Graphic: FDL Food Data Insights

Bidding farewell to 2023 and looking forward to 2024, we review the hot topics in the food industry during the second half of 2023, grasp the trends of industry changes, explore the potential of new ingredients, and explore new developments in the food sector.

Looking back at 2023, with the recovery and expansion of consumption prioritized, how did national consumption recover? In the first three quarters of this year, the contribution rate of final consumption expenditure to economic growth reached 83.2%, and the contribution rate of domestic demand to economic growth increased to 113%. According to data from the National Bureau of Statistics, total retail sales of consumer goods in the first three quarters reached 34.2 trillion yuan, a year-on-year increase of 6.8%, 1.6 percentage points higher than GDP growth. By consumption type, retail sales of goods reached 30.5002 trillion yuan, up 5.5%; catering revenue reached 3.7105 trillion yuan, up 18.7%. Sales of basic living goods grew steadily, with retail sales of grain, oil, and food products increasing by 5.3%. With market efforts and policy support, the consumption trend is improving steadily, and the consumer market continues to warm up.

Amid the consumption recovery, the food industry has entered a new stage of development. The health trend is in full swing, and the industry has entered the second half. Incumbents seek innovation, while newcomers stand out. The food industry is undergoing fission under a new coordinate system. From decades-old brands to the sudden emergence of new brands, the food industry has been ups and downs, rebuilding and breaking, involution and going global. From the controversy over sugar substitutes triggered by the aspartame cancer incident, to the public's sensitive nerves provoked by Japan's nuclear wastewater discharge, anti-radiation products have been sought after; from prepared dishes that went from darling to outcast, to the era where everything can be co-branded... Who is rewriting the industry landscape this year? Who appears in the cycle of market evolution where old and new overlap? Bidding farewell to 2023 and looking forward to 2024, let us review the hot topics in the food industry in the second half of 2023, grasp the trends of industry changes, explore the potential of new ingredients, and explore new developments in the food sector.

July: Aspartame in 'Carcinogenic' Storm; Future Seafood May Come from Labs

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On August 24, 2023, Japan officially started discharging nuclear-contaminated water into the sea, planning to release the stored nuclear-contaminated water from the Fukushima nuclear plant through an undersea pipeline in the coming days. This move drew widespread international attention, deepening discussions on human health, international obligations, ecological environment, and seafood safety. On the same day, China's General Administration of Customs decided to suspend imports of all aquatic products (including edible aquatic animals) originating from Japan, effective from that day. "Can we still eat seafood?" became a topic at dinner tables. Near the discharge area, some measuring devices showed instantaneous radiation values rising from 0 to 0.7. Even though the ocean has some self-purification capacity, the damage and impact of nuclear pollution are irreversible, long-term, and sustained. In this context, artificial seafood and anti-radiation products have come into view.

It is understood that artificial seafood meat is mainly divided into two types: one is plant-based seafood meat synthesized from high-quality protein, fat, and pigments extracted from plants. For example, Thai Union Alternative Protein, a subsidiary of Thai traditional seafood company Thai Union Group, targets the plant-based seafood route, with products including plant-based tuna and plant-based seafood (shrimp, crab cakes, fish fillets, etc.). The other is cultured seafood meat obtained by proliferating and differentiating stem cells from marine organisms. Biotech companies such as Wildtype, BlueNalu, and Umami Meats are exploring seafood alternatives through cell-cultured seafood. Studies have found that cultured seafood meat is closer to real seafood in taste and flavor, making this technology a favored financing project for capital. However, cell-cultured meat has not yet fully entered commercial production scale, and different countries and regions have different regulatory systems for food produced using emerging biotechnologies, posing legal challenges to the commercialization and global trade of cell-cultured meat. Meanwhile, insufficient consumer awareness and technical barriers are two major obstacles to its development.

