china - market analysis report_en

8/9/2019 China - Market Analysis Report_EN

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International

Markets

Bureau

The Urban Chinese Consumer

Behaviour, Attitudes and

Perceptions Toward

Food Products

MARKET ANALYSIS REPORT | APRIL 2010

Source:

BillHowe,

2007,www.b

illhowe.org

Source:

BillHowe,

2008,www.b

illhowe.org


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PAGE 3

expected to shrink crop yields and the amount of available farmland, which will in turnreduce the countrys domestic food supply (Reuters, August 22, 2007).

The Chinese government has encouraged investment in the rural economy and theagricultural sector is growing at approximately 3% per year. The government growth target forthe agricultural sector is just over 5% annually. However, due to environmental challenges, such as thedesertification of arable land and drought, growth has been slower than expected.

China boasts the worlds second largest economy. Agriculture accounts for nearly 11% of that economy andemploys more than 40% of the labour force. China is a major exporter and importer of agri-foodproducts, as well as the worlds largest exporter of seafood products, making it a market with manyopportunities for Canadian agri-business.

China is a net importer of agri-food and seafood products. In 2008, its agri-food and seafood tradedeficit was over US $18 billion. Chinas agri -food and seafood imports have been growing over the pastfive years at an average of 21% a year (Global Trade Atlas, 2009).

Chinas key agri-food and seafood imports in 2008 were soybeans, cotton, refined palm oil, crude

soybean oil, and wool. Key suppliers in 2008 were the United States, Brazil, Argentina, Malaysia andAustralia.

Major processed food imports in China include: palm oil, soybean oil, fish meal, beef hides and frozenfish. Malaysia, the United States and Argentina are the largest suppliers of processed food to China,accounting for approximately 41% of Chinas processed food imports (Global Trade Atlas 2009).

There is great growth potential for high-quality Canadian food products among discerning Chinese

consumers. China is an increasingly important trading partner of Canada and is Canadas fourth largestexport market for general merchandise products. In 2008, these exports totalled $10.5 billion and accountedfor over 2% of overall exports, up from $4.8 billion in 2003.

China is also an important export market for Canadian agri-food and fish and seafood. In 2008, exports toChina of agri-food products exceeded $1.5 billion, up from $400 million in 2003. China was Canadas fourthlargest export market for agri-food products, accounting for almost 4% of Canadas total agri-food exports.

Canadas exports of fish and seafood to China are also important but have shown less rapid growth thanexports of agri-food products. In 2008, Canada exported $258 million in fish and seafood products to China,up from $255 million in 2003. This accounted for 7% of Canadas total fish and seafood exports, makingChina Canadas third largest export market for fish and seafood products.

In 2008:Canadas top agri-food and seafood exports to China were canola seeds, canola oil, snow crabs,soybeans, and peas.

Canada registered an agri-food trade surplus of CAD $0.9 billion with China.Canadas top agri-food and seafood imports from China include: apple juice, frozen fish meat, frozen

shrimp, mushrooms and sole fillets (Statistics Canada 2009).Processed food imports continued a five year growth trend and reached US $25 billion.Canada supplied approximately three percent of Chinas processed food imports.

GLOBAL TRADE POSITION

CANADAS TRADE RELATIONSHIP WITH CHINA


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Population

China is the worlds most populous country. As of July 2009, Chinas population is estimated to havereached almost 1.34 billion, which would account for approximately one fifth of the worlds population (TheWorld Fact Book, 2009).

Approximately 43% of the total population live in urban areas, and this figure continues to grow.Furthermore, it is estimated that there are approximately 65 million young urban consumers, aged from 20to 39, who are attracted to Western brands and can be influenced by advertising (A.T. Kearney, 2007).

Some of the worlds most populous cities and most densely populated regions are found in China. Whilethe most populated cities are not always found in the most densely populated regions, four major Chinesecities are located in densely populated regions. In 2007, there were almost a dozen cities whose totalpopulations numbered over 5 million, including Shanghai, Beijing, Tianjin and Chongqing. These four citiesare also located in regions considered to be among those with the highest total populations in China(Table 1) (Economy Watch).

Table 1: Sample of highly-populated cities located in densely-populated regions

One-Child Policy

Since the 1970s, population growth in China has been governed by its state family planning policy whichlimits each couple of marriageable age to one child, with specific exceptions for families living in rural areasand those areas heavily populated by ethnic minority groups (White Paper on Population in China). Theone-child policy is frequently circumvented by more affluent parents, who can afford to pay penalties/finesimposed by the state (Boumphrey, 2007).

As China has traditionally been a male-oriented society, the initialimplementation of the one-child policy has resulted in a largerproportion of male children than female. A study by the BritishMedical Journal shows that in 2005, there were 32 million moremales under the age of 20 than females (McDonald, 2009). While

female births may have been under-reported, the study projectsthat this gap will persist for the next two decades. Thus, malesunder the age of 20 will play an important role in determining foodpreferences.

While the family planning policy has been successful in slowingChinas booming growth, statistics also show that Chinaspopulation is aging. The estimated median age as of 2009 is 34.1years33.5 years for men, and 34.7 years for women.

DEMOGRAPHICS

City & CorrespondingRegion

Total UrbanPopulation (in

millions)Total Population

(in millions)Beijing 13.2 16.33

Tianjin 8.2 11.15

Shanghai 17.0 18.58

Chongqing 7.5 28.16

PAGE 4

Source: Economy Watch, China Population, Chinese Population

Source: Bill Howe, 2004, www.billhowe.org


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The population of children under age 14 decreased from 324 million in 1996 to 238 million in2007. Although overall population growth has decreased, the proportion of elderly persons isbecoming an issue of concern as there will be too few workers to support the agingpopulation. Table 2 summarizes the breakdown of the population by gender and age group.

Table 2: Population Breakdown by Gender and Age Group, 2009

Forecast

The United Nations predicts that by 2050, China will have 101 million people aged 80 or over, compared to43 million in India and 32 million in the US (Population Division of the Department of Economic and SocialAffairs of the United Nations Secretariat).

