Can The Chinese Infant Formula Market Keep Growing?

Thursday, September 21st, 2017

China’s infant formula market is the biggest in the world. Sigalit Zchut, clinical marketing manager, infant nutrition, Infat-Advanced Lipids, explores its extraordinary growth.

Last year 130 million babies were born, according to the World Health Organisation. In fact, the National Bureau of Statistics of China reported in 2015 that of those, more than 16 million began their lives in the country. The sheer size of China’s population—1.3 billion—and its birth rate represent obvious opportunities for manufacturers of formula for infants. Almost 700,000 metric tons of formula is sold in the country each year; in contrast, US sells 147,000, France 87,000, and UK 68,000, according to Euromonitor International statistics in 2015.

While 12 percent of new babies in the world are Chinese, the country accounts for a whopping 40 percent of the global retail market for infant formula. Why? Part of the reason lies in the Chinese culture where babies are valued extremely highly—financially as well as emotionally.

In some respects this is a legacy of the country’s one-child policy, which was introduced in the 1970s in an attempt to curb population growth. As one commentator has put it, the Chinese parent greatly values his or her solitary child because of the “major investment” and “national resource” that he or she represents.

It follows then that significant amounts of money are devoted to children—families invest between nine and 11 percent of their income on their offspring, much of it on formula. Specifically, according to a CBME consumer research report in 2014, parents of a child aged between 13 months and two years spend an average of RMB844 (US$126.52) on formula every month.

But it is not just parents who look after the children—another clue to high sales of formula. There’s a popular saying in China that “it takes six adults to raise one child” reflecting the importance of the role played by other family members, particularly grandparents.

China’s infant formula market is not only one of the world’s largest, but also one of the fastest growing—between 2010 and 2015, it increased by 14 percent in volume and by 19 percent in value.

There are no signs of this trend abating and it is expected to continue for a number of reasons.

Last year, the country’s single child policy became a two-child policy—17 percent of parents now plan to have more children, and 26 percent are considering it. Moreover, the urbanisation of China in recent years has led to greater numbers of women entering the workforce. Disposable income and minimum wages are growing, reported the National Bureau of Statistics of China in 2013.

Such shifts are impacting the kind of formula that people are buying, with parents increasingly demanding both high nutritional value and premium products. In 2013, super-premium products accounted for 14 percent of the formula sold in Chinese baby specialty stores. By 2014 that had grown to 18 percent.

What Influences Choice Of Formula In China?

But recognising the scale of the opportunity is only the start. Manufacturers who want to maximise sales in China need to understand what motivates the country’s consumers, and the extent to which their requirements and habits differ from those in other markets.

Recent research offers some fascinating insights into what is going through the mind of the Chinese mother buying formula for her child. UBM conducted a detailed analysis based on a survey of 3,300 Chinese mums (of children up to between two and three years) and mums to be (more than five months pregnant). They were presented with a range of factors and asked which they considered important when shopping for formula.

By far the two most important factors in the survey were nutritional benefit and safety—both chosen by around half of the survey respondents. By contrast, much less importance was placed on price, which was picked by only 17 percent and ranked behind other considerations such as place of origin, raw materials and taste.

Also of note was the fact that brand was an important consideration for little more than a quarter (27 percent) of the women surveyed. Like their counterparts in other countries, Chinese mums who purchase infant formula seem to display little loyalty to any one product.

In fact, brand seems to be becoming less important for consumers: between 2013 and 2014 it dropped from the second highest priority to the fifth, identified as important by little more than a quarter of the parents surveyed. For the youngest mothers—those born in the 1990s—it was even less of a consideration. Packaging only influenced four percent.

A further interesting trend was the emergence of ‘organic’ as an influencing factor, which rose to become the third most important consideration, perhaps reflecting growing concerns about the environment among Chinese consumers. Similarly, when asked about food products for children generally, ‘ecofriendliness’ rose from number 10 to number 3 between 2013 and 2014.

Overall, the research provides a snapshot of society where an expanding middle class has more and more spending power, and where consumerism is increasingly dominant. Yet this has not created a scenario where brand matters more—instead properties that relate to quality are becoming more important.

The Gold Standard—Chinese Mothers Want Formula That Imitates Mother’s Milk

And when it comes to quality, Chinese mums want something that imitates ‘mother’s milk’ as closely as possible.

Human breast milk is the gold standard towards which every formula brand should strive. There is no doubt that it provides the optimal nutrition for infants, delivering a perfect balance of nutrients that naturally meets every need in the first months of life.

In a world where breast-feeding is not always possible, it is vital that formula manufacturers come as close as they possibly can to the real thing.

The question is not whether or not we should imitate mother’s milk, but what exactly about it we should imitate.

Fat comprises about 26 percent of dry breast milk and provides the new-born with half the energy he or she needs for proper growth and development. Most infant formula manufacturers use vegetable fat in their formula, but this is very different from the fat found in breast milk. The main reason for the difference is the unique structure of the fat in human milk. Both human milk and vegetable oil are triglycerides, meaning that they are comprised of different fatty acids attached to a glycerol backbone. However, there is a very major difference between them.

Most (70-75 percent) of the palmitic acid in human milk is attached to the glycerol backbone in a position known as sn-2 (also known as sn-2 palmitate, beta-palmitate, or OPO). By contrast, only 8-10 percent of their palmitic acid in vegetable oils is attached in the sn-2 position. An indicator of the importance of sn-2 palmitate is that it is found in the breast milk of all women, regardless of their ethnic origin or diet.

So while the move to milk formula containing fat was hugely important, the development of sn-2 palmitate from vegetable sources was nothing less than a game-changer. By mimicking the fatty acid positioning of human milk, it delivers many of the same benefits.

Sn-2 palmitate, therefore, allows manufacturers to offer products that deliver many of the benefits of human milk. Their clinically proven benefits—for healthy growth, comfort and wellbeing— are very well known in China, far better than anywhere else in the world, explaining why sn-2 palmitate, or OPO as it is often referred to in China, is the fastest growing premium ingredient in the Chinese formula market.

There is therefore every reason to be optimistic about the future. But manufacturers would be wise to pay attention not just to the size of the market, but also to the growing importance that Chinese parents are placing on premium ingredients, in particular OPO.

The most important lesson is that in China—as in the rest of the world— you cannot rely on branding, or on low prices. In the world’s largest formula market, your product stands the best chance of success if it guarantees safety and contains ingredients that offer parents the highest nutritional value, and mimic mother’s milk as closely as possible.