Offline trading of China infant formulas regulated and under controlled

According to CFDA regulation, all infant formulas sold in China (offline and online channel, excluding cross border e-commerce) should get the registration certificate by 1st Jan 2018. With this most strict registration, food safety of China infant formulas is turning to a totally new page.

By Mar 2018, up to 1200 formulas registered with CFDA by 134 companies. In the reality, starting from 1st Jan 2018 deadline all supermarkets/infant shops is selling infant formulas with a registration number. No Chinese distributors are interested anymore to distribute a foreign infant formula without a registration number and the game is over there.

Meanwhile Central and local FDA already started onsite inspections on the compliance since 2017.

What is happening in online e-commerce distribution of China infant formula?

1) Mainstream online trading

With the booming development of China e-commerce environment, all major Chinese & foreign infant formula companies have their own flagship shop on Alibaba Tmall or Jingdong online trading platforms.

Since the last 3-5 years, sales from online trading for these major Chinese & foreign infant formula companies have enjoyed great year on year growth. According to xingtu data, online trade already taken up to 40% of total China infant formula sales. If you do not have a flagship online shop on online trading platforms like Tmall or Jingdong etc., then 40% of the customers have already been lost.

In general, big players sell the same registered infant formula product both online and offline and food safety of these products are also fairly under control.

2) Gray areas of online “buyer-on behalf (DaiGou) and cross board e-commerce”

During the last 5-8 years, huge amount of Chinese middle class choose to oversea buy & online buyer –on behalf to buy infant formula for their babies. They see, even for the same foreign brand, oversea buy could be 30%+ cheaper than offline shops. This has created very nice business opportunities for numerous young Chinese migrants or Chinese students abroad who look for flexible ways to earn money.

During the last 3 years, the China cross-border e-commerce setup has been making a step change to make oversea shopping much more easily. According to the China Cross-Border E-Commerce Development Almanac (2017), in 2016, the total volume of cross-border export and import online retail reached RMB 54.343 billion with year on year growth of 40%.

based on current China cross-border e-commerce regulation, the product does not have to go through the customs inspection. For infant formulas distributed through cross-border e-commerce retail, so far it can enjoy a grace period until the end of 2018 to comply with CFDA registration regulation.

Since buyer–on behalf is not regulated by the Chinese government and e-commerce regulation is still immature, so there is no surprise that wild grasses started to grow in these gray areas (product quality varies very much and it becomes to vacuum area for food safety control). Unqualified/expired/fake product can easily go to the China market through buyer-on behalf and cross-border e-commerce.

Who knows which is the real one or fake one? On the other hand, for the foreign infant formulas, the brand image has been damaged by uncontrolled distributors (with uncontrolled price, uncontrolled service, uncontrolled marketing). When you search a specific foreign brand infant formula (e.g. German Hipp or French Picot) in Taobao, you can easily find 100+ results with price from 5 Euro to 30 Euro per box.

Who knows where are the missing recalls? The recent example of France's Lactalis, the company has to recall 12 million cases of infant formulas infected with Salmonella. Salmonella infections can be life-threatening, particularly for young children. According to the latest update, Lactalis can hardly recall half of the infected products. Lactalis probably does not know that huge amount of their product has been sold to China by the Chinese buyer-on behalf who bought their product in French supermarkets or distributors. It is a big puzzle for Lactalis to find these infected products and it is clear that the brand reputation will be deeply damaged due to the infection as well as the failure to do the recalled puzzle.

What is the government doing and what is the regulation trend for gray areas of online trading?

1)  Strengthening the market inspection & anti-smuggling

On 1st Mar 2018, Shenzhen customs anti-smuggling bureau together with local authorities seized more than 100,000 pieces of buyer-on behalf merchandise, involving various infant formula and health products from Europe and Australia. With case value of >10 million RMB, this is the biggest anti-smuggling case in the past 10 years.

2)  Strengthening foreign infant formula entry control

China National certification and accreditation supervision committee (CNCA) recently released the announcement that registration certificate for foreign infant formula manufacturers is valid for four years, and it needs to be re-applied once it is expired.

3)  ongoing regulation development between government and e-commerce giants

Since the beginning of 2017, Alibaba and National standardization institute set up the joint team to define food safety standards for e-commerce products. The standards development will be divided into two phases: the first phase is the infant formula milk powder and health products, more than 30 other food categories in the second stage

What should foreign infant formula companies do to bring another page successful business in China?

1)  Quality Product is the KING.

a) Chinese consumers were hurt by melamine scandal. So they value quality product.

b) Time also told the Chinese consumer that not all foreign products are premium and high quality. So if you want to enter China market without “Quality first”, you will lose.

2)  Update to date Chinese regulation & consumer trend

Economically Chinese is developing very fast. Its food regulation, as well as consumer trend, is also changing very fast. Master the regulation context is prerequisite for foreign companies to enter and survive in China. Today’s Chinese consumers are not still living in the year of 2008, now they need more than quality …

3)  Control your supply chain distribution

If as the brand owner, you even do not know where your product is flowing to, then there is no surprise that consumers will also lose their confidence in you.


Note: This article is originally published by Rong Liu from Foodmate, please indicate the source if reprint it.