MARKET OVERVIEW ON GELATO, COFFEE AND SWEET FOOD IN CHINA 2018 1 - Sigep
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Market Overview On Gelato, Coffee And Sweet Food In China
MARKET OVERVIEW ON GELATO,
COFFEE AND SWEET FOOD IN CHINA
2018
1
Market Overview On Gelato, Coffee And Sweet Food In China
TABLE OF CONTENT
SECTION 1: Executive Summary Page 3
SECTION 2: General Overview on Gelato, Coffee and Sweet Food Page 7
Market in China
SECTION 3: The Ice Cream Market in China Page 11
SECTION 4: The Pastry and Bakery Market in China Page 37
SECTION 5: The Coffee Market in China Page 53
SECTION 6: The Chocolate Market in China Page 62
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Market Overview On Gelato, Coffee And Sweet Food In China
* SECTION 1：Executive Summary
As a populated country with a fast-paced economy, China’s market for sweet food
and coffee market is experiencing exponential growth due to a rising middle class and
changes in the young generation’s attitudes and consumption behaviors. The Chinese,
accustomed to a salty diet, are adopting the western coffee culture and learning to
appreciate various sweet indulgences, leading to vast opportunities for Italian coffee
and sweet food manufacturers.
The era of globalization presents immense opportunities for brands, especially Italian
ones, to understand and grow with Chinese consumers as they explore a modern
lifestyle enabled by years of socioeconomic improvement.
More encouragingly, third-party research showed a strong trend towards
premiumization and discretionary purchases, which is likely to translate into demand
for premium products. Since “made-in-Italy” coffee and confectionary is often
considered “premium” by most Chinese, the market potential at this time seems
stronger than ever for products of Italian origin.
Among the different sweet food markets, the gelato and coffee markets seem to be
having good potential in China as they are emerging and developing.
*The present market research has been compiled by N‐Dynamic Market Research & Consultancy Ltd.
for Italian Trade Commission Shanghai Office.
3
Market Overview On Gelato, Coffee And Sweet Food In China
There is a high level of cross-pollination between western products such as coffee and
gelato. Currently, there is a trend in which professionals from other industries start
their own coffee and ice cream businesses. In order to maximize sales and offset
significant production and operation costs, small business owners will often stock
diverse product options to cater to as many customers as possible. This has resulted in
the emergence of hybrid stores that can comprise of a gelateria, a café, or even a
bakery.
Ice cream has been integrated into other kinds of food forms. Instead of being a single
product, ice cream has started to extend itself into other food categories. For example,
restaurants might serve ice cream as a dessert along with other sweet food; bakeries
could also sell ice cream in tandem with other products, such as mooncakes, birthday
cakes, etc. Ultimately, the integration of gelato into other kinds of food forms is well
received by Chinese consumers as they love sophisticated products. The promotions
of the new food forms have resulted in higher awareness of and preference for gelato.
One example is the affogato drink, which is promoted heavily by various coffee shops
in China.
While consumers care most about the taste and flavor of their ice cream, the “health”
has almost an equal amount of importance. Interestingly, Chinese consumers’
preference for less sweet products makes it easier to create healthier ice cream without
a significant compromise in taste. Gelato is well positioned to fulfill this unmet
need with its fewer calories. In general, consumers are also seeking more flavors,
and thus investment in research and development is needed. Other suggestions by
consumers include a softer ice cream texture as well as more innovative shapes when
it comes to serving ice cream. These are peripheral product attributes that can be
leveraged to increase differentiation from other ice cream.
4
Market Overview On Gelato, Coffee And Sweet Food In China
Gelato market players need to seek the best competitive advantages to define and
maintain the product’s uniqueness through product innovations and nutritional
messages. From a marketing perspective, gelato producers need to emphasize the
naturalness and authenticity of the product through product attributes as well as
leveraging the well-established reputation of Italy as a producer of gourmet ice cream.
In order to educate consumers about gelato, industry experts advise business players
to organize roadshows, gelato competitions, exhibitions, etc. These events will serve
as educational opportunities where both brands and consumers can exchange
information and become educated about each other. As suggested by one distributor,
flagship stores are great marketing and business investments where gelato chefs can
demonstrate the production process and educate consumers. Moreover, cross-
promotion across other industries is a powerful way to enter the market through
partnership growth. One machinery and ingredients provider stated that, in past few
years, their company has setup gelato booths at event venues like the F1 car racing
course and equestrian events with great success.
Partnerships with large businesses or even local governments could go a long way in
covering otherwise immense costs of industry-wide events. Gelato’s success in China
will be a combination of business ventures into unknown territories as well as public
relations strategies to raise awareness and establish a unique reputation for gelato.
Finally, understanding how to navigate the ever-changing government regulations will
be key for businesses. The Chinese government pays a lot of attention to food safety,
but the specific regulations around gelato remain unclear. Businesses will have to
continually look out for updates and guidance on gelato production in the near future
as the Chinese government becomes more familiar with the production process.
5
Market Overview On Gelato, Coffee And Sweet Food In China
It is without doubt that the gelato market in China will continue growing in the near
future. The most important challenges that gelato producers will need to continue
tackling are education, cultural assimilation and financial feasibility. As suggested by
many industry experts, education on an industry level will act as a catalyst for faster
growth through greater interest in gelato and a higher willingness to pay for it.
Moreover, adapting to cultural norms and localizing the taste of gelato will help
gelato products bypass consumer unfamiliarity and into consumers’ comfort zones.
Lastly, scales of economies should be leveraged to reduce the overall cost of doing
business in China so that more producers, distributors, and retailers are incentivized to
expand access to gelato. Ultimately, the goal is to create a positive cycle of
profitability that will in turn lead consumers to be more frequently exposed to gelato
experiences. The inextricable link between consumer demand and gelato supply will
continue to grow as long as the barriers are addressed on both sides with long-term
prospects in mind.
