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From cradle to school: opportunities for babies’ and children’s food

The global baby food (including infant formula) market is expected to hit almost US$70 billion by 2016 while the highest growth market is predicted to be China, where sales are expected to double and become the single most valuable market outstripping the developed economies.

Booming demand from hectic parents

The World Health Organization (WHO) encourages mothers to breastfeed exclusively for at least six months. In view of public health, many governments also promote breastfeeding. Although mothers in general are well aware of the benefits of lactation, the actual exclusive breastfeeding rates are low in most developed countries – only 14% in the US and 21% in Japan, according to the WHO.

One major reason for the low exclusive breastfeeding rates in developed markets is women’s high participation in the labour force. They will need to resume working quickly after giving birth, making exclusive breastfeeding for six months not feasible. Milk formula, therefore, is a convenient alternative. In emerging economies such as India, the exclusive breastfeeding rate is higher at about 40%. Nonetheless, the reliance on milk formula is increasing in emerging markets where rapid urbanisation is in place. For both social and economic reasons, women with more job opportunities are less inclined to initiate and continue breastfeeding.

Indeed, milk formula is the major driver of the growth of baby food sales. Global retail sales of baby food, according to Euromonitor International, hit US$48 billion in 2012, with milk formula accounting for more than 70% of the total. It is forecast that baby food sales will increase at an annual rate of more than 9% in the next four years. Milk formula is expected to see an even stronger growth of more than 10%.

Besides milk formula, there is also increasing demand for prepared or dried baby food. Working parents may be too busy to prepare food at home. Packaged or canned baby food, such as baby rice and fruit purees, are convenient substitutes for home-made baby food when infants are weaned. Yet, processed baby food will never replace home prepared food. In many cases, parents buy packaged baby food to supplement the nutritional needs of their babies, or for convenience when they travel with their babies.

Photo: Packaged or canned baby food, such as baby rice and fruit purees
Packaged or canned baby food, such as baby rice and fruit purees, are convenient substitutes for home-made baby food when infants are weaned.

 

 

Table: Global Retail Sales of Baby Food
 
Biggest demand from China

 

According to Euromonitor International, the biggest markets of baby food sales are China, the EU and the US, accounting for some 60% of the total. Among developed markets, the US and the EU will see mild expansion in the next four years while Japan is expected to remain stagnant. In emerging economies, sales to Brazil and Russia have exceeded those to Japan and are expected to see a sustained increase in the next four years. India, however, is a smaller market as far as baby food is concerned. The highest growth market is predicted to be China, where sales are expected to double and to become the single most valuable market outstripping the developed economies by 2016.

Chart: Retail Sales Forecast of Baby Food in Selected Markets
Source: Euromonitor International


Knowing the alphabet

In developed markets, the baby food market is an innovation-led segment, highly dependent on scientific research to drive innovation and growth. A strong emphasis has been placed on functionality of the product. There are a lot of products in the market that label themselves with different functions. For example, the addition of probiotics, prebiotics and fatty acids such as DHA and ARA, to baby milk formulas is said to help the functional development of a child.  While prebiotic formula enhances the quality of sleep of babies, fatty acids are introduced for better brain development. There are also milk formulas that build a stronger immune system against allergies and other diseases. In this context, nutritional science plays a vital role in building up brand image and health credentials as well as setting apart brands from other products. Also, organic milk formula is gaining popularity.

Apart from the functional abilities, the packaging of baby food has aroused great interest too. BPA-free food packaging has been an emerging global trend. BPA, or Bisphenol A, is an organic compound used in plastic food packaging but it has proved to have negative health effects. Whenever it concerns the health of babies, parents are inclined to play it safe and avoid possibly contaminated content. Hence exporters that label their products as BPA-free would have an advantage and distinguish themselves from rival products.

Besides packaging, baby food is highly regulated in terms of its safety, nutritional requirements and labelling. In the US, the Food and Drug Administration monitors infant formula products. In the EU, baby food is covered by Commission Directive 2006/125/EC which sets out rules on the composition and labelling of baby food. It also gives criteria for the composition (protein, carbohydrate, fat, mineral substances and vitamins) of weaning foods including minimum and maximum levels. In Japan, baby food and infant formula are defined as “Food for Special Dietary Uses” which should comply with the specifications and standards established by the Minister for Health, Labor and Welfare.