The improved life expectancy of the rapidly growing elderly population presents a challenge to the healthcare system. It is expected that the average life expectancy will be 73 years by 2010, as opposed to 36.5years in 1949, the year the Peoples Republic of China was founded (National Human Rights Action Plan ofChina, 2009-2010; China.Org.Cn, January 7, 2008; Peoples Daily Online, April 13, 2009).

Given these demographics, food that is geared to maintaining healthy lifestyles can be expected to play agreater role in the food marketplace.

Ethnicity

The Chinese population is composed of 56 ethnic groups that have been identified and recognized by thegovernment to date, of which the Han ethnic group is the largest. The remaining 55 groups in aggregateform a much smaller population and are commonly referred to as ethnic minorities.

The fifth national census conducted in 2000 indicated that the combined population of the 55 ethnicminority groups totalled 104.49 million, or approximately 8.41% of the countrys total population(Information Office of the State Council of the Peoples Republic of China, 2005).

The distribution of these ethnic populations varies widely.

The largest group, the Zhuang, consists of an estimated 16 million people spread over 3 provinces.

The Hui account for almost 10 million people and its population is spread over 19 provinces.

The smallest group, the Lhoba, numbers just under 3,000, all of whom live in Tibet.

In all, 18 ethnic minorities have populations greater than 1 million people, while 20 have populationsnumbering less than 100,000, of which 7 groups number less than 10,000 people (Lai, 2009).

Age Range % of Population # of Males # of Females0-14 years 19.8% 140,877,745 124,290,090

15-64 years 72.1% 495,724,889 469,182,087

65 years and over 8.1% 51,774,115 56,764,042

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Source: The World Fact Book, China (June 2009), estimates for 2009


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The official national language, Mandarin (also known as Putonghua) is the most commonlyused language in China and one of the most commonly used languages in the world.However, there are a number of other languages spoken in China by minority groups, as allbut two have their own language.

In order to ensure equality among its ethnic groups, the Chinese government adopted special policies andmeasures to recognize their unique languages and cultures. As a result, national marketing activities using

only the Mandarin language will not be effective in some areas, particularly in those rural areas which arehome to ethnic minority groups.

Education

One of the goals of the one-child policy was to improve the education system. Since 1950, China hasimplemented a nine-year compulsory education program in 90% of its populated areas (ChineseGovernments Official Web Portal). In that time period, illiteracy in young and middle -aged people has seena marked decrease, from over 80% down to 5%.

The current goal is that by 2020, of every 100,000 people, 13,500 will

have had junior college education or above and 31,000 will have hadsenior high school education; the rates for illiteracy and semi-literacy willfall below 3%; and the average duration of schooling across thepopulation will increase from 8 years to nearly 11 (EducationDevelopment, Chinese Governments Official Web Portal).

China Economic Net reports that a record 10.5 million students wrote thenational college entrance exams in 2008, however, only approximatelyhalf will be admitted. This is a major factor contributing to the highnumber of Chinese students studying abroad (Education Development,Chinese Governments Official Web Portal). This internationalexperience exposes students to new tastes and food products and mayfoster greater acceptance of these products among the youngerdemographic, making them more open to imported foods.

Furthermore, women are becoming better educated than in the past and are gaining financialindependence (The Nielsen Company). They are, therefore, a potential driving force for food productdemand in the future.

Households

Unlike the West, many unmarried children in their 20s and 30s are still living with their parents, and thisgroup has a significantly higher disposable income than if they were living on their own.

Since 1995, three-person households have become more popular in China. Homes shared by four or more

people have decreased, while the number of one and two-person households increased dramaticallybetween 1995 and 2007, by 95% and 74%, respectively. There is a trend toward young, single men andwomen trying to make a living in big cities, in contrast to the traditional family lifestyle that is more the normin rural areas (Euromonitor, November 2008).

These changes in household composition have also created a market opportunity for premium food andlifestyle products, and luxury designer goods that parents and these young adults living at home are morefinancially able and willing to purchase.

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The Computer Age

Greater availability of a variety of lifestyle products is also influencing consumers. At the endof 2007, there were, on average, 95 refrigerators, 153 microwave ovens, 38 colourtelevision sets, 91 telephones, 165 mobile telephone units, and 54 computers for every 100households (National Bureau of Statistics of China).

The increasing reach of online media provides opportunities to create awareness and promote new foodproduct offerings.

Computer ownership in China has seen great uptake, increasing from approximately 10 per 100 urbanhouseholds in 1990, to 54 in 2007.

Internet usage in China has also increased sharply, from 1.7% of the population in 2000, to 25.3% in2009 according to Internet World Stats.

Increased internet usage appears to be accompanied by opportunities for online sales. Taobao isChinas combination of eBay and Amazon, and is described in the New York Times as Chinas fast-growing online shopping bazaar. Its popularity and free ads have helped create thriving newonline stores (Barboza, 2009).

In early 2009, China Pollings small study on fast moving consumer goods (FMCG) indicated that only

2.5% of internet customers refused to purchase groceries online, while 60.6% of consumers werefrequent online buyers or were willing to buy online in the future (Chou, 2009).

A 2008 consumer survey of online media vehicles, which included online advertisements, productarticles, blogs and forums, showed that the internet is increasingly being used as a marketing tool. Infact, the study showed that blogs and online forums were seen as more credible than traditionaltelevision advertisements (Dixit, et al, McKinsey & Company, 2008).

Credibility will be an important factor for businesses to establish brand awareness and to effectivelypromote the safety and special features of their products to Chinese consumers.

Lifestyle & Health

Chinese consumers are becoming more affluent and this is influencing both lifestyle and diet in China. In2007, the population of High Net Worth Individuals1 (HNWI) in China grew by 20.3%, the second-highestrate of growth in the Asia-Pacific region. India had the highest rate of growth at 22.7%, followed closely bySouth Korea in third place at 18.9% (Merrill Lynch/Capgemini, 2008).This rapidly-growing level of affluence provides consumers with themeans, and often the desire, to purchase a wider variety of foods andconsumer goodsa marked change from only decades ago whenavailability and supply were controlled by government.

