1 Aug 2017
China’s Health Food Market
I. Market Overview
Sources in the mainland estimate that China’s health food market will grow at an average annual rate of 10-15%, from RMB260 billion in 2016 to RMB400 billion in 2021. Moreover, consumers’ mind-set about health food is gradually shifting from being seen as luxury goods to ordinary consumer products.
The Outline of the Programme for Food and Nutrition Development in China (2014-2020) mentions that the state will actively raise the nutrient intake of its people, and will make the development of health food and nutrient fortified food one of its priorities. This will help boost the development of China’s health food market.
China’s health food market first emerged in the 1980s. According to the National Food Safety Standard - Health Foods, health food refers to food products which claim to have specific health functions or supplement vitamins or minerals intake. Health food is suitable for consumption by specific groups of people and regulates human body functions, but is not used for the purpose of treating disease. Furthermore, such food should not pose any acute, sub-acute or chronic hazard.
Classification of health food:
(a) Two categories
Food with specific health functions: Food that shares common properties with general food that regulates human body functions, but is not used for treating diseases and is suitable for consumption by specific groups of people.
Nutritional supplements: These products supplement nutrients, with vitamins and minerals as major ingredients. They include single-ingredient and multi-ingredient nutritional supplements.
(b) Three types
Traditional health food: This refers to products which are prepared using traditional Chinese methods based on the concept of regulation and balance in traditional Chinese medicine.
Modern health food: This refers to health products, which use nutrients or supplements as major ingredients.
Functional health food: These products include those used for specific health purposes, such as nourishing the heart and the liver, improving sleep or facilitating digestion.
As of July 2017, the China Food and Drug Administration (CFDA) had approved a total of 16,631 health food products, of which, 15,879 were domestically made and 752 were imported. The main functional categories of health food products are immunity enhancers, vitamins, fatigue alleviators, sleep inducers and blood lipids reducers.
Survey data from the China Health Care Association shows that sales of health food in China are around RMB200 billion annually, of which consumption by the middle-aged and the elderly accounts for more than 50%. This shows that the potential for the health food market targeting the middle-aged and elderly is the largest. As living standards continue to rise, seniors are paying increasing attention to keeping healthy and enhancing immunity. As a result, health products have become a popular choice for elders to stay fit and healthy. Market forecasts predict that between 2014 and 2050 China’s elderly population consumer market will jump from about RMB4 trillion to about RMB106 trillion and it is estimated that spending on health, wellness and medical care will grow particularly sharply.
Health food mainly offers such benefits as regulating the immune system, fighting fatigue, anti-ageing and regulating blood lipids. Since Chinese society is beginning to age, nutritional supplements and health foods targeting the elderly will be one of the leading product groups on the market. According to the Statistical Communiqué on the 2016 National Economic and Social Development issued by the National Bureau of Statistics, as at the end of 2016, the population of seniors aged 60 or above stood at 231 million, accounting for 16.7% of the total population. It is projected that the mainland’s senior population will reach its peak at more than 400 million in 2050.
In 2016 the CFDA released a list of food manufacturing enterprises prioritised for random inspection. The list covers 1,452 food manufacturers under 28 categories. Such inspection aims to strengthen health food industry regulation to safeguard consumer rights. The focus of regulation is on “illegal adding of ingredients” and “deceptive advertising” while the number of industry-wide random inspections has also been increased.
II. Market Competition
According to CFDA’s Food & Drug Statistical Yearbook 2016, there were 2,328 health food manufacturing enterprises in China as at the end of 201In terms of market concentration, it is estimated that large enterprises with more than RMB100 million in total investment account for only 2% of the total.
In terms of geographic distribution, health food manufacturing enterprises are concentrated in the six coastal provinces/cities of Beijing, Guangdong, Shandong, Shanghai, Jiangsu and Zhejiang, which together account for about half of the total number of such enterprises in China. However, in the western region, including Xinjiang, Ningxia, Tibet and Qinghai which are rich in traditional Chinese medicinal herbs, the number of health food production enterprises is just a few tens.
The enormous market potential and development opportunities in China’s health food industry would not only induce more players in the pharmaceutical industry to undergo transformation, but also offer some pharmaceutical enterprises the chance of breaking out of their current situation. Given their existing R&D, production and marketing capabilities, pharmaceutical enterprises have an edge in moving into the health food industry.