Getting local

In emerging economies, the baby food market is more demand-driven amid their baby booms, changing lifestyles and continued improving household incomes. However, every market has its own characteristics. It is important to get “local” – to understand the characteristics and import requirements of each market. Besides the nutritional standard and labelling requirements, governments in emerging economies may also regulate more strictly the promotional and advertising activities regarding the sales of infant formula and food for infants and toddlers.

In Brazil, the baby food market in recent years has been driven by new packaging options, both in size and composition. According to Mintel, some 77% of new baby food products launched on the Brazilian market are not really new products, but new formulations and/or new packaging. The largest category of baby food in Brazil is dried food, which consists primarily of cereals. With corporate advertising campaigns heavily promoting the importance of nutrition for infants, parents are increasingly health-conscious. Vegetable- and fruit-based bottled baby food is gaining popularity. However, the Brazilian government prohibits any promotional activities and advertising campaigns for prepared baby food and milk formula as breastfeeding is strongly preferred. Exporters targeting the Brazilian baby food market should be aware of this and may position their products as health supplements.

Russia’s baby food market is dominated by fruit juice and bottled baby food. According to a consumer survey conducted by EON, apple juice is in the greatest demand in Russia. Other popular flavours are peach, pear, plum, pumpkin, cherry, carrot and grape. The list of ingredients is one of the most important choice factors governing baby food, and almost every buyer considers vitamins to be a very valuable constituent of juice. Besides, parents look for ingredients such as iodine and calcium. Russian parents are willing to pay higher prices for quality and branded products. However, due to the dispersed population in Russia, the costs of distribution and advertising can be high. Suppliers of baby food may consider partnering with local distributors or online platforms to launch private labels. There are no strictly applied regulations on the advertising of baby food but the Russian government regards protection of children a national strategy.

In India, under the Infant Milk Substitutes, Feeding Bottles and Infant Foods Act 2003, advertising, giving gifts and free samples, promoting infant formulas to doctors and health professionals, picturing mothers or babies on labels, the sponsorship of events by infant formula firms, and the donation of educational material on such products, are all prohibited. Due to the stringent legislation, India’s baby food market is still at a developing stage. Packaged baby food and infant formula are perceived as premium products targeting the middle-income class in the urban areas.

By far, baby food should see the biggest potential in China. According to the recent HKTDC survey “China’s Baby Boom Dividends”, respondents from eight major cities in China spent, on average, Rmb753 on baby and children’s food every month. Dairy products including infant formula and yoghurt are the most frequently bought items. Due to incidents with melamine and plasticisers in recent years, parents in China are paying heavy attention to the issue of food safety. In the HKTDC survey, almost all respondents said “quality” was a very important or fairly important criterion of consideration when buying baby and children’s food. At the same time, “completeness of nutrient contents”, “brand image/word-of-mouth/reputation” and “consumer taste/mouth feel” were also important. On the other hand, since food is a daily consumption item, respondents also regarded convenience of shopping place as an important consideration, with 83% of them saying that this was a very important or fairly important criterion.

Table: Top 10 Most Important Criteria in Buying Baby and Children’s Food in China
 

Finding the right channel

In most economies concerned, supermarkets are the major distribution channels for baby food, accounting for 20% to 53% of sales. The only exception is India, where small grocery retailers, and health and beauty retailers are the major channels, accounting for some 95% of the sales of baby food. India is apparently the most difficult market to penetrate among emerging economies, given the high concentration of sales among small retailers. But international suppliers are advised to monitor the rapid development of the retail sector in India, which is set to open up in the near future. In Brazil and China, more than 70% of baby food sales are conducted through supermarkets and hypermarkets, where suppliers may find it easier to get in touch with potential partners. In Russia, while distribution costs are high, there is a relatively high percentage share (2%) of sales coming from non-store retailing, including Internet retailing, which suppliers may explore further.

Table: Sales of Baby Food by Distribution Channel in 2012
Source: Euromonitor International

 

 

 

Content provided by Picture: Wenda Ma
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