麥肯錫-GNC中國(guó)市場(chǎng)進(jìn)入戰(zhàn)略-中國(guó)保健品市場(chǎng)研究報(bào)告-20090130

HKO-AAA123-20081119-CONFIDENTIALChinesemarketfactpackJanuary30th,2009Thisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.ChinaNutritionMarketFactPack1

HKO-AAA123-20081119-DescriptionofthedocumentKeyactivitiesAnalyzeChinanutritionmarketlandscapeMarketsizeandgrowthtrendsMarketsegmentationConsumerbehaviorCompetitorlandscapeDistributionchannelsRegulatoryenvironmentDevelophigh-levelproposalsMarketentryandexpansionoptionsRevenueforecastforeachoptionsKeydeliverablesChinanutritionmarketfactpackAfactbaseforChinamarketsituationincludingdetailedanalysisonsegments,consumer,competition,channelsregulationProfilesfortopnutritionplayersandretailersProfilesofpotentialdirectsellingpartnersProfilesofproductregistrationagenciesWinningintheChinaNutritionMarketSynthesizedChinamarketopportunitiesandchallengesDetailedexplanationofmarketentryandexpansionoptions2

HKO-AAA123-20081119-ContentChinesenutritionmarketoverviewRegulatoryenvironmentCasestudiesoftopplayersMarketsizeandkeycharacteristicsConsumerbehaviorChanneldynamicsCompetitorlandscapeAppendixBight'sresourcesinChina3

HKO-AAA123-20081119-China’sVDSandnutritionalfoodsindustrywillgrowatabout13%annuallytoUSD20-22billionby2012ApproximatefiguresinUSDbillions

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);GNCannualreport,2007;GNCcompanywebsiteShare%CAGR2002-07%2012sales2007salesTotalAveragegrowth18%20-2211Vitamins10141.8-2.01.2Generalwell-beingDS27154.7-4.93.0Specializedsupplements16132.8-3.01.8Weightlossandsports30176.6-7.03.5Chinesespecific17394.0-5.01.8Share%CAGR2007-12%91123914113215221913%4

HKO-AAA123-20081119-Multi-vitaminsaccountsforover80%oftheVitaminmarket*******************Growthrate%2007-2012Producers,productsandpricerangeinChinaRMBpertabletLeadingbrandsTier2brandsBristol-MyersSquibb

CompoundVitaminB(0.3)Amway'sNutriliteNutriliteDoubleX(2.3)K-LEXMultiVitamin(2.3)WyethCentrumfromAtoZine(1.2/t)MinshengPharmaGroup21Super-Vita(0.4)Amway'sNutriliteNutriliteVitaminC(1.5)NewEraHealthGrapeSeedSoftE(3.3)KangNiulaiFruityVitaminC(1.33)Amway'sNutriliteNutriliteVitaminB(0.76)KangweixinVitaminA(0.6)Amway'sNutriliteNutriliteVitaminAcarotene(2)Amway'sNutriliteNutriliteVitaminE(1.62)SegmentsizeMillionUSD9810911

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);GNCannualreport,2007;GNCcompanywebsite1535

HKO-AAA123-20081119-Calcium,ginsengandproteinpowderarethetop3generalwell-beingdietarysupplements******************012********VDS***Growthrate%2007-2012Producers,productsandpricerangeinChinaRMBpertabletLeadingbrandsTier2brandsKangjialiFishoil(0.68/c)HarbinPharmaceuticalNewGaiZhongGai(0.7)Amway'sNutriliteNutriliteCal-Mg.(0.8)PerfectNutritionpowder(16.0/s)AmericanGinsengLozeng(1.04/c)NanfangLeeKumKeeNutritionpowder(10.3)Amway'sNutrilitebrandNutriliteProteinPowder(6.0)Amway’sNutriliteDeep-seaSalmonfishoil(3.30/c)RolmexGarlicextracttablet(1.0/t)PerfectGarlicextractcapsule(2.26/c)EagleGinseng(1.06/c)SegmentsizeMillionUSD111481277