Like artificial seafood, various practices and products related to 'radiation protection' have also gained popularity. Iodine tablets, iodized salt, radiation protection equipment, and some health products are playing the 'anti-radiation' card. However, in reliable academic sources or nuclear disaster emergency procedures, there is currently no content on using food to prevent or treat radiation. Coincidentally, in August this year, the State Administration for Market Regulation, the National Health Commission, and the National Administration of Traditional Chinese Medicine jointly issued the "Catalog of Health Functions Allowed for Health Food Claims - Non-Nutrient Supplements (2023 Edition)" (hereinafter referred to as the "Catalog") and supporting documents. The Catalog adjusted the original 27 health functions to 24, and specified the anti-radiation function. A careful study of the classification of anti-radiation products reveals that rather than choosing anti-radiation foods, a more proactive and effective approach is still to "avoid eating food contaminated by radiation." Facing the fear of disasters, ordinary people often feel "helpless" and "resigned to fate." Fortunately, technology is indeed advancing and providing a new solution to marine pollution and overfishing. In the future, perhaps seafood, even if not from the sea but from laboratories, will be readily accepted by people.

September: Consumers Fear Prepared Dishes; Merchants Are Obsessed with Them?

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In September 2023, as schools opened, the topic of "prepared dishes entering campuses" sparked extensive public discussion. According to media reports, the trigger was that parents of students in Rongjiang New District, Ganzhou, Jiangxi, posted videos complaining about the slow, poor-quality, and unpalatable lunches distributed to students. Several parents reported that their children experienced diarrhea after eating school meals. In mid-to-late September, a responsible official from the Ministry of Education stated that given the lack of a unified standard system, certification system, and traceability system for prepared dishes, a very cautious approach should be taken toward "prepared dishes entering campuses," and it is not appropriate to promote their entry into schools.

In stark contrast to the resistance from the C-end, the domestic prepared dish industry has seen explosive growth since 2020. According to the "2022 China Prepared Dishes Industry Insight Report," from 2021 to March 2022 alone, there were over 40 financing projects in the prepared dish field, with large-scale financing in the hundreds of millions not uncommon. Top capital such as Hosen, Sequoia, Hillhouse, and IDG have also successively increased their bets on this track. During the period when the overall consumer track cooled due to the pandemic, prepared dishes seized the opportunity of home consumption explosion and developed rapidly. According to data from China Business Industry Research Institute, the market size of prepared dishes in China grew from 244.5 billion yuan in 2019 to 419.6 billion yuan in 2022, with a compound annual growth rate of 19.7%. It is expected that the market size will increase to 522.5 billion yuan in 2023.

But now, the landscape of prepared dishes is quietly changing. For prepared dishes, whether they are safe and healthy/nutritious are the two major questions they face. At the safety level, the prepared dish industry currently has no entry threshold, and enterprises implement industry standards and group standards during production. If there is still no unified mandatory national standard, including national food safety standards and national production standards, to regulate enterprises, market doubts will be hard to dispel. At the health level, although current technology makes food preservation not difficult, many prepared dishes on the market sacrifice health for taste and flavor. Not only are the ingredients ordinary, but they are also heavy in oil and salt, which runs counter to the current health trend. For consumers, the fear of prepared dishes is also due to merchants' "non-disclosure." Even though many B-end restaurant brands serve prepared dishes, some restaurants use prepared dishes to pass off as freshly made, which is fraudulent and repels consumers. As consumers become increasingly unwilling to pay for them, prepared dishes seem unlikely to support the catering industry. In the context of consumption recovery, the catering industry saw a wave of revenge store openings in the first half of this year. In a highly competitive market, catering merchants need not only speed and taste but also honesty, because sincerity is always the ultimate move. For prepared dish giants like frozen food producers, they should also return to product development and continue to refine the taste and quality of their dishes.

October: Water-soluble C100 Goes Viral; Another 'Waiting for the Wind' for Nongfu Spring

Image source: Nongfu Spring official website

In October 2023, Water-soluble C100 suddenly went viral and stayed on the hot search list for a long time. The ingredient "sugar + water + lots of vitamins" indicates that "medicine is not as convenient, and beverages are not as nutritious." This all-purpose Water-soluble C100 has established its ecological niche in the beverage industry and is expected to become Nongfu Spring's next Oriental Leaf. The success of Water-soluble C100 is precisely due to its high concentration of vitamin C, which sacrifices taste. It is understood that Water-soluble C100 was launched in May 2008, and its name comes from the fact that vitamin C is a water-soluble vitamin, and the recommended daily intake of vitamin C in the "Chinese Dietary Guidelines" is 100 mg. A closer look at the ingredients, taking the most basic lemon flavor as an example, besides 100 mg of vitamin C, it also contains 42 grams of carbohydrates, 120 mg of sodium, and vitamin E. According to Nongfu Spring's 2022 financial report, the company's fruit juice beverage products recorded annual revenue of 2.879 billion yuan, an increase of 10.1% from 2021, with Water-soluble C100 playing a significant role.

