Voluntary Report - Public distribution

**Date:** 10/25/2007

**GAIN Report Number:** CH7624

CH7624

**China, Peoples Republic of**

**Market Development Reports**

**Mooncake Mania - golden opportunity for Chinese baking sector, but
what about U.S. ingredients ?**

**2007**

**Approved by:**

![](media/image1.wmf)Joani Dong

U.S. Agricultural Trade Office Guangzhou

**Prepared by:**

Evid Liu

**Report Highlights:**

Mooncakes are Chinese delicacies enjoyed by families as they reunite for
the Mid-Autumn festival between mid- to late September each year,
followed by a 'Golden Week' of National holidays. As the economy grows,
sales for mooncakes also increase as families, friends and associates
seek out ever more generous gifts during this important festive season.
Record sales in CY 2006 of US\$ 1.4 billion plus growing hunger for
trendy new style mooncakes with innovative fillings mean there's a niche
market for U.S. ingredients. However, the chief challenges are price and
ingredient awareness. They need to be combined to maximize taste and
profit.

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Guangzhou ATO \[CH3\]

\[CH\]

# 

# Table of Contents

[**Table of Contents 2**](#table-of-contents)

[I. Mooncakes are big business worth US\$ 1.4 billion in CY 2006 and
growing
3](#i.-mooncakes-are-big-business-worth-us-1.4-billion-in-cy-2006-and-growing)

[II. It's a fragmented market 5](#ii.-its-a-fragmented-market)

[III. Shifting demands mean opportunities for U.S. ingredient suppliers
6](#iii.-shifting-demands-mean-opportunities-for-u.s.-ingredient-suppliers)

[IV. Varieties with new fillings offer a niche for U.S. ingredient
suppliers
7](#iv.-varieties-with-new-fillings-offer-a-niche-for-u.s.-ingredient-suppliers)

[V. There are production constraints
8](#v.-there-are-production-constraints)

[-- price, food safety and packaging are big issues
8](#price-food-safety-and-packaging-are-big-issues)

[Appendix I Types of Mooncakes -- Feature and Available Regions
10](#appendix-i-types-of-mooncakes-feature-and-available-regions)

[Appendix II Types of Mooncakes - Photos
11](#appendix-ii-types-of-mooncakes---photos)

[Appendix III Post Contact Information
12](#appendix-iii-post-contact-information)

# 

# I. Mooncakes are big business worth US\$ 1.4 billion in CY 2006 and growing 

Mooncake bakers and retailers enjoy a boom in demand as mainland incomes
rise and corporations and individuals seek out generous gifts for
families, friends and associates each year during the Mid-Autumn period,
which falls into mid- or late September followed by the locally known
'Golden Week' National Holidays in the first week of October.
Accordingly, this trend represents a potentially golden opportunity for
U.S. ingredient suppliers to support local manufactures to meet demand
leading up to this important festive season enjoyed by mainland and
Chinese nationals abroad each year, but there are challenges.

![](media/image2.wmf)

Chinese Mid-Autumn day is an important festival each year falling
between mid- or late September each year (*based on the Chinese lunar
calendar*).

Traditional mooncake recipes include sweet pastry 'cakes' filled with
various sweet fillings such as lotus seed puree, red bean, nuts or
Chinese dates. Cooked egg yolk to represent the moon is included in the
middle of this very rich tasting dessert.

While several legends surround the origins of mooncakes, perhaps the
most popular is a romantic story of Chang-O (*recognized as one of the
most beautiful woman in Chinese mythology*) and the 'elixir of life'.
What is known is that during this time each year, Chinese families get
together and celebrate this festival by eating mooncakes under the
splendor of the mid- autumn full moon. Naturally, romance has also
become more associated with the holiday.

Today, the mooncake industry has been estimated at US\$ 1.4 billion
based on 2006 sales revenue (*refer to above graph*) and growing at 20
percent in both low and high-end product categories.

For Chinese bakers, the annual mooncake season is probably the most
important period of the year.

The commercial season begins in early July with aggressive presales
promotion events and peaks towards the end of August.

September sales reflect last minute panic buying leading up to the night
before the mid-autumn festival *(this year it was September 25).*

![](media/image3.jpeg){width="2.4034722222222222in"
height="1.7909722222222222in"}![](media/image4.jpeg){width="2.402083333333333in"
height="1.836111111111111in"}

Domestic competition is fierce, with rival bakers and retailers
deploying aggressive sales and promotion tactics. They invest heavily in
mass marketing and elaborate packaging -- or even excessive packaging in
some cases - for a chance to grab their share of this lucrative market
opportunity.