Veeck and Veeck (2000) observed an increased consumption ofconvenience foods, especially Western-style convenience foods,including meals-away-from-home and processed and pre-packaged

products for home use. As a result, there is potential for food productsthat are available in smaller portion sizes, particularly those that offerconvenience to the consumer.

Gale and Huang attribute the rapid growth in supermarkets,convenience stores and restaurants to the desire for convenience, inaddition to the growing preference for quality over quantity.

1 Capgemini defines HWNIs as those holding at least $1M US in financial assets while Ultra-HWNIs hold at least $30M US,excluding primary residences, collectibles, consumables and consumer durables.

Source: Planet Retail Ltd., www.planetretail.net


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The stimulus plan would finance programs in 10 major areas, such as housing, ruralinfrastructure, water, electricity, transportation, environment, health and education, industry,and disaster rebuilding (e.g., the May 12 earthquake), as well as cutting taxes and looseningcredit conditions (Xinhuanet, November 2008; China Economic Net, November 2008).

The continued growth of Chinas economy is expected to translate into continued increasing purchasingpower of Chinese consumers. A.T. Kearney (2007) estimates that the growing middle class spends anincreasing amount on food, with annual sales of branded food products expected to grow from US $150billion to US $650 billion by 2017. This growth is anticipated to be in traditional areas such as baked goods,soft drinks, fast food, and alcohol, as well as from the introduction of new areas that may be found in largerretail establishments and not in local markets and smaller retail outlets. This would provideopportunities for both food manufacturers and retailers.

Political Environment

In an effort to raise quality and safety standards, given recent food safety issues, the State CouncilInformation Office published a White Paper entitled, The Quality and Safety of Food in China. Released in2007, this document outlines the initiatives being undertaken to improve and maintain the quality and safetyof food produced for domestic and international consumption.

The nature of the food supply is also evolving. In the past, food and its distribution was the subject of strictcentral planning. Today, the food supply is being influenced by markets and private enterprise intent onsatisfying the increasingly discerning and sophisticated tastes of Chinese consumers (Gale, June 2003).

In 1992, the China Green Food Development Centre was created as a specialized agency of the Ministry ofAgriculture to oversee the national development and production of Green Food.Green Food includes edible produce and processed goods. The production, processing, packing,

storage, and transportation of these goods are strictly controlled and regulated.

The Green Food program represents the first steps in the evolution of organic agriculture practices inChina. The resulting products are characterized as being safe and of good quality, as well as havingbeen produced in a sustainable and non-polluting manner.

These products are identified by a special logo which is managed by the Trademark Law of ThePeoples Republic of China (China Green Food Development Center).

Todays Chinese consumer is more aware of trends and new products andis more willing to experiment with new tastes and foods. A Datamonitorstudy found that 83% of Chinese consumers felt that it was important to find

more excitement and sensations in life, compared to a global average of64%. Furthermore, 44% of Chinese consumers had tried food and drinkswith new and exotic flavours within the six months leading up to the study,as opposed to 30% of global consumers (Datamonitor, DMCM4693, July2009).

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CONSUMPTION AND EXPENDITURES

Source: Si Ting Zhu, 2008


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Consumers in the highest income groups are willing to spend more on higher quality foodproducts and so the growing middle and upper classes are a potential market for premiumfood products. Datamonitor found that 67% of those surveyed had purchased higher qualityfood and beverages than their normal choices in the previous six months. This trading up offood and beverage purchases seems to indicate good growth prospects for such products.

Chinese women are an important demographic group as far as food consumption is concerned. It isestimated that women in China hold about 60% of spending power and that they determine 78% of daily

purchases in households (Zamchek, 2008). The influence of femaleconsumers is being felt not only in their own homes, but also in thehomes of their parents when they live in the same house orneighbourhood (Rein, 2009).

Mindful of the economic situation, Chinese women are becoming morediscerning in their shopping habits by cutting back on impulsepurchases and doing more product research, often online, prior topurchasing. Rein notes that the China Market Research Group foundthat some of these shoppers, as mothers, were willing to spendapproximately 20% more for food products, clothing and relatedtoiletry items for their babies if they were fully confident that thoseproducts were safe. It is estimated that 83% of Chinese middle-class

consumers are willing to pay more for safe food products (A.T.Kearney). In addition, consumers indicated that they trusted foreignbrands more than domestic ones, as foreign companies wereperceived to be less likely to cut corners in the production and quality control process (Rein, 2009).

Little Emperors and Empresses

The widespread poverty of the past stands in stark contrast to the increasing number of high-incomeindividuals in China today. These consumers have the means and desire for the best foods and consumergoods. Furthermore, parents are increasingly able to indulge their children in a wide variety of high qualitygoods, and in great quantities. As a result of its rapidlyimproving economy, this situation has created a generation of

indulged only-children, commonly referred to in China as littleemperors and little empresses, as their demands greatlyimpact the household.

Chinas strict family planning policy has affected householdcomposition. The standard family structure often consists of fourgrandparents, two parents and one child in essence, severaladults and one child on which to lavish attention and consumergoods.

The power of the little emperors and little empresses isreflected in the purchasing patterns of modern households. Asimilar trend can be seen in many countries, however, this isparticularly marked when taking in to consideration the history of the country, the fairly recent years offamine and food rationing, which have now been replaced by the economic boom of the past few decades.

The Nielsen Company has noted a global convergence of teen values with respect to consumerism,materialism, openness to new ideas and cultures, and enjoyment of life, and China is no exception (TheNielsen Company). As the little emperors/ little empresses grow up, these tweens and young adultsconstitute an emerging consumer group that is young, educated, increasingly sophisticated andtechnologically savvy. They also possess the financial means and desire to indulge in new products andexperiences. More and more, these consumers use the internet and mobile devices to find productinformation, discounts and coupons, providing marketing opportunities that may have more resonance than

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traditional advertising media. This younger generation is looking for new and innovativeproducts and taste experiences, as well as healthy and affordable food offerings (Chandler,2004; Zamchek, 2008).