This market research is a general overview. ITA Shanghai would be pleased to assist Italian companies
and associations to get more specific and detailed information on these sectors, as well as
personalized services to facilitate their entrance into Chinese market.
6
Market Overview On Gelato, Coffee And Sweet Food In China
SECTION 2：General Overview on Gelato, Coffee and Sweet Food
Market in China
As a populated country with a fast-paced economy, China’s market for coffee and
sweet food is experiencing exponential growth due to a rising middle class and changes
in the young generation’s attitudes and consumption behaviors. The Chinese,
accustomed to a salty diet, are adopting the western coffee culture and learning to
appreciate various sweet indulgences, leading to vast opportunities for Italian coffee
and sweet food manufacturers.
While there are only 33 cities with over 1 million people in all of Europe, the number
of cities in China with same population is 303. Furthermore, as shown in the figure
below, there are different tiers of cities in China. Each tier of cities represents a
certain group of consumers with their idiosyncratic attitudes, behaviors, and
preferences. Understanding these nuances will help products with different positioning
find their success in China.
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Market Overview On Gelato, Coffee And Sweet Food In China
According to the consulting firm McKinsey & Company, rapid growth of disposal
income within China’s middle and upper classes has been occurring since 2012 and is
projected to last until 2022. The figure below demonstrates this growth and the
increased consumer spending as a result. The affluent (annual salary greater than
229,000 CNY [€29,090 EUR]) and upper middle class (annual salary ranges from
106,000 to 229,000 CNY [€13,466 to €29,090 EUR]) groups will have a CAGR
(compound annual growth rate) of 19.6% and 22.4% in the projected period,
respectively. The incremental growth of their annual salaries will drive an expenditure
shift from products to services and from mass to premium segments. In addition,
middle-class growth has been concentrated more so in smaller cities to the north and
west of China, many of which are 3rd tier cities.
China's Rising Middle Class
Source: McKinsey & Company
This transition of focus away from major cities presents a unique opportunity to
capitalize on previously untapped markets. What is interesting is that Italian coffee
and sweet food manufacturers will have the ability to shape the mind of customers,
8
Market Overview On Gelato, Coffee And Sweet Food In China
many of whom have minimal historical exposure to Western products. Less
preconceptions and stereotypes about what Italian products look and taste like means
that Italian producers can more easily assimilate into the local culture. Despite the
recent slowdown of the country’s economic growth, China’s middle-class consumers
are still confident about the prospects for their incomes, which make them more
willing to spend disposable income. More encouragingly, results from a recent survey
and third-party research showed a strong trend towards premiumization and
discretionary purchases, which is likely to translate into demand for premium
products. Since “made-in-Italy” coffee and confectionary are considered “premium”
by most Chinese consumers, the market potential at this time seems stronger than ever
for products of Italian origin.
Chinese consumers’ curiosity towards Western food has continued to expand in
conjunction with middle class income growth. The adoption of a Western lifestyle and
diet is evident through increased imports of foreign food products as consumers
search for avenues of enjoyment. HKTDC’s survey results highlighted the popularity
of international travel among Chinese consumers and their willingness to try new
things, which aligns with the growing appreciation for foreign brands and products
among China’s younger generations. The era of globalization presents immense
opportunities for brands, especially Italian ones, to understand and grow with Chinese
consumers as they explore a modern lifestyle enabled by years of socioeconomic
improvement.
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Market Overview On Gelato, Coffee And Sweet Food In China
References
China Daily 2017
http://www.chinadaily.com.cn/china/2017-10/02/content_32752727.htm
HKTDC Research 2017
http://economists-pick-research.hktdc.com/business-news/article/Research-Articles/C
hina-s-Middle-Class-Consumers-2017-Survey-Summary-and-Recommendations/rp/en
/1/1X000000/1X0AB8SK.htm
McKinsey& Company 2016
http://mckinseychina.com/the-modernization-of-the-chinese-consumer/
McKinsey& Company 2013
https://www.mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class
10Market Overview On Gelato, Coffee And Sweet Food In China
SECTION 3: The Ice Cream Market in China
Types of ice cream in China
Currently, the most popular type of ice cream in China is hard ice cream (10% to 18%
milk fat content), which is as known as American ice cream or Philadelphia ice cream.
It is the most common type of industrially produced and branded ice cream that can
easily be purchased in China’s supermarkets and convenient stores. Other varieties of
ice cream, such as gelato (Italian-style ice cream), custard- or egg-based ice cream
(French-style ice cream), sorbet, frozen yogurt, and soft serve ice cream, can be found
in a multitude of distribution channels including ice cream shops, hotels, cafés, and
restaurants. Among all the ice cream types, soft serve ice cream is a particularly
popular in China mainly due to the convenience of making and storing the product
through a soft serve machine. While American ice cream and soft serve ice cream
have gained widespread recognition and large market share in China, gelato has not
grown to the same extent and accounts for only a very small portion of the market.
Market size indicators and trends
Chinese consumers are not known for their love for ice cream—as a matter of fact,
older generations of Chinese believe that cold food is bad for one’s health, let alone
iced food. The projected average consumption per capita for ice cream in China is
only 0.03 kg in volume in 2018 according to Statista. Even so, as of 2014, China is
the world’s largest ice cream market in terms of volume consumption thanks to the
influence of Western lifestyles and rising disposable incomes. The graph below shows
the incredible growth of China’s market volume since 2008: a stark difference
especially when compared against the highly saturated and stagnant US market.
11Market Overview On Gelato, Coffee And Sweet Food In China
Market volume of Ice Cream in China and US
Source: Mintel
While Mintel projected the market volume to continue upwards in 2014, the ice cream
category in China actually recorded a decrease in ice cream volume consumption in
2017. To be more specific, based on data from Euromonitor, both take-home dairy ice
cream (-3%) and impulse ice cream (-1%) saw decreased retail volume last year.
