 6.9
Total FF Packaged Foods 46,074.5 53,794.3 62,694.0 72,681.4 83,917.9 16.2
Source: Euromonitor International, 2016.
Compound Annual Growth Rate (CAGR)
Fortified/Functional (FF)
Retail Sales of Fortified/Functional (FF) Beverages in China, by Segment - Historic Retail Value in US$ Millions - Current Prices – Fixed 2015 Exchange Rates
Categories 2011 2012 2013 2014 2015 % CAGR 2011-15
FF Fruit/Vegetable Juice 4,558.6 5,439.9 5,992.3 5,974.4 5,810.3 6.3
FF Energy Drinks 1,545.9 2,072.2 2,713.4 3,399.9 4,093.6 27.6
FF Other Hot Drinks 1,941.7 2,071.5 2,204.0 2,275.2 2,378.1 5.2
FF Bottled Water 737.8 907.7 1,101.5 1,408.8 1,606.0 21.5
FF Sports Drinks 888.3 969.8 1,120.9 1,340.6 1,494.9 13.9
FF Carbonates 5.1 5.0 4.9 598.2 686.9 240.7
FF Concentrates 170.0 180.4 191.0 201.5 208.5 5.2
Total FF Beverages 9,847.4 11,646.4 13,328.1 15,198.6 16,278.2 13.4
Source: Euromonitor International, 2016.
Compound Annual Growth Rate (CAGR)
Fortified/Functional (FF)
Retail Sales of Fortified/Functional (FF) Beverages in China, by Segment - Forecasted Retail Value in US$ Millions - Current Prices – Fixed 2015 Exchange Rates
Categories 2016 2017 2018 2019 2020 % CAGR 2016-20
FF Fruit/Vegetable Juice 5,763.7 5,797.7 5,870.5 5,976.5 6,117.6 1.5
FF Energy Drinks 5,011.9 6,185.9 7,634.4 9,399.2 11,555.4 23.2
FF Other Hot Drinks 2,511.8 2,667.3 2,841.0 3,032.0 3,241.8 6.6
FF Bottled Water 1,848.4 2,131.0 2,455.5 2,824.5 3,243.2 15.1
FF Sports Drinks 1,680.9 1,893.5 2,131.9 2,396.3 2,689.1 12.5
FF Carbonates 788.0 891.3 991.0 1,081.7 1,158.5 10.1
FF Concentrates 217.8 228.1 239.0 250.1 261.4 4.7
Total FF Beverages 17,822.4 19,794.8 22,163.2 24,960.2 28,267.1 12.2
Source: Euromonitor International, 2016.
Compound Annual Growth Rate (CAGR)
Fortified/Functional (FF)

Key functional food and beverage categories in 2015

The following section provides information for the three key categories within FF packaged food; baby food, dairy, and confectionery; as well as the three key categories within FF beverages; fruit/vegetable juice, energy drinks, and other hot drinks. The information in this section has been sourced from Euromonitor International (2016).

FF baby food

FF baby food is the most significant product area in fortified/functional packaged food and accounted for 49.9% value share in 2015. In 2015, the FF baby food category had US$19.8 billion in retail sales, representing a 96.1% increase over the past five years. Due to growing income levels and increasing focus on infant nutrition, it is expected that this category will continue to see growth over the next five years at a compound annual growth rate of 18.5%, reaching a retail value of US$45.9 billion by 2020. The growing demand for FF baby food may also be due to relaxation of China's one-child policy, permitting families to have a second child and boosting birth rates from 12.1 births per 1,000 people in 2013 to 12.6 births per 1,000 people in 2015 (Euromonitor International, 2016).

Main sub-categories:

Main brands:

Forecasts for 2016-2020:

FF Dairy

As consumers become increasingly aware of the benefits of probiotics for digestive health, retail sales for FF dairy continue to grow steadily. The retail value of FF dairy has increased by 84.8% since 2011, reaching US$15.1 billion in 2015. FF dairy-based yoghurt has been performing well as it is gaining more popularity as a natural weight loss food. It is expected that FF milk for the elderly or for children will also be successful during the forecast period (2016-2020), particularly reduced fat options. According to Euromonitor International, prenatal milk or milk to aid student concentration are examples of new FF products that could emerge in the near future.

