China’s Condiment Trade In Need of Capital Seasoning

China has now become a huge condiment producer, also a massive market. Today we can see all the key international brands within the Chinese food seasoning market, and they are fiercely competing with local Chinese brands. As the Chinese capital market is gap up and improving, many traditional industries, such as manufacturing and process, are being revitalized and strengthened by private capital investments. Thus in this renewed and competitive market environment, how can the fragmented Chinese condiment companies break the barriers and become distinguished?

Trade numbers

There are regarding 32,000 food flavoring product corporations in China, that has created a fragmented market structure. In 2003, the whole sector in China registered sales revenue of $ five billion and profit of $ 280 million, whereas in 2004 and 2006 consumption value reached $ eight billion and $ 13 billion respectively. On average, the condiment sector has been growing at twenty% plus in recent years, being one in every of the fastest growing segments within the food trade in China. In line with forecast from Ministry of Commerce, China’s restaurant industry is expected to succeed in $ a hundred and sixty billion revenue in 2007.

In line with the recently released China’s Restaurant Business Operating Report 2007 by China Cuisine Association and Chinese Academy of Social Sciences, the restaurant business achieved retail sales of $ 138 billion, 5.seven share points on top of China’s GDP growth rate, and maintaining double digit growth for 16 consecutive years. Figures from China Condiments Industry Association also showed that condiment production in China has an annual output worth of $ 6.seven billion.

In China, condiment product are mainly utilized in household cooking, restaurant business and food processing industry. Based on anecdotal evidence from the restaurant industry in China, condiment consumption is now approaching the ten% threshold of restaurant consumption value. This suggests for every $ ten spent in restaurants, $ 1 goes to condiment spending.

Several condiments are end products for consumption, in addition to ingredients for food processing. Such characteristics are particularly evident in two segments, one is instant noodles, whose style greatly rely on condiments. And the opposite is the explosive growth of condiment exports from China.

Regional brands

Chinese condiment market has a large selection of style preference, therefore has the condiment product types. The combination between traditional ingredients and spinoff forms is almost endless. Major production areas for condiment include Beijing, Tianjing, Shanxi Province, Hebei Province, Sichuan Province, Guangdong Province, Shandong Province and therefore the Jiangsu-Zhejiang region. Alternative provinces such as Liaoning, Henan, Hubei, Anhui and Jiangxi haven’t had their own native condiment brands. Overall, most condiment brands in China are still regional brands, and really national brands are rare.

There are a selection of reasons for the higher than situation. 1st, China is a geographically giant country with a large population, which have result in the range in taste preference since history. As an example, there are far more than 9 major vinegar types employed in completely different regions in China. The second reason is that the condiment trade in China remains a coffee-tech and commodity business, which has deterred complete establishment historically. So, how to establish brands in such an trade structure is always a goal for many Chinese condiment corporations to pursue.

Take the instance of Guangdong-primarily based Haitian (HADAY) Sauce, one among the famous sauce brands in China. In 2006, HADAY’s production output and sales income were 620,000 tonnes and $ 260 million, with growth rates of 34.eight% and 22.5% on pcp respectively. A supply from HADAY indicated that sales income in 2007 is anticipated to exceed $ four hundred million. But even compared to the national sauce demand of 5 million tonnes per year, not to say the whole condiment market, HADAY is still occupying a comparatively little portion of the market.

Cost pressure

As prices for raw ingredients like soybean, sesame and chilli have been increasing within the past 2 years, condiment prices in China are following suit. Condiment products like soy sauces, vinegars and chili sauces had collectively put up their prices in early 2007. For a bottle of mature vinegar previously sold at $ 0.25, it’s now gone up to $ 0.33.

With costs rising, the pressure on condiment producers is also getting bigger. For any unilateral price increases, an organization needs to face the challenges from peer pricing and consumer affordability. Thus such bottlenecks have become a large downside for several condiment companies. An industry insider commented that though costs and demand are both rising for the full industry, constrained by the fierce market competition, several companies are still very cautious about any value increases. And shoppers, media and governments also are sensitive regarding any price changes in essential items.

Capital investments underpinning market developments

With such a large market, private capital has never stopped wanting at the condiment trade in China. And the trade is additionally getting into a dividing, remodeling and consolidating era.

China’s condiment industry is currently filled with leaders, challengers and “guerrillas”, creating a highly competitive market environment. In such a market, weak merchandise will quickly become brand product, and quick-pace strategies will nicely offset scale disadvantages. Even for a little pack of food flavour powder worth $ one, it may become a multi-million greenback enterprise in a very huge market like China. However, without sustainable and prominent brands, but only instant fame and superficial pictures, the industry still wouldn’t develop properly.

The upcoming Growth Enterprise Market (GEM) in China might provide an applicable platform to satisfy firms’ growth and expansion funding demand. Through massive scale capital investments, it’s potential for China to develop several outstanding condiment brands, which in turn could become examples for alternative peers to follow. We hope that in the near future, we could see world category condiment brands from China, similar to the standing reached by China’s household electronics business today.