The resurgence of Water-soluble C100 runs counter to the current trend of emphasizing "emotional value." The "2023 Big Data Emotional Marketing White Paper" points out that people's attention to emotions and feelings is gradually penetrating daily consumption decisions. As consumers, people no longer pay only for the functionality of the product itself, but also pay attention to the brand's emotional values, social responsibility, and the consistency of the emotional elements conveyed with their personal stance. Therefore, consumers' discussions about brands increasingly include emotion-related content. However, when "mental internal friction" becomes a burden that young people urgently need to shed, the second half of the consumer market swings between "emotional value" and "reverse consumption." Emotion is important, but product design that closely aligns with functionality remains the king. In an era when sugar anxiety pervades the internet, rather than saying Water-soluble C opened a "anti-emotional value" approach, it is more accurate to say it has consistently and steadily insisted on being itself. Designed from the start with consumer needs in mind, when the spotlight shines, the functional advantages of Water-soluble C100 are amplified again, making it shine even brighter. It is evident that the principle of product supremacy never goes out of style. And like Water-soluble C100, which "waited for the wind," Oriental Leaf, which has held onto the zero-sugar trend, is also reaping rewards. Perhaps this is the strategic charm of Nongfu Spring, which always puts products first and waits patiently.

November: Tea Drinks Alliance, Snack Bulk Stores Merge; Joint Ventures and M&A Track Remains Hot

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In November 2023, ChaPanda announced the establishment of a new company named "Sichuan Rongshang Jiahe Technology Co., Ltd." with Bawang Chaji, with a registered capital of 50 million yuan. ChaPanda holds 25%, Bawang Chaji holds 20%, and the remaining 55% is held by Sichuan Huizhijie Enterprise Management Co., Ltd. For most enterprises, merging with high-quality assets in the same industry or upstream and downstream, and achieving sharing and co-building of the supply chain, can significantly improve profitability and strengthen the position of industry giants. The alliance between ChaPanda and Bawang Chaji means that both parties may further deepen their supply chain, improving supply chain management efficiency through sharing and co-building. In the same month, the two major domestic snack bulk store brands, "Snacks Are Busy" and "Zhao Yiming Snacks," officially announced a strategic merger, jointly promoting the healthy development of the snack bulk store industry. Indeed, in the sprint stage of the snack bulk store track, sufficient scale effects and lower prices can win greater market competitiveness. However, shortly after the merger news landed, Zhao Yiming Snacks was sued by its former shareholder, Bestore. The differences in management systems before and after the merger have, to some extent, increased the difficulty of management after expansion, thereby increasing operational risks.

In recent years, under the background of favorable market conditions and government support, data shows that in the first three quarters of 2023, the Chinese M&A market (including cross-border M&A by Chinese enterprises) disclosed 6,101 M&A events, with a transaction scale of about 1.311 trillion yuan; among them, the third quarter saw a significant improvement over the previous two quarters, with 2,319 M&A events, a quarter-on-quarter increase of 13.29%, and an M&A scale of 514.8 billion yuan, a quarter-on-quarter increase of 36.45%. Joint ventures and M&A news in the food industry continue to emerge, mainly concentrated in new tea drinks, snack stores, candy, beverages, and catering tracks. The overall market shows trends of diversification, regionalization, digitalization, and health. With the development of the industry market and changes in consumer demand, joint ventures, M&A, and integration are not uncommon. This is a redefinition of enterprise value, an important way for enterprises to lay out new categories, expand product lines, create new scenarios, break through development bottlenecks, and enhance long-term competitiveness. It will also reshape the entire food market landscape. However, from the start of the "merger group" to the actual synergy of the two companies' businesses, how companies with completely different cultures, mechanisms, organizational structures, and business forms integrate has become a common concern. The ultimate way out is how to leverage each other's resources, accelerate the layout of the industrial chain, form resource integration, revitalize existing stock, and create incremental growth.

