As China’s economy continues to grow, the country’s consumers have gradually shifted toward healthier and higher quality food options.
Condiments seem to also be the case, as can be seen from the rapid growth of vinegar sales.
Figure 1: Condiment demand at different stages of economic development
Source: CICC Research
In the earlier stages of economic development, there appears to be greater demand for MSG and salt than vinegar, however, as the middle class expands, demand for high-quality and mixed-flavor condiments such as soy sauce increases rapidly, and vinegar starts to become more popular.
In developed economies where people are more health conscious, vinegar gains greater traction as it offers many health benefits, such as increasing metabolism and reducing blood glucose, blood fat and cholesterol.
China’s vinegar market appears to be at an early growth stage
China’s vinegar industry has a number of favorable characteristics, such as a relatively low market concentration, and could see potential upside to demand and ASP. Furthermore, category expansion and market consolidation could offer possible investment opportunities.
Figure 2: Vinegar industry’s stages of development
Source: CICC Research
Characteristic #1: High sales growth
11-year CAGR of 10%. Combined revenue of 100 vinegar producers selected by the China Condiment Industrial Association grew from Rmb2.04bn in 2006 to Rmb5.84bn in 2017, a CAGR of 10% (Japan had a similar CAGR in the 1960s–1970s).
Revenue from household consumers rose from Rmb4.4bn in 2015 to Rmb5.5bn in 2018, a CAGR of 8%.
Figure 3: Combined revenue of 100 select vinegar producers in China grew at a CAGR of 10% over 2006–2017
Source: China Condiment Industrial Association, CICC Research
Characteristic #2: Low market concentration but solid uptrend
Combined market share of the five largest domestic vinegar companies is less than 20%. Vinegar has a lower market concentration than other condiment subsectors, and is less concentrated than dairy and meat products.
Furthermore, in light of vinegar's rising sales and ASP, soy sauce brands such as Haitian, Kee Kum Kee and Qianhe have also rolled out vinegar products. This could potentially lead to greater competition and accelerate market consolidation.
Figure 4: Combined market share of top 5 vinegar makers in China was less than 20% in 2017
Source: Wind Info, China Condiment Industrial Association, CICC Research
Figure 5: Combined market share of top 5 firms in China in the condiment subsector (2017)
Source: China Condiment Industrial Association, Euromonitor, Corporate filings, CICC Research
Characteristic #3: Product innovation and clear price points
Aromatic vinegar, mature vinegar, rice vinegar and white vinegar are the most common traditional vinegars in China. There are fewer new vinegar varieties in China than in Japan (e.g. strawberry, browner sugar, seaweed and sushi vinegar) and only fruit vinegar and cidar are selling well.
Three major price points:
►Low-end (mass market): Rmb5–20/500ml. Low-end vinegars make up the largest portion of total vinegar sales. Almost all vinegar producers have launched products in this price range.
►Mid-range: Rmb20–50/500ml. Aromatic, mature, rice, and white vinegars as well as ciders are all available in the mid-range market, and mature vinegar is very popular.
►High-end: Above Rmb50/500ml. Sales of high-end vinegars are comparatively low, and only aromatic and mature vinegars are available in this price range.
Figure 6: Gross margin expansion of vinegar firms (vinegar business only)
Source: Wind Info, Corporate filings, CICC Research
For more details, please see our report Vinegar: A condiment subsector with sustainable growth potential published in February 2020.