The mooncake industry can be viewed as comprising filling manufacturers,
large scale producers, bakeries, hotels and restaurants.

Mooncake production includes making the fillings, making the crust,
wrapping the fillings with the crust, shaping the mooncake and baking.
Filling makers generally focus on the central fillings and sell their
products to large scale producers and specialty bakers, while mooncake
makers buy fillings from filling makers and make the crust, wrapping and
baking in their own plants.

However, recently there has been increasing vertical integration in the
industry. Some filling makers are not only manufacturing OEM mooncakes
for hotels, restaurants or other food companies, but also developing
their own brand for sale in the market.

Similarly, some large scale producers have invested in their own
in-house filling production facilities.

Lotus seeds accounts for the largest portion -- about 50 percent - of
the mooncake ingredients market due to the dominance of puree based
fillings, followed by red beans which has become popular in recent
years. Most of the large lotus seed puree makers are located in the
south, whereas the largest red bean puree makers are located in Shandong
province in the north.

Varieties of lotus seeds include:

-   *Xiang Lian* (originated from and mostly planted in Hunan province)

-   *E Lian* (mostly planted in Hubei province)

-   *Min Lian* (mostly planted in Fujian province)

-   *Tai Kong Lian* (Space Lotus, a series of new varieties selected
    from lotus seeds exposed in space by China's space ship, have been
    in commercial production)

-   *Tai Lian* (mostly imported from Cambodia)

Among them, *Xiang Lian* is of the best quality for its high starch
content, while the *Taikong Lian* has the highest production -
reportedly 50 percent more production than conventional ones.

# II. It's a fragmented market 

The mainland's traditional mooncake market has numerous recipes, but the
main styles include:

1.  **Guang style** (*Guangdong* *or* *Cantonese style, originated from
    Guangdong province and dominant in South China. It has become
    popular in East and North China in recent couple of decades.
    Industry sources believe that Guang style mooncakes account for over
    50 percent of the country's mooncake
    sales.)*![](media/image5.jpeg){width="2.5680555555555555in"
    height="1.948611111111111in"}![](media/image6.jpeg){width="2.5701388888888888in"
    height="1.823611111111111in"}

2.  **Jing style** *(Beijing style. Originated from Beijing area and
    still available in northern provinces)*

3.  **Su style** *(mostly in Eastern China, including Shanghai, Jiangsu
    and Zhejiang)*

4.  **Dian style** *(mostly in Yunnan province bordering Vietnam)*

5.  **Tai style** *(originated from Taiwan, but has won a small market
    share on the mainland)*

6.  **Chao style** *(popular in Chaozhou area -- east of Guangdong
    province)*

Each style has its own unique characteristics in terms of crust and
fillings *(refer to Appendix I and II for more details), but* tend to be
available only in areas where they are locally produced*.*

**Leading regional producers include:**

There are no nationally recognized leading brands. However, the market
could be characterized by three main regional styles including;

-   **Southern region** *Guangzhou Jiujia* and *Lian Xiang Lou* are
    considered the leading producers although there are many producers
    with similar production capacity.

-   **Eastern provinces** *Xing Hua Lou* and *Guan Sheng Yuan dominate
    this region*.

-   **North and Northeastern provinces** *Dao Xiang Cun* and *Hao Li Lai
    are considered* number one and two respectively.

# III. Shifting demands mean opportunities for U.S. ingredient suppliers 

Traditional mooncake recipes include an outside crust of flour, lard,
oil and sugar while fillings vary across regional styles. However,
common to most styles is fillings made of highly concentrated mixtures
of sugar, oil and fat, together with lotus seed paste, or red and green
bean paste along with egg yolk and, in some cases, greasy meat all aimed
at enhancing taste.

![](media/image7.jpeg){width="3.063888888888889in"
height="2.2916666666666665in"}

*Wu Ren* (five-nuts) is also a traditional nationwide mooncake filling
that was made from a combination of kernels, including olive, winter
melon seeds, pumpkin seeds, sunflower seeds, walnut, sesame or peanuts.
The combination of nuts for the *Wu Ren* mooncakes varies from region to
region. For example, peanuts are included in the Northern market but
generally not in the South. Meanwhile, expensive mooncakes are filled
with more pricey nuts e.g., almond and olive kernel instead of less
expensive peanut, sesame, winter melon seeds and pumpkin seeds.

Increasingly today, concerns are being raised about the unhealthy
concentrations of fat and calories. In response, innovative new mooncake
recipes are emerging with a wide range of healthier alternative
ingredients from fruit, seeds and nuts. Particularly in higher income
first tier cities, healthier alternative recipes are growing in
popularity. It is this emerging trend that offers U.S. ingredient
supplier's new opportunities to promote their fruits, nuts, and dairy
ingredients as interesting alternative exotic flavors and styles for
this traditional fare.

