There is a food that, when mentioned, many people naturally think of mice—that food is cheese. This strange association likely originates from the classic animated series "Tom and Jerry," demonstrating its lasting and profound influence. On TV, Jerry the mouse's favorite food is cheese, a triangular piece with holes, which has become the iconic symbol of cheese in the real world. In fact, animals, including mice, do not particularly like cheese; cheese is one of humanity's favorite dairy products. Moreover, cheese is not limited to hard triangular pieces; it comes in round, square, and various other shapes.

In the West, eating cheese is as common as drinking milk. According to Euromonitor data, the global cheese market is approximately $143.6 billion (about 992 billion yuan), accounting for 24.7% of global dairy sales, making it the second-largest dairy category after liquid milk (27%).

In contrast, most Chinese people have only recently become aware of cheese. Traditional cheese consumption in China is mainly found in regions such as Inner Mongolia, Xinjiang, and Yunnan. In terms of per capita cheese consumption, in 2020, the United States was 10.4 kg, Japan 1.8 kg, and China only 0.18 kg.

With the French brand Breguet introducing cheese sticks—a more accessible dairy product—to China as a snack, cheese gradually entered the sight of consumers in first-tier cities. It was not until recent years that cheese truly became popular.

Not long ago, the "From Ten Billion to One Hundred Billion: Cheese Stirring China's Dairy Market—2022 China Cheese Market Report" released by Dr. Strategy Consulting predicted that China's cheese market would exceed 100 billion yuan by 2035.

Why does such a small cheese have such great market imagination? Under the influence of the new national standard, what differentiation trends will the Chinese cheese market experience?

01 Clever Entry

Cheese, milk curd, dried milk, cheese, fromage... Yes, these different names all refer to the same food—cheese. In China, according to current food regulations, the scientific name for cheese is "dried milk."

As consumers, we don't need to know the hard facts, but it is necessary to understand what cheese is and its characteristics. Because one day, your child might pester you to buy cheese, as the main consumer group for cheese in China is currently children.

In the industry, there is a saying: "Ten pounds of milk make one pound of cheese." Cheese is even called "milk gold," and its nutritional value is self-evident. However, the cheese currently sold on the market is mainly divided into two categories: natural cheese and processed cheese.

Natural cheese, also known as natural cheese, refers to cheese made entirely from milk. The cheese Jerry likes, mentioned at the beginning of the article, is actually natural cheese. This type of cheese is usually hard, not very tasty, but highly nutritious.

Most cheese sold in supermarkets, such as cheese sticks, is processed cheese. They are made from natural cheese as a raw material, processed through fermentation, curdling, drying, and ripening. On the one hand, the taste improves; on the other hand, there are cost considerations.

China is vast, with diverse Chinese cuisines, but cheese is difficult to combine with Chinese food, which means that except for a few regions, most people do not have the tradition or habit of eating cheese.

However, with the gradual stratification of consumption, China's huge consumer base is enough to create a considerable cheese market. Additionally, the growth trajectory of Japan's cheese industry, also in Asia, is close at hand, projecting strong market imagination for China's cheese industry.

In 1997, France's Savencia Group established Banshi (Tianjin) Food Co., Ltd. in Tianjin, bringing its well-known brand "Breguet" children's cheese sticks to the Chinese market. Today, Breguet's products in China have formed four series: children, catering, family, and young people.

"The shape of cheese sticks is cute, and the improved taste better meets children's needs. From this perspective, getting consumers to accept cheese is quite clever," Hong Yinyi, founder of Dr. Strategy Consulting, analyzed to New Retail Business Review. This approach is not unfamiliar; coffee's initial entry into the Chinese market was not through American coffee but through Nestlé's "coffee and creamer."

Chai Xiu, founder of Milkground, also saw the development path of the dairy industry from liquid milk to milk powder to cheese. In 2016, Milkground cheese sticks were born.

What is even more impressive than Breguet is that Milkground seized the opportunity of IP licensing, quickly "penetrating" children through the cartoon IP "PAW Patrol." To this day, although Milkground cheese sticks are still accused of imitating Breguet, in marketing, Chinese people clearly understand Chinese people better.

By heavily advertising on television and other marketing methods, while also building strong sales channels, Milkground's market share rapidly increased in just a few years.

In 2015, Milkground successfully listed on the A-share market, known as "the first cheese stock in China."

With capital support, Milkground advanced rapidly. 2019 was a watershed year in the competition between Milkground and Breguet. During that year's 6·18 and Double 11 shopping festivals, Milkground became the champion in both categories on Tmall and JD.com, with Breguet ranking second.

The rapid development of any enterprise depends not only on its own momentum but also on the external environment's potential, which is an important and invisible driver.

Data shows that since 2008, China's cheese market has maintained growth year after year, with growth even exceeding 35% in 2020. In 2021, China's cheese market exceeded 10 billion yuan, reaching 12.3 billion yuan.

However, since 2020, affected by the pandemic, although the market size continues to grow, the growth rate of new entrants has slowed.

According to Qichacha statistics, in 2020, 246 new cheese-related enterprises were added, a year-on-year decrease of 8.21%. In 2021, 137 were added, a decrease of 44.31%. As of August 18, 2022, 70 new cheese-related enterprises were added, with 1,488 existing cheese enterprises nationwide.

