30 Aug 2016
China’s Health Food Market
I. Market Overview
According to reports, market sources in the mainland estimate that China’s health food and nutritional supplement market is worth more than RMB1 trillion. Thanks to the people’s rising health awareness, it can be expected that this market will continue to grow.
In the Outline of the Programme for Food and Nutrition Development in China (2014-2020), it is mentioned 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 the priorities. This will help boost the development of China’s health food market.
China’s health food market first emerged in the 1980s. Health food refers to food products which claim to have specific health functions or supplement one’s vitamins or minerals. Health food is suitable for the consumption by specific groups of people and has the effect of regulating human body functions, but is not used for the purpose of treating diseases. Furthermore, such food should not pose to the human body any acute, subacute or chronic hazard.
Classification of health food:
1) Two categories
Food with specific health functions: Such food, which shares common properties with general food, can regulate human body functions. In other words, it refers to food which is suitable for the consumption by specific groups of people and has the effect of regulating human body functions, but is not used for the purpose of treating diseases.
Nutritional supplements: These products, with vitamins and minerals as major ingredients, are used for the purpose of supplementing nutrients for the human body. There are single-ingredient and multi-ingredient nutritional supplements.
2) Three categories
Traditional health food: This refers to products which are prepared using traditional Chinese methods and basing 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 and facilitating digestion.
As of June 2016, the China Food and Drug Administration (CFDA) had approved a total of 16,573 health food products, of which, 15,822 were domestically made and 751 were imported. According to estimates, in China’s health food market, functional food accounts for about 65% while nutritional supplements account for the remaining 35%.
Survey data from China Health Care Association show 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 of the health food market targeting the middle-aged and elderly is the largest. As people’s living standard continues to rise, the senior are paying more and more attention to keeping healthy and enhancing their body resistance. As such, health products have become the best choice for the elders to stay fit and healthy. Market forecast has it that, in 2014-2050, the consumer market of China’s elderly population 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 the Chinese society is beginning to age, nutritional supplements and health food targeting the elderly will be one of the leading products on the market. According to the Statistical Report on the Development of Social Services in 2015 issued by the Ministry of Civil Affairs, as at 2015 year end, the population of seniors aged 60 or above was 222 million, accounting for 16.1% of the total population. It is projected that the mainland’s senior population will reach its peak at more than 400 million in 2050.
The potential of the rural market should not be overlooked. Currently, major health food markets in China are found in the cities, while the penetration rate of health food in the rural areas remains low. In rural areas in economically more developed regions, such as the Yangtze River Delta (YRD) region, consumption power is rather strong but health awareness is weak. As such, market potential is enormous.
Female urbanites are major health food consumers. The scale of the female health food market is set to expand continuously. Most women buy health food for purposes of beauty, weight loss, blood replenishment, bowel movements and detoxification. According to a business report jointly issued by Taobao.com and CBNData, females are main consumers of health food, among them those aged 22-50 account for approximately 60% of the total sales of all health food, while the share of sales to young females (aged 18-28) is gradually increasing.
Inadequate supervision over health food has resulted in the violation of relevant laws in different parts of China. In the second half of 2015, for example, Shanghai Municipal Bureau of Quality and Technical Supervision performed random checks on the packaging of 70 batches of health food products and 25 batches were found to be non-compliant.
While false advertising and exaggerated claims are rife in China’s health food market and even cause a credibility crisis for health food brands, the number of complaints against health food products has actually declined in recent years. According to the China Consumers’ Association, 2,389 health food-related complaints were received in 2015, down by 20% from 3,050 in 2014.
II. Market Competition
According to CFDA’s Food & Drug Statistical Yearbook 2014, there were 2,587 health food manufacturing enterprises in China as at 2014 year end. The concentration rate of China’s health food industry remains low. It is estimated that large enterprises with more than RMB100 million in total investment account for only 2% of the total.
Production of health food in China is concentrated, with the aggregate number of health food enterprises in the six coastal provinces/cities of Beijing, Guangdong, Shandong, Shanghai, Jiangsu and Zhejiang accounting for about half of the national total. However, in the western region including Xinjiang, Ningxia, Tibet and Qinghai where resources of traditional Chinese medicinal herbs are rich, 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 predicament. With their existing R&D, production and marketing capabilities, pharmaceutical enterprises possess greater competitive edge in moving into the health food industry.
The rapid entry of foreign health food is bound to change the landscape of market competition. Multinational health food enterprises generally have greater advantages in terms of financial clout, R&D capability, and production and marketing model. Nevertheless, there are also adverse factors hampering the development of imported health food. For instance, the traditional Chinese culture of medicinal food and food therapy has a far-reaching impact on mainlanders.
