Pragmatic approach recommended to tap huge eastern potential
Now more popular than milk, China’s yogurt market lures international newcomers
One of these, The Yoghurt Shop in South Australia, has been charging into Asia in a bid to capitalize on the region’s growing appetite for high-grade dairy products, and hopefully China’s extraordinary margins.
Yogurt consumption has been going gangbusters in China, where annual growth of 20% has continued over the last five years. Last year, the category even surpassed plain milk in terms of value sales for the first time.
According to Euromonitor, yoghurt saw RMB122bn ($17.6bn) of sales in 2017, divided mostly among China’s dominant dairies: state-run Bright Dairy and private competitors Mengniu and Yili. With 70% of the market, these three have been able to charge higher prices for yogurt because of perceptions that it is more nutritious than milk and can be slimming.
The likes of Bright, Mengniu and Yili have been enjoying profit margins from their yogurt brands that are double those of milk, at about 40%. This promise has been making the market even more attractive for manufacturers of cultured dairy products across Asia-Pacific.
The Yoghurt Shop started at the Adelaide Central Market in 2003 and grew to eight outlets in South Australia before shifting its focus to manufacturing packaged products for the national market.
The company expects to almost triple its sales in Asia from 3% to 8% of its business within 12 months, and plans to expand across Southeast Asia by 2022.
Last year it began exporting its single-serve lines to Brunei, where it is available in five retail outlets. In April it also started selling through a distributor in Thailand.
Working closely with one of the largest food retailers in Hong Kong and Singapore, Dairy Farm International Holdings, The Yoghurt Shop began trialing products at the beginning of this year in a Hong Kong outlet, following which it now has orders from 50 more supermarkets.
Managing director Simon Reynolds said the Hong Kong expansion would lead to distribution through sister stores in Singapore by the end of the year.
“We’re really hoping that if Hong Kong takes off, it will give us a lot of credibility in Singapore,” he said.
Looking to China
After a trial shipment to Shanghai was accepted a couple of months ago, it was anticipated that this will lead to initial orders into China.
The Yoghurt Shop products blend traditionally made Greek yogurt with premium Australian fruit, nut and gourmet products. The company produces more than 30 retail yogurt variations and 10 flavors of frozen yogurt at its factory between the Barossa Valley and the South Australian capital Adelaide.
Reynolds said not all varieties were available in every export market because flavors have been tailored to specific countries.
“We’ve done a slightly sweeter version of our yoghurt for China, in Brunei they love fruits and in Hong Kong they want the more complex and decadent styles with crumbles and fudges,” he said.
According to Mintel’s associate director for food and drink, Loris Li, flavor choice is pivotal, along with innovation, in the Chinese market.
“Although consumers’ consumption frequency is lower than last year, China’s yogurt market will keep growing in both the ambient and chilled sectors. The active innovation in flavor and texture, and the introduction of new product formats will be the main impetus, driving the premiumization trend,” she said.
“Local brands have started to join the national competition, which is good for the market to stay in a healthy developing status.”
Expanding from China
It is not just one-way traffic into China, and China’s Bright Dairy has been aiming a push into Southeast Asia. Late last year, it launched one of its premium yogurt drinks in Hong Kong as the first step in an overseas mission to put its products on the supermarket shelves of Macau, Thailand, Singapore and Indonesia.
“Hong Kong is only our first stop: we want to go places further,” Luo Hai, the company’s deputy general manager told reporters. The Shanghai-based company is aligning its overseas strategies “to be in line with the government’s Belt and Road Initiative, to expand to countries” along the way, he said.
The company is counting on its hit product, Momchilovtsi, a premium yogurt drink produced by villagers in southern Bulgaria, to repeat its sales success beyond mainland China. The product, containing bacteria beneficial to digestion and health, can be drunk with a straw and doesn’t require refrigeration.
Its sales have reached RMB6bn domestically, out of almost RMB20bn worth of total sales for the company. Bright said it was hoping for similar sales success with the product in Hong Kong.
Meanwhile, Yili’s Ambrosial, an ambient Greek-style yogurt drink, has been generating a buzz in Southeast Asia, especially among the local ethnic Chinese in Malaysia and Singapore. It has been marketed with heavy use of online brand ambassadors in these countries.
Back in South Australia, Reynolds said that The Yoghurt Shop has been taking a pragmatic approach to its Asia-ward expansion.
“The key for us is to have numerous small client bases around Southeast Asia so we’re giving ourselves stability as we grow without relying on one or two markets or distributors,” he said.
“We’re not aiming for big volumes that would interest the big players, we’re looking to supply distributors that recognize our product as being premium and can market it to that top 20%,” he added.
It is also looking west, with plans to export to the UAE and Qatar in the future. With established supply routes in place, Reynolds anticipates that exports could eventually account for half of the company’s total sales within five years. Not a bad prospect for a simple market trader just 15 years ago.