NEW YORK, Nov. 20, 2012 /PRNewswire/ -- Rabobank has published a new research report on China's potential as a growth market for European and North American processed food brands, and the importance of distribution channels as the means of doing so. 

In a new report, Rabobank's Food & Agribusiness Research and Advisory group says that mastering distribution strategies will be key to the efforts of North American and European food processing companies to win over Chinese customers.  

Rabobank analyst Ivan Choi says in the report, "The Chinese economic miracle is now part of business folklore and the conventional wisdom is that, if you are not operating in China already, then you have missed out on a massive economic opportunity. However, Rabobank believes that within the processed food sector, there are still opportunities for European and North American brands facing flat growth at home. The key to winning over Chinese consumers is mastering distribution strategies."

The confectionery market can be seen as a microcosm of the wider processed food industry in China and illustrates why it is not too late to enter the market.  Annual growth in some areas of the country is at 10 percent, and despite market growth of 150 percent in the last decade, Rabobank believes high growth potential remains. Currently, the Chinese consume less than 1.2 kg of confectionery per person every year, against a global average of 2.1 kg, and buy mainly during the festive seasons, rather than all year round as in other markets. The key for foreign brands entering this market can be distilled down to tactics applied for specific sizes of cities within the country.

China's 22 largest cities, which include Shanghai, Beijing and provincial capitals, offer a market of 54 million households, with a confectionery sector of Rmb37 billion (4.6 billion euro). Sophisticated urban consumers want premium confectionery products from North America and Europe, which benefit from the perception that they are higher quality and 'safe' product. In the big cities, foreign brands can also take advantage of modern retail networks.

In the 3.1 billion euro market of smaller cities where networks are less established, local brands have a stronger position and the key to success is to choose the right distribution network. With a relatively low penetration of modern retailers, traditional stores are still where the majority of customers shop. It requires a large network of distributors and middlemen, or a large in-house distribution capacity, to get products into shops. Companies such as Nestle have successfully partnered with local brands that have established distribution networks, but an equity stake is the key to getting the most out of such deals.

Ivan Choi says; "In China, where consumers have limited brand loyalty and distribution channels are fragmented, the main competitive differentiator is making products available to a wider selection of consumers. While distribution is the key to foreign companies' success in the confectionery sub segment, its importance is also evident in the broader processed foods sector. This is partly due to the Chinese retail market being so large and fragmented, with the top five retailers holding only a small percentage of the market."

Brands must tailor their strategy to the different sub-markets within the country. Provinces in China vary greatly in their taste preferences, spoken languages and cultural practices as well as having different distribution chains. "Foreign confectionery brands should view different provinces as different markets and adjust products accordingly when contemplating a 'China' market entry strategy," Choi advises.

In a market where consumers place brand name as a secondary decision factor, European and North American brands are in better position to trump local Chinese brands with their perceived premium brand position and safe quality image, but all this will hinge on these companies identifying their optimal distribution strategy to succeed in China.

The Rabobank report on the Chinese market potential for European and North American processed food brands is available to media upon request.

Rabobank Group is a global financial services leader providing wholesale and retail banking, asset management, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries.  In North America, Rabobank is a premier bank to the food, beverage and agribusiness industry.  Rabobank's Food & Agribusiness Research and Advisory team  is comprised of more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture.   www.Rabobank.com 

SOURCE Rabobank