Research further indicates that the percentage of Chinese people that do not consume
ice cream rose from 4% in 2012 to 11% in 2017 as Chinese consumers’ preferences
shifted towards healthier eating habits. Considering the strengthening awareness of
healthy diets amongst consumers, overall ice cream sales volume is expected to keep
declining in the next few years while healthier options such as frozen desserts are
predicted to slowly increase in volume based on reports by Euromonitor.
Despite the decrease in volume, China’s ice cream market has continued to grow in
retail market value. According to Statista, revenue in the country’s ice cream segment
is expected to reach $183 million USD (€149.70 million EUR) in 2018 with the
market expanding annually by 3.5% in value from 2018 to 2021.
12Market Overview On Gelato, Coffee And Sweet Food In China
Revenue Growth of Ice Cream in China
Source: Statista
According to the marketing manager of a machinery producer interviewed by N-
Dynamic Market Research, the overall market size of ice cream is approximately 40
billion CNY (€5 billion EUR) per year. The gelato market share is believed to be less
than 10% of this amount, although the interviewee demonstrated confidence in
gelato’s growth potential: “In the next 5 years, the gelato market should be able to
take off again quickly”. As a gelato producer interviewed by N-Dynamic puts it,
“Even though there was a ‘winter season’ for China’s gelato market in 2015 and 2016,
the 2017 market began to warm up again”.
Furthermore, the growth in value coupled with the decrease in volume points to the
greater demand for high-quality/gourmet ice creams. This trend is likely to remain for
the foreseeable future and will continue to benefit makers and distributors of gelato.
In addition, Technavio published a report on the global market for gourmet ice cream,
covering three segments: gelato (which accounted for 69% of the gourmet ice cream
market in 2016), sorbet, and frozen custard. The report predicted that APAC (Asia
Pacific) will soon become the fastest-growing market for gourmet ice cream products
due to rising demand. Indeed, the explosive growth of China’s emerging middle class
has greatly driven demand for gourmet ice cream, among which gelato plays an
important role due to its viability as a premium and healthier ice cream alternative.
13Market Overview On Gelato, Coffee And Sweet Food In China
Data on ice cream imports from 2014 to 2017 indicates that imports dropped in 2015
and 2016 and recovered in 2017. More importantly, the 2017 recovery lead to an
importation market value of $64.16 million USD (€52.45 million EUR) by November
2017, a value that already surpassed the market value for the entirety of 2016 ($60.68
million USD [€49.60 million EUR)]. In conjunction with decreased sales volume, this
jump in market value is strong evidence that premium product demand is growing.
According to the Chinese custom ‘s data, the China’s importation of ice cream for the
first three months has increased of 20.54% comparing to the same period of last year.
Currently, the average price per unit for ice cream products in China amounts to $4.90
USD (€4 EUR) based on data provided by Statista. Moving forward, the prices of ice
cream are likely to go up as manufacturers launch more premium product lines and
raise prices to maintain profit margins.
In order to better understand the gelato market in China, N-Dynamic interviewed 6
experts in the industry, including machinery manufacturers, gelato retailers,
distributors, and showcase manufacturers. Their many years of experiences in gelato
production and retail have led to in-depth insights on the market. Based on the
interviews, the most significant difference between the gelato markets in China and in
Italy is the consumer perception of gelato itself — Chinese customers ultimately think
that ice cream is too cold and therefore unhealthy for human bodies. Simultaneously,
they are unaware of gelato’s health benefits. Most importantly, however, many
Chinese consumers cannot differentiate between gelato and ice cream. These cultural
and knowledge gaps among Chinese consumers are significant barriers for gelato
producers and sellers. Of course, the complete opposite is true for Italians—for them,
gelato is native and an essential part of their lives.
“Understanding the markets’ distinctiveness is key to entering China’s gelato market”,
suggested a showcase marketing manager, “so it’s better for foreign companies to hire
14Market Overview On Gelato, Coffee And Sweet Food In China
Chinese market specialists to implement marketing strategies”. Ultimately, the hope is
that local specialists will be able to tackle the cultural and social nuances of Chinese
consumers. “The high price of gelato makes it a luxury dessert in China’s market, and
the main customers are young people who have travelled abroad, kids who grew up
well-off, young couples, and oversea returnees”, remarked a distributer.
Overall, the interviewed experts think the confectionery industry in China has been
growing in the past few years. The major reason cited is the rising disposable income
of Chinese consumers along with China’s economic growth in general. As a
machinery manufacturer stated, “With rising income, Chinese people started to pursue
higher quality of life including sweet food”. Thanks to the huge population of the
nation, the entire confectionery industry is extremely promising in China. Also,
according to a gelato distributor, “Decades ago, Chinese people simply wanted to
have food to survive, but now people want food not only to be delicious but also to be
good looking, so they can take photos and share on social media platforms”.
With increasing quality of life for the average Chinese consumer, many gravitate
towards food as a means of enjoyment and social reciprocation: “Since more flavors
are invented and more styles are created, food nowadays can even be selected as a
present for friends”. Moreover, according to one distributor, “the offline sales
channels have expanded from street stores to shopping mall centers”, especially as
products have become more mainstream.
The main consumer groups of gelato are young. Born between 1980 and 2000, many
grew up with ice cream and popsicles with the culture of eating ice cream deeply
rooted in their lives. These are the consumers that will continue the cycle of ice cream
consumption as they encourage their children to consume ice cream as well. In the
long term, this self-reinforcing culture will bring a positive influence on the market.
Ultimately, as the interviewed experts all believe, the future of the ice cream market is
15Market Overview On Gelato, Coffee And Sweet Food In China
being built on a strong foundation of cultural norms established by a young generation
of Chinese consumers and will likely keep growing as they strengthen their long-term
appreciation of ice cream.