It is estimated that sales of foreign brands in the China market has continued to grow in recent years. In addition to Amway, the global health food and nutritional supplement giant, Avon was also granted approval by China’s Ministry of Commerce in 2008 to include health food in the scope of its direct selling business. This move made Avon the second direct selling enterprise after Amway to extend its business scope upon obtaining the relevant licence. Procter & Gamble, Johnson & Johnson, Herbalife, and pharmaceutical manufacturers such as Pfizer and GlaxoSmithKline are also actively developing the China health food and nutritional supplement market. Currently, in the traditional health food market, leading enterprises including Wanji, Golden Sun, Infinitus, Hong Fu Loi and Dong-E E-Jiao account for the lion’s share. In the functional health food market, Shanghai Jiaoda Onlly is one of the major suppliers.
All along, China has been adopting an examination and approval system for its health food market. The new Food Safety Law of China has become effective since 1 October 2015. In this new food safety law, 13 provisions are related to “health food”, providing variously stipulations in market-access permission, production administration, market supervision, advertising administration and penalties in case of violations. Under the new law, the concurrent implementation of a record-filing system and a registration system of health food is proposed for the first time. Regulatory authorities would maintain records on the production and sales of registered products for comprehensive supervision.
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. Direct selling, as a sales channel for health food, 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 the data of consumers through various channels and build databases after analysing and consolidating the data. Targeted marketing is then carried out at specific customer groups by bundling various promotion methods.
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 points for general nutritious or gift type products are mainly shopping malls and hypermarkets while the main seasons for promotion and sales are the New Year and festival holidays. For products with therapeutic functions, drug stores are the sales points, advertising and commercials are relatively professional while promotion and sales are carried out during seasons appropriate to the products.
The emergence of specialised health food chain stores marks the separation of the sales of health food from that of drugs and food. In the past, supermarkets and drugstores were the most direct health food sales channels. According to the trade, specialisation of sales channels is becoming a trend.
Following the rapid development of the media industry, TV and online are becoming increasingly important channels for the sales of health food. E-tailing of health food is popular because this sales method can, on the one hand, keep up with the consumption habits of customers nowadays and, on the other, save the cost of setting up counters in department stores or supermarkets and thus product prices are cheaper than those on the market. Consequently more and more people are now buying health food through online e-commerce platforms or TV commercials.
E-commerce has emerged as a new sales channel for health food in recent years. There are two major sales models in e-commerce. An enterprise may establish its own e-commerce platform, or partner with third-party platforms such as Tmall.com and Taobao.com. The “O2O” model is gaining popularity and will probably become an important trend. Many large suppliers of health products have established their own online platforms in addition to operating brick-and-mortar stores. Consumers are encouraged to try the products in the physical stores and place orders online, thus completing the whole experience and purchase process.
Academic marketing for health products is targeted at the potential demand of specific consumers through informative and inter-active activities which can arouse interest in further understanding product functions or even buying them. 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 2016 and 2017:
IV. Import and Trade Regulations
In 2008, the responsibilities of CFDA underwent two major changes. First, its responsibility of coordinating food safety and investigating major food safety incidents was transferred to the Ministry of Health (MOH). Second, it took over MOH’s responsibility of supervising food safety (such as food hygiene licensing, the catering sector and canteen catering) as well as overseeing health food and cosmetics.
When a certain health food applies for certification, it can be classified either as functional health food or as nutritional supplement and cannot be classified as both at the same time. In other words, when a certain health food applies for certification as nutritional supplement, it cannot apply for certification as functional health food simultaneously. Likewise, when it applies for certification as functional health food, it cannot apply for certification as nutritional supplement.
Enterprises wishing to produce health food products must apply to the provincial-level administrative department of health of the province where it is located 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 the Chinese territory.
After taking over the responsibility of supervising health food, CFDA has expanded the scope of the health functions of health food applying for certification by raising the types of health functions from 22 to 27. These functions are classified into two main categories. The first category consists of a total of 16 types of functions related to prevention of diseases, alleviation of symptoms and auxiliary therapy. The other category consists of 11 types of functions related to enhancing human health and physical fitness. Health food of the same formula can only apply for certification of not more than two health functions.
The Administrative Measures on the Registration and Record Filing of Health Food 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 centrally organised 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 stipulate 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 of the place where it is located before releasing any health food advertisements. Furthermore, the efficacy of health food must not be compared with those of other healthcare equipment or drugs. Advertising claims based on feudal superstition must not be used.
In recent years, the state has strengthened the regulation of health food products and there are quite a lot of newly formulated and revised national standards. For enquiries on relevant standards, please visit the website of the Standardisation Administration of China and the standards website operated by the China Academy of Machinery Science and Technology.
China is in the process of formulating the Regulations on the Administration and Supervision of Health Food, which will govern the registration, production and sale, as well as administration and supervision of health food products in a comprehensive and systematic manner.
The Regulations on the Administration of Consigned Production of Health Food was 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.
“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.
For more details, please visit CFDA’s website eng.sfda.gov.cn/WS03/CL0755/.
 Standardisation Administration of the People’s Republic of China: www.sac.gov.cn/sacen/.
Website on standards: www.standardcn.com (operated by the China Academy of Machinery Science and Technology)