Market Information
Asia Pacific

The Snack Food Market in Yangzi Delta Region

May 2003

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: http://www.shanghai.gc.ca

MARKET OVERVIEW

The concept of snacking is not new to China. Traditionally, tiny food stalls sold a host of hot, cold, wet and dry snack products. Today, these stalls exist but in diminishing numbers. Over the last decade, the Chinese snack food culture has evolved dramatically. Retail outlets are brimming with various different products varying from potato chips, soda crackers, cookies and dried fruit products. Chinese people are working harder, living a faster paced life and demanding variety and convenience. This change has created a significant market for snack food products.

Shanghai is an important market for snack food in China. Shanghai residents have an average annual disposable income of $Cnd 2258.48 (nearly double the national average), which has been increasing by roughly 10% per year. As consumer income rises, the market for snack foods will also increase in importance. In addition to income, the distribution and retail structure are both well-established allowing for easy access to the end client. As a result, the various different retail mechanisms in Shanghai house a wide variety of different products to cater the demands of its consumers. Consumer income and product selection are not the same level in the surrounding provinces of the Yangtze Delta. Thus, import food does not enjoy the same penetration level.

It is difficult to ascertain the real value of the Chinese snack industry as the definition of snack food varies and the product range diversified. Visiting any of Shanghai's retail food outlets reveals the immense penetration and variety of snack foods on the market. Foreign snack products have made significant inroads in the marketplace. Foreign brands such as Nabisco, Kellogg's, Danone, Nestlé, PepsiCo and Procter and Gamble are all selling snack products in Shanghai, and throughout the Yangze Delta region. Despite their appearance, the market continues to be dominated by products aimed at Chinese taste and culture. Thus, domestic competitors perform well in the marketplace providing significant competition.

KEY PLAYERS AND PRODUCTS

There are two basic categories of snack food on the market, eastern and western. Western snack products are similar to those sold in Canada and consist of cookies, crackers and potato chips. Eastern snacks are traditional in China, and suit the Chinese taste palette. Product such as, dried fruit (prunes, grapes, plums), dried meat (dried beef, dried shredded pork) dried fish (shrimp, dried fish), nuts (cashews, sunflower seeds) and preserved food (soy eggs, spicy cabbage) are popular snack choices. Japanese snack foods are increasingly popular in the market. Salted seaweed strips and rice crackers now appears in most stores.

The larger global snack food producers have opened either joint ventures or wholly owned factories in China. A move that allows them to eliminate import duties, take advantage of cheaper labour, have better access to the market and to keep prices competitive. Neighbouring Asian companies provide strong competition. Many Japanese, Taiwanese, Malaysian and Filipino companies are strong in the market. Lower transportation costs, similar tastes and culture contribute to their success.

The market is fragmented into different snack categories. Each segment has their own set of characteristics, challenges and market leaders.

Potato Chips & Alternatives

Frito Lays (PepsiCo), Pringles (Procter & Gamble) and Oishi (Liwayway Marketing Corporation, Philippines) are the market leaders in potato chips. Pringles was the first to enter the market and Chinese consumers respond well to the product. Frito Lays is aggressively fighting for market share. They have invested significant time in developing flavours to match the Chinese taste, and have recently launched their baked lays on the market. Oishi produces a variety of chip alternatives including Inca chips, prawn crackers, corn twists and puffs. These three products have penetrated the distribution and can be found in the majority of the retail outfits in the city.

Cookies and Crackers

In Shanghai, Danone is the market leader in the cracker industry. Nabisco's pacific soda cracker and their Ritz crackers are also on the shelves. Domestic and other Asian cracker varieties are also widely available and perform well. They cater to local tastes with products as wafers, fruit flavoured crackers, or rice crackers.

Danone, Chips-ahoy and Oreo have established joint venture establishments to produce cookie products. They are widely available throughout the retail chain and sell at reasonable prices. Imported brands are found in speciality stores, catering to high income or foreign consumers. European companies dominate the imported cookie market.

Dried Nuts, Fruit and Meat products

Dried nuts, fruits and meat products are traditional in Chinese culture. The industry is dominated by local companies. Foreign entry is limited. Other Asian countries perform well in this segment as taste and cultures are similar. Products include pineapple-dried beef, spicy pork, dried snow plums, or dried mango peels. Products are sold in a variety of different sizes, containers and packaging and appear at all levels of retail.

In addition to the above mentioned categories further information on the confectionery or ice cream industry can be found in our reports entitled “The Confectionery Market in the Yangzi Delta region” and “The Dairy Market in the Yangzi Delta region”. Both are available by contacting the Shanghai Canadian Consulate General or for download on our website at http://www.shanghai.gc.ca/ag_food.