Geographically speaking, “both southern and northern regions have good markets. In
the North, ice cream is being sold throughout the year due to the warm heating
systems in the region, while the sales drop in South when it enters winter”. The
experts believe tier-one cities like Shanghai, Beijing, Guangzhou, and Shenzhen have
the most potential for future market development. For example, Starbucks opened its
biggest store Roastery in Shanghai in late 2017, which led to another coffee craze in
the region, causing people to wait in long lines to visit the shop. This is not to say that
lower-tier cities are not worth expanding to: as stated by a machinery manufacturer’s
marketing manager, “People in tier-three and tier-four cities are more conscious of
“face” and consider eating ice cream a fashionable trend, which makes the market in
those cities have growth opportunities”.
Market structure and key players
According to Euromonitor, Inner Mongolia Yili（内蒙古伊利） Industrial Group
continued to lead ice cream and frozen desserts in 2017 with a market share of 13%.
China Mengniu Dairy（蒙牛乳业）Co., Ltd. is another top Chinese dairy company
among the industry leaders. These local giants have maintained their market shares
through strong cross-country distribution and consistent new-product launches. Two
non-Chinese companies also made the list of the country’s top 10 ice cream brands:
Unilever and Nestlé (Eurasia Consult 2015). The success of Unilever’s ice cream
brands in China (Wall’s, Magnum, and Cornetto) proves that international brands can
have strong brand presences that compete well against local players. Aside from these
big players, the market is highly fragmented with a vast variety of locally-produced
and low-price brands all vying against each other in a competitive environment.
16Market Overview On Gelato, Coffee And Sweet Food In China
Based on results from a recent internet poll, the ice cream brand most favored by
Chinese consumers is Häagen-Dazs, followed by Dairy Queen. The high recognition
of Häagen-Dazs came primarily from its successful positioning as an “experience”
luxury brand as well as its countless marketing campaigns. The company reported
strong growth in large cities (revenues in Shanghai and Beijing grew 16% and 13%,
respectively) in June 2016, despite challenges it faced in other smaller cities. In them,
rising commercial rent and lower profit forced Häagen-Dazs to close stores in second-
and third-tier cities in 2015 and 2016 amid a slowdown in the ice cream market. As
the brand is widely perceived as overpriced by many Chinese people, one of the major
reasons for its failure could have been consumers’ lower willingness to pay for ice
cream in second/third-tier cities. Häagen-Dazs’ failure comes as a lesson that
companies need to proactively manage their pricing strategy in response to consumers’
price sensitivity—this can vary widely based on the city and be a large determinant in
the success of a product in highly individualistic environments.
The Chinese market also sees a high level of cross-pollination between Western
products such as coffee and gelato. As remarked by a gelato machinery and ingredient
distributor, there are a large number of individual market players in China that
contribute to the growth of the coffee and ice cream market. Currently, there is a trend
in which professionals from other industries start their own coffee and ice cream
businesses: “The investors mainly have their own full-time jobs in design or
architecture industry, but they see the opening a café or ice cream shop as a business
investment as well as a way to pursue their own interest and dreams”, said a distributor.
In order to maximize sales and offset significant production and operation costs, small
business owners will often stock diverse product options to cater to as many
customers as possible. This has resulted in the emergence of hybrid stores that can
comprise of a gelateria, a café, or even a bakery.
17Market Overview On Gelato, Coffee And Sweet Food In China
While distribution and preservation have always been big challenges for frozen food
companies, it is now a better time than ever for gelato market players to enter China
as the country has been strengthening its storage and distribution channels. Moreover,
the growing demand for ice cream has resulted in the expansion of production and
distribution, according to Daxue Consulting—the frozen foods logistics industry was
expected to achieve a 25% increase in market size in 2017.
Based on the in-depth interviews, one of the main challenges for gelato retailers is the
high production costs. As an example, a retailer stated that his store is able to sell 100
cups of gelato every weekday and 400 cups every day on weekends; yet he cannot
solely rely on gelato to sustain his business. He continues to run his coffee and
Cantonese dessert product lines to make a profit: “It is almost impossible to make
money by selling only gelato, because the cost is really high”. These costs include
investments in large fixed purchases such as production machines and showcases as
well as the variable costs of gelato ingredients, labor, rent, and utilities. Imported
production machines, such as Carpigiani, costs around 300,000 to 400,000 CNY
(€38,127 to €50,836 EUR) while imported showcases cost 18,000 to 19,000 CNY
(€2,287 to €2,415 EUR). On the other hand, domestic production machines, like
Kingdom and Easy Best, only costs 20,000 to 50,000 CNY (€2,542 to €6,354 EUR)
and the showcases around 20,000 to 30,000 CNY (€2,542 to €3,813 EUR). Although
these domestic machines would markedly reduce the cost of doing business,
distributors and retailers are not satisfied with the performances of these appliances.
Thus, retailers naturally gravitate towards the idea of purchasing imported machines.
The truth is that many retailers believe the Italian-made machineries would help them
produce better gelato, but the entry price is simply too high for many of them. The
interviewed experts believe that, if machinery and ingredients costs can be reduced,
18Market Overview On Gelato, Coffee And Sweet Food In China
there would be more retailers to sell higher-quality gelato, starting a cycle of
consumer education and more stringent expectations towards gelato quality.
With high production costs, the gelato industry suffers from overpriced products—a
single scoop of gelato costs between 25 ~ 40 CNY (€3.18 ~ 5.08 EUR)—which deters
customers who cannot afford it or are not willing to pay for it. “In order to reduce the
cost”, the retailer comments, “We need to develop our own recipes. 50% of the
material cost [could be saved] if we invented new flavors on our own”. Another
distributor suggested opening a gelato factory to reduce the production and operation
cost for retailers. The expert indicates that she and her partner plan to set up a gelato
production factory while relying on a third-party shipping provider to efficiently
deliver the fresh gelato to major cities like Shanghai or Beijing. Purchasing gelato
directly from a factory itself would effectively reduce the cost for retailers because
they would not need to purchase gelato production machines nor the recipe
ingredients themselves. This centralized production system would utilize scales of
economy to lower cost for all market players and create an affordable solution for
Chinese consumers. Another way to help retailers reduce costs would be to simplify
the gelato production process through innovative recipes: in fact, an interviewed
ingredient distributor remarked that they have started to sell new ingredients to gelato
retailers that do not require expensive machinery to process, thus saving on the large
fixed costs that a normal gelateria would incur.
