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Asian hub

Leading food and beverage companies in China confronted by challenges of demographic change and health-conscious consumers 

Published 16 July 2024 in Asian hub • 5 min read

How have the top companies in the food and beverage sector of this year’s IMD China Company Transformation Indicator got ahead of their competitors? 

China’s food and beverage sector, one of the world’s largest and fastest growing, has previously been driven by a growing middle class, rising disposable income, and urbanization. However, these drivers have shifted towards changing appetites, lifestyles, and health concerns among young and middle-aged consumers.

The 2024 IMD China Company Transformation Indicator (CCTI) reveals that top-ranking companies in the food and beverage sector excel in Early Innovation. Companies quick to respond to changing consumer behavior can adjust their product pipeline to meet new demands and secure market share. Coca-Cola, leading the 2024 CCTI, has succeeded in China by providing flavors catering to the Chinese palate.

The Chinese food and beverage sector is characterized by fierce competition and changing tastes. The leading companies perform well across various factors, from R&D and innovation to China Policy Power and Customer Engagement. Success requires a deep understanding of local tastes, commitment to quality, and continuous innovation.

Food and Beverage sector key factors

A full description of each key factor is in the Methodology section of the white paper.

Food and Beverage sector key factors 

Company perspectives

Coca-Cola has been successful in China by providing flavors catering to the Chinese palate. The company has performed well across factors ranging from China Policy Power to Early Innovation, Business Diversity, and ESG commitment. Coca-Cola’s adaptation to local tastes is evident in its special edition packaging for Chinese New Year, featuring zodiac designs. In 2023, the company launched “Future 3000,” an AI-developed sugar-free Coca-Cola, in partnership with domestic smart technology brand Xiaodu. This initiative allows consumers to access an AI-generated content experience via QR codes. Coca-Cola’s influence extends to industry standards, having participated in developing 21 national standards in China.

Kweichow Moutai has capitalized on its reputation as a premium baijiu liquor brand. The company shows strong financial performance as well as strong performance in the Business Success and Business Robustness sectors. Moutai has embraced digital transformation, launching an online direct sales platform and the “Xunfeng Digital World,” a virtual reality experience of its brewing environment. This interactive platform allows users to explore Moutai’s history, traditions, and brewing expertise. However, Moutai ranks lower in Customer Engagement, Business Diversity, and ESG factors, a trend shared by other Chinese liquor brands.

China’s dairy product companies Mengniu Diary and Yili remain resilient in their rankings, however, China Feihe, a famous national infant formula brand, has dropped out of the top 10, possibly reflecting the plummeting birth rate in recent years. This decline highlights the need for business diversity and new growth strategies in the face of demographic challenges.

Nestlé outperforms many local companies through its focus on R&D, effective customer engagement, and a strong commitment to ESG. The company’s success in Business Diversity is marked by four corporate venture capital investments, five merger and acquisition deals, and 2,610 global media mentions related to these activities. Nestlé has acquired well-known local food brands such as Totole, Yinlu, and Hsu Fuji. In 2023, Nestlé Group CEO Mark Schneider reaffirmed the company’s commitment to investing in China and supporting a China-centric strategy through further acquisitions.

Five key insights from the CCTI for food and beverage companies

The Chinese food and beverage sector is characterized by fierce competition and changing tastes. The leading companies perform well across various factors, from R&D and innovation to China Policy Power and Customer Engagement.

1. Fierce market competition among the best companies  

In an interesting shake-up in the CCTI food and beverage company ranking 2024, Coca-Cola leads because of significantly better performance across various factors, particularly in China Policy Power. This suggests effective improvement in their overall strategy and performance. However, the shifts in ranking among the top 10 companies highlight the dynamic nature of the market, requiring continuous adaptation to attract the more health-conscious post-COVID Chinese consumer.

2. Early innovation is key for sustained success 

The four popular brands – drinks companies Moutai and Wuliangye and dairy companies Mengniu and Yili – are still standing strong and their performance indicates Early Innovation as a key factor influencing sustained success. These four companies have occupied the leading positions in Early Innovation for two consecutive years, although the order has slightly varied. This could suggest that a strong commitment to innovation is crucial for sustained success and long-term growth. 

3. The consumer is still king 

Surprisingly in the 2024 ranking, BYHEALTH, China’s dietary supplement giant joins the leaders, which could largely be thanks to a leading performance in Customer Engagement, indicating that effective consumer interaction and relationship-building could help the company better understand, anticipate, and meet consumer needs, thus maintaining a competitive edge.   

4. Business Diversity contributes to Core Resilience 

For two consecutive years, Nestlé has excelled in Business Diversity, significantly contributing to its Core Resilience. Nestlé’s extensive portfolio, ranging from infant formula and confectionery to coffee and bottled water, enables it to meet a wide array of consumer needs in China. This diversity is bolstered by strategic brand acquisitions, allowing Nestlé to continuously expand and enhance its product offerings, thus ensuring robust market presence and adaptability.  

5. ESG can be an area of improvement for Chinese companies 

The ranking also suggests that foreign MNCs in the food and beverage sector have generally outperformed local companies in ESG rankings, potentially due to a variety of factors including a global approach to ESG with high minimum standards across all their operations, regardless of location; investment in sustainability, corporate governance, social responsibility, and environmental initiatives.  However, it’s also important to consider the broader context and other performance factors that contribute to a company’s overall success. Nevertheless, strong ESG practices can help build a sustainable and competitive business model that contributes to business success and long-term growth. 

The challenge of maintaining a competitive edge

The food and beverage sector in China presents both opportunities for new entrants and risks for current leaders. Companies must have a deep understanding of local tastes, a strong commitment to quality, and continuous innovation to achieve long-term success in this competitive and evolving market. As consumer preferences continue to shift towards healthier options and unique experiences, companies that can adapt quickly and effectively are likely to maintain their competitive edge.

Discover the full results: IMD China Company Transformation Indicator 2024

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