With a population of over 1.3 billion people, China is one of the biggest consumers and importers of food and beverage in the world.
China accounts for a $700 billion market-share in the global F&B market and it’s really no wonder that the food and beverage industry is following the country’s trend of economic growth.
After all, China is one of the largest and fastest going industries in the world.
As China attracts more foreigners, the western F&B trends will continue to make themselves at home, while the increased economic prowess allows the locals more consumer spending power.
Why are Opportunities for Foreign F&B Companies on the Rise?
There are several factors at play here, from larger disposable incomes and the growing middle class, to the urbanization and plain exposure.
As the living standard in China increases people are able to step outside their norm and challenge their standards; they venture abroad and try out new cuisines and look for ways to enrich their pallets at home.
With more options comes the freedom to look into the safety and integrity of the food, as well as the quality. According to the PEW Research Center’s Global Attitudes survey, 62% of consumers are willing to pay more for the best products, and 52% trust foreign brands.
All of this provides a very fertile ground for foreign companies to expand into the rising market.
A Deeper Look: How Coffee Started Making its Mark on China
With 83% of American adults being certified coffee drinkers, one of the biggest drawbacks of moving to China used to be the inability to find good coffee anywhere. While I had to rely on my own setup for years, F&B entrepreneurs and coffee enthusiasts in the Middle Kingdom can breathe a sigh of relief. The situation is improving.
While we associate the nation with tea, Starbucks is becoming the go-to for the average citizen. It markets smartly, selling the “coffee experience” and is further aided by the fact that coffee is seen as a luxurious commodity. Coffee has steadily cemented itself as a status symbol in the Chinese community.
The first Chinese Starbucks was opened in 1999, in Beijing and they’ve come a long way since: now having 1750+ branches in 90 cities, with plans of expansions. And all it took was a little vision and perseverance.
What is Shaping the F&B Industry in China?
In recent years the Chinese market has been faced with several food scandals, which severely diminished consumer’s trust in domestic production and local brands.
Foreign investments and Chinese overseas investments also play an important role in shaping up the industry. As development of production hasn’t been a priority in recent decades, the Chinese are making it so, investing overseas in order to gain the know-how needed to improve their market. On the other side, foreign companies are investing in order to get their piece of the market, while the opportunity is ripe.
Larger companies are acquisitioning intermediaries and suppliers in order to gain better control of the safety and other regulations, leaving very little space for smaller businesses to thrive.
Understanding the need for better safety protocols in order to again become recognized as a source of quality products instead of cheap and low-quality ones, the Chinese government is strongly encouraging local companies to invest abroad in order to strengthen their positions internationally, as well as bring the knowledge and technology from abroad back home.
The Challenges of Foreign Companies in China
While there is an abundance of investment opportunities and the country is appealing due to low costs of life, there are some challenges to consider.
With a market as big as China it comes as no surprise that businesses are flocking to it, which means strong competition. Designing a good strategy of overcoming this challenge is of utmost importance if you’re planning to stay for the long-haul.
The lack of transparency in the supply chain is a problem brought to attention by the food safety crisis and the lack of belief the consumers have in the industry. The sheer number of local suppliers and potential contaminants’ sources make it difficult to predict when the problems in the supply chain will arise.
- Inconsistent Regulation and Enforcement
Navigating any country’s regulations is always a challenge, but China takes it one step further because there is inconsistent enforcement of the rules. This has been one of the leading business challenges.
Additionally, fewer than 20% of companies said that the process of obtaining licenses is equal for foreign and domestic companies.
For foreign companies in the F&B industry the Chinese market seems like a dream come true. The demographic is shifting and leaving space for the middle-class consumer, who cares about the products they buy and ask for variety. That being said, there are some potential obstacles to tackle and doing your homework before opening a branch is essential.
Michael Michelini is host of the GlobalFromAsia.com podcast, an online radio show to help business owners grow their companies in Asia and around the world.
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