The rapid entry of foreign health food is bound to change the market landscape. Multinational health food enterprises generally have greater advantages in terms of financial clout, R&D capability, production and marketing. Nevertheless, there are also adverse factors hampering the development of imported health food. For instance, the traditional Chinese culture of medicinal food and therapeutic cuisine has a strong influence on mainlanders.
It is estimated that sales of foreign brands in the Chinese market has continued to grow in recent years. In addition to Amway, the global health food and nutritional supplements giant, Avon and Herbalife were also granted approval by China’s Ministry of Commerce to include health food in the scope of their direct selling business. Pharmaceuticals manufacturers such as Pfizer and GlaxoSmithKline are also actively developing the Chinese health food and nutritional supplements market. Leading enterprises in the traditional health food market currently include Wanji, Golden Sun, Infinitus, Hong Fu Loi and Dong-E E-Jiao, accounting for the lion’s share. In the functional health food market, Shanghai Jiaoda Onlly is one of the major suppliers.
China has been adopting an examination and approval system for its health food market. The new Food Safety Law came into force on 1 October 2015. In this new law, 13 provisions are related to “health food”, providing various stipulations in market-access permission, production administration, market supervision and advertising administration, with penalties in case of violation. The new law also provides for the concurrent implementation of a health food record-filing system and a registration system. Regulatory authorities will maintain records on the production and sales of registered products for comprehensive supervision.
According to reports, there are 12,807 types of Chinese herbal medicine resources in China. With 4 billion people worldwide currently using products related to Chinese herbal medicine, the international influence of Chinese medicine is increasing. A number of international health food companies have successively co-operated with relevant Chinese agencies in building global platforms for Chinese herbal health food and cosmetics research. For example, the Amway Botanical Research Center in Wuxi established by Amway with an investment of US$25 million has been operational since late 2015.
III. Sales Channels
At present, sales channels used by health food enterprises mainly include direct selling, conference marketing, traditional marketing, chain operation, e-commerce, academic marketing and other models. Enterprises using the direct selling and conference marketing models achieve higher sales revenue.
Following the implementation of the Regulations for the Administration of Direct Selling in 2005, direct selling of health food was granted legal status in China. As a sales channel for health food, direct selling has gained great popularity because it reduces intermediate links in circulation and saves operating costs.
Conference marketing, also known as database marketing or club marketing, is a marketing model whereby enterprises collect consumer data through various channels and build databases after analysing and aggregating the information. Targeted marketing is then carried out at specific customer groups during conferences by bundling various promotional tactics.
Currently, traditional marketing still plays a prominent role in the health food market. In traditional marketing, sales channels and sales strategies are determined in accordance with product features. The sales channels for general nutritious or gift type products are mainly shopping malls and hypermarkets, while the main seasons for promotion and sales are the Chinese New Year and festival holidays. For products with therapeutic functions, drug stores are the leading sales channel. Advertising has a relatively professional look, with promotion and sales carried out during seasons appropriate to the products.
The emergence of specialised health food chain stores marks the separation of health food sales from that of drugs and food. In the past, supermarkets and drugstores were the most direct health food sales channels. According to the trade, sales channel specialisation is becoming a trend.
Thanks to the rapid growth of the media industry, TV and online are becoming increasingly important channels for the sales of health food. Selling health food online is popular because this sales method is in line with the spending habits of modern customers. It can also save the cost of setting up counters in department stores or supermarkets and thus products can be priced lower than in physical outlets. Consequently, more and more people are now buying health food through online e-commerce platforms or TV commercials.
In recent years, foreign health food brands have expanded into the mainland market through cross-border e-commerce. For example, Swisse and Blackmores, two Australian health food brands, have set up overseas flagship stores in Tmall Global to sell natural and health food.
Academic marketing for health products is targeted at the potential demand of specific consumers through educational and interactive activities which can stimulate interest in further understanding product functions or even purchase. An effective tool in stimulating market demand, academic marketing usually comes in the form of exchange activities, such as academic forums for medical practitioners and clients, and health seminars for local communities. Scientific publications often serve as giveaways to enhance promotional effects.
