The Future is Now: How China’s Packaged Food Companies Can Survive and Thrive

Chinese packaged food companies are not doing so well, as consumer spending is decreasing. We provide five recommendations on how brands can survive the current malaise and thrive in the future.

picture of shopper in Beijing

Economic prospects are having a negative impact on overall consumption

For an economy the size of China’s, transformations can mean pain and uncertainty. Consumers are growing more cautious about daily spending, since China’s GDP growth rate dropped to 6.9% in 2015, which is the slowest it has been in the past 25 years. In 1H 2016, inflation was around 6%, with GDP growth at 6.7%, and M21 at 11.8%. Food prices increased by 6.2% in general, mainly driven by pork prices, which increased by 28.2%, as well as vegetable prices, which saw an increase of 18.2%. Nielsen’s global consumer confidence survey indicates Chinese consumers are still uncertain about the future, and their willingness to spend is declining (see Figure 1).

Figure 1: Global consumer confidence index trend

China’s packaged food industry is transforming

In their 2016 interim reports, about 45% of package food companies reported revenue loss. Lower temperatures and rainy weather in Q2 may have contributed to revenue decline, but consumption slow-down is definitely a more important factor. Consumption slow-down means consumers are spending less, but doing it more wisely, which is accompanied by the trend of ‘consumption upgrading’—when consumers look for premium, high-quality or healthy food products.

What’s next?

Companies with a declining or flat topline are struggling to survive the current situation or thrive in the future. Here are some of the actions they could take to ensure future growth: 

  • Entering or revisiting new food segments. Examples are Mondelēz’s Chinese launch of Milka, and Dali introducing soy milk products.
  • Premiumisation. Premiumisation can be achieved by relaunching current signature product lines with enhanced quality and value perception, or by launching new premium products to attract mid- to high-end consumers, and by doing so receiving higher profit margins. 
  • Building brand power or upgrading the brand’s image. This is a good way to drive consumer pull. A premium-positioned product may not gross premium revenue if the overall branding is perceived to be weak.
  • Continuous distribution expansion and consolidation. By embracing new retail channels, like e-commerce and convenience stores, companies can adapt to consumers’ changing lifestyles. 
  • Improving operational efficiency and marketing effectiveness. This can be done through big data analytics.

These transformations take time, and resulting improvements may not be reflected in the 2016 annual reports for these packaged food companies. Rabobank expects further market consolidation and gradual recovery to happen in the coming two to three years, or even later.


1 “A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money" in M2 includes savings deposits, money market mutual funds and other time deposits.” www.investopedia.com

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