Main sub-categories:

Main brands:

Forecasts for 2016-2020:

FF confectionery

Retail sales for FF confectionery increased 68.9% from 2011 to 2015 at a compound annual growth rate of 14%, reaching US$2.4 billion. This segment is expected to continue experiencing growth, but at a slower rate of 10.9% from 2016 to 2020.

Main sub-categories:

Main brands:

Forecasts for 2016-2020:

FF fruit/vegetable juice

FF fruit/vegetable juice grew by 27.5% from 2011 to 2015, at a compound annual growth rate of 6.3%.

Main sub-categories:

Main brands:

Forecasts for 2016-2020:

FF energy drinks

Retail sales for FF energy drinks in China experienced 164.8% growth from 2011 to 2015. From 2014 to 2015, retail sales increased 20.4%, reaching US$4.1 billion.

Main sub-categories:

Main brands:

Forecasts for 2016-2020:

FF other hot drinks

The FF other hot drinks segment experienced a 22.5% increase in retail sales from 2011 to 2015, reaching US$2.4 billion in 2015. This trend is expected to continue as lifestyles in China become busier and consumers are replacing the traditional breakfast of congee (rice porridge) and noodles with quicker and more convenient options, such as plant-based hot drinks marketed as healthy breakfast drinks.

Main sub-categories:

Main brands:

Forecasts for 2016-2020:

Top companies

With increasing distribution in smaller cities and strong new product development, Inner Mongolia Yili led FF packaged food in 2015 with 9% value share. Hangzhou Wahaha, which specializes in FF flavoured milk drinks and FF dairy-based yoghurt, saw the worst performance among the leading players in FF packaged food, dropping from a 10% lead in 2014 to an 8% second place in 2015.

Red Bull (TC Pharmaceutical Industry Co Ltd) gained two percentage points from 2014 to reach 20.1% of FF beverages market share in 2015.

Health claims

Claims found on FF products are controlled by the Food Safety Law. The National Food Safety Standard for the Usage of Nutrition Enrichment and the National Food Safety Standard for Food Additive Use ensure that any food additives used across food and beverages are not harmful to health or used to disguise poor quality or counterfeit products.

According to the Mintel's Global New Product Database, the top functional health claims made on food and beverage packages in 2015 related to digestive health, bone health, and brain and nervous system health.

Retail outlets

In 2015, 77.8% of FF baby food sales were in store-based retail outlets and 22.2% were in non-store retail outlets. Although Internet retailing is gaining popularity in most categories due to the convenience it provides when researching brands and comparing ingredients and prices, baby food remains a category that is less likely to see online sales. Consumers appreciate the expertise provided by store-based baby specialists. Independent small grocers dominated the retail distribution of FF beverages, with 50% value share in 2015.

Conclusion

As incomes rise in China, consumers are upgrading their food to higher-quality products that have added nutritional benefits, creating opportunities for manufacturers of FF food and beverage products. Because of low trust in the domestic food supply, Canadian companies have the added advantage of a positive image regarding quality.

It is expected that there will be growing opportunities particularly for the FF baby food category in China, as the birth rate increases and parents become more concerned with nutrition. Plain dairy-based probiotic yoghurt is also expected to see continued success as consumers are increasingly incorporating it into their diets for digestive health.Urbanisation and increasingly busy lifestyles are also creating more opportunities for FF beverages that are convenient, high in protein, and boost energy. As many young Chinese adults no longer have the time to prepare a traditional breakfast, there may be particular opportunity for beverages that are marketed as breakfast drinks that also contain caffeine. Young Chinese adults are also increasingly using smartphones and tablets, which are creating eye health concerns and a demand for products positioned as boosting vision health. Manufacturers may find that using ingredients that are familiar to Chinese consumers could increase sales, as there is a long history of using herbal medicine in China.

FF flavoured milk drinks, which are perceived to be high in sugar and artificial ingredients, are expected to see a decreasing growth rate as consumers seek more natural products during the forecast period (2016-2020).

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 under Statistics and Market Information at the following link, arranged by sector and region of interest:

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Resources

Health and Wellness Series - Functional Foods and Beverages in China
Global Analysis Report
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