New, non-traditional mooncake varieties that have enjoyed recent success
include chocolate, green tea, fruit (*actually fruit flavored watermelon
puree*), nuts (*e.g., almond*s), and in one case alligator meat as a
filling.

Pricey ingredients such as shark fin, bird's nest and abalone are also
incorporated into fillings to catch the high end market. Tapping into
this emerging trend *Starbucks* leveraged their brand position to launch
a coffee-flavored mooncake, and *Haagen-Dazs,* an ice-cream flavored
product.

What is interesting is these new varieties are quite expensive for local
consumers priced in the range of US\$ 40, but have become popular among
the more affluent in urban areas. The market driver behind this trend is
the fact that mooncakes are a traditional but popular gift corporations
buy for highly valued customers or employees, as well as family and
friends buy for each other during this period of the mooncake festival.
Therefore, there is a willingness to spend generously on those people
who really matter to demonstrate respect and importance (which are very
important Chinese cultural norms described as "face").

Another key driver behind this emerging new recipe trend is producers
seek differentiating advantage over fierce rivals, and as such this
presents itself as an emerging niche for U.S. ingredient suppliers to
explore further.

# IV. Varieties with new fillings offer a niche for U.S. ingredient suppliers 

High quality, healthy alternatives with nutritional benefits are good
selling points for U.S. ingredients suppliers to enter the mainland
mooncake industry. Dried or processed fruit ingredients, nuts, as well
as light flavored cheese have good potential for this market since they
add health and nutritional benefits. Various high quality U.S.
ingredients such as cranberries and almonds have been creatively mixed
with conventional lotus seed puree or multiple nuts in some recipes.

However, many bakers, or filling development technicians, are unaware of
many ideal U.S. ingredients that could be explored. Language is perhaps
a major barrier as descriptions for ingredients are often available only
in English.

Across the country, middle and upper class consumers tend to be more
open to innovative and healthy filling options, though the preference of
taste, e.g., sweetness or greasiness varies from region to region.
Technically, Su style mooncakes are best suited for high moisture fruit
filling over the Cantonese style, due to the former's thicker
crust.![](media/image8.jpeg){width="2.9784722222222224in"
height="2.204861111111111in"}

Working with Chinese filling makers who have strong product development
capabilities is prime targets for ingredients suppliers as potential
points of entry to penetrate into this fast growing sector. Larger
filling makers also tend to better understand local consumer preferences
and would therefore offer good guidance during early adoption phases for
new fillings.

For U.S. ingredients exporters looking to enter this market, working
with larger filling makers would be a recommended first step to test new
recipes in line with current and early emerging trends cost effectively.
At the same time, it would provide a platform to:

1.  Educate both filling makers and early adopters with innovative new
    products;

2.  Gain access to technical expertise on traditional filling styles and
    production practices;

3.  Cooperate with local experts to develop recipes that best suit local
    palettes and interests;

4.  Jointly promote new recipes to achieve commercial goals
    successfully.

# V. There are production constraints 

# 

# -- price, food safety and packaging are big issues

***Price***

Price sensitivity are the biggest barriers prohibiting U.S. ingredients
suppliers entering the more traditional segments of the market as U.S.
imported ingredients cost more than the local ones.

Since 2005, the producers have been challenged with rising costs ranging
from raw materials and labor, to transportation and distribution
channels. At the same time the average price for traditional mooncakes
has not been keeping pace with rising production costs. Subsequently
producers feel squeezed profit margins quickly diminish.

Even large scale producers are looking for new opportunities as their
traditional product range is being eaten up by rivals employing
aggressive new promotion strategies, as well as new entrants offering
innovative new recipes and styles.
![](media/image9.jpeg){width="3.063888888888889in"
height="2.2916666666666665in"}

An average traditional gift box of four mooncakes retails for US\$ 12.5
per box *(each cake weighs approximately 600-750 grams net weight).*
According to industry representatives, average profit margins for
producers were in the range 10-20%. The real opportunity for U.S.
ingredients suppliers would be the higher end, new recipe product market
where much higher margins could be achieved.

***Food Safety***

Another key constraint having a significant impact on the market in the
past years has been growing concerns about food safety. For the mooncake
industry, new regulations were announced to regulate the industry's
practice and assure product quality and safety. The *National Mandatory
Standard on Moon Cakes (GB 19855-2005)* became effective on June 2006
regulating all mooncake production and retail practices.