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC)K&AChildfishoil(1.98/c)ByhealthChindFishliveroil(1.18/c)1410GoldPartnerGoldPartner(1.0/t)WyethCentrumfromAtoZine(1.2/t)BenefitGinkgobiloba(0.5/c)K&AGinkgobiloba(1.68/c)Amway’sNutriliteGinkgobiloba&DHA(3.04/t)QingchunbaoRoyaljellycapsule(0.7/c)K&ARoyaljellycapsule(0.88/c)4326

HKO-AAA123-20081119-Functionalsupplementmarketisaslargeasthegeneralwell-beingsupplementmarketandisgrowingfast*Braindevelopment***************Sleepenhancement*****Growthrate%2007-2012Producers,productsandpricerangeinChinaRMBpertabletLeadingbrandsTier2brandsHongFuLoiBrainStrongerCapsule(1.6)NanfangLeeKumKeeMulberryleaftonic(4.7/t)CombaliMelatoninpill(1.3)HongFuLoiCherylOralLiquid(1.5)PerfectPumpkinSeedOil(1.0)GoldPartnerBiotechNaobaijin(7/s)GoldPartnerBiotechNaobaijin(7/s)SegmentsizeMillionUSD673

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC)NewEraHealth'sGuozhenSong-HuaLiangYan(1.7)ChiataiQingchunbaoBeautyCapsule(1.3)15153K-MaxLecithin(0.6)NewEraHealth'sGuozhenLophatherumEssence(2)PerfectJianYiTea(6.3)NanfangLeeKumKeeNutritionpowder(10.0/s)2657

HKO-AAA123-20081119-Weightlossandsportsnutritionislargeandrapidlygrowingsub-categoryoftheChinanutritionalmarket**************Weightlosspills****Energy/sportsdrink*MealreplacementGrowthrate%2007-2012Producers,productsandpricerangeinChinaRMBpertabletLeadingbrandsTier2brandsJinggongYamNutritionMeal(4.3)LibaojianEnergydrink(5.3/100ml)HarbinPharmaceuticalSlenderladiesdrink(4)RedbullEnergydrink(2.2/100ml)PerfectNutritionMeal(4.3)PerfectJianYiTea(6.3)SegmentsizeMillionUSD171717

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC)YilishouFlowerWeightlosstablets(5.6)HerbalifeCellulosefilm(1.45)YaKouNutritionCo.,LtdDietarycellulosefilm(1.45)16825NotavailableMarsSnickers(3.5/bar)SweetangelSugar-freebiscuits(0.18)GlicoLowcardbiscuits(0.6)ORBISPhilipefarmfibercake(0.4)1,0228

HKO-AAA123-20081119-Chinese-specificnutritionalfoodsincludeshealthwines,TCM-basedsupplementsandherbalextractmarkets**************Growthrate%2007-2012Producers,productsandpricerangeinChinaRMBpertabletLeadingbrandsTier2brandsTianshiBiologicaTiensCordyceps(herbalextract)capsule(1.68/c)ChiataiQingchunbaoPharmaceuticalCoLtdQingchunbaoBeauty(1.3)NanfangLeeKumKee'sInfinitusGanodermalucidum(herbalextract)capsule(3.442/c)TianjinTianshiBiologicalDevelopmentCoLtdTienscordycepspills(1.68)SegmentsizeMillionUSD17

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC)NewEraHealthSong-Huawine(29.6/100ml)

YedaoYedaoLuguihealthwine(5.2/100ml)2116YantaizhongyaSanbianhealthwine(3.9/100ml)2,8259

HKO-AAA123-20081119-******2***4*6812*14161826******Other***********************SizeUSDmillionsGrowth(CAGR2007-2012)Percent

Source: Marketsizingmodel;teamanalysisWeight-lossandsports(self-enhancement)Chinesespecificproducts(incl.TCM-based)Growthvariesamongthesub-segments;6sub-segmentswillbethemajorgrowthdriversintheneartermLarge&fastgrowingLargematureEmergingstars10

HKO-AAA123-20081119-TheChinesenutritionmarkethasthreekeycharacteristics7Increasingconcentrationofwealthinurbanareasmeansthatmostdemandfornutritionalfoodsisinthetop40Chinesecities3