Consumer needs, attitude and behavior
As Chinese consumers become more sophisticated and further refine their tastes and
preferences for ice cream, new formats of ice cream made from organic and natural
ingredients—such as gelato, sorbet, and other reduced fat products—are becoming
more popular. Based on recent research conducted by Mintel, more than half of urban
Chinese consumers are willing to buy 100% natural ice cream products and are
19Market Overview On Gelato, Coffee And Sweet Food In China
willing to pay more for them, owing likely to increased health-consciousness. Yet, it
was also pointed out in the research that consumers did not want a compromise
between a product’s taste and its healthiness. As a result of its balance between
healthy ingredients and rich taste, gelato is gaining more and more attention in the
Chinese market and is well positioned to grow in the ice cream market.
Moreover, Mintel published a recent study indicating that consumers in Shanghai
demonstrate a strong interest to eat ice cream products that are made on the spot when
they are hanging out or craving something sweet. The freshly-made format seems to
be popular among the consumers in tier-one cities like Shanghai, which aligns
perfectly with the nature and tradition of gelato. As a matter of fact, a number of ice
cream boutiques have appeared in China in recent years that are likely a result of
growing demand for instant-made ice cream like gelato.
Meanwhile, more and more Chinese are buying ice cream products in winter
compared to several years ago, suggesting a behavioral shift to year-round
consumption that is not dependent on season. The shift can possibly be attributed to
Chinese consumers perceiving ice cream more and more as a sweet indulgence rather
than just a summertime treat.
When it comes to sweet food (especially ice creams and desserts), an interesting
observation can be made about Chinese consumers: they tend to display herd behavior
and fall for all kinds of internet fads. For example, WIYF is an ice cream shop in
Shanghai, which is now “the most popular ice cream” place in the city with people
lining up for hours just to try their ice cream, according to China Daily. Based on
interviews conducted by East Day News, a number of its customers actually came
“for a selfie rather than the ice cream” itself just because of a viral post that introduced
WIYF on the internet. Another example of fad-driven success is the
20Market Overview On Gelato, Coffee And Sweet Food In China
growing popularity of Russian ice cream in China. This was a result of the Russian
President, Vladimir Putin, bringing them as gifts for his Chinese counterpart, Xi
Jinping, during the 2016 G20 summit in Hangzhou. In the end, however, viral fads are
simply unpredictable and unsustainable marketing tactics that require astute and timely
identification of internet trends: something that companies are unlikely to achieve
consistently. Even WIYF and Farine, its sister French bakery, were forced to shut
down in March 2017 due to issues with their ingredient procurement, demonstrating
the barriers to running an ice cream shop despite nation-wide fame.
N-Dynamic’s online survey of 300 respondents has shed light on additional Chinese
consumer needs, attitudes, and behaviors. First of all, as shown below, all surveyed
consumers purchase imported ice cream at least once a month while a third of
respondents said they purchase once a week. These respondents are distributed evenly
across three major cities—Shanghai, Guangzhou, and Beijing—and their reported
behavior support earlier findings that urban citizens regularly consume ice cream.
How often do you purchase imported ice cream?
22.2%
33.3%
44.4%
Once / week times/month Once / month
21Market Overview On Gelato, Coffee And Sweet Food In China
Similar to the preferences for baked products when it comes to country of origin, Italy,
France and United States rank among the top three. When it comes to ice cream,
however, a majority (68.3%) of the surveyed consumers preferred Italy more than the
other two countries, demonstrating the strong preference for Italian ice cream products
in China.
Which country’s ice cream is your favorite?
Italy 68.3%
United States 51.7%
France 46.1%
New Zealand 38.9%
Australia 35.0%
Japan 35.0%
China 22.2%
South Korea 18.3%
Others 0.6%
More than half (58.9%) of the respondents claimed to know the differences between
gelato and industrial ice cream. The percentage is quite high considering the
penetration of gelato in China and is likely a result of the demographic present in this
survey: Chinese consumers in major metropolitan areas with exposure to Western
culture. Nevertheless, the results demonstrate that there continues to be a knowledge
gap, as only 60% of Westernized Chinese consumers understand the difference.
Extrapolation to more rural populations or those in second/third-tier cities will likely
mean that a majority of Chinese consumers in those areas do not know the difference
between gelato and industrial ice cream.
22Market Overview On Gelato, Coffee And Sweet Food In China
Do you know what gelato is? Do you know the differences between
gelato and industrial ice cream?
2.8% 2.8%
I don’t know gelato
I know gelato, but it should be
the same as other ice cream
35.6%
I know gelato, but not sure
58.9% what’s the different between
gelato and industrial ice cream
I know gelato and I know the
differences between gelato and
industrial ice cream
More specifically, however, when asked about the actual differences between gelato
and industrial ice cream, almost half (49.1%) of whom claimed to know the difference
think gelato contains more milk and air than industrial ones, when, in reality, gelato is
actually denser with less air in it. This finding shows the misperception of Chinese
consumers and the knowledge gap that must be addressed to position gelato as a
premium product. Additionally, during the in-depth interviews, almost every expert
stated that Chinese consumers do not fully understand the product of gelato, nor can
they perceive the differences between gelato and industrial ice cream. “The industry
needs a leading company to educate the consumers”, a showcase sales manager claims,
“There is no competitive gelato brand on the market, no outstanding brand at all.” The
interviewees believe if Chinese consumers could understand the uniqueness of gelato,
they would be willing to pay the price for it. The healthiness factor of gelato, as
mentioned, continues to be a highly relevant consideration for all market players: “The
media should educate the public about the advantages of gelato, it’s fresh,
23Market Overview On Gelato, Coffee And Sweet Food In China
healthy, with absolutely no additive”, says the gelato retailer. He thinks that, with the
right message, consumers would jump at a chance to try gelato.
