Yee Man Chin, director at Fitch Ratings, said changing consumer tastes in the much more competitive food market in China, along with a sharp increase in food imports, are posing immense challenges to traditional local players such as Want Want. “Chinese consumers, especially the middle class, tend to upgrade their spending and look for alternatives,†Mr Chin said.
Other local players are in the same boat. China Mengniu Dairy, the largest dairy manufacturer by market share, is suffering as domestic formula milk loses out to imports. The company saw its net profit last year grow only 0.7 per cent to Rmb23.6bn, while revenue slipped 2 per cent to Rmb490bn.
“Of the existing 4,000 milk formula brands in China, I’m afraid 75 per cent will eventually go out of business,†Lu Minfang, chief executive of Yashili International, told reporters in Hong Kong. Mr Lu put this down to price wars as well as the changing preferences of Chinese consumers.
The sluggish economy and intense competition have hurt beer sales as well. China Resources Beer, the leader by market share, is counting on the premium segment to boost margins as its revenue growth slowed to 1 per cent at HK$34.8bn (US$4.5bn) last year, and sales volume contracted 1.3 per cent.
Hengan International, the number one diaper and sanitary napkin maker, is also aiming upmarket. The company’s full-year net profit rose 3.4 per cent to HK$4.05bn, on revenue growth of 2.6 per cent to HK$24.5bn.
Xu Shui Shen, chief operating officer and deputy CEO, said the group will focus more on mid to high-end diaper sales, which rose 22 per cent despite the slowing domestic economy. Meanwhile, sales of low-end diapers fell 23 per cent due to fierce competition.
“China’s living standards have improved. It is now time to turn around and go upmarket,†said Mr Xu, adding that the end of China’s one-child policy, announced last October, will boost demand for quality child care products.
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