Source: Teamanalysis Themarkethasrecoveredfromadownturnandwillcontinuetogrowrapidly,drivenbyrisingincome,increasingpenetration,anagingpopulationandconsumereducation1Chinamarketcanbesegmentedbasedonsalesformat,productcategories,andlevelofcommoditization211

HKO-AAA123-20081119-Recoveredfromcyclicalrecenthistory,themarketwillgrowquickly1**CyclicaleraSolidgrowthManymarketfluctuationscausedbyqualityproblemsIn1995,mediaexposedfalseanddeceptiveadvertisementsfromVDSmakers(e.g.,“SanZhu”tonicsuedforkillingconsumer,“Brainplatinum”madeexaggeratedclaims,“JunengCalcium”containedtoomuchhydrogenperoxideIn2000,MinistryofHealthreportsthatseveralwell-knownVDSbrandsfailedtomeetqualitystandardsStricterregulationwillallowforsmoothergrowthStricter

regulation

allowforsmoothergrowthConsolidationofhealthylivingregulatorybodiesStrongerapprovalprocessandstrictercontrolsonproductclaimsdiscourageexaggerationConsumptionfromtheaffluentclassgrowingatadisproportionalrapidpaceIncreasingpenetration

asConsumersbecomemorehealthconsciousaspopulationageandadoptnewlifestylesLeadingindustryplayerspushmoreconsumereducationcontinuously

Source: Marketsizingmodel;interviews;literatureresearch;teamanalysis12

HKO-AAA123-20081119-Fast-growinghigh-incomesegmentswill

accountfor80%ofconsumptionby2015Uppermiddleclassisgrowingmuchfasterthanexpectations*95**10E*20E*Totalurbanhouseholdsbyhouseholdincome(RMB/yr*)millionsofhouseholds**2008:Lowermiddleclass(25-40K)2006:Uppermiddleclass(40-100K)2006:Lowermiddleclass(25-40K)Affluentconsumersaredrivinggrowth1

Source: MGI“MadeinChinatoSoldinChina”Report;2008McKinseyGlobalInstituteChinaCityModel;MGIConsumerDemandModel;McKinseyanalysis * Inreal2000terms

UrbanconsumptionbyincomeclassRMBbillions,percent*******Global

(RMB200+K*/yr)Affluent

(RMB100-200K*/yr)UpperMiddleClass

(RMB40-100K*/yr)LowerMiddleClass

(RMB25-40K*/yr)Poor(<RMB25K*/yr)1522179-5-3ForecastActual13

HKO-AAA123-20081119-Increasingpenetrationduetocontinuousconsumereducation1

Source: Nielsen,CTRAdvertisingMonitoringRisingpenetrationtoeventuallyreachthelevelofeastAsiandevelopedeconomiesHeavyadvertisingbyindustryplayers***********************************2005ChineseadvertisingspendRMBbillionsPercapitaVDSspendingvs.GDPUSD,2007************USD*USD14

HKO-AAA123-20081119-Consumersbecomemorehealthconsciousasthey

ageandadoptnewlifestyles1

Source: GlobalInsight;McKinseyGlobalInstitute;ChinaNationalNutritionSamplingSurveyin1982,92and2002;AsianDemographics * Definedasproportionofdietaryenergysupplyderivedfromfat504ChanginglifestyleRapidlyagingpopulationsAddingtheequivalentofHolland,France,andGermany*******Populationover50yearsoldmillionsUrbanpopulation’sfatenergysupplyratio*in2002(35%)exceededWHO’smaximumrecommendedlevel(30%)About62%ofwhitecollarworkersconsiderthemselvessub-healthy（亞健康）

Morethan30millionChinesehavediabetestoday;another20

millionpre-diabeticssufferfromimpairedglucosetolerance15

HKO-AAA123-20081119-WesegmentedtheChinamarketbasedon3keydimensionsSalesformatProductcategoriesLevelofcommoditization

