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Rabobank Report: Growth Of Food Brands In China

NEW YORK, Nov. 20, 2012 /PRNewswire/ -- Rabobank has published a new research report on China's potential as a growth market for European and North American processed food brands, and the importance of distribution channels as the means of doing so. 

In a new report, Rabobank's Food & Agribusiness Research and Advisory group says that mastering distribution strategies will be key to the efforts of North American and European food processing companies to win over Chinese customers.  

Rabobank analyst Ivan Choi says in the report, "The Chinese economic miracle is now part of business folklore and the conventional wisdom is that, if you are not operating in China already, then you have missed out on a massive economic opportunity. However, Rabobank believes that within the processed food sector, there are still opportunities for European and North American brands facing flat growth at home. The key to winning over Chinese consumers is mastering distribution strategies."

The confectionery market can be seen as a microcosm of the wider processed food industry in China and illustrates why it is not too late to enter the market.  Annual growth in some areas of the country is at 10 percent, and despite market growth of 150 percent in the last decade, Rabobank believes high growth potential remains. Currently, the Chinese consume less than 1.2 kg of confectionery per person every year, against a global average of 2.1 kg, and buy mainly during the festive seasons, rather than all year round as in other markets. The key for foreign brands entering this market can be distilled down to tactics applied for specific sizes of cities within the country.

China's 22 largest cities, which include Shanghai, Beijing and provincial capitals, offer a market of 54 million households, with a confectionery sector of Rmb37 billion ( 4.6 billion euro). Sophisticated urban consumers want premium confectionery products from North America and Europe, which benefit from the perception that they are higher quality and 'safe' product. In the big cities, foreign brands can also take advantage of modern retail networks.

In the 3.1 billion euro market of smaller cities where networks are less established, local brands have a stronger position and the key to success is to choose the right distribution network. With a relatively low penetration of modern retailers, traditional stores are still where the majority of customers shop. It requires a large network of distributors and middlemen, or a large in-house distribution capacity, to get products into shops. Companies such as Nestle have successfully partnered with local brands that have established distribution networks, but an equity stake is the key to getting the most out of such deals.

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