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Taiwan Country Profile

Market Overview:

Euromonitor reports that Taiwan’s economy saw a modest improvement in 2017. A fiscal stimulus boosted domestic demand while a healthy job market is another driver. Private consumption will see only modest growth. Exports are increasing though gains are not impressive. Any escalation of tensions between Beijing and Washington, whether over trade, Beijing’s claims in the South China Sea or events in North Korea, could embroil Taiwan. They forecast that growth of real Gross Domestic Product (GDP) will be no more than 2% per year in the medium term.

  • Taiwan’s economy strengthened in 2017, though growth remains below trend - Real GDP grew by 2.1% in 2017 (up from 1.5% in 2016)
  • The real value of private final consumption grew by 1.6% in 2016 and modest growth of 2.1% was expected in 2017
  • Consumer spending is supported by rising wages - The high cost of housing is a durable constraint. Taiwan’s housing market is one of the least affordable in the world
  • Exports, which make up more than 50% of GDP, are crucial to the Taiwanese economy - Export performance depends heavily on global demand for smartphones and other hi-tech electronic gadgets
  • Taiwanese officials are concentrating on the promotion of trade and investment with other Asian countries as a means of reducing the country’s economic dependence on China

In 2017, Taiwan’s population was 23.5 million. The median age had risen to 40.4 years in 2017, 8.8 years greater than the figure for 2000 and well above the regional average. Taiwanese society is clearly ageing and that process will accelerate over the next 15 years. The ageing process is also reflected in the fertility rate, which fell to just 1.1 births per female in 2017. This is the lowest rate of any major Asian country. Fertility will remain at this level at least through 2030.

USDA’s Agricultural Trade Office (ATO) in Taipei hereinafter referred to as “Post” reports that although it is a small island about the size of Maryland and Delaware combined. Taiwan has developed into one of the world's largest economic and trading entities. Over the past decade, Taiwan has transformed itself from a light industry-manufacturing base to a global center for the production of high technology products. With a 2017 GDP of nearly US$1.2 trillion on purchasing power parity (PPP) basis, Taiwan is the world's 22nd largest single state economy, as well as the 6th largest economy in Asia. In 2017, Taiwan had an estimated per capita GDP of US$49,800 when calculated in terms of PPP.

In 2017 U.S. exports of consumer-oriented agricultural products grew 6% at over US$1.5 billion, making it the 7th largest export market for the aggregate. Taiwan is the 11th largest U.S. market for processed foods as well, totaling US$629.7 million in 2017, down 1%. Top processed export products imported by Taiwan in 2017 included:

  • Food preparations
  • Processed vegetables and pulses
  • Processed/prepared dairy products
  • Non-alcoholic beverages
  • Snack foods
  • Dog and cat food
  • Beer and wine
  • Processed fruit
  • Chocolate and confectionery
  • Prepared/preserved seafood.

U.S. exports of food products have some advantages in the Taiwanese food market. They include:

  • U.S. food products enjoy an excellent reputation among consumers
  • The growing modern retail industry is looking for new imported food products
  • The majority of consumers have become more health conscious and tend to be less concerned about costs when shopping.
  • The popularity of American holidays and culture/lifestyle lead to promotional events organized around these themes by restaurants and hotels throughout the year
  • There is a wide variety of U.S. food products available to consumers
  • Consumers are brand-conscious, and America is a leader in food brands that set trends
  • Increasing growth of fast food chains and casual dining restaurants is a key to industry growth

Challenges for U.S. exporters of food products are:

  • U.S. food products are not always price competitive in Taiwan market
  • Taiwan is the United States 7th largest market for agricultural exports but often overlooked by U.S. suppliers eager to export directly to China
  • U.S. exporters are sometimes reluctant to change product specifications to comply with Taiwan requirements/consumer preferences
  • Many U.S. companies are unwilling to provide low volume, consolidated shipments of high-value products to importers/end users
  • Consumers maintain a preference for “fresh” food products over “frozen”
  • Competition from agricultural and food exporters from countries with an FTA with Taiwan
  • Numerous food regulations and standards are not in line with U.S. or international standards
On June 29, 2010, Taiwan and China concluded the Economic Cooperation Framework Agreement (ECFA), a pact designed in part to help Taiwan exporters stay competitive with the Association of Southeast Asian Nations (ASEAN) following the signing of the "ASEAN plus 1" trade agreement with China. ECFA is a preferential trade agreement designed to reduce barriers to trade and investment gradually. Taiwan also signed a free trade pact with Singapore (ASTEP) and New Zealand (ANZTEC) respectively in 2013.