Source: TeamanalysisRetailformat(includinge-commerce)DirectsellingmodelsCore:GNCproprietaryproductavailableExtendable:GNCcurrentandpotential3rdpartyproductsOthers:categorieswhereGNChaslimitedpresenceDifferentiable(competitiveproductsbeingabletochargehigherprices,usuallyover2Xmarketaverageprice)Middle-ground(~1.2–2Xmarketaverage)Commodity(difficulttodifferentiatethroughproductperformance,i.e.<1.2Xmarketaverage)Wesegmentedthemarketintosubcategoriesbasedon3keydimensionsObjectivesDefinerelevantmarketforGNC/SFVClarifythedegreeofadaptationrequiredDrawimplicationsontimingandresources216

HKO-AAA123-20081119-RelevantmarketinGNC’scorecategoriesamountstoaroundUS$3.8billionin2007,representing~35%ofthetotalmarket****Core****Extendable****OthersDifferentiableMiddle-groundCommodity**Allproducts**Retailformat(Total=USD7.9billionin2007)Directselling(Total=USD3.4billionin2007)Levelofcommodi-tization*LowHighProductcategoriesVitaminsGeneralwell-beingdietarysupplementsFunctionalDSWeightloss(GNC)Weightloss(current&potential3rdparty,e.g.,weightlosstea)FemalebeautyTCM-basedHealthwineLow-carbfoodMealreplacementEnergybarEnergydrinks * Basedonstorecheckresults Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);GNCannualreport,2007;GNCcompanywebsite;ACNielsen;storechecks;teamanalysis217

HKO-AAA123-20081119-Estimatesfor2012:sizeofdirectsellingmorethandoubles;extendableovertakescoreproductcategories****Core****Extendable****OthersDifferentiableMiddle-groundCommodity**Allproducts**Retailformat(Total=USD13.6billionin2012)Directselling(Total=USD7.4billionin2012)Levelofcommodi-tization*LowHighProductcategoriesVitaminsGeneralwell-beingdietarysupplementsFunctionalDSWeightloss(GNC)Weightloss(current&potential3rdparty,e.g.,weightlosstea)FemalebeautyTCM-basedHealthwineLow-carbfoodMealreplacementEnergybarEnergydrinks * Basedonstorecheckresults Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);GNCannualreport,2007;GNCcompanywebsite;ACNielsen;storechecks;teamanalysis218

HKO-AAA123-20081119-Differentstagesofcommoditizationandmanufacturers’abilitytochargeapremiumCommodityMiddle-groundDifferentiableCompetitorshaveproventheabilitytochargeapremiumindifferentiablecategories * Fulllistofproductcategoriesandtheirlevelofcommoditizationestimatescanbefoundinthe“GNCmarketentrymodel”Excelfile Source: Marketsizingmodel;storecheck;teamanalysisDriversof

commoditizationSlowerdemandgrowthinover-saturatedproductsegmentsGrowingconsumersophisticationleadingtomorepricetransparencyDomesticmanufacturingcapabilitiesimprovingtomatchwesterncounterpartsStagesofcommoditizationCalcium/mineralsGinsengFemalebeautySegments*VitaminBsGarlic&GinkgobilobaWeightlosspillsHealthwineMulti-vitaminsProteinpowdersFishoilSleepenhancementAbilitytochargepremiumRMB/serving,examples*LeeKumKeeHarbinPharma**AmwayNutriliteBMS*2.3AmwayNutrilite0.4Minsheng0.7219

HKO-AAA123-20081119-GNC-retailformats’coreaddressablemarketwillgrowat~10%p.a.tobecomeaUSD5.3-5.9billionmarketby2012

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);GNCannualreport,2007;GNCcompanywebsite;teamanalysisKeyobservationsMarketsizein

China(2007-2012)USDbillionsMultivitamin~76%ofthissegmentandisprofitableAmwayissegmentleaderCalcium~37%ofthissegment,followedbyprotein,ginsengandfishoilDiabetes/heart~50%ofthissegment,followedbybraindevelopmentandsleepenhancementCAGR2007-12Percent~14%Coremarketgrowingslower

thanmarketoverall…~18%~13%*~*~*1.1-1.31.1-1.3~*~*3.1-3.35.3-5.9*VitaminsGeneralwell-

beingDSFunctional

supplementsCAGR2002-07Percent~15%~13%~9%~7%~9%~14%~8%1.2220

HKO-AAA123-20081119-Demandforcoreproductsthroughretailformatishighlyconcentratedinthetop40citiesinChina…USDpercapita/year(2007)*****~***~****Chinaoverall*

