Market Information
Asia Pacific

The Confectionery Market
in the Yangzi Delta Region

Canadian Consulate in Shanghai
Suite 604, Four Shanghai Centre
1376 Nanjing Xi Lu
Shanghai, China
200040
Tel: (86-21)6279-8400
Fax: (8621) 6279-7456
E-mail: henry.deng@shanghai.gc.ca
Internet: www.shanghai.gc.ca

MARKET OVERVIEW

Confectionery products have captured the hearts of consumers around the globe, including China. Although western style confectionery products are not traditional, they have found a home with China's 1.3 million residents. In 2001, the Chinese confectionery market reached $4.17 billion Canadian positioning itself as the second largest in revenue and the largest in volume for the Asia-Pacific region. Japan leads the industry in revenue. The main market sectors are sugar confectionery and chocolate. The former capturing 49% of the market revenue, and the latter 44%.

Shanghai is considered the best market in China for confectionery products. The average spending per person is close to double that of China's average. Shanghai residents have an average annual disposable income of $Cnd 2258.48, which has been increasing by roughly 10% per year. As consumer income rises, the market for confectionery will also increase in importance. In addition to income, the distribution and retail structure is well established allowing for easy access to the end client.

Relative to the North American market, demand is considered low. In a year, the average Chinese consumes 10 pieces of chewing gum, 40 to 70 grams of chocolate and 800 grams of sweets. Global consumption levels are approximately 160 pieces, 5.4 kgs and 3 kgs respectively. Given the above, industry experts predict further market expansion and increased consumer sales.

There are numerous different industry players, domestic and global, intensely competing and vying for market share. It is estimated that foreign brands (Wrigley's, Snickers, Skittles) dominate roughly 50 per cent of the Chinese confectionery market. In certain specialties the market share is higher. For example, Wrigley's chewing gum has reportedly captured 70% of its product market. In light of this increased competition and the inflow of new technologies, domestic companies have restructured, adapted and are becoming increasingly competitive in the marketplace.

Generally, production bases are located close to the larger retail market. As the second largest, Shanghai accounts for 11.4% of the production. Guangzhou (48.9%) and Beijing (9.5%) are the other biggest areas. Shanghai is home to the 'White Rabbit Creamy Candy Factory' and 'Shanghai Shenfeng Food Co. Ltd' production facilities, two of the main Chinese brands in candy and chocolate.

China imports 31 million in sugar confections, and 55 million in chocolate products. South Korea is the leading exporter of sugar products accounting for 36% of the trade, followed by Hong Kong (19%) and Germany (15%). Italy (34%), United States (22%) and Singapore (8%) are the leading chocolate exporters. Asian countries are key players in the market. Their proximity, market knowledge and similarities in taste give them a competitive advantage. Sugar confection is the largest Canadian export accounting for 89% of the total in 2002. Chocolate products and chewing gum compose the remainder.

KEY PRODUCTS AND PLAYERS

The various retail mechanisms (Please see the Canadian Consulate General Report entitled "The Retail Market in Shanghai" for further information) are brimming with different types of confectionery products.

Sugar Confectionery

Sugar candy is the largest, oldest and most accepted sector of the confectionery market. Chinese brands perform well and continue to dominate the market. White Rabbit, a hard creamy milk candy wrapped in rice paper, captures 33.7% of the confectionery sales volume in Shanghai supermarkets. Though traditional candies (toffee, hard candies) have been the norm, foreign confectionery products have appeared on the market. Sugus (Kraft), Mentos (Perfetti Van Melle), Chupa Chups (Chupa Chups Group) and Oishi (Japan) are prominent brands on the market.

There is a large segment of the confectionery industry aimed at children. Japanese and Hong Kong confectionery companies offer a wide variety of sugar candies. These products are colourful, packaged nicely and sport pictures of famous child characters such as hello Kitty or Harry Potter. Meiji, Calbee and Okashi land dominate the market for the children's candy. Chinese companies produce the majority of the products sold as individual pieces. Priced low, children can purchase the candy with their own pocket money.

Chocolate Products

Foreign chocolate products (imported or locally produced) have been successful in penetrating and controlling the chocolate market. Foreign brands are perceived as better quality than their domestic counterparts. Retail shelves are flooded with a wide variety of popular North American brands - Cadbury, Hershey's, Snickers, Dove, Kit Kat, Ferrero Rocher, or Lindt. Currently, there are over 70 different domestic and foreign brands available on the market. Foreign brands produced in China, in either wholly owned or joint venture factories, are strong in the market (Kit Kat, Dove). No import duties, easier access to the consumer and a developed distribution system allows for wide availability and lower, affordable prices. Their target market, as well as domestic chocolates, is low to middle income consumers.

In general, imported chocolate have been limited to supermarkets and specialty stores. This has begun to change. Ferrero Rocher, Hershey's and Ritter chocolate are now appearing in small quantities, at affordable prices, in convenience stores. The high-end imported chocolates remain limited to larger supermarkets or stores catering to the high end/ expatriates community. They are sold at a premium price and are often purchased for gift items. European countries such as Italy, Belgium or Switzerland dominate this market.

