Asian Consumers Willing to Pay More for Good Quality Food & Beverage Products

April 25, 2011. According to a survey by M-Brain (formerly Global Intelligence Alliance) amongst 67 Asian consumer and retail industry professionals in China, India and South East Asia in November 2010, 80% said Indian and Southeast Asian consumers have become more willing to pay more for better quality food and beverage over the last 12-18 months.

In China, the results were around 70% – which is considered very high when put into context. Chinese consumers traditionally have always looked for cheap options and not quality when it comes to food and beverage. Recent scandals about product quality in China in particular, have had a strong impact on the consumer psyche, creating a switch in their preferences. A notorious and recent example is the melamine scandal in 2008. Prior to the scandal, local Chinese brands for infant and child milk formula were the preferred options among the vast majority of Chinese consumers as they were cheap and easily available. With the scandal and the publicity it got in China and abroad, Chinese consumers started paying more attention to food content and looking for good quality and reliable brands, even at very significant price differences.

It is often the case that scandals create just a temporary shock in demand and consumer preferences. However, looking at the pediatric formula market in China more than two years after the scandal, the healthy performance of international and premium local brands shows there has been a relatively permanent switch in Chinese consumers’ preferences for better quality rather than cheaper options.

Overall, we see this as a positive trend for the food and beverage industry in Asia. Continuing with the example of the melamine scandal in 2008, one of the effects it had on the market is that the average price for pediatric formula went up by more than 30%. Part of it was probably speculation but most of it is the reflection of higher costs as companies tighten up their manufacturing processes and quality control systems. Naturally, the changes in legislation and tighter Government control were also a big driver here. Despite this high price increase, demand for the product continued its very fast growing trend, especially in the premium categories segment, confirming that Chinese consumers are getting ready to pay more for better products.

Overseas brands preferred

In the emerging markets, there is a general trend to prefer foreign products to local options. M-Brain (formerly GIA)’s survey revealed that in China and India more than 93% of respondents prefer foreign brands, while 87% of those in South East Asia said so as well.

This preference, together with the increasing demand for better quality products create attractive opportunities for foreign brands entering or expanding in these markets. However, this trend might not last long, especially in India where our survey shows that half of the pool felt that Indian food and beverage brands have been improving “a lot” in quality. In contrast, half of the respondents in China felt that Chinese food and beverage brands have been improving just “a little” in quality.

Adoption of organic foods picks up pace

In the organic/green category in India and China, personal care products comes first in terms of products that can be charged at a premium, followed by organic agricultural products. On the other hand, Southeastern Asian consumers are much more willing to pay for organic agricultural products, fish or meats, as opposed to organic personal products, household products, furniture or fittings.

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