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);

McKinseytier-citymodel,2006;MGIurbanizationforecast;EIU;Chinaconsumersurvey(spendingonhealthsupplements);teamanalysis*(4cities)*(36cities)*(98cities)*100%=USD5.3-5.9billionOver75%ofdemandcomesfromthetop40citiesin2012PercapitaVDSconsumptionbyregions450-50070-805-6Marketsizepercity(average)USDmillionsTier-1Tier-2Tier-316221

HKO-AAA123-20081119-Andthetop3clustersaccountfor40%ofthemarketinretailformat * Doesnotincludedirectsellingmarket Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);

McKinseytier-citymodel,2006;MGIurbanizationforecast;EIU;Chinaconsumersurvey(spendingonhealthsupplements);teamanalysisNutritionalfoodsmarketsinretailformat*$millions(2012)Nanjing*Suzhou-WuXi-Changzhou*HangZhou&Ningbo*Shanghai*Xi’an*Xiamen&Fuzhou**YangtzedeltaShi-Jia-Zhuang*Tangshan*Shenyang&Dalian*Wuhan*Tianjin*Beijing**Bohairim*OthercityclustersChengdu*Chongqing**ChengYuZibo*Qingdao*Yantai*Jinan**ShandongpenisulaChangSha*Zhengzhou**Shenzhen**Othertier-2citiesPearlRiverdeltaWenzhou,Shantou,Haerbin,Changchun,Kunming,Tai-yuan,Guiyang,Huai’anDong-guan*Fo-Shan*Zhong-Shan*Zhu-hai*Guangzhou*Tier-1cities,‘Big4’Tier-2cities123456-11321456101197802Top3clustersrepresentsabout40%ofretailformat22

HKO-AAA123-20081119-GNCretailformat’sextendableaddressablemarketwillgrowataround16%annuallytoUSD5.5-6.1billionby2012

Source: Euromonitor;NutritionBusinessJournal;PublicNutritionDevelopmentCenter(PNDC);ChinaHealthcareAssociation(CHAC);GNCannualreport,2007;GNCcompanywebsite;teamanalysisKeyobservationsMarketin

China(2007-2012)USDbillions~22%isweightlossteaProportionallylargershareoftotalmarketcomparedtoUSLeadingplayersincludeNewEraHealth'sGuozhenandChiataiQingchunbaoYedaoLuguihealthwineisthemarketleaderwith~10%shareCAGR2007-12Percent~21%Extendablemarketgrowingfaster

thanmarketoverall…~18%~13%~*~*~*~*~**2.8-3.00.5-0.70.4-0.51.8-1.95.5-6.1*Weightloss(current&potential

thirdparty)FemalebeautyTCM-basedHealthwineCAGR2002-07Percent~18%~48%~14%~13%~19%~26%~16%~30%~15%LeadingplayersincludeLeeKumKee,TianjinTianshi,andTianjinTesley1.8223

HKO-AAA123-20081119-“TCMsprovedtheirefficacyalongtimeago…therecouldnotbeanymistakeaboutit.”Chinese-specificproductsarelargeandgrowingfast

Source: Consumerinterviews;literatureresearch;teamanalysisChinese-specificproductsaccountforover1/3ofthenutritionalfoodsmarketHealthwines,TCMs,weight-losstea

andpills,ginseng,Ginkgobiloba,etc.Internationalnutritionalfoodsandsupplements********Asanexample,ChinesehealthwinemarkethasseenrapidandsustainablegrowthHeavyinvestmentsbyJinpaiandHainanCoconutIslandearnednationalattentionMostmajordomesticricewinemakersdevelopeddistinctivebrands“IbelieveinTCMs.Theyaregoodforthehumanbody--notlikewesternmedicinewithitssideeffects.”ShareofChinese-specificproductsPercentHealthwinesalesUSDmillion65224