Chewing Gum

The chewing gum market is controlled by foreign brand names. Wrigley's captures three-quarters of the market with its various brands of gum (Juicy Fruit, Extra, Air Waves). The next largest brands and company are Lotte (Lotte Company, South Korea), Daygum (Perfetti Van Melle, Italy) and Sportlife (Trebor, American). Daygum is unique as it is sugar-free. All the products are manufactured in China.

Please refer to the "Snack Food Market in the Yangzi Delta" for further information on cookies, biscuits and pastry products.

OPPORTUNITIES

• Chinese consumers are increasingly health conscious and weight sensitive. Increasingly, parents are monitoring their child's health and young women calculating their weight. This creates an opportunity for healthy, sugar-free, low calorie alternatives. Fruit or nut-based candies are an option.
• The Chinese consumer tastes are evolving drastically. Consumers have shown their willingness to try and adapt to new, different products. Opportunity exists for different, niche brands of candy, different sizes, and exciting packaging.
• Different products aimed at the child consumer may find success in the market. Often children are given pocket money to spend on products of their choice.
• Functional Candies (Halls, Ricola, Fisher Men Friends) are quickly gaining popularity. Adding vitamins or herbal ingredients (ginseng) to set the product apart from others is the current trend.

ACCESSING THE MARKET

The Consumer

Foreign varieties of confectionery products are popular with the younger generation of Chinese or parents of this generation. Older generations prefer the more traditional forms of confectionery products such as hard toffee, fruity or hard candy. Chocolates or chewing gum are not popular with the latter. The younger generation is enthusiastic regarding new products and willing to experience them.

Furthermore, the Chinese government enforces a one-child policy for Chinese citizens. A significant increase in a family's disposable income and the child's enhanced role in household spending decisions are results of the policy. This new class of children have been dubbed the "Little Emperor or Empress" phenomenon. Now, one child receives the exclusive attention and significant 'extras' from its parents and two sets of grandparents. Multinational Corporations operating in China have taken this into account, and have created marketing plans to target their brands specifically to this segment. As a result, the "little emperor or little empress" are the first generation to be exposed to the rush of international brands and China's new consumer based economy. They will influence the present and the future consumer spending trends.

Gift-Giving Culture

Gift giving is an integral element of Chinese culture. Often, individuals bring a gift when visiting family and friends. This practice is especially popular during the Chinese Lunar New Year holiday, normally held in the beginning of February. Traditionally, confectionery products were presented. Now, the tradition has evolved to include chocolate and imported candy brands. Retailers' report one-third of their sales occurs in January and February.

As western products have become integrated, so to have Western celebrations. Popular holidays are increasingly appearing on the calendar of young Chinese. Valentine's day is widely adopted and accepted in the big cities. February 14^th corresponds with the Chinese lantern festival, symbolising the end of the lunar New Year. Whereas the middle to older generation prefers the traditional manner of indicating affection and celebration, the younger generation is opting for chocolate and candy.

Weddings represent a huge market opportunity for confectionery manufacturers. It is tradition to present all guests and friends with a packet of candy. Normally, the "xi tang" packet is brightly, elegantly decorated and contains eight pieces of candy (a lucky number in Chinese). Typically, packages were made of traditional candies. Now, increasingly, foreign alternatives are available on the market. Nicely packaged 'xi tang' packets from Dove, Hershey's and Sugus candies are all available. Given the number of guests and friends involved in a wedding, this segment is a profitable industry for confectionary sales accounting for a significant majority of overall sales.

Success Factors

• Developing and marketing a brand is increasingly important. Hershey kisses or Wrigley's chewing gum are consistently chosen due to name recognition and their high quality. An aggressive and consistent marketing campaign is crucial. This campaign should concentrate on promoting the brand and developing a loyal consumer base. As the market develops and competition increases, successful branding will make the difference between success and failure. Brand name has become one of the top decision making factors influencing consumer-purchasing decisions.
  
  As a result, foreign confectionery companies have and continue to invest large sums of money in marketing campaigns. Advertisements for breath mints are splashed on the side of buses, gum commercials dance across television screens, and chocolate advertisements appear in local print media.
  
• Creating products that target the Chinese palette is critical. Significant market research is required to determine and match local consumer taste preferences. In general, Chinese prefer chocolates and candies that are not too sweet, too salty and too bitter. Strong bitter flavours as dark chocolate and cinnamon are having a hard time winning the hearts of consumers. Milky and Fruitful flavours are popular.
  
• In general, Chinese consumers are price conscious. Though in terms of confectionery products, price is not crucial. Low-priced products have a high turn over and are distributed widely in the city. The higher-priced, imported products are limited in store penetration but not in sales. Higher priced, imported chocolates are good gift material.

• Packaging and display are important. Attractive packaging (Bright colours, professional) make the product stick out on shelves and influences decision-making. Bulk candy is a common retail method. Generally, Unwrapped candy is unpopular as it is viewed as being unhygienic. Each piece should be packaged.

