Cheerful growth for cheese and other novel dairy products in China

Ding Yining
China's innovation scene in the dairy segment has attracted industry giants as well as new entrants, and the overall industry capability is expected to be further enhanced.
Ding Yining

When do you pick up a bottle of milk last time? What about dairy snacks and drinks?

Dairy products nowadays are turning in unexpected formats like cheese sticks in the shape of lollipops, crispy seaweed wrapped with cheese fillings and side dishes in addition to liquid milk.

Besides mass market categories like liquid milk and infant formula, new cheese and yogurt offerings, cream cheese spreads, slices and freeze-dried cheese crisps have hit the shelf in recent years.

Shanghai financial consultant Laura Lu who sometimes bought sliced cheese for breakfast, said there's an increasing choice for cheese sticks, natural cheese and baking ingredients at groceries such as Freshippo and Metro.

"Domestic yogurt and other dairy makers are offering more cheese options and snacks to choose from and it's also easier to order for delivery," she added.

China's innovation scene in the dairy segment has attracted industry giants as well as new entrants, and the overall industry capability is expected to be further enhanced.

China Dairy Industry Association last week recognized Tetra Pak's Kunshan Integrated Site as the first Science & Technology Innovation Base in the country.

The company sees increasing new scenario for dairy consumption in recent years, with demands for portable small packages as well as bulk size for catering industry both on the rise.

Liu Meiju, vice president of China Dairy Industry Association, noted that innovation is crucial for the dairy industry to ensure high-quality development.

To respond to specific nutritional demand for dairy consumption in China, which is already Tetra Pak's largest single market, it sees the need to stay closer to the local market by combining technology training, product design, customer innovation at this integrated site.

The Kunshan site has been enhancing support for food and beverage companies to test new products, flavors and package formats.

As new product categories continue to emerge, it also hopes to prompt other industry players and drive open innovation to benefit all players in the field to cater the evolving trend.

Cheerful growth for cheese and other novel dairy products in China

Innovation in the dairy industry is expected to be further elevated with new formats of products, new packaging and various niche demands.

Among new entrants in the market, Shanghai-headquartered startup Dr Cheese Technology Co is the forerunner that hopes to leverage its own production site to speed up new production launch.

The factory in Anhui Province, which covers 80,000 squaremeters of space with 1 billion yuan (US$143 million) of investment, is expected to enhance production capacity for new types of cheese supplements and snack instead of outsourcing production to external factories.

An in-house nutritional research organization was also established to speed up new product launches suitable for local nutritional demands and dietary habits.

The company, backed by venture capital firms such as Capital Today and Focustar Capital, is the latest example of domestic startups gaining an upper hand in the fast evolving market.

In China, sales of dairy food and beverages and plant-based alternatives are expected to reach 763 billion yuan by 2026, jumping from around 659 billion yuan in 2022, according to Euromonitor.

New consumer brands claiming specific benefits in niche segment proves to be a latest attraction for domestic companies.

Cheerful growth for cheese and other novel dairy products in China
Ti Gong

Shanghai-headquartered Dr Cheese is the latest dairy startup to boost its own production capacity.

Local strategy consulting firm Doc&Doc Consulting's founding partner Hong Yinyi noted it makes sense for Dr Cheese to build itself into a cheese expertise claiming high-end quality and technology know-how.

It should continue to focus on premium categories and to jump start new forms and types of cheese products to establish itself as the leader in these specialty categories, he added.

Instead of following the mass market to offer more accessible products, it should stick with the premium trend to become an icon representing the most sophisticated and original cheese processing techniques and products.

Attractive flavors, health benefits and eventually the originality of cheese products make up the three stages for cheese to be adopted by the mass consumer market, according to the consulting firm.

It noted that cheese make up only 2.3 percent of the domestic dairy market despite being the second largest subcategory with close to a quarter of sales in the global dairy market.

Dairy Association of China's latest three-year action plan has set a target for domestic cheese industry's total output to reach 500,000 tons and retail sales of 30 billion yuan by 2025.

Cheerful growth for cheese and other novel dairy products in China
Ti Gong

Bright Dairy, among other local dairy firms, is also promoting the high nutritional benefits of cheese.

Established brands don't want to be left behind as well.

Local players Mengniu, Yili, He Run and Bright Dairy are among those grabbing the latest trend to diversify packaged dairy products such as cheese sticks and fresh cream cheese.

Last month, Mengniu Dairy completed the acquisition of an additional 5 percent stake of Shanghai Milkground Food Tech Co Ltd after becoming its largest stakeholder in previous years.

After the 800 million yuan acquisition of about 25.80 million shares of the Shanghai firm, Mengniu holds about 35 percent of the company which specializes in cheese sticks, sliced cheese and other kinds of baking material.

Mengniu noted it remains confident in the long term development of the cheese market in China and the company's positive prospect in the segment.

Mengniu the brand itself might not be the most suitable to enter a new category such as reprocessed or original cheese, which already hosts whole collection of sub brands for a variety of products, commented Zhang Yun, global CEO of Ries and president of Ries China, a strategy positioning consultancy.

Instead, smaller players finding growth opportunities in niche categories might have more advantage to establish themselves as market leaders and iconic brands.

Technology innovation doesn't always guarantee a successful brand, and it's essential to create a new and dedicated niche product category and reinforce the consumers' recognition and brand image, he said.

New product categories is essential for consumer companies, and business of various sizes will come to realize the demand to create new brands, new categories as an important part of their business practice, he added.

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