What do you think is different between gelato and industrial ice cream?
Gelato contains less milk but
more air than industrial ice
27.4% cream
Gelato contains less milk and air
than industrial ice cream
10.3%
49.1% Gelato contains more milk and
air than industrial ice cream
13.1%
Gelato contains more milk but
less air than industrial ice cream
Fortunately, even without a proper understanding of gelato, Chinese ice cream
consumers already perceive gelato as a superior product in terms of taste and
healthiness when compared to industrial ice cream. In their minds, gelato is viewed as
a healthier and fresher type of ice cream. 40% of the surveyed consumers also cited it
being more expensive than regular ice cream.
Comparing with industrial ice cream, what do you think about gelato?
91.7%
76.7% 76.7%
40.0%
15.0%
3.3%
Gelato tastes Gelato is Gelato is fresher Gelato is more Gelato helps lose Gelato makes me
better healthier expensive weight gain more weight
24Market Overview On Gelato, Coffee And Sweet Food In China
The results of the survey show that indulgence is the biggest reason for eating ice
cream—respondents cited “feeling happy” (78.3%) and “releasing some stress”
(72.8%) as the top two reasons for consuming ice cream. There is also a large
percentage (66.7%) of respondents whom eat ice cream primarily to spend time with
family and friends, and to “reward themselves” (64.4%). The motivations behind ice
cream purchases are highly useful in informing marketing strategies used to attract
target consumers. Since these motives range from personal to social, there is a large
range of emotions that brands can appeal to in order to build long-term consumer
loyalty. Another interesting finding is that almost half (47.2%) of the surveyed
consumers eat ice cream because they think it’s “fashionable”—this aligns with the
previous observation of Chinese herd mentality as well as the positioning of some of
the most famous imported ice cream brands (such as Häagen-Dazs) in China.
Why do you eat ice cream?
78.3%
72.8%
66.7% 64.4%
47.2%
0.6%
Eating ice cream Eating ice cream Eating ice cream Eating ice cream Eating ice cream Others
makes me feel helps me release with family and is one way to is fashionable
happier stress friends is a joyful reward myself
thing
The distribution breakdown (chart below) shows the potential of each distribution
channel for the sale of gelato. Other than supermarkets, which gained the highest vote
chiefly due to industrial ice cream sales, dessert shops (63.9%), cafes (39.4%) and
bakeries (31.1%) are also popular locations where consumers go to purchase ice
25Market Overview On Gelato, Coffee And Sweet Food In China
cream besides actual ice cream shops (63.9%). The popularity of these non-dedicated
shops are a useful consideration for distribution and partnership strategies—the
diverse retail experience in China means that there are plentiful and innovative
opportunities to promote gelato on a product and brand level. Indeed, during the
in-depth interviews, a showcase manufactory sales manager mentioned that ice cream
has been integrated into other kinds of food forms. Instead of being a single product,
ice cream has started to extend itself into other food categories. For example,
restaurants might serve ice cream as a dessert along with other sweet food; bakeries
could also sell ice cream in tandem with other products, such as mooncakes, birthday
cakes, etc. The interviewee emphasized that Chinese consumers prefer sophisticated
food products. Ultimately, the integration of gelato into other kinds of food forms and
its promotions have resulted in higher awareness of and preference for gelato. One
example is the affogato drink, which is promoted heavily by various coffee shops in
China.
Where do you usually purchase ice cream?
Large chain super market (Carrefour, Walmart, etc.) 73.9%
Dessert shops 63.9%
Ice cream shops 63.9%
Cafes 39.4
Online platforms (Tmall, Taobao, etc.) 35.6%
Convenience stores 35.0%
Bakeries 31.1%
Ice cream wholesale stores 28.3%
Food delivery apps (Eleme, Meituan, etc.) 23.3%
Hotels 15.0%
In terms of purchase factors, flavor (83.3%) and texture (79.4%) are the two most
important factors while choosing ice cream, as one would expect. On top of that, the
26Market Overview On Gelato, Coffee And Sweet Food In China
brand and the ingredients’ origins are also highly valued by Chinese consumers
possibly because of their need for reassurance when it comes to food quality and
safety. Price being the least important factor implies that Chinese consumers are ready
for discretionary purchases, especially in major metropolitan cities.
When you choose ice cream, which factors would you find important?
83.3%
79.4%
63.9%
60.6%
52.8%
49.4%
38.3%
35.0%
30.0%
Flavor Taste (is it Brand The If it's good Color and Package of Decoration Price
(vanilla, smooth?) country of for health look of the the product and
strawberry, origin of ice cream hygiene of
coffee, ingredients the store
etc.)
The survey results reveal a strong consensus that Chinese consumers tend to eat ice
cream spontaneously. Whether they are physically passing by an ice cream store or
finding a place for indulgence with friends, Chinese consumers make impulsive
decisions about eating ice cream. Consequently, gelato makers should invest more
into the appearances of not only the products, but also the decorations of the shops to
attract customers. Marketing tactics could also be tailored to appeal towards the joy
and excitement that comes with being spontaneous.
27Market Overview On Gelato, Coffee And Sweet Food In China
In which occasions would you eat ice cream?
When walking by an ice cream shop on the street 72.2%
When craving for a certain brand of ice cream 66.1%
When relaxing at home alone 65.6%
Serve as a dessert after meals when dine out 63.9%
Ice cream date with friends at the shop 62.8%
Serve as a dessert after meals at home 49.4%
“Chinese consumers prefer classic flavors”, observed by an ingredient distributor,
“flavors such as chocolate, strawberry, vanilla, and mango are very popular.” The
survey results, shown below, align perfectly with the industry insider’s comments.
“On the other hand, Chinese people are also willing to try new things: durian and
matcha are the new trends of popular flavors in China”. At the same time, it is
important to heed customer needs and stay conscious of their preferences: As a
retailer remarks, “Chinese customers complain the products being too sweet for them,
although I have already controlled the sugar around 27%. They also express concern
about the product being too colorful; they are afraid too much color is not good for
health”.