Selected trade fairs for the health industry lined up for 2017 and 2018 include:
Date Exhibition Venue 15-17 September 2017 Chinese Congress on Gerontology and Health Industry Suzhou International Expo Center 29 November - 1 December 2017 Beijing International Ageing Industry Expo 2017 China International Exhibition Center, Beijing 12-14 December 2017 Natural & Nutraceutical Products China Guangzhou 2017 PWTC Expo, Guangzhou 28-30 November 2017 China International Healthcare Expo and China (Guangzhou) Healthcare Festival China Import and Export Fair Complex (Guangzhou) 8-10 April 2018 China International Health Industry Expo China International Exhibition Center, Beijing
IV. Import and Trade Regulations
In 2008, the responsibilities of CFDA underwent two major changes. First, its responsibility for coordinating food safety and investigating major food safety incidents was transferred to the Ministry of Health (MOH). Second, it took over MOH’s responsibility for supervising food safety (such as food hygiene licensing, the catering sector and canteen catering) as well as overseeing health food and cosmetics.
When an application is made for health food certification, it can be classified either as functional health food or as nutritional supplement but cannot be classified as both.
Enterprises wishing to produce health food must apply to the provincial-level administrative department of health and can only engage in production after obtaining a food hygiene licence. To import health food products, an imported health food approval certificate from CFDA must be obtained. This document is a certification granting approval for the product to be imported and sold on the market within Chinese territory.
After taking over the responsibility for supervising health food, CFDA has expanded the scope of health foods’ function certification from 22 to 27 functions. These functions are classified into two main categories. The first category consists of a total of 16 functions related to prevention of diseases, alleviation of symptoms and auxiliary therapy. The other category consists of 11 functions related to enhancing human health and physical fitness. Health food of the same formula can only apply for certification in not more than two health functions.
The Administrative Measures on the Registration and Record Filing of Health Foods took effect on 1 July 2016, replacing the Administrative Measures on the Registration of Health Foods (for Trial Implementation). Under the new Administrative Measures, health food with ingredients falling outside of the catalogue of health food ingredients and health food imported for the first time (with the exception of health food which are nutrient substances such as vitamin supplements and minerals) are subject to registration. Furthermore, such health food would have to undergo on-site inspection and test reviews organised centrally by an appraisal authority. Health food with ingredients falling within the catalogue of health food ingredients and health food imported for the first time which are nutrient substances, such as vitamin supplements and minerals, on the other hand, should carry out record filing.
The Regulations for the Administration of Direct Selling and Regulations on the Prohibition of Pyramid Selling were passed and implemented in 2005. Under these two sets of regulations, direct selling of health food is permitted in China.
To address the confusion caused by irregularities in advertising in the health food industry, the Provisional Rules on the Examination of Health Food Advertisements stipulates that the contents of a health food advertisement must be consistent with the contents of the user manual and label approved by the food and drug administrative department under the State Council and no arbitrary expansion of scope is allowed. Advertisers must first apply to the provincial-level food and drug administrative department before releasing any health food advertisements. Furthermore, the efficacy of health food must not be compared with that of other healthcare equipment or drugs. Advertising claims based on feudal superstition must not be used.
The Administrative Measures on the Registration and Record Filing of Health Foods has been in force since 1 July 2016 for the purpose of comprehensively regulating the registration, production, operation and supervision of health food businesses.
The Regulations on the Administration of Consigned Production of Health Foods were implemented on 1 January 2014 to address the irregularities in sales and promotional activities of enterprises engaging in the consigned production of health food. Under the new rules, domestic enterprises are not allowed to produce, deal in or import health food produced on a consigned basis. In addition, to further regulate the health food market, food products without a health food approval document number may not make health claims in their labels or instruction manuals.
In the Opinions on the Further Strengthening of the Supervision of Health Foods (For Public Comment) issued by CFDA, it is proposed that health functions should not be used in naming health food products and that the warning “This product is not a substitute for medicines” should be shown in health food advertisements. It is also suggested that daily supervision and inspection of health food should be strengthened, while severe measures will be taken against such activities as illegal production, illegal running of businesses, illegal adding of ingredients and deceptive advertising.
National Food Safety Standard - Health Foods (GB 16740-2014) was implemented on 24 May 2015, replacing General Standard for Health (Functional) Foods (GB 16740-1997). In the new standard, stipulations on the scope, product classification, label identification and technical requirements have been revised.
More details can be found on the CFDA’s website.