HKO-AAA123-20081119-Demandforextendableproductsthroughretailformatis

spreadmoreevenlyacrossthecountry

Source: McKinseytier-citymodel,2006;MGIurbanizationforecast;EIU;Chinaconsumersurvey(spendingonhealthsupplements)2012–retailformat,extendable2250.4-0.51.0-1.1300-3204100.4-0.51.8-1.950-552050.35-0.400.7-0.87-8Total

income2100~0.296.1-6.3AverageMarkettotalPercentspendonextendablePercentProjectedcityincomeUS$billionMarketsize(2012)US$billionsMarketsizepercity(average)US$millions1,2600.15-0.202.0-2.5N/A**(36cities)*(98cities)Restof

ChinaTier-1Tier-2Tier-3RoC100%=US$6.1-6.3billionDemandspreadmoreevenlyacrossthecountry38225

HKO-AAA123-20081119-ContentMarketsizeandkeycharacteristicsConsumerbehaviorChanneldynamicsCompetitorlandscapeChinesenutritionmarketoverviewRegulatoryenvironmentCasestudiesoftopplayersAppendixBight'sresourcesinChina26

HKO-AAA123-20081119-KeycharacteristicswithChineseconsumerNutritionfoodisnotyetadestinationproduct;purchasingisdrivenlargelybytraditionalretailchannelpush3WordofmouthandTVhasthestrongestinfluence;consumersincreasinglyvaluequality,professionalknowledgeandservice4Womenandolderconsumersarethemajorconsumers;womenmakethemostpurchases1ConsumersinTier1/2citiesspendmoreonnutritionfoodpercapita;inT1cities,moreconsumersbuynutritionproductsforthemselvesthanasgifts;brandloyaltyishigherinTier1cities227

HKO-AAA123-20081119-Womenandolderconsumersrepresentthe

majorsegments;womenmakemostpurchasesESTIMATE“Idecideformyhusbandandmykidwhathealthylivingproductstobuy.”“Ourparentscan’taffordhealthylivingproducts–myhusbandandIpayforallofit…”***Kids/teens*Female

adultsOlderWomenare“gatekeepers”offamilyspendingPeopleineachsegmentconsumedifferentproductsBraindevelopmentBonehealthProteinpowderImmunedefenseKidneyfunctionFatiguerecoveryProteinpowderWeightlossAnemia/QisupplementationFemalebeautyProteinpowderImmunedefenseBonehealthSleepenhancement

Source: Consumerresearch;IMIresearch;teamanalysis1Consumptionandpurchaseofnutritionproductsbydifferentsegmentsofpeople,2007%

28

HKO-AAA123-20081119-Mostspendingonnutritionalandhealthsupplements

isintier1and2cities***~*“Ithinkthepriceofnutritionfoodisstillhigherthannormalconsumergoods,soIbuyitonlyoccasionally,mostlyasagift.”－ConsumerinSichuanProvince“Itakenutritionfood–vitamins--everyday.People’slivingstandardsarerising,andwecanaffordtotakemorecareofourhealth.”－ConsumerinShanghaiAveragemonthlyspendingonnutritionalandhealthsupplementsamongthepurchasers,2007RMB

Source: Teamanalysis;McKinseyChinaConsumerCenter2007&2008Surveys(Dec2006&Jan2008);interviews229

HKO-AAA123-20081119-MostconsumersinT1citiesbuynutritionproductsfor

theirownuse,muchhigherthannational

average******SelfusePurchasingmotivation%InChina’sgift-givingculture,nutritionfoodhasbecomepopular.DuringSpringFestival,giftscanaccountforupto70%ofsalesThegiftingrateisevenhigherintier2/3citieswherepeoplearecloseremotionallyandhavefewerchoicesforgiftingMorepeopleintier2/3willpurchasefortheirownuseinthefuture

Source: Teamanalysis;litresearch;Chinanutritionmarketandconsumerbehavioranalysis2