The shopping influence of adult women who grew up as little empresses now extendsfurther than in previous generations. With the benefits of better education, womens contribution tohousehold income has increased from approximately 20% in the 1950s to about 50% today. In addition, asthe sole care-providers for aging parents, their influence is often felt in the purchasing decisions of their

parents, when they live in the same house or neighbourhood (Rein, 2009).

Expenditures Overview

In general, urban residents have higher disposable incomes and living standards, spending more onpackaged and branded food (Li & Fung Research Centre, 2005).

Changes in consumption of traditional staple foods (grains and vegetable oils) have accompaniedchanges in consumer spending power. As household income increases, the percentage of income spenton food decreases. On average, 36% of household income is spent on food, but this can range from47%, for the lowest income group, to 28% for the highest (National Bureau of Statistics of China).

Chinese consumers are highly focused on value. That is to say, that value-for-money is a veryimportant factor in purchasing decisions. Despite increases in incomes and the desire for premiumproducts, the quality of these products must merit the price in the consumers mind for a sale to occur(AP-Food Technology.com, April 2004).

In 2008, there was significant growth in packaged food sales at 11%, based on current prices. Thegrowth rates for the next two years are forecasted to be 14.5% in 2009 and 13.7% in 2010(Euromonitor).

The proportion of income spent on clothing (10%), residence (10%), household facilities, articles andservices (6%), health care and medical services (7%) and miscellaneous goods and services (4%) isrelatively consistent across all income groups (Figure 1). In addition to food (36%), spending on

transportation and communications (14%) and education, cultural and recreation services (13%), tendsto vary more widely as income changes. However, spending in these latter categories tends toincrease with higher income levels (Figure 2).

Figure 1: Average Per Capita Annual Expenditure of Urban Households, 2007

Clothing

10%

Transport &Communi-

cations

14%

Health Care

and Medical

Services

7%Household

Facilities,

Articles and

Services

6%

Residence

10%

M iscellaneous

Goods and

Services

4%Education,

Cultural and

Recreation

Services

13%

Food

36%

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Data: China Statistical Yearbook 2008


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Figure 2: Percentage of Annual Food Expenditures by Urban Households, by Income,2007

Chinas rapid economic growth, the growing affluence of its consumers and increased urbanization aredriving the countrys changing consumption patterns. Diets appear to be shifting away from staples andare broadening to include more poultry, eggs, dairy products, fruits, vegetables, fish, and fats and oils(Figures 3 and 4) (Pingali, 2004; Gale, June 2003).

Consumers are demanding a wider variety of food products, more processed food and moreconvenient food, in addition to eating out more often.

As a result, food retailing is moving from small traditional farmers markets and corner kiosks to modernhypermarkets, convenience stores and fast-food restaurants (Gale, 2006).

Figures 3 and 4: Per-capita Annual Purchases of Major Commodities by Urban Households (kg),1990 and 2007

1990

Pork

3%Fresh Melons

and Fruits

7%

Edible

Vegetable Oil

1%

Fresh

Vegetables

24%Grain

23%

Milk

1%

Fresh Eggs

1%

Aquatic

Products

1%

Poultry

1% Beef and

Mutton

1%

2007

Fresh Eggs

3%

Milk

4%

Aquatic

Products

4%

Beef and

Mutton

1%

Poultry

2%

Pork

5%

Edible

Vegetable Oil

2%

Fresh

M elons and

Fruits

15%

Fresh

Vegetables

30%

Grain

19%

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0 5 10 15 20 25 30 35 40 45 50

Percentage of Total HH Annual Expenditures

Average

Low est Income HH

(1st decile group)

Poor HH

(1st 5% group)

Low Income HH

(2nd decile group)

Low er Middle Income HH

(2nd quintile group)

Middle Income HH

(3rd quintile group)

Upper Middle Income HH

(4th quintile group)

High Income HH

(9th decile group)

HighestIncome HH

(10th decile group)

IncomeGroup



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According to a Datamonitor study, Chinese consumers viewed saving money, lower pricesand overall product quality to be of significant or high importance in grocery shopping.However, product quality was viewed to be of higher importance than lower prices or savingmoney (67%, 46% and 52%, respectively). Overall global results appeared to rank all threefactors to be of similar importance, although lower prices in general ranked slightly lower than savingmoney or product quality (62%, 73% and 72%, respectively).

Just as quality is of high importance, it is interesting to note that 89% of the consumers surveyed in Chinaviewed the accumulation of material possessions or wealth to be important or very important. Thiscontrasts sharply with 48% of global consumers. After years of famine and rationing, material possessionsare viewed as evidence of high social status and, as such, are very highly sought after (Datamonitor,DMCM 4693, July 2009).

Influence of Brand

While being seen wearing brand name clothing is important, the importanceof brand extends to shopping for food products. In its Global ConsumerTrends 2009: Sensory report, Datamonitor found that Chinese consumerswere highly influenced by habit or their preferred brand when shopping forfood or beverage products. Brand loyalty or brand image scored much higher(4th of 14 factors evaluated) versus the global average (12th of 14 factors).

The influence of habit extends to the choice of shopping venue. The majorityof consumers in the study showed that habit plays an important role in thechoice of grocery store84% admitted that habit had a high or mediuminfluence in this choice.

After much effort, international food companies such as Kraft, Heinz, and Nestl have achieved success inthe Chinese market. Although these brand names are well-known in the Western world, the journey into theChinese market has not been easy due to consumer loyalty to domestic brands. However, as a result ofpast food safety and quality issues related to some domestic brands, Chinese consumers are now moreinclined to purchase imported goods as they are perceived to be of higher quality and safety.

Chinese consumers, although accepting of foreign brand name products, have not extended this

acceptance to private label products. A Nielsen Company study showed that 8 of the bottom 10 markets forprivate label products were Asian countries. Consumers surveyed in these countries were least likely toagree that supermarket own labels were a good alternative to other brands. Major well -knownmultinational and local brands with strong brand recognition, supported by heavy advertising, have madesuccessful inroads with Chinese consumers. However, this is not the case for private label products, asconsumers seem to doubt their quality, safety and value-for-money. Consumer education and advertisingthat stresses the high quality and safety of private label products may help to gain public support andincrease their sales.