December: Heytea's Co-branding with 'Wordless Arhat' Goes Viral and Crosses Boundaries; Co-branding Has Risks, Brands Need Caution

Image source: Heytea

In early December 2023, staff from the Shenzhen Municipal Ethnic and Religious Affairs Bureau responded that the bureau interviewed Heytea on December 1, and the company removed the "Buddha Joy" series co-branded products with the Jingdezhen China Ceramics Museum on December 3, and made an inspection on the relevant situation. Currently, the "Buddha Joy" tea latte products are no longer available on the "Heytea GO" mini-program. It is understood that Heytea, a frequent co-brander, collaborated with the Jingdezhen China Ceramics Museum to launch co-branded tea lattes, packaging, fridge magnets, and other peripheral products, involving three images from the museum: "Contemplative Arhat," "Subduing Tiger Arhat," and "Joyful Arhat." The co-branding attracted significant attention before the products were launched, and then sparked heated discussion. Some netizens joked that this was the consequence of Heytea not focusing on its main business.

In reality, co-branding among major tea drink brands has been endless. According to statistics from Shiwei Technology, from January to December 2023, mainstream tea and coffee brands conducted a total of 122 co-branding activities. Among them, in the first ten months of 2023, Naixue Tea alone launched 26 co-branding activities (excluding 13 co-branding activities by its subsidiary Leycha), Luckin Coffee had 15, and Heytea had as many as 10. Meanwhile, brands such as ChaPanda, Aunty Shanghai, Mixue Bingcheng, and Starbucks also had several co-branding activities. We can't help but ask: Is co-branding really that profitable? Why are young people's novelty so easily piqued by co-branding?

Although co-branding can lead to accidents, it is indeed an important means of product marketing, and for some brands that know how to play, it works repeatedly. This year, the "Fantasy Music Universe" co-branded milk tea sold out, and Naixue Tea really went to great lengths. In fact, this co-branding had nothing to do with Jay Chou's popularity. It was just that when Naixue Tea co-branded with Bohan App, Bohan happened to have the digital product usage rights for Jay Chou's "Fantasy" album, and they managed to ride on Jay Chou's popularity. It must be said that Naixue Tea is truly skilled at managing its household. However, such success is not easy to replicate.

When it comes to higher-level co-branding, Luckin Coffee's co-branding with Moutai, the "Sauce Aroma Latte," went viral across the internet. According to statistics from the Shiwei Business Intelligence Public Opinion Monitoring System, from 16:00 on September 3 to 16:00 on September 4, 2023, the online information volume of topics related to "Sauce Aroma Latte" exceeded 299,000. This move triggered many products to imitate Moutai's packaging. In addition, Heytea's 19-yuan milk tea co-branded with FENDI was also hyped up to a hundred yuan. Looking at the categories of co-branding, from anime, entertainment, online literature IPs to live-action film and television works, celebrities, from tourist attractions to museums, from traditional national brands to niche design brands and luxury brands, it covers everything.

In summary, although the co-branding market is slightly fatigued, it remains lively. However, for brands, they need to be more cautious in selecting co-branding partners. At the same time, the co-branding model also needs continuous innovation and iteration to attract consumers.

Conclusion

In the second half of 2023, the food market continued the "counter-trend upward" trend from the first half amid the consumption recovery. Competition and reshuffling within the industry continued, and brands were like passing through a time tunnel, regrouping on one hand and breaking new ground on the other. For food enterprises, under the general trend of cost reduction, efficiency enhancement, and quality improvement, only by cultivating the internal strength of producing high-quality products can they survive stably and persistently. For the overall environment, the inflection point has arrived, and the next stage of brand competition has quietly begun amid the consumption recovery. As for how the food industry will change next year, Food Data Insights will watch with everyone.