28Market Overview On Gelato, Coffee And Sweet Food In China
Which ice cream flavor do you like?
Chocolate 73.9%
Vanilla 65.6%
Milk 62.8%
Strawberry 57.2%
Matcha 44.4%
Coffee 42.2%
Melon 40.0%
Cheese 36.7%
Hazelnut 34.4%
Pistachio 27.8%
Wine 26.1%
Mint 24.4%
Others 0.6%
The middle-tier price range that target consumers would pay for one-time purchase of
ice-cream is between 36 and 50 CNY (€4.58 to 6.35 EUR). There is also an
outstanding 13.8% of consumers willing to pay more than 81 CNY (€10.29 EUR)—a
possible signal that receptivity is growing towards high-quality gourmet ice cream.
How much would you usually pay for one‐time purchase of ice cream?
4.4% 1.7%
Under RMB 15
9.4% 10.0%
RMB 16‐25
RMB 26‐36
21.7% RMB 36‐50
20.6%
RMB 51‐80
RMB 81‐100
32.2% More than RMB 100
29Market Overview On Gelato, Coffee And Sweet Food In China
While consumers care most about the taste and flavor of their ice cream, the “health”
has almost an equal amount of importance based on the online survey results.
Interestingly, Chinese consumers’ preference for less sweet products makes it easier
to create healthier ice cream without a significant compromise in taste. Gelato is well
positioned to fulfill this unmet need with its fewer calories. In general, consumers are
also seeking more flavors, and thus investment in research and development is needed.
Other suggestions by consumers include a softer ice cream texture as well as more
innovative shapes when it comes to serving ice cream. These are peripheral product
attributes that can be leveraged to increase differentiation from other gelato brands.
Improvement Suggestions on Ice Cream (part 1)
30Market Overview On Gelato, Coffee And Sweet Food In China
Improvement Suggestions on Ice Cream (part 2)
Implications
International brands and products entering China have enormous and varied
advantages, including a reputation for superior food quality and safety as well as
authenticity through experience. Due to increasing demand for healthier and more
varied ice creams, coupled with the premiumization trend, gelato has become
increasingly popular among Chinese consumers. Nevertheless, competition is fierce
due to rising interest in this segment, and challenges exist in gaining market share.
With the dominance of the online shopping market in China, artisan gelato
manufacturers must combat digital sales of industrial ice cream makers and drive
customers back into brick-and-mortar stores. Gelato market players need to seek the
best competitive advantages to define and maintain the product’s uniqueness through
product innovations and nutritional messages. From a marketing perspective, gelato
producers need to emphasize the naturalness and authenticity of the product through
31Market Overview On Gelato, Coffee And Sweet Food In China
product attributes as well as leveraging the well-established reputation of Italy as a
producer of gourmet ice cream.
Based on the industry expert interviews, two schools of thought exist in regards to
flavor innovation. One school of thought believes in localization of flavors through
new developments (e.g., durian and matcha) that help drive adoption among Chinese
consumers. The other school of thought is to retain the tradition and authenticity of
gelato by maintaining and asserting the original flavors upon new customers. Whether
a gelato producer chooses to keep only traditional flavors or localize flavors with
local ingredients, the product and brand must convey a unified message so that
customers know what to consistently expect. A traditional brand may tout the
luxuriousness and authenticity of their gelato while a localized brand may message
about their farm-to-fork process of gathering local ingredients. Either way, to further
drive success, gelato manufacturers will need to understand and adapt to Chinese
culture and trends.
Major international ice cream brands such as Nestlé all have different ice cream
flavors in China than in Western markets—often times, the products are made not as
rich or sweet, aimed at satisfying Chinese palates. Integrating local flavors has also
been shown to be effective in terms of bringing excitement to potential consumers.
When French chef Gerard Taurin offered his latest creation in Beijing back in June
2015, most of his ice creams were made with unusual but very Chinese ingredients,
such as jasmine, goji berries, ginger and Sichuan peppers. Moreover, according to
China Daily, Huangjiu Bangbing (黄酒棒冰; Huangjiu is a type of Chinese wine), a
new type of ice cream, has taken the market by storm in 2016 with its infusion of
traditional Chinese wine flavors; their remarkable sales (more than 40,000 sticks sold
in one summer in Ningbo, a city in East China's Zhejiang province) indicates the
popularity potential of innovative flavors among Chinese consumers. To provide
32Market Overview On Gelato, Coffee And Sweet Food In China
some guidance on new flavors, some popular local flavors in China include red bean,
taro, green tea, sesame, and dates. Other Asian fruit flavors those are unlikely to be
found in Italy, such as lychee or durian, can also be used to form unique gelato
flavors.
In order to educate consumers about gelato, industry experts advise business players
to organize roadshows, gelato competitions, exhibitions, etc. These events will serve
as educational opportunities where both brands and consumers can exchange
information and become educated about each other. As suggested by one distributor,
flagship stores are great marketing and business investments where gelato chefs can
demonstrate the production process and educate consumers. Moreover, cross-
promotion across other industries is a powerful way to enter the market through
partnership growth. One machinery and ingredients provider stated that, in past few
years, their company has setup gelato booths at event venues like the F1 car racing
course and equestrian events with great success.
Another interviewed distributor also proposes reaching a Guinness World Record for
gelato—for example, having the most people eat gelato at the same time. While these
are merely example, the industry experts suggest that involvement in the everyday life
and culture of Chinese consumers will garner attention for the gelato industry through
the public and media. Partnerships with large businesses or even local governments
could go a long way in covering otherwise immense costs of industry-wide events.
Gelato’s success in China will be a combination of business ventures into unknown
territories as well as PR (public relations) strategies to raise awareness and establish a
unique reputation for gelato.