A Matter of Taste

It is important to note that food products that are popular in Westerncountries may not be immediately accepted in China, as Chinese

tastes are quite different from those of North American consumers.While familiar tastes and foods are more readily accepted, inroadshave been made by consumer education campaigns, and consumertaste testing/sampling (Snchez, Lei, Han, and Chandlee, 2009; Marrand Hatfield, 2004).

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Source: Mintel



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For example, according to the Wall Street Journal, Oreo cookies are the top-selling cookie inthe US market. However, the introduction of Oreo cookies to China was initially lacklustre.The taste so familiar to North Americans was considered too sweet by most Chineseconsumers. After reformulating the cookie, Kraft embarked on a marketing campaign tointroduce the concept of pairing cookies with milk to consumers, and handing out samples ofOreos by students on bicycle or at Oreo-themed basketball games (Jargon, May 2008).

Grocery Shopping

From wet markets to hypermarkets, the shopping experiencein China has evolved dramatically over the past decades. Inthe days before the wide availability of refrigerators, the lackof cold storage meant that food was purchased a few times aday just enough for one meal at a time. Today, Chineseconsumers continue to place great importance on thefreshness and quality of ingredients, which are oftenpurchased in close proximity to ones residence from avariety of farmers markets, wet markets, street vendors, andgrocery stores. Most cooking is still done with fresh foodpurchased on the same day it is to be consumed.

Today in China, as in the West, hypermarkets are making anappearance on the retailing scene. Hypermarkets are largeretai l establishments that combine the features of supermarkets and department stores in one location.

The attraction of hypermarkets can be attributed to lowprices, convenient one-stop shopping, accessible locations,and the integration of other retail facilities such asrestaurants, cinemas and coffee houses, which turn ashopping trip into a days excursion. According to TNS China,Chinas middle class consumers visit hypermarkets onceevery 10 days, on average. As of mid-2007, hypermarketsaccounted for more than 45% value share of the grocerysector in Shanghai, and TNS China predicts that by the end

of the decade, the hypermarket share of the value of Chinasgrocery sector will increase to 35% from 19.7% in 2001 (TNSChina, September 2007).

Foreign retail chains such as Tesco, Wal-Mart, Carrefour andMetro are now established names in China. For example, onJuly 9, 2009, Carrefour China opened its 138th CarrefourHypermarket in Kunming City (Carrefour China). Domesticsupermarket chains, such as Lianhua, Hualian and Wumart,are also well-known. Nevertheless, the majority of people stillbuy food at local stores and traditional street markets,especially in rural areas where supermarkets do not exist(Tesco; AgrifoodAsia; Williams, 2007).

One of the major challenges to food distribution in China isthe infrastructure. Too few cold storage facilities forwarehousing foods and insufficient temperature-controlledtransport limit the availability of frozen and perishable foodproducts in retail outlets. While the use of refrigeratorscontinues to grow, the ability of consumers to purchase andstore high-value frozen and perishable foods continues to belimited, both by cost and by the availability of reliableelectricity (Gale, 2002).

What is a wet market?

Traditional, local, open-air, street markets areknown as wet markets. The name likelyrefers to the floors of the markets, which oftenbecome wet from food spilled in the selling ortransportation process and are sprayed withwater for cleaning. Along with fresh fruit andvegetables from local farms, one can usuallybuy meat, eggs, tofu, grains, pickled radishes,and spices, in addition to live fish and fowl.

Food is sold from a series of vendor stalls andusually comes straight from the farm orbutcher. Freshness is the paramountconsideration for most Chinese consumers,and live is often the equivalent of fresh, asfar as cer ta in i tems are concerned.Customers are also attracted to the marketsfor the wide variety of fresh fruit andvegetables available. Shopping at wetmarkets is also a social experience. This iswhere local residents meet to exchangegossip and local news. Vendors are alwaysready to provide advice on how to prepareones daily purchases, or to suggest foodsbased on what one has previously purchased(Urbanatomy.com; Bean, 2006).

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Source: Joe Silverman, 2010


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For small purchases, convenience stores are still a popular choice for many Chineseconsumers. Longer business hours and proximity to residential areas appeal to many, alongwith the availability of snack foods, drinks, ready-to-eat food, and lunch boxes, as well as awide variety of fresh and packaged food (Li & Fung Research Centre).

Consumption Tastes and Preferences

A rough translation of a frequently-quoted Chinese poem says:

"Be born in SuzhouLive in HangzhouEat in Guangzhou

Die in Liuzhou"

The translation is rather literal, however, its overall meaning reflects apopular Chinese view of the ideal life. Suzhou is famous for thephysical beauty of its people; Hangzhou is reputed to be one of themost beautiful cities in China; Guangzhou is world-famous for its delicious Cantonese cuisine; and Liuzhouis renowned for the fine quality of its wooden coffins which, in Chinese folklore, were believed to preserve

the body after death.

As this poem suggests, food plays an important role in the culture of the Chinese people. Even the mostbasic of dishes can be elevated in the eyes of the consumer through the use of higher quality ingredientsthat are not normally eaten throughout the year.

Food and Special Occasions

For special occasions, the courses of a meal or the ingredients used in the dishes often take on specialsignificance by the use of word play in their names, or the symbolism of dishes served. For example, a NewYears meal commonly includes a dish featuring a seaweed called fa cai or Black Moss. The namefa caisounds similar to some of the words in the traditional New Years greeting, Gong Xi Fa Cai, which isa wish for good fortune and prosperity. A New Years meal may also include a whole fish, whichsymbolizes prosperity or abundance, as well as dried oysters, which represent good businessqualitiesthat are seen as essential for the coming year.

In some parts of China, a birthday meal would not be completewithout a serving of long noodles which are symbolic of long life.The celebration of a babys birth often includes eggs that have beendyed redeggs symbolize fertility and the colour red denotes goodluck and happiness.

