Rising living standards and changing consumer lifestyles are contributing to the growth of modern distribution channels in China. In particular, sales of food and drinks through impulse channels, such as foodservice, kiosks, duty free outlets, service stations and vending machines are experiencing impressive growth rates, according to new research from Euromonitor International Shanghai.

The presence of impulse channels in China is a relatively recent phenomenon. Euromonitor International Shanghai's new report shows that in 2004, sales of packaged food through impulse channels comprised only 6.7% of total retail sales and sales of packaged drinks comprised approximately 30%. Between 2003 and 2004, however, sales through impulse channels experienced dynamic growth with value sales of packaged food increasing by 14% and sales of packaged drinks increasing by 8.4%. In the next five years, Euromonitor International Shanghai expects this trend to continue.

Convenience over cost

The rapid development of the Chinese economy, notably in urban areas, has contributed to a faster pace of life and rising disposable incomes. Impulse food and drink channels are benefiting as a result. Instead of travelling further to buy cheaper goods, Chinese consumers are increasingly opting to buy food and drinks in more convenient locations, despite their higher cost.

Vending machines, for example, are now popping up in airports, parks, subways and stores, as consumers become familiar with buying food and drinks through this type of channel. Vending machines were only introduced to the Chinese market in 1999 but have expanded to reach 50 000 outlets in 2004 ¨C which is still a relatively small number compared to most developed markets. As Chinese consumers start to demand convenience, annual sales through vending machines in China are expected to reach RMB8,000 billion by 2009, an increase of 94% from 2004. Further, Euromonitor International Shanghai predicts that the number of vending machines will increase from 50,000 to 100,000 per year over the next five years.

Euromonitor International Shanghai's research shows that packaged drinks, especially functional drinks and ready-to-drink tea (RTD tea), are experiencing the strongest growth through vending machines. Between 2003 and 2004, functional drinks and RTD tea recorded 70% and 43.1% value growth, respectively. The strong performance in these categories was in large part due to Chinese consumers' growing health awareness as a result of the SARS outbreak in 2003.

Chinese consumers dining out

Increasingly busy lifestyles in China are also having an impact on eating patterns. With people working longer hours, it is becoming more and more common for Chinese consumers to eat "on-the-go" or in restaurants. As a result, foodservice has become one of the most important and fastest growing impulse channels in China. Between 2003 and 2004, value sales through foodservice channels grew by 6.2% and the number of outlets in the country grew by 16%.

With Chinese consumers starting to embrace the restaurant industry, many new types of foodservice outlets have appeared, such as chained restaurants, premium high quality catering services, and snack restaurants. The company Yum! Brands Inc, which manages KFC and Pizza Hut, is ranked first in the foodservice industry, with the chain Small Fat Sheep, positioned second. By mid-2004 the Small Fat Sheep chain operated 668 outlets across the country, achieving success by offering good food and service at competitive prices. The restaurant supplies customers with soup, with which customers choose fresh meat and vegetables to add to the soup themselves.

Room for growth

Over the next five years, China is expected to become an increasingly sophisticated consumer society, which offers significant potential for food and drinks sales through impulse channels. Currently, average per capita expenditure remains relatively low, which gives the industry room for growth. Between 2004-2009, Euromonitor International Shanghai predicts that packaged food sold through impulse channels will achieve an average annual growth rate of 9.9% and packaged drinks will achieve average annual growth of 7.1%.

A greater variety of impulse food products are expected to become available, which will have an impact on sales through channels such as vending machines and kiosks. Eating out is also expected to become more common due to increasing income levels, thus further boosting sales through foodservice outlets.

[Source: Euromonitor International Shanghai]