Logistics and Regulations

As a result of China's WTO accession, tariff rates have been reduced. Different rates exist for different products. A change to lower tariff rates reduces the price of imported confectionery vis-à-vis domestic products thus creating an increasingly favourable trading environment. A value added tax (VAT) of 17% is also applied to the product.

All imported, packaged confectionery products must adhere to the Chinese labeling regulations. Effective November 1 2002, these product labels must be inspected, verified and issued a 'Certificate of Import Export Food Labeling' by the China State Administration for Entry-Exit Inspection and Quarantine headquarters (AQSIQ). AQSIQ specified laboratories test the food nutrition and quality to ensure that the label is accurate. An approval certificate is required prior to applying for goods-arrival inspection and other customs formalities.

Products must be affixed with a Chinese language a label stating the product name, ingredients table, net weight, production date, expiry date, storage directions, country of origin, name and address of the importer and manufacturer. In addition, the law recommends standards such as the batch number, serving method, calories, and nutrients. Labelling refers to all written language, graphs, symbols, layout and explanation materials of packaged food products.

An efficient distribution strategy is paramount. Given the nature of confectionery products, accessibility is important. Consumers will purchase products available at their local store, and are not likely to change stores to seek the exact product they desire. Canadian exporters can choose to either distribute their product directly through their own sales network, distribute through a wholesaler or with an agent. Each selection has its positives and negatives, and must be thoroughly examined by the exporter before entering the market. Another option is to establish a joint-venture organization or wholly owned venture in China to produce locally.

To conclude, the Chinese market is highly competitive, complex and constantly evolving. For the right product and strategy, opportunities continue to exist. With careful planning, dedication and consideration, Canadian exporters can be successful in the market.

KEY CONTACTS

Canadian Government Contacts in China

Canadian Consulate General in Shanghai
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Mr. Henry Deng, Commercial Officer
Tel: (86-21) 6279-8400 Commercial Assistant
Fax: (86-21) 6279-7456
E-mail: henry.deng@dfait-maeci.gc.ca
Internet: www.shanghai.gc.ca 

Canadian Consulate General in Shanghai
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Ms. Shirlie Wu, Commercial Assistant
Tel: (86-21) 6279-8400 Commercial Assistant
Fax: (86-21) 6279-7456
E-mail: shirlie.wu@dfait-maeci.gc.ca
Internet: www.shanghai.gc.ca

Shanghai-China Government Contacts

Shanghai Customs of The People's Republic of China - Responsible for the regulations and inspections on import and export documents and certificates

Address: 13 Zhong Shan Dong Yi Lu
Shanghai 200002
Tel: 86-21-63232410
Fax: 86-21-63232095
Internet: www.shcus.gov.cn

Shanghai Entry-Exit Inspection and Quarantine of People's Republic of China - Responsible for the inspection of imported and exported goods

Address: 1208 Minsheng Road, Pudong
Shanghai 200135
Tel: 86-21-68563030
Fax: 86-21-68565939

Shanghai Import Food Enterprise Association - Provides assistance for the application and approval of labels for imported foods

Address: Room 1702, Hero Building
2669 Xie Tu Road
Shanghai 200030
Tel: 86-21-64398189
Fax: 86-21-64398191

Bibliography

Print

Shanghai Statistical Yearbook 2002, Shanghai Municipal Statistics Bureau, China Statistics Press

China Statistical Yearbook 2002, National Bureau of Statistics of China, China Statistics Press

The Confectionery Market in the Yangzi Delta Region, Canadian Consulate General Shanghai, Department of Foreign Affairs and International Trade, September 2000 (available by contacting the Shanghai consulate)

Seydak, Joanna China's Chocolate Market, China Briefing, DSMR Ltd, China Market Research, July/August 2002

2002 FMCG Guide, Business Information of Shanghai, January 2003

Electronic

World Trade Statistics, Global Trade Information Services Inc. Nov 2002 Internet Version 4.2a

The Biggest Bubble: Wrigley's dominates the China's Chewing-gum Market http://orbita.starmedia.com/~gumwrappers/s1page3.htm

Tiaxin, Zhang, Festival Face-Off , Beijing Weekend, China Daily, February 17, 2003 Downloaded from www1.chinadaily.com.cn/bjweekend/2003-02-14/104807.html on May 21, 2003.

Sweet Taste of Success in China's Confectionery Market, Hong Kong Trade Development Council Downloaded from www.tdctrade.com/mne/food/food044.htm on May 21, 2003

Importer chocolates tempt China's Sweet Tooth, Hong Kong Trade Development Council

December 6, 2001 Downloaded from www.tdctrade.com/imn/imn190/food12.htm on May 6, 2003

Various corporate Profiles

Useful Information

The Canadian consulate has prepared and published a series of market reports on the different food sectors in Shanghai and the Yangzi Delta region. Please contact us directly for a complete list of available reports or visit our website at http://shanghai.gc.ca/ag_food.