Double-digit growth in China likely to continue despite epidemic impact on other sectors

Of all things, it's the sweet, solid ice cream that is expected to keep sales hot in the upcoming summer even as other food market segments reel under the impact of the COVID-19 pandemic.

The ice cream business has already reaped double-digit growth in China so far this year. And signs are, the uptrend is likely to sustain, experts said.

Despite freezing winter temperatures, at-home spends on ice cream enjoyed an 18-percent year-on-year growth during the Jan 25-Feb 7 period. The figure jumped to 37 percent in the next fortnight, when COVID-19 and quarantines peaked, a report of Kantar Worldpanel China showed.

Ice cream's performance outshone that of other foods like snacks as well as the whole fast-moving consumer goods or FMCG sector, which experienced a double-digit decline during the period.

This is unusual because winter used to be a low season for ice cream. Unlike Western consumers, Chinese people generally don't eat ice cream at home. In fact, every year, less than 50 percent of Chinese families buy ice cream for in-home indulgence or family celebrations, the Kantar report showed.

What changed the trend this year was the need for mood-enhancers, a feel-good factor, against the backdrop of epidemic-related anxiety, grief and pathos, said Linh Tay, account manager of Kantar Worldpanel China. That's where ice cream's importance comes in.

There were more shoppers, and more frequent purchases, that too of bigger packs, Tay said.

She may have been speaking of Stella Tian, 28, a bank employee in Beijing, who stayed at home mostly in February and March to avoid contracting the novel coronavirus. The stay-in lifestyle led to online orders for more ice cream as a means of stress-busting, never mind the cold winter.

"I don't usually eat ice cream. The epidemic forced me to stay indoors and it changed my living habits. Sometimes, when life got a bit boring or sad, I just felt like having some ice cream. It was quite convenient to order online and get the contactless home deliveries. In fact, I consumed other snacks as well this way," she said.

Emerging ice cream brand Chicecream, which focuses on online sales, reported a 1,000-percent growth in sales in the first quarter. Though its two factories resumed operations in mid-February, it faced a 40-percent shortage of stocks in March due to the booming demand. Its sales grew 400 percent to 500 percent in April, according to Lin Sheng, founder of Chicecream.

A typical consumer in a lockdown situation would think along these lines, he said: "If I can't afford a car or house, at least let me treat myself to an ice cream, which can make me happy."

Most of Chicecream's consumers are aged 21 to 36.

Haagen-Dazs, a US brand of General Mills Inc, also saw its revenue grow in the first quarter, thanks mainly to e-commerce platforms.

During the outbreak in China, Haagen-Dazs closed more than 200 stores nationwide, which had a negative impact on the company. It said consumers still demand ice cream, and it will adjust strategies to meet the constantly changing demand.

"The growth of e-commerce is an irresistible trend, as it is more in line with the spending habits of young consumers. Under the impact of the epidemic, the market has promoted new business models, which helped accelerate the digital transformation of the food sector," said Fan Qianlin, public relations director of Haagen-Dazs.

The market size of ice cream industry in China, an industry which sprung up in the 1990s, has reached about 60 billion yuan ($8.5 billion), surpassing the United States at the top, while consumption per person is still far less than other countries, according to consulting firm Bain & Co.

However, about 70 percent to 80 percent consumption still happens offline, at convenience stores, supermarkets, ice cream shops, private vendors, hotels, restaurants and cinemas, according to Derek Deng, a partner at Bain & Co. And 60 percent to 70 percent of full-year sales are achieved during summer, or the June to August period, in China.

But the pandemic's aftermath is expected to further promote the online sales trend and boost indoor or at-home consumption as consumers' habits have changed significantly, he said.

The online market developed at an average annual growth rate of up to 50 percent from 2013 to 2018, with companies like Yili, Mengniu and Unilever all joining the beat, according to Bain.

For instance, Yili released its high-end ice cream brand NOC in 2019 to target e-commerce channels. A single piece retailed for about 20 yuan. Sales on the first day reached 320,000 yuan.

A report from research company CBNData last year showed both online sales and the number of ice cream consumers online increased over the last three years. The number of online ice cream brands also grew from about 60 in 2018 to 140 in 2019.

Deng expects performance of the ice cream sector in the first half of this year to be better than that of the same period in 2019, as offline traffic and consumption confidence are expected to recover when the epidemic will likely be reined in.

Whether or not online gains will offset first-quarter sluggishness of offline channels remains to be seen, he said.

According to a joint survey by market research firms KuRunData and Mintel last year, the top three reasons for Chinese consumers to buy ice cream were these: try new taste, reward myself and after-dinner dessert. None of the reasons was related to "relieve heat".

This suggests Chinese perception of ice cream is changing from a summertime street snack to icy, pleasurable dessert that brings joy. Buying behavior is also shifting from impulsive consumption to stocking at home, according to Lin of Chicecream.

"Most people in Europe and the Americas store ice cream in refrigerators, to share with families and friends after dinner or during weekends. That practice may be adopted by Chinese families," he said.

Should that come to pass, ice cream could become an all-season indulgence, he said.

Jiang Zhifeng, senior investment director of Meridian Capital China, said online sales channels break the limitations of regions, but the costs of customer acquisition, cold-chain logistics and fees of e-commerce platforms also pose a challenge to producers.

He said in the long term, consumption will still mainly come from offline stores, but companies can work to guide the clients to online shops to improve repurchase rate.

Besides, like most comfort food, ice cream raises concerns about sugar intake and health implications. Hence, producers are innovating recipes to emphasize health or nutrition. For instance, Yili sells probiotics yogurt ice cream while Unilever's Wall's has a high-fiber, high-protein variety in its ice cream portfolio. There are also other ice cream varieties in the market that are said to improve sleep quality, and skin and intestinal health.

Fan of Haagen-Dazs said as Chinese consumers are increasingly pursuing a high-quality and healthy lifestyle, high-end ice cream that uses natural ingredients would be a trend in the future, and drive growth.

Jiang said ice cream producers should stress on low-sugar and lowfat varieties, and innovate their product formulas, taste, packaging and branding to enhance differentiation in a fiercely competitive marketplace.

Deng said competition comes from not only other ice cream producers but catering companies like Starbucks, KFC, milk tea and dessert shops. So, at-home consumption, premium products and sales via all possible channels will likely be future trends.