30

HKO-AAA123-20081119-

Brandloyaltyishigherintier-1cities*Yes,*Yes,*None***

Whenasked“Doyouhavebrandpreferencewhenbuyingnutritionproducts”?%ofrespondents

Source: 2007-2008ChinaNutritionmarketsurveyandinvestmentreport231

HKO-AAA123-20081119-Nutritionfoodisnotyetadestinationshoppingitem;mostsalesaredrivenbychannelpushPercentofrespondentsrankingchannelamongtop2

Source: QuantitativeconsumerresearchinShanghai(n=400)andShenyang(n=422),Mar2006;teamanalysisIndependent

storeNever

purchased*Hospital

pharmacy*DrugstoreHypermarketSupermarketDepartment

storeC-storeSpecialty

storeWatsons****************Nutritional

foodVs.Beverageand

packagedfoodHousecarePersonal

careOTCdrugsRxdrugs3 * 332

HKO-AAA123-20081119-Mostconsumersshopintraditionalretailchannels,especiallydrugstoresandsupermarkets******ChinaVDSmarketbychannel

(2007)

Source: Euromonitor;Chinanutritionmarketcustomerbehaviorsurvey2008;teamanalysis*****DrugstoresSupermarket

countersStandalonestores/storeinstoresWhenaskedinasurvey“Wheredoyouusuallybuynutritionfood”(2008)%ofrespondentsSpecialtystoresaleswillgrowbecauseasconsumersbecomemoresophisticated,theywanttounderstandtheproductsbetterandseekprofessionalguidance－ChinaNutritionAssociation3

33

HKO-AAA123-20081119-WordofmouthandTVhasthestrongestinfluence

Source: McKinseyChinaConsumerCenter2007&2008Surveys(Dec2006&Jan2008)Top5sourcesofinformationonnutritionfoods%ofrespondents******************3534

HKO-AAA123-20081119-91Consumersvaluequalityandfunctionalitymost

Source: Chinanutritionmarketcustomerbehaviorsurvey2008;teamanalysis;McKinseyChinaConsumerCenter2007&2008Surveys(Dec2006&Jan2008)Chineseconsumersareconcernedaboutsafety,andmanywillpayapremiumtogetitOver90%ofconsumersare

concernedaboutfoodandbeveragesafetyAndover50%arewillingtopaysomepremiumtoaddresstheirconcernsConcernedabout

F&Bsafety****<5%***4*******Qualityisthemostimportantfeature

“Whichelementsaremostimportant?”%ofrespondentsPercentofstronglyagreeoragree35

HKO-AAA123-20081119-Consumersarebecomingmoresophisticatedandseekprofessionalinstoreserviceandknowledge

Source: Chinanutritionmarketcustomerbehaviorsurvey2008;teamanalysis“Doyouneedlecturesonhealthcaretopics?”%ofrespondents****TotalInnovativemarketing,suchashealthcarelecturesandinstoreconsulting,willbethedevelopmenttrendofhealthcareindustry–HuafengXu,SecretaryGeneralofHealthcareAssociationChina***Onlyusethebrand

IpreferConsiderseveralbrands,choosemostsuitableoneConsiderbuyingother

brandsifonpromotionAlwaysbuythe

brandwithbestdealConsumersareincreasinglywaitingtomakeabranddecisionuntiltheyareinthestore…Whichbestdescribesyourbehaviorinstore?PercentofrespondentsConsumersvalueprofessionalknowledge…in-storeinformationhasbecometheimportantinfluentialfactorinpurchasedecisionsMusthaveinfobeforepurchasinganewproductPercentofrespondentsIn-storeinformationTVadvertisementFreesamples

oftheproductOutdoor

advertisement41136

HKO-AAA123-20081119-ContentMarketsizeandkeycharacteristicsConsumerbehaviorChanneldynamicsCompetitorlandscapeChinesenutritionmarketoverviewRegulatoryenvironmentCasestudiesoftopplayersAppendixBight'sresourcesinChina37

HKO-AAA123-20081119-Traditionalchannelsdominatenutritionalsales,

butdirectsellinglikelytogrowfast*Store-in-storereferstonutritionstoreswithinotherstores/m