This new regulation also has focuses on the quality of ingredients from
the use of additives to the manufacturing process, storage and
distribution channels. Another key regulatory move is a new National
Quality standard for mooncake fillings being drafted to provide
guidelines concerning pesticide residues, antibiotics, heavy metals, as
well as other key additives such as sugar substitutes, coloring, and
preservatives.

From Oct 1, 2007, mooncake producers and filling providers are required
to pass strict food quality and safety inspections to gain QS
certification. Without this QS certification, producers will not be
permitted to make or sell their products. This new scheme may eliminate
small and medium sized operators that do not operate with high quality
controls. Meanwhile, one of the two leading baking associations in the
country, *All China Baking Association (ACBA),* has initiated a campaign
encouraging its members to sign a quality assurance commitment to
promote quality and safety standards amongst their members and
suppliers.

According to the new standard, non-temperature sensitive mooncakes are
required to have a shelf life of not less than 25 days at room
temperature. This is feasible for conventional fillings such as lotus
seed paste in which the high content of sugar ensures a long shelf life.
However, for low sugar fillings, this is a distribution and retail
logistics issue that requires careful attention. Another technical
challenge is maintaining the traditional shape with new ingredients such
as fruit that tend to lose form compared with traditional mooncakes.

***Packaging***

The standard sets two mandatory limits to eliminate the excessive
package of mooncake:

-   the cost of package should not exceed 25 percent of the mooncake
    ex-factory price;

-   the dimension of the package on per kilogram mooncake should not
    exceed 9.0 X 103 cubic centimeters.

The mooncake industry believes the limit of 25 percent package cost will
not have much impact on the industry because it is difficult for the
authorities to confirm detailed cost. However, the limit on package
dimensions will certainly eliminate over-sized package. The new
regulation also indirectly refocuses the industry operators, especially
those who target the high end market niches, back from package to
mooncake products themselves.

# 

# 

# Appendix I Types of Mooncakes -- Feature and Available Regions

+---------+----------------------------------------------+------------+
| **Type  | **Features**                                 | *          |
| of      |                                              | *Available |
| Moon    |                                              | Regions**  |
| cakes** |                                              |            |
+---------+----------------------------------------------+------------+
| **Guang | [Crust]{.underline}                          | Originally |
| Style   |                                              | from and   |
| (**Gu   | Thin crust and high proportion of high       | dominant   |
| angdong | quality fillings. Ratio of crust vs. filling | in         |
| style   | about 2:8 or 1:9. Usually on the top surface | Guangdong  |
| or      | of the mooncake crust there is a carved      | province.  |
| Ca      | pattern or characters created by a mould     | One decade |
| ntonese | indicating the brand name, filling or even   | ago        |
| Sty     | the name of business (hotel or restaurant).  | expanded   |
| le**)** |                                              | to many    |
|         | [Filling]{.underline}                        | parts of   |
|         |                                              | the        |
|         | Common filling varieties include lotus seed  | country    |
|         | paste and preserved egg yolk, red bean       | along with |
|         | paste, multiple nuts (usually called "*Wu    | the        |
|         | Ren*", consisting of several types of        | p          |
|         | kernels such as olive, winter melon seeds,   | enetration |
|         | pumpkin seeds, sunflower seeds, walnut etc   | of the     |
|         | as well as seasoned pork). New and exotic    | Cantonese  |
|         | varieties, including fruit filling (actually | eating and |
|         | fruit flavored winter melon jam), ice-cream, | food       |
|         | wine cranberry, almond featured in *Wu Ren*, | culture.   |
|         | have emerged in recent years to satisfy the  | Still      |
|         | diverse demand by the young middle-class.    | dominant   |
|         | Pricey ingredients, such as shark fin, bird  | in         |
|         | nest, and abalone have also been             | Guangdong  |
|         | incorporated in the filling to catch the     | and        |
|         | high-end market niche.                       | popular in |
|         |                                              | big cities |
|         |                                              | outside of |
|         |                                              | Guangdong. |
+---------+----------------------------------------------+------------+
| **Jing  | [Crust]{.underline}                          | Originated |
| Style** |                                              | from       |
|         | Very thick crust as ratio of crust vs.       | Beijing,   |
| **(**   | filling is about 4:6. Characters are stamped | Tianjin    |
| Beijing | on top.                                      | and        |
| Sty     |                                              | s          |
| le**)** | [Filling]{.underline}                        | urrounding |
|         |                                              | area,      |
|         | Traditional filling is a mix of sugar,       | popular in |
|         | grounded peanut and sesame. Nowadays, bean   | north      |
|         | puree, date puree and sesame are the common  | China      |
|         | fillings.                                    |            |
+---------+----------------------------------------------+------------+
| **Su    | [Crust]{.underline}                          | Originated |
| Style** |                                              | from and   |
|         | Flaky. There is a stamp of characters on top | popular in |
|         | indicating the filling.                      | east       |
|         |                                              | China,     |
|         | [Filling]{.underline}                        | including  |
|         |                                              | Shanghai,  |
|         | Very sweet filling. Bean puree, sesame and   | Jiangsu    |
|         | multiple nuts are common fillings            | and        |
|         |                                              | Zhejiang   |
|         |                                              | provinces. |
+---------+----------------------------------------------+------------+
| **Dian  | [Crust]{.underline}                          | Originated |
| Style   |                                              | and        |
| (*      | Made from wheat flour and baked. Usually no  | popular in |
| *Yunnan | characters on top.                           | Yunnan and |
| Sty     |                                              | Guizhou    |
| le**)** | [Filling]{.underline}                        | provinces. |
|         |                                              | Gradually  |
|         | Yunnan ham filling (preserved pork). Mixed   | expanding  |
|         | taste of sweetness and salt. Also adds fresh | its market |
|         | flowers into the filling (for fragrance)     | out of     |
|         |                                              | Yunnan and |
|         |                                              | Guizhou.   |
+---------+----------------------------------------------+------------+
| **Tai   | [Crust]{.underline}                          | Originally |
| Style   |                                              | from       |
| (*      | Flaky. Usually no characters on top.         | Taiwan,    |
| *Taiwan |                                              | but        |
| Sty     | [Filling]{.underline}                        | modified   |
| le**)** |                                              | in         |
|         | Bean puree, nuts, fruit flavored jam or even | mainland   |
|         | pork.                                        | China to   |
|         |                                              | suit local |
|         |                                              | markets.   |
+---------+----------------------------------------------+------------+
| **Chao  | [Crust]{.underline}                          | Originated |
| Style   |                                              | and still  |
| (**C    | Very flaky. Sometimes characters are stamped | limited in |
| haozhou | on top.                                      | Chaozhou   |
| Sty     |                                              | area -     |
| le**)** | [Filling]{.underline}                        | northeast  |
|         |                                              | of         |
|         | Mostly bean puree or olive seed kernel       | Guangdong  |
|         | filling.                                     | province.  |
+---------+----------------------------------------------+------------+

