Continued Growth for China's Animal Protein Industry: Changing Consumer Patterns Are Driving Value-Based Growth

The Chinese animal protein market will continue to be a growth story, but growth will be driven by value rather than volume. Meat consumption will change in three dimensions, related to where, what, and how meat is consumed. Meat companies have three avenues to success – regionalisation, finding new markets, and adding value/providing a service.

Report summary

The sheer size of China’s consumer base and its rising middle class seems to suggest that its animal protein market will continue to be a strong one, with many growth opportunities. In reality, China’s animal protein consumption has been volatile over the past two decades, with little evidence of a consistent growth trend. We forecast that, in the coming years, the average animal protein consumption growth will markedly slow down.

Changes in today’s society are having a remarkable impact on Chinese consumer behaviour. A better understanding of the current trends helps to predict what will happen in the coming years. Three changes are most relevant: demographics, trading up or down, and new retail and foodservice channels.

With all of the changes in the consumer market, we see three dimensions of change that will take place in animal protein consumption: where the products are consumed, what product attributes are preferred, and how these products are eaten.

“While China’s population is expected to peak soon, the demographic dividend will continue to drive value growth in the meat market,” according to senior animal protein analyst Chenjun Pan. “To capitalise, meat companies need a regionalisation strategy. They will see greater growth opportunities by expanding into ‘new tier-one’ cities and surrounding areas, where the population is younger.” As live hog production will move away from these regions, it will be even more important to allocate resources to value-added businesses in these new, densely-populated cities, in order to stay attuned to the quickly changing consumer needs.

In a massive market like China, a volume-driven strategy is important. However, given the three dimensions of change discussed above, volume-driven companies will run into the threat of their traditional markets shrinking. They need to find new markets through emerging channels that offer more growth. In combination with maintaining market share in the traditional market, animal protein companies need to look into new concepts in retail and foodservice, which increasingly are taking over the preparation of food from consumers.

The changes in China’s consumer market provide excellent opportunities for developing a value-driven strategy. Animal protein companies need to identify what new attributes consumers are looking for. In our view, traditional products – such as frozen meat, hot (just slaughtered) fresh meat, and cooked meat products sold in traditional agriculture markets – will likely see a decline, while branded chilled meats in small packages, meat-based snack food, freshly cooked convenience food, and meal kits will see strong growth. These products reflect the new consumer values of convenience, food safety, freshness, variety, and service. Frozen convenience food and Chinese-style/western-style meat products may need to broaden their marketing focus, away from tier-one and tier-two cities to lower-tier cities and rural areas.