January 6, 2010

Traditional Chinese diet requires the freshest ingredients but increase in meat product sales in supermarkets indicates that urban Chinese have a growing appetite for high-end meat products such as fresh chilled meat.

In 2008, Chinese meat product production amounted to over 70 million tonnes. In recent 20 years, the annual compound growth rate of Chinese meat product production maintains over 5%.

The high-speed growth of Chinese meat production and sales volume benefits from the transformation of the meat product consumption structure and the increasing demand owing to the improvement of Chinese income per capita.

The upgrading of meat product consumption in China is apparent with consumption channels transferring from traditional farmer's markets to large supermarkets. According to statistics, the meat product sales volume in supermarkets in central cities of Central China has taken up 29% of the total sales volume while it should be over 30% in Chinese first-tier cities such as Beijing and Shanghai.

Since the implementation of the food safety law on June 1 last year, the meat product sales proportion in supermarkets and hypermarkets sees continuous increase.  

Besides the chain supermarkets, the meat product industry also establishes direct sales channels through fresh chilled meat franchise stores. Generally, chain franchise stores are developed through regional agents. The common mode for chain franchise stores is: there is minimal or no franchise fee; the equipments and store decoration are invested by franchisees; the store decoration is uniformly designed by the enterprise; products are collectively distributed by meat product enterprises.

The investment in a fresh chilled meat franchise store in a second-tier city of Central China is about RMB30,000-RMB40,000 (US$4,394-US$5,859). The low investment significantly increases the number of franchise stores and accelerates expansion speed.

By right, the profit rate of fresh chilled meat franchise stores should be higher than that of supermarkets because they directly focus on the terminal consumption market. However, the reality goes against the expectation owing to intense competition. The three meat processing giants, namely Shineway, Yurun and Jinluo have set up numerous stores in Northeast China, North China and Central China, which intensify the competition and drive prices down.

Presently, Chinese meat product processing volume accounts for 15% of the country's total meat product production, much lower than the proportion 30%-40% in countries with developed meat product production and consumption. 

Nonetheless, with the gradual change in eating habits, researchers foresee that the meat product consumption growth of Chinese urban residents will focus on high-end meat product such as fresh chilled meat and low temperature meat products.