Healthy nutrition trends shake up Chinese consumer market
Less than a decade ago, Henan Lotus — the world’s largest producer of monosodium glutamate — bestrode the Asian food market like a colossus, racking up sales worth billions of renminbi as China became the world’s largest consumer of the flavouring.
But now it stands as a monument to how companies can lose out in China’s $180bn urban market for fast-moving consumer goods if they miss a shift towards healthy products. The trend has also wrongfooted international conglomerates such as the Coca-Cola Company.
Lotus’s top line has fallen by more than Rmb900m ($132m) since 2011 to Rmb1.8bn last year, mainly driven by a Rmb800m decline in the company’s MSG sales over the same period. Analysts say consumers have turned against the flavouring because it is perceived as unhealthy.
Chinese MSG sales peaked in 2013 at 1.2m tonnes and have declined steadily since, according to market research consultancy Euromonitor. More than half of urban Chinese consumers have tried to limit MSG in their diet, according to Mintel, another consultancy.
“Concerns about food have shifted more towards nutrition,” said Summer Chen, senior food and drink analyst at Mintel.
Perceptions about health drive purchases more than nutritional facts. “Consumers are more concerned about the harm salt and MSG will do to the human body than sugar,” she added.
Re-branded as Lotus Health three years ago, the company’s decline has taken a heavy toll on Xiangcheng, its home city of about 1m people, 600km south of Beijing. “Male workers have nearly all left town to seek jobs,” said Ma Chun, a shop clerk. “It used to be our city’s strongest enterprise.”
Locals said that the company had given early retirement to thousands of staff in recent years. “Every street you walk on here you can find a laid-off Lotus employee,” said a woman surnamed Liu, who left the company last year.
The company’s troubles have had international ramifications. Tony Xia, a flamboyant businessman who bought the English football team Aston Villa in 2016, holds an 11 per cent stake in Lotus. That stake has lost 80 per cent of its value since 2015, contributing to financial strains which forced him to relinquish ownership of the team last month.
Mr Xia also stepped down as chairman of Lotus late last month for “personal reasons”.
It is not just MSG which has felt the impact. Sales of chewing gum fell 14 per cent in China over the past two years, while chocolate and confectionery had declines of 6 and 4 per cent respectively, according to a survey published in June by consultancies Bain and Kantar Worldpanel.
The survey indicates that efforts by Chinese urban consumers to lead healthier lives are the “biggest theme” in the country’s FMCG market, which includes food and beverages, toiletries, over-the-counter medicines and other perishable personal care items. The fastest growing food and beverage categories included bottled water and yoghurt, both of whose sales value grew by more than 10 per cent, driven by perceived health benefits.
The desire for healthier lifestyles comes as China boasts world-topping obesity levels, and rates of related diseases such as diabetes. The trend is also affecting China’s $625bn catering industry. Meituan Dianping, one of China’s top food delivery platforms, said orders for salads increased 160 per cent year-on-year in the second quarter of 2018.
Local brands have benefited more than multinationals from the trend. They captured 98 per cent of the growth in FMCG sales in China last year, taking share in nearly every category. It was the fourth consecutive year in which multinationals lost market share.
For example in fruit juice, overseas brands such as Coca-Cola lost share to local offerings such as Nongfu and Infinitus, which achieved more than 20 per cent sales growth by offering 100 per cent juice rather than concentrate-based products such as Coca-Cola’s Minute Maid brand. Coca-Cola’s China sales grew just 2 per cent in greater China last year, down from double-digit rates less than a decade ago.
Analysts say that overseas brands have been hampered by their centralised decision-making, but the pace of their market share loss is slowing as they adapt to changing tastes. After admitting mistakes in the China market in 2016 as sales fell, Procter & Gamble has returned to growth in China by selling more upmarket products.
Coca-Cola introduced Sprite Zero in China last year and this year launched Sprite Fiber+, said to contain the same amount of fibre as two apples, while paying an undisclosed amount for a 12 per cent stake in Chinese yoghurt brand LePur. Coke made the deal because “their theme is going healthier”, said LePur founder Denny Liu.
LePur sells more than 1m units per month, mainly Greek-style yoghurt, which is “perceived by consumers as being extra healthy”, he added. “We are riding on the tails of this healthy consumer upgrade.”
China’s imports of fruits such as avocados have surged, with total food imports growing 25 per cent year-on-year in 2017 to reach $58bn. Much of that is comprised of e-commerce purchases of foreign food brands, suggesting multinationals can benefit by bringing their overseas products to China more quickly.
Multinationals “have the premium products, they have the perception of being healthy”, said Bruno Lannes, a partner at Bain. “I think the issue is more the speed at which they need to bring innovation to the market.”