How Growing Appetite for Cheese is Changing China's Dairy Industry
Milkground Food Tech Leads the Way with High-Quality Cheese Stick
China's long-standing culinary culture has never really embraced cheese as a must-have ingredient on dining tables. However, in recent years, increasing interest in international cuisine and the growing influence of Western food culture have started to change this trend. This fascinating shift in taste buds is creating new market opportunities and innovative businesses. For example, Shanghai Milkground Food Tech (600882.CH) became the first publicly traded local company specializing in producing high-quality cheese sticks.
We have translated the key takeaways from an excellent article by DT Finance that explains how cheese made its way to Chinese consumers' tables. We have also added our own data insights to provide a comprehensive look at China's changing cheese consumption landscape. Enjoy the read!
One fact is that compared to other countries, the Chinese have not yet embraced cheese as a dietary staple.
In 2021, the compound growth rate of per capita cheese consumption in China was as high as 18.9%, more than four times that of South Korea. However, in terms of numbers, cheese consumption is still not part of daily life. In 2021, per capita cheese consumption in China was 0.2 kilograms, not only much lower than that of European and American countries, but also lower than that of Japan and South Korea, which are also East Asian countries. (Data source: Euromonitor International)
BigOne Lab's data also indicate sales of cheese products have only grown moderately over the years. In 2022Q4, overall milk and dairy products sold around 7.3 billion CNY through online channels. However, sales of cheese products only accounted for around 3% of that total.
According to Euromonitor International’s data, the main consumers of cheese in China are young people under 35 years old, concentrated in first- and second-tier cities. The consumer base is relatively narrow, and most of them regard cheese as a novelty rather than a daily food.
A respondent to DT Finance, Zhang Wanyin (alias), born in 1995, mentioned that she bought Moka Blue's cheese slices for breakfast, which she learned about from a snack blogger's evaluation video. She also planned to buy mozzarella cheese after being influenced by cooking notes on social media to make pizza. Although these purchasing behaviors were ultimately attributed to "impulse consumption for a better life," as the products were not consumed much after being brought home, Zhang Wanyin had to admit that cheese is indeed delicious, but she does not have the habit of eating it, and the "eating scenario is very limited."
How has cheese consumption evolved in China's dairy industry?
In fact, the development of cheese in China is not a recent phenomenon. As early as 1985, Beijing Sanyuan had already mastered the technology for independent cheese processing and produced the first domestically made cheese. Milkground, the current "China's No. 1 Cheese" brand, was not among the earliest companies to produce cheese.
In 2001, Guangze Dairy, which later became Milkground, was established. At the time, liquid milk and milk powder were experiencing rapid development in China. However, the majority of China's liquid milk market was dominated by Mengniu and Yili. This made it difficult for local dairy enterprises to thrive, as they either had to differentiate themselves or face the possibility of extinction. Despite the vast potential of the liquid milk market, competition remained fierce under the shadow of these giants.
In the early days of Guangze Dairy, founder Chai Xiou noticed a small category of cheese, known as "golden cheese(奶黄金)", which larger companies had yet to focus on.
In 2007, Chai Xiou accompanied a government inspection team to the World Food Expo in France, where she saw thousands of varieties of cheese in the dairy products exhibition hall. This opened her eyes to the many ways cheese could be eaten and how milk could produce a variety of products.
At the time, the domestic cheese market was mostly dominated by foreign brands, and cheese traders found it difficult to make a profit with low sales revenue. So, Guangze Dairy decided to observe the market from the outside first.
After conducting two market surveys, Guangze Dairy found that Chinese consumers had no clear preference for a particular cheese brand. Chai Xiou saw a huge business opportunity and, in 2015, the company acquired Milkground, a producer of restaurant-type cheese, and the Shanghai factory of Danone (OTCMKTS:DANOY). In 2016, the company focused on the cheese business and went public, officially renaming itself Milkground in 2019.
By 2021, Milkground's cheese business revenue had grown from RMB 138 million in 2016 to RMB 3.335 billion. "Today, when consumers mention cheese, Milkground is the most mentioned brand," said Chai Xiou in an interview.
Milkground has made a breakthrough with the invention of cheese sticks, which has enriched the consumption scenario
Having a small market is not necessarily a problem. If an industry can reach the ceiling in segmented categories or categories targeted at specific groups, it can still have strong profitability.
In China, developing consumers' eating habits for cheese is a challenge. Many people, like Zhang Wanyin mentioned in the previous text, want to try cheese, but the consumption scenario is too limited. "Apart from being sandwiched in bread, I can't think of any other ways to eat it," she said.
The first key point for Milkground to open up the market with cheese was the emergence of cheese sticks as a major product. Cheese can be divided into two types: natural cheese and processed cheese. Natural cheese is fermented from raw milk and has higher nutritional value, but it can taste salty and bitter. Processed cheese is made from natural cheese by adding edible flavorings, carrageenan, and other ingredients. It has an improved taste and texture, which better meets the demand of Chinese consumers for snacks. Therefore, most of the cheese available in China is processed cheese, and cheese sticks are one such example.
In 2018, Milkground collaborated with "Paw Patrol," a Chinese anime production, to launch children's cheese sticks and officially enter the retail market. This time, cheese appeared in the form of a snack, which was not only "healthy and nutritious," but also tasty, ready-to-eat, and could be stored at room temperature. In that same year, Milkground added cheese sticks to its core product list, which previously only included mozzarella cheese and various types of liquid milk.
Cheese sticks have also solved the problem of cold chain supply and low-temperature storage and enriched the consumption scenario at the consumer end, providing a nutritious snack for both adults and children.
Milkground's transformation has driven the entire market.
In 2019, cheese sticks only accounted for a small portion of overall cheese purchases. However, the popularity of cheese sticks has completely changed the landscape. As of 2022, almost all online cheese consumption is exclusively cheese stick purchases. In offline channels, cheese sticks consistently account for over 60% of overall cheese product purchases since 2021.
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