 

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Taiwan were estimated to reach over US$8.2 billion in 2017. That represents a growth rate of 11.7% or over US$856.9 million since 2013. By the year 2022, retail sales in the packaged food market in Taiwan is expected to reach nearly US$9.5 billion, a growth rate of 12.3%, or US$1 billion. High growth categories in the forecast include:

  • Ready meals
  • Savory snacks
  • Edible oils
  • Baby food
  • Soups
  • Sweet biscuits, snack bars and fruit snacks
  • Dairy
  • Confectionery
  • Processed fruit and vegetables
  • Ice cream and frozen desserts

According to Euromonitor the growth in retail sales and outlet numbers in supermarkets was in part fueled by the increased diversification of formats, catering to the different needs of consumers. All formats recorded growth in outlets and value terms in 2017. Mass-market supermarkets sought to continuously upgrade their product offerings and in-store facilities to ensure a more comfortable shopping space. Premium supermarkets rapidly increased their outlet numbers to tap into consumers seeking more aspirational and less common products. Smaller neighborhood supermarkets also carved out a significant niche catering to the needs of local residents, and posted the fastest growth in outlet numbers.

Players in supermarkets have successfully positioned themselves as the go-to destinations for daily essentials. They have achieved this role through ensuring store proximity, competitive prices, a wide product range and a choice of store formats to suit different consumer needs. Supermarket chains have steadily improved the in-store shopping environment. Premium supermarket chains such as Breeze Supermarket, Market Place by Jasons, City Super and The Beautiful Market have made consumers accustomed to a very comfortable shopping environment.

Leading standard supermarket chain PX Mart has begun to incorporate some of these elements in its store upgrades. Stores now offer better presentation of products and a greater focus on middle-market products than ever before. The success and growth of supermarkets has dragged down the relative performance of hypermarkets. With store numbers reaching an all-time high, supermarkets are even competing with the convenience and accessibility of convenience stores in some areas.

Euromonitor reports that sales and outlet numbers continued to fall in hypermarkets in 2017, following a decline over the review period from 2012. This channel faces a burgeoning threat from supermarkets, which has undergone rapid expansion and positions itself as a neighborhood shopping option. Warehouse clubs present an even greater challenge, due to their similar positioning and demographic to hypermarkets.

A key factor contributing to the rising number of smaller households is the ageing population, and challenges large stores to reinvent their offer to cater to elderly shoppers, who are less likely to make weekly shopping trips, for which such store formats are well-suited. Increases in supermarkets – premium, standard and others – along with the popularity of warehouse clubs, will continue to negatively impact the performance of hypermarkets in Taiwan.

Store upgrades and an improved shopping environment were focuses for players in other grocery retail channels over last few years. Convenience stores were the first to introduce improved and more spacious store formats, encouraging shoppers to linger. Supermarkets followed, creating a more modern shopping environment. By contrast, hypermarkets failed to address this transformation. Hypermarkets maintain a stale image, and typically offer a far less comfortable shopping environment for consumers. Although expansion opportunities in developed markets are limited, there is potential for opening new smaller stores, through flexible concepts closely adapted to each catchment area targeting locations close to residential areas, enabling store visits within busy lifestyles. Reduced store sizes with smaller non-food areas may also boost the sales per square meter.

Trends in Convenience Store Retailing: The convenience stores channel in Taiwan is very well-developed, with high store density across urban and rural areas.