# 

# Appendix II Types of Mooncakes - Photos

![](media/image10.jpeg){width="2.9694444444444446in"
height="2.2291666666666665in"}![](media/image11.jpeg){width="2.979861111111111in"
height="2.2284722222222224in"}![](media/image12.jpeg){width="2.6770833333333335in"
height="2.3854166666666665in"}![](media/image13.jpeg){width="2.647222222222222in"
height="2.3805555555555555in"}

# Appendix III Post Contact Information

For further information about the China market, as well as updates on
our upcoming events and activities, please visit out website at
[www.usdachina.org](http://www.usdachina.org/) or contact one of USDA's
offices in China:

**FAS/Office of Agricultural Affairs (OAA), Beijing**

5-2 Qijiayuan Diplomatic Compound

Jianguomenwai, Beijing, China, 100600

Phone: (8610) 6532-1953

Fax: (8610) 6532-2962

E-mail: <agbeijing@fas.usda.gov>

**Agricultural Trade Office (ATO), Beijing**

Kerry Center, South Tower

24^th^ Floor Suite #2425

No. 1 Guanghua Lu, Beijing, China 100020

Phone: (8610) 8529-6418

Fax: (8610) 8529-6692

E-mail: <atobeijing@fas.usda.gov>

**IPR Office**

E-mail: yuanchuan.liang@usda.gov

**Agricultural Trade Office (ATO), Guangzhou**

14/F, Office Tower

China Hotel, Guangzhou, China 510015

Phone: (86-20) 8667-7553

Fax: (86-20) 8666-0703

E-mail: <atoguangzhou@fas.usda.gov>

**Agricultural Trade Office (ATO), Shanghai**

Shanghai Center, Suite 331

1376 Nanjing West Road, Shanghai, China 200040

Phone: (8621) 6279-8622

Fax: (8621) 6279-8336

E-mail: <atoshanghai@fas.usda.gov>

**Agricultural Trade Office (ATO), Chengdu**

Opening in mid December, 2007

**Animal and Plant Health Inspection Service (APHIS), Beijing**

Room 618, Beijing International Club Office Building

No. 21 Jianguomenwai Avenue, Beijing, China 100020

Phone: (8610) 6532-3212

Fax: (8610) 6532-5813

E-mail: <theresa.boyle@aphis.usda.gov>