02 Cheese Imagination

The bestseller "Who Moved My Cheese?" has an impressive viewpoint: If you don't change, you will be eliminated.

In the domestic consumer market, the attempt to open the cheese industry's horizons with cheese sticks has been successful—by capturing the needs of children, a special group, through good taste and interesting packaging, it is equivalent to mastering the initiative in consumption.

However, cheese sticks are not equal to cheese, and the cheese industry is not only about cheese sticks. Products like cheese slices, cheese blocks, and cheese strips can also bring more market share.

Moreover, the moat of cheese stick products is not deep, which will inevitably attract more competitors. Not to mention foreign old cheese brands, domestic dairy giants are already restless.

Yili, Guangming, and Junlebao have all launched cheese stick products. Even Mengniu, which already controls Milkground, has launched its own brand of cheese sticks.

Not only that, new consumer brands have also begun to enter the cheese industry, such as "Dr. Cheese," whose ambition is evident from its name. The new dairy company "Adopt a Cow," which has submitted its prospectus, has completed the layout of liquid milk, milk powder, and cheese product lines in just a few years.

In addition, competition does not only come from within the industry; some retail channels are also disrupting. For example, Hema Fresh and Yonghui Superstores have launched their own brand cheese products.

Hong Yinyi introduced that cheese is an important category in the dairy industry, at the top of the industry pyramid. When leading dairy companies complete their liquid milk and milk powder layouts, the next step is the peak showdown in cheese products.

However, after entering the cheese industry in droves, accompanied by factors such as rising raw material costs, brands must find a "new cheese continent" beyond cheese sticks.

Thus, Milkground launched high-calcium room-temperature cheese sticks. Compared to the inconvenience and high cost of cold chain transportation and storage, room-temperature cheese sticks are very conducive to sinking into more regions.

Dr. Cheese, on the other hand, positions itself as "professional." In addition to having a cheese content of over 55%, it has launched cheese sticks with added vitamins A and D, as well as new products like cheese shrimp crisps and freeze-dried cheese blocks, which are more suitable for going out or sharing with others. At the same time, it has expanded the mainstream consumer group of the cheese industry from children to adults.

Not long ago, rumors circulated that Yili was acquiring Breguet. Although the parties later denied it, there is no smoke without fire, showing the anxiety of dairy giants in the cheese track.

03 Policy Impact

Earlier this month, at the China Cheese Development Summit Forum, Wang Jun, director of the Second Standards Office of the National Food Safety Risk Assessment Center, stated that the new national standard GB 25192-2022 "National Food Safety Standard for Processed Cheese and Cheese Products" will be officially implemented on December 30 this year.

The introduction of the new national standard means that existing cheese products will be clearly divided into two categories based on the proportion of cheese: "processed cheese" and "cheese products."

Only cheese with a cheese content of 51% or more can be called processed cheese. Cheese with a cheese content between 15% and 50% can no longer be named and sold as processed cheese, and the product packaging or label should clearly indicate the cheese content.

The implementation of the new national standard will change the current situation where the cheese content in processed cheese is too low. Currently, the cheese content in domestic processed cheese, such as cheese sticks, is often only around 20%.

The transparency of product information will gradually enhance consumers' right to know, thereby reducing the difficulty of choosing cheese products. Just as when people now choose fresh milk products, at least most people have learned to look at the brand, the process, and the protein content.

In fact, comparing the development of the cheese industry in Japan, South Korea, and other countries, increasing the cheese content in cheese products is a general trend. From the perspective of industry development, the new national standard is bound to force cheese companies to eventually take the path of differentiation.

Through research on the category innovation paths of beverages and dairy products, Dr. Strategy Consulting found that in the beverage and dairy fields, category innovation follows the principle of "starting with taste, ending with health," and goes through three stages: from "better tasting" to "healthier" to "original flavor."

The cheese industry cannot escape this rule.

Currently, China's cheese industry is between the first and second stages of development, that is, transitioning from taste to health.

This is very similar to the development of the tea beverage industry. Initially, iced black tea gradually cultivated people's habit of drinking bottled tea with its excellent taste. But gradually, people found that iced black tea had too much sugar, so they switched to low-sugar versions. Now, a group more focused on health has started drinking unsweetened tea drinks.

There is reason to believe that as the generation of children educated by "cheese sticks" grows up, their acceptance of natural cheese will be higher. At that time, the industry's transition from the second stage to the third stage will become a natural thing.

04 Finally

The main raw material of cheese is cheese, but currently only a few domestic dairy companies have the ability to produce cheese. Some newly entered cheese brands only have channel momentum, not production capacity.

With the implementation of the new national standard, competition in the cheese industry will further intensify. Industry insiders analyze that the future cheese industry may differentiate into two types of enterprises: one type has a complete supply chain and strong R&D capabilities, and such brands can focus on processed cheese products and position themselves as high-end; the other type focuses on OEM, with cheese products as the focus, taking the mid-range route.

In fact, ecological diversity is very important for the sustainable growth of an industry, and the cheese industry is no exception. Rather than being passively eliminated, it is better to actively change, because the only constant in this world is change itself.

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