Fine dining establishments will often name their dishes in honour of aplace or event, or will give them symbolic names evoking wishes forgood fortune and health. Peking Duck is known around the world,and Ma Po Tofu was given international exposure on the Japanesetelevision series, Iron Chef. The name of another popular Chinese

dish means literally Buddha Jumps Over the Wall. According tofolklore, the dish was thus named because it was so fragrant thatBuddha could not resist jumping a wall to find out what it was.

Chinese Cuisine

Chinese belief is based on the idea of balancebalance between yin and yang, light and dark, and hot andcold. This principle applies to life and health in general, thus it also applies to Chinese cooking whichstrives to achieve balance in its cuisine.

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For example, the city of Guangzhou, the home of Cantonese cooking, is located in a warmregion of China. For this reason, Cantonese food is not overly yang or warm, so as not toupset the delicate balance of ones body. It tends to be lighter in flavour and substance inthe summer and autumn when the weather is warmest, and of slightly more substance in thewinter and spring when temperatures are cooler. Hot and spicy foods, on the other hand, arecommonly consumed in the northern region of China, as well as in the west, where the cold, humid weatherand high altitude warrant more warmth in the cuisine.

Regional diets are, by necessity, based primarily on the local availabilityof agricultural products. Rice is widely grown in southern regions, thusrice, congee (rice porridge) and rice noodles are main staple foods ofsouthern and eastern China. While rice is popular in the south, wheat ismore commonly available and eaten in the north, in the form of noodles,man tao (steamed buns) and dumplings.

The cuisine of China is usually characterized by eight distinct regions offour geographical areas: Shandong, Sichuan, Guangdong, Fujian,Jiangsu, Zhejiang, Hunan, and Anhui. The cuisines of Shanghai andBeijing are also sometimes included in general discussions of Chinesecuisine. The following is a brief summary of the characteristics of thediverse cuisines found in these regions (China Guide, Travelchinaguide):

Guangdong (Cantonese) cuisine

Cantonese cuisine is characterized by its use of a wide variety of fresh ingredients available in its mildclimate. Fresh produce is available throughout the year, and its position on the southern coast of Chinasupplies a wide variety of fish and shellfish.

Fresh, tender, light and crisp textures, as well as natural flavours, form the basis of each dish.

Basic cooking techniques employed include roasting, stir-frying, deep-frying, braising, stewing, andsteaming. Stir-frying and steaming are most frequently used to preserve the natural flavours of theingredients.

Sichuan cuisine

Sichuan cuisine is world-renowned for its spicy-hot taste and the flavour of Chinese prickly ash(Sichuan pepper). The distinctive spicy taste is achieved through the generous use of chillies, hotpeppers, and heavy aromatic and spicy sauces. Garlic, ginger and fermented soybean are alsopopular seasonings.

Frying, frying without oil, pickling and braising are among the basic cooking techniques employed.

Shandong cuisine

Shallots and garlic provide the pungent flavours that characterize these dishes.

Jinan chefs employ deep-frying, grilling, pan-frying, and stir-frying techniques, while chefs on the

Jiaodong peninsula emphasize fresh and light flavours, particularly with seafood.

Shandong cuisine is clean, pure and not greasy. It emphasizes aroma, freshness, crispness, andtenderness.

Hunan cuisine

This cuisine stresses the use of oil and dense colour. It contrasts the textures of crispness, softness,and tenderness.

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Hunan dishes are known for their thick, pungent, savoury, flavours and for the use of

chili, pepper, and shallots.

Cabbage and chicken are widely consumed.

Jiangsu cuisine

The influences of Yangzhou, Suzhou and Nanjing are foundin this cuisine.

Jiangsu cuisine stresses the use of fresh f ish andcrustaceans.

Braising and stewing are the main cooking techniquesemployed, and Jiangsu chefs are renowned for their delicate and complex carving techniques,particularly melon carving.

Zhejiang cuisine

Zhejiang cuisine is characterized by the influences of its main citiesincluding, Ningbos softness andoriginality and Hangzhous custom of naming dishes in honour of places known for their beauty.

A variety of cooking techniques are used, such as frying, stir-frying, braising, and steaming. Dishes arenot greasy, and are known for freshness, tenderness, softness, and smoothness, as well as a mellowfragrance.

Fujian cuisine

Fine cutting techniques, dishes served in soup, unique seasonings, and the exquisite cooking of dishesare characteristics of Fujian cuisine (Whats On Xiamen, 2008).

Fujian cuisine is determined by a combination ofFuzhou, Quanzhou, and Xiamen cuisines. It is knownfor its seafood, colour presentation, and taste combina-tions of sweet, sour, salt, and savoury, as well as its

distinctive pickled taste.

Anhui cuisine

The local flavours of Huizhou and the areas along theYangtze and Huai Rivers are the main influences onthis cuisine.

Cooking techniques favour braising and stewing overfrying or quick-frying.

Ham is a popular seasoning, and candied sugar is often added for freshness.

Vegetarian diets also play a role in Chinese food culture. Two religions with long histories in China,Buddhism and Taoism, remain strong influences in the area of vegetarian dining. Rice, noodles, andvegetables are well suited to meatless cooking. Ironically, many famous vegetarian dishes are preparedwith gluten pieces that are often cooked and flavoured to resemble meat. Chinese vegetarian cuisine alsooften features vegetables, fruits, edible fungi, and bean products.

There are other religious groups in China that observe dietary restrictions as well. Chinese Muslims in thewestern and northern areas of China have developed a unique cuisine, with bread and noodles preferredover r ice. While pork is not al lowed for rel igious reasons, lamb is commonly eaten asinstant-boiled mutton, fried mutton pieces, and fried rice with mutton (Embassy).