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. Dried fruit or nut-based alternatives are an option.
• The majority of the Chinese consumer prefers eastern tastes to western. Products appealing to the former may be successful. Dried fruit, ginseng or meat products are products popular in the market.
• Tastes are continuously evolving. Consumers have showed their willingness to try and adapt to new, different products. Opportunities exist for niche products, different sizes and exciting packaging.
• Opportunities may exist in processing and packaging technology. In general, locally produced brands lack the quality and the appeal of the western packaged foods. Annually, there are trade shows in the region dedicated to package and processing technology for the food and beverage industry.

ACCESSING THE MARKET

Consumer Preferences

The younger generation of Chinese are the most inclined to purchase foreign snack products. High school and college students spend a significant amount of their spending money on snack products. They are enthusiastic, willing to try new products and have control over their snacking purchases. Traditional, eastern snacks are popular with all sectors of the population.

Furthermore, China has adopted a one-child policy. The result of such policy is increased disposable income and the child having a significant role in the spending decisions of the household. The new class of consumers has been dubbed the “Little Emperor or Empress”. One child receives the exclusive attention from its parents and two sets of grandparents. The multinational corporations operating in China have taken this into account, and create market plans to target this segment. Also, this generation is the first real generation to be exposed to the rush of international brands and China's new consumer economy. They will be and will influence the next consumer spending trends.

Distribution

As snack foods are often purchased on an impulse, availability is important. Consumers purchase products available on the shelf, and are not likely to change stores to seek the exact product they desire. The retail structure is as follows:

• Convenience stores have emerged in droves in the city. They are designed to be 24-hour quick snack stops (hot and cold) for Shanghai residence. Foreign brands locally produced have had success in this market, but import food has yet to make any deep penetration at this level.
• Supermarket and Hypermarkets are larger retail establishments similar to those in Canada. The majority of the groceries are purchased here.
• Speciality stores cater to a certain niche market, or market segment. These retail outlets are often targeted to the higher income or expatriate population in Shanghai. Niche markets include bulk snack food stores, candy, imported foods or children's snack stores.
• Please refer to the Canadian Consulate General in Shanghai report entitled “The Retail Market in Shanghai' for further information on the different retail structures.

An efficient distribution strategy is key to success. 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 in China to produce locally.

Key Success Factors

Careful planning and consideration should be undertaken before entering the market. The Chinese snack food is highly competitive, complex and in flux. Understanding the market and its preferences will make the difference between success and failure. The following market characteristics should be examined further:

• Brand name is one of the top three factors influencing purchase decision-making. Branded products are chosen due to name recognition and the high quality associated with the brand. Market leaders, as Pringles and Danone, have invested significant time and finances to develop an aggressive marketing campaign. As the market develops and the competition increases, successful branding is making the difference between success and failure.
• Price is another key decision-making factor. As snack food is not an integral element of the Chinese diet it needs to be priced at an affordable price range. Often, imported products are priced higher than local products, and therefore, are limited to larger superstores or specialty stores for distribution. The following table depicts different products, their prices and their availability in the market.

* All prices are provided in Chinese Renminbi.At the date of this report, the exchange rate was 1RMB=0.161CND, or 1CND=6.1085RMB

• Creating products that target the Chinese taste are key to success. Significant market research is required to determine and match local consumer preferences. For example, a leading brand's plain potato chip has a small amount of sugar in the ingredients. Popular chip brands include seaweed, roasted pork or curry. Though Western snack products have developed local flavours, Chinese consumers prefer the taste of traditional, eastern snacks.
• Packaging is an important factor to sell products, especially new ones. Coupled with attractive, eye-catching packages, companies use various different promotional offers to sell their products. Bonus products, free coupons or free toys are a few popular promotional offers.
• Western style snack products are new to Chinese tastes. Education may be needed to convince the buyer to purchase the product (origin, products, and alternative use). Store displays, taste tests and promotions have been successful in the market.
• The Chinese market is not an easy market to access. Canadian exporters need to exhibit patience, and develop long term strategies for market access. Canadian exporters may be expected to provide money to the distributor for marketing materials.

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 with lower the price of imported products vis-à-vis domestically produced products and create an increasingly favourable trading environment. A value added tax (VAT) of 17% applies to processed, packaged products.

All imported, packaged snack 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.

To conclude, the Chinese market is highly competitive, complex and constantly evolving. For the right product and strategy, opportunities 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: http://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: http://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: http://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 Snack 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)

Electronic

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

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.