Finally, understanding how to navigate the ever-changing government regulations will
be key for businesses. This is well illustrated by the account of one gelato retailer’s
33Market Overview On Gelato, Coffee And Sweet Food In China
experience in Shanghai. Even as the business worked with an agency to obtain a
business license, they faced unexpected government regulation changes, which caused
a delay of several months. In the end, while the shop was able to open, they had
already missed the summer peak selling season for gelato.
The Chinese government pays a lot of attention to food safety, but the specific
regulations around gelato remain unclear. Businesses will have to continually look out
for updates and guidance on gelato production in the near future as the Chinese
government becomes more familiar with the production process. As suggested by an
interviewee, recruiting the help of a local company may be beneficial in the long run
to help navigate such complex and sometimes political roadblocks.
It is without a doubt that the gelato market in China will continue growing in the near
future. The most important challenges that gelato producers will need to continue
tackling are education, cultural assimilation, and financial feasibility. As suggested by
many industry experts, education on a brand and industry level will act as a catalyst
for faster growth through greater interest in gelato and a higher willingness to pay for
it. Moreover, adapting to cultural norms and localizing the taste of gelato will help
gelato products bypass consumer unfamiliarity and into consumers’ comfort zones.
Lastly, scales of economies should be leveraged to reduce the overall cost of doing
business in China so that more producers, distributors, and retailers are incentivized to
expand access to gelato. Ultimately, the goal is to create a positive cycle of
profitability that will in turn lead consumers to be more frequently exposed to gelato
experiences. The inextricable link between consumer demand and gelato supply will
continue to grow as long as the barriers are addressed on both sides with long-term
prospects in mind.
34Market Overview On Gelato, Coffee And Sweet Food In China
References
Mintel 2017 (1)
http://www.mintel.com/press-centre/food-and-drink/chinese-consumers-increasingly-s
nacking-on-ice-cream
Mintel 2017 (2)
http://store.mintel.com/ice-cream-china-june-2017
Euromonitor 2017
http://www.euromonitor.com/ice-cream-and-frozen-desserts-in-china/report
Business Wire 2017
https://www.businesswire.com/news/home/20170815005772/en/Gourmet-Ice-Cream-
Market---Top-Regions
Marketing To China 2017
https://www.marketingtochina.com/the-ice-cream-market-in-china-the-love-of-brands
/
Daxue Consulting 2017
http://daxueconsulting.com/hot-trend-indulgence-ice-cream-industry-china/
Sohu 搜狐财经 2017
http://www.sohu.com/a/151508689_465354
Cision 2016
35Market Overview On Gelato, Coffee And Sweet Food In China
https://www.prnewswire.com/news-releases/ice-cream-market-trends-in-china-30022
9662.html
China Daily 2016 (1)
http://www.chinadaily.com.cn/business/2016-07/06/content_25981456.htm
China Daily 2016 (2)
http://www.chinadaily.com.cn/food/2016-08/04/content_26345623.htm
The Telegraph 2016
http://www.telegraph.co.uk/news/world/china-watch/business/russian-ice-creams-hot-
in-china/
East Day News 东方网 2016
http://sh.eastday.com/m/20160421/u1a9312426.html
Eurasia Consult 2015
https://chinafoodingredients.wordpress.com/2015/08/21/china-the-worlds-biggest-ice-
cream-market/
Fox Business 2015
http://www.foxbusiness.com/features/2015/07/30/china-scoops-up-top-spot-in-ice-cre
am-market.html
36Market Overview On Gelato, Coffee And Sweet Food In China
SECTION 4：The Pastry and Bakery Market in China
Types of bakery and pastry products in China
In China, the main bakery & pastry products include bread, cakes, mooncakes, pastries
and desserts (according to IBIS World). Accompanying these major categories are
other smaller segments such as biscuits, cookies, crackers, and baking mixes. The
industry has largely been dominated by bread as it represents a common staple with
which Chinese consumers are familiar and consume as a part of their regular diet.
Pastries, on the other hand, are relatively novel in the Chinese market and are thus driven
primarily by “indulgence and affordability”, according to Euromonitor. Common
distribution channels for bakery & pastry products comprise of bakeries, convenient
stores, supermarkets and hypermarkets (combination of supermarket and department
store), and online stores. Artisanal baked goods are mostly sold through bakeries with
constant innovations in terms of products and flavors.
To understand the Chinese bakery and pastry market, it is important to note the
long-standing history that Chinese consumers have with traditional Chinese bakery
products (such as Cantonese bakeries, Suzhou bakeries, and Beijing bakeries), many
of which originated in different regions with their unique styles and flavors. Moreover,
China’s traditional festivals and holidays have a huge influence on market demand for
bakery goods, with a notable example being mooncake. Based on a report from
Bakery and Snacks, Western-style bakery and pastry goods in China are usually
excessively detailed, soft and buttery in texture, and high in sugar and fat content.
They look very much like Western products but often taste different. In fact, the
evolution of the bakery and pastry market in China has been a result of integration
between traditional Chinese baked snacks and trendy Western products.
37Market Overview On Gelato, Coffee And Sweet Food In China
Market size indicators and trends
Based on data from Global Industry Analysts, Chinese consumed an average of 5.8 kg
of bakery products per capita in 2017. This number pales in comparison to 87 kg in
Germany, 47.8 kg in the UK, and 39.2 kg in the US. Even in Japan, where the
traditional staple is rice (same as in China), the average person consumes 22 kg of
bakery products per year. These comparisons illustrate the fact that the Chinese market
is far from saturated and still carries immense potential for growth. Based on a report
by IBIS World, China’s bakery industry has grown at an average pace of 10.6% per
year from 2012 to 2017. In addition, many factors are predicted to accelerate this
growth rate: the urbanization process, the rapid pace of work and study, and
transforming consumption habits of younger generations.
The graph below illustrates the recorded and forecasted revenue for Bread and
Preserved Pastry Goods & Cakes segments in China from 2010 to 2021. While it
demonstrates a steady growth rate in both categories, pastry goods and cakes are
predicted to have greater growth.
Revenue of Baked products in China
Source: Statista 2017
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