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Eating for Health

Health has long been an important factor influencing Chinese cooking. Chinese MedicinalCuisine, also known as therapeutic food, is a long-standing tradition, wherein food isprepared with medicinal ingredients, following the theory of Chinese medicine. This cuisineis eaten for therapeutic reasons or eaten in the belief that it will protect, prevent or heal disease. Foodtherapies have been developed by master chefs over the years by combining basic cooking techniqueswith traditional Chinese medicinal ingredients. One basic therapy that is shared by many other cultures is

that of treating colds or fevers with soup (TravelChinaGuide.com). The use of chicken soup as a folkremedy is known around the world, albeit anecdotally. Some of the more frequently-used ingredients ofChinese Medicinal Cuisine are becoming increasingly popular in other parts of the world, such as gojiberries, ginseng, gingko nuts, and tofu.

Consistent with this concept, some people in China consume foods with specific health and wellnessobjectives in mind. Chinese women, particularly in Shanghai, are very cognizant of the reputed healthbenefits of certain foods. Some common health objectives linked to food choices are:

ensuring good skin through cleansing and detoxification,regulating digestion,improving overall appearance, andregulating hormonal cycles (Zamchek, 2008).

Meals

Meals are often enjoyed family style, where courses are served from communal dishes in the centre of thetable, and everyone helps themselves. Steamed white rice is often the main staple food, accompanying allthe courses. The rice also helps absorb the flavourful sauces of the accompanying dishes for the dinersenjoyment.

In historic times of famine or food shortages, rice was often the only food available. The poor could not buymeat or vegetables and so would eat rice to fill the belly, if they could afford it. Only the rich had the meansto dine on meat and vegetables in addition to rice. As a reminder of these harsher times, some people haveadopted a cooking ritual wherein they cook a small piece of meat or vegetable with the steamed rice. Thisis a symbolic gesture suggesting that there will always be enough food to have an accompanying dish withtheir rice.

With respect to food ingredients, statistics show an overall decrease in purchases of grains and freshvegetables from 1990 to 2007 (Figure 5). However, the purchases of fresh fruits and vegetables haveincreased for urban households over the same time period (Curtis, McCluskey, and Wahl, 2007).

Figure 5: Annual Per-capita Purchases of Grain and Fresh Vegetables (kg), 1990 and 2007

130.72138.70

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Gale and Huang also found that the consumption of meats, poultry, fish, dairy products, andfruit increased as incomes rose, however, consumption of traditional staple grains remainedstable or declined (Figure 6). In the case of meats, the demand would increase to a certainpoint beyond which it remained relatively stable. This is likely the result of consumerdemand for premium productshigher prices and better qualitynot necessarily morequantity. While this is true for consumers in the top income brackets, those at the lower income levels doshow a corresponding increase in their purchase of meat, dairy products, and beer (Gale & Huang, 2007).

Figure 6: Annual Per-capita Purchases of Selected Products (kg), 1990 and 2007

Snack Foods

As noted by Marr and Hatfield (2004), the popularity of snacking has increased greatly. Meals arerarely skipped, and snack foods are usually eaten on impulse. Snacking and eating on-the-go isincreasingly popular among younger consumers, particularly in Shanghai, which is reputed to have thegreatest density of convenience stores in the world, with one 24-hour convenience store for every2,600 residents, compared to one per 3,045 people in Japan and one per 2,940 people in the US(Zamchek, 2008). In Shanghai alone, consumers spend approximately 9% of their total grocery bill onsnack foods (Marr and Hatfield, 2004).

Western snacks are increasingly popular. Products such asHersheys Kisses, Pringles potato chips, Cadbury chocolate andWrigleys gum have found favour with Chinese consumers,however, snacks based on traditional cultural preferences are morereadily accepted. These include shrimp-, pork- or chicken-flavouredsnacks, dried plums, dried cuttlefish and shrimp, dried and

preserved fruits, dried meats, seeds and nuts, and prawn crackers(Marr and Hatfield, 2004).

As with other premium food products, the Shanghainese, inparticular, are interested in value for their money, preferring well-known brand names and smaller packages, except for gift items (Marr and Hatfield, 2004).Furthermore, as for all food purchasing, the desire for healthier snacking options is also on the rise.

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Foodservice

In urban China, the vast number of small restaurants and road-side food kiosks areevidence of the consumers love of dining out. It is estimated that Chinese people eat atleast a third of their meals outside of their homes.

According to a 2007 report from Beijing Zikoo Consulting, as reported in China International Business,turnover in the food and beverage sector exceeded RMB 1.2 trillion (USD 175 billion) in 2007 andrestaurant sales have grown by double-digit percentages from 1991 to 2007, mostly to the benefit offoreign chains.

While the largest international restaurant chains have all established a presence in ChinaMcDonalds,KFC, Pizza Hutthere appears to be a growing demand for home-grown fast food. Yum Brands 2009Q1 report shows international growth of 256 new restaurants, including a record 98 new units inmainland China. Yum Brands is the China parent company of KFCand Pizza Hut (Yum Brands, April 2009).

Overseas fast food chains compete by offering country-specific menuitems, for example, KFCs Shao-bing (Chinese-style pancakes)(China Economic Net, June 2009; Chaney, 2008). KFCs earlierinvestment in Hong Kong failed in 1975, having misjudged the localmarket. It has since worked hard to develop products that better fit

the Chinese consumers taste preferences, such as congee (riceporridge) for breakfast, Beijing Chicken Roll served with scallion andseafood sauce, and Spicy Diced Chicken, which resembles a popularSichuan-style dish (ChinaDaily.com, June 30, 2008; Cho, July 2009).

Although domestic entrepreneurs have been modestly successful in emulating foreign fast foodrestaurant concepts to provide food offerings more suited to local tastes, the vice chairman of the ChinaCuisine Association noted that there is no globally competitive restaurant chain. Regional tastedifferences are major challenges for all foodservice entrepreneurs. As earlier noted, the regionalcuisines vary widely and successful menus would need to accommodate the different taste preferencesof the local regions. However, this challenge may diminish as mobility and living standards continue toimprove (Chao and Ding, August 2008).

Green Food, Hazard-Free Food and Organics

China has established three certification categories for eco-labelled food products: Green Food,Hazard-Free Food and Organic. Green Food and Hazard-Free Food are certified to Chinesegovernment standards, while Organic Food is certified to international standards. As the forerunner tocertified Organic Food, Green Food has the longest history with Chinese consumers and thus is betterknown and understood.

The White Paper on Chinas food quality and safety notes that China has developed 28,600 kinds ofhazard-free agricultural products and set up 24,600 hazard-free production bases to date. In addition,

HACCP (Hazard Analysis Critical Control Point) certification has been received by 2,675 foodproducing enterprises.

Chinas organic standard is considered to be one of the most stringent in the world (IFOAM, ChinaCase Studies). The Organic Food Development Centre of China (OFDC) of the State EnvironmentalProtection Administration (SEPA) was established in 1994 and is the only organic certifier in China thathas been accredited by the International Federation of Organic Agriculture Movements (IFOAM) andISO65 (OFDC, SEPA).

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Chinas organic sector has seen rapid growth over the last decade. In 2006, China

ranked second in the world for total hectares of land under organic cultivation, with 2.3million hectares, accounting for 0.4% of the total agricultural area. This growth is fuelledin part by the increasing availability of Organic products and rising consumer awareness(The World of Organic Agriculture: Statistics & Emerging Trends 2008).

The market for Organic products is small in relation to the overall size of Chinas population, but thereis a steadily-growing consumer interest and demand, as a result of a number of recent food safety andquality issues, such as:

Melamine contamination of wheat gluten used in pet food, dairy products, baby formula and eggs(from hens fed contaminated feed);

Mooncake fillings reused from previous years unsold product (China Daily/China Economic.Net,October 2003)

Pig organs contaminated with a banned metabolism accelerator, clenbuterol, which was illegallyused to produce animals with more and leaner meat (Wines, February 2009);

Malachite green, a chemical primarily used as a dye, used as a topical antiseptic or parasitictreatment in fish (Barboza, June 2007).

The demand for Green Food and Organic products can be seen in the results of Green NationalGeographic Greendex 2009: Consumer Choice and the Environment.

Countries are ranked on how environmentally friendly their consumers lifestyle choices are. Thisincludes:Use of energy-saving activities, such as adjusting thermostat settings, minimizing the use of

fresh water, washing laundry in cold water to save energy Walking, cycling, use of public transportation, or living close to their most common destination Eating the least amount of meat and seafood Being most likely to say they buy environmentally friendly products all the time.

Some of the findings include:Chinese consumers are among the most likely to agree to being concerned about

environmental problems, and that the environment is having a negative impact on their health.While Chinese consumers rank highest on transportation and slightly lower on housing and

goods, their lowest score is on food, despite a 9% increase to 19% in the rate of

consuming self-grown foods several times a week.Chinese consumers are among the least likely to eat imported foods frequently and are among

the most frequent consumers of local foods (41% daily) and fruits and vegetables (61% daily).Chinese consumers are among the most frequent consumers of fish and seafood and have an

above-average rate of drinking bottled water, both factors that adversely impact their score.China implemented a ban on plastic shopping bags in June 2008.

Organic food products are in higher demand among higher income families, but demand is smallamong middle income families due to income constraints. However, as the Chinese economy grows,demand is also expected to grow, as a result of food safety and health concerns.

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Recessionary Spending

The global recession has affected consumers to varying degrees. While the majority ofconsumers around the globe believe that they are living in a recession (69%), a smallerproportion of Chinese consumers would agree (23%), according to Datamonitor (July 2009).This may be due to the efforts of the domestic economic stimulus initiatives being undertaken by theChinese Government, nevertheless the recession does not appear to have had much negative impact onthe lifestyles and incomes, according to most of the consumers surveyed. Still, Chinese consumers overallhave admitted to adjusting their spending priorities.

While Chinese consumers are very conscious of value-for-money, price alone is not the main considerationdetermining purchases. Chinese consumers are increasingly turning to the internet to research products,prices and applicable promotions, all of which are factors in determining whether or not a product is bettervalue for money. According to Datamonitor, 67% of Chinese consumers placed a high or very high level ofimportance on the overall quality of products sold. Lower prices in general and the store running a lot ofpromotions and regular price discounts were also considered to be important factors at 52% and 50%consumer agreement, respectively. Almost one-third of those surveyed indicated that they had, in the past,changed where they shopped in order to save money. They also indicated a willingness to shop around inorder to maintain consumption standards. However, 16% of consumers surveyed said that saving moneywhen you buy groceries is less important than it was 2 years ago, as opposed to 5% globally.

China is a complex country with a booming economy. Ever-changing demographics and a high level ofeconomic growth have combined to form a challenging market that mixes old and new. Traditional cookingand food preferences remain important, while trends like fast food, convenience foods, premium foodproducts, and a taste for international food gain popularity and influence.

While food preferences for many Chinese consumers will remain rooted in traditional tastes, the youngergeneration will continue to evolve and are expected to provide opportunities for innovative new foodproducts that are not limited to traditional cultural tastes. The latest generation of Chinese consumers is

better educated and more affluent than previous generations, and is increasingly willing to try newproducts.

At the same time, food safety and quality are very important to Chinese consumers, in light of the seriousfood safety issues encountered in recent years.

Traditional cultural gender roles are also evolving. Onlydecades ago, China was a very traditional, male-dominatedsociety where men dictated the food purchasing andconsumption patterns, not to mention every other aspect offamily life. Today, traditional roles have started to blur.Chinese women are emerging as wage-earners and aretherefore an important force wielding considerable consumer

clout. This demographic group should not be overlooked.

As Canadas share of Chinas import market is only 3%,there are opportunities in China for agri-food producerswilling to make this investment and meet the diverse needsof todays Chinese consumer. Success will be based on asolid understanding of the complexities and contradictions ofthis affluent and evolving consumer market.

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The Urban Chinese ConsumerBehaviour, Attitudes and PerceptionsTowards Food Products Her Majesty the Queen in Right of Canada, 2010ISSN 1920-6593 Market Analysis ReportAAFC No. 11202E

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