  • The leading chains increasingly shifted their focus to food service in 2016 and 2017 - This tapped into the consumer trend of seeking convenience on-the-go as well as at home
  • These chains promote themselves as offering essentials, and for entertaining at home on a budget
  • The leading convenience stores broadened their food portfolios to encompass products from snacks through to full meals, as well as their own branded freshly brewed coffee; and more recently, made-to-order popular styles of cold tea
  • These companies were also active in upgrading their central kitchen facilities, and introducing new recipes and culinary items
  • With changes in consumers’ lifestyles leading to more consumers eating out on a regular basis, food service will be an even stronger contributor to the performance of convenience stores over the coming years

President Chain Store, the owner of 7-Eleven, remains by far the largest player in convenience stores in Taiwan, and posted the fastest growth in 2017. One reason was the company’s changed approach to its franchise system. The company introduced incentives and improvements in business operations support to assist franchisees with outlet upgrades and expansion. These measures directly contributed to the company’s improved position in convenience stores. The chain also introduced credit card payment for the first time in 2017, leading to an improvement in convenience for its shoppers. 7-Eleven is a pioneer in introducing new products and services, and in 2016/2017 the company continued to innovate in food service.

Convenience stores have a long history of providing delivery services to their customers in Taiwan. Family Mart, the second largest chain, introduced a new delivery service tapping into the strong interest in all things Japanese. The company now offers inexpensive rapid store-to-store delivery between Taiwan and Japan, which taps into the huge growth of Taiwanese consumers travelling to Japan. The two leading players have also collaborated with major e-commerce platforms Shopee, PC Home and Yahoo! Shopping to offer free delivery and pick-up points for online purchases. These stores saw overwhelming interest; they were reportedly swamped with parcels to be picked up. Delivery services will remain important, as they cement the chains’ position as essential hubs and allow companies to play a greater role in the growth of internet retailing.

Post reports that major convenience store chains import directly. They also rely on importers, agents, and distributors for products. Major Taiwan convenience store chains have their own distribution centers to distribute products, both dry and chilled/frozen goods, to each outlet. The other convenience stores have ties with other distribution centers.

Generally, the same importers, distributors, and wholesalers that supply the supermarkets, hypermarkets, and convenience stores, supply traditional markets, including wet markets and mom & pop grocery stores. Unlike supermarkets, hypermarkets, and convenience stores, the wholesalers and regional wholesale markets play the most important role in the distribution of products for traditional markets. Modern warehouse stores, such as Costco, also provide products to traditional markets. Grocery products are usually supplied by local wholesalers, although agricultural products are often purchased at regional wholesale markets.

Best Product Prospects:

Post advises that products present in the market that have good sales potential include:

  • Fresh fruits including berries
  • Fresh vegetables
  • Snack foods
  • Food ingredient preparations
  • Fish and seafood products.  

Food Service Sector:

Post reports that according to the Ministry of Economic Affairs (MOEA), the economic output of Taiwan’s food service sector, excluding institutional food service, was estimated at US$12.3 billion in 2016, a 3.6% increase from 2015. The increase in tourist arrivals helped drive food service revenue growth. Other factors such as the rise in consumer income, smaller family size, a growing number of working women and the development of e-commerce have helped the food service sector grow.

The government’s tourism policy was a savior for the food service sector facing a declining population. According to government statistics, the number of foreign arrivals increased significantly since 2005, more than threefold to nearly 10.7 million in 2016. The explosive growth of direct flights from China and neighboring countries also generated significant revenue for the airline catering businesses.

With one store per 2,250 residents, Taiwan has the highest density of convenience stores in the world. Food service companies work with convenience store chains to provide oven-prepared, microwavable meals, bakery products, and other processed food products via these retail channels’ express delivery services. In addition, many convenience stores were renovated to provide seating and dining places for consumers on tight schedules, creating a new model of business. This transformation helped 7-11 replace McDonalds as the largest licensed food service operation in Taiwan. Other convenience store chains also duplicate the same model to stay competitive.

Due to the limited size of their operations, the majority of Hotel, Restaurant Institutional sector HRI companies do not import directly. Instead, they tend to place small but more frequent orders with local suppliers that can meet such needs. Consequently, U.S. companies should concentrate their efforts on establishing business relationships with reliable and efficient importers and distributors, who in turn, sell to HRI end users. Price is still the primary concern for most HRI buyers while quality and packaging come into play if the price is agreeable. Very few HRI businesses operate on exclusive contracts with suppliers. As a result, most chain and independent restaurants change suppliers frequently if there is a price difference.

  • A recent trend is that retail outlets such as Costco, are frequented by many small food service/HRI operators who buy items in bulk at the lowest possible cost, thereby avoiding the need to source from multiple importers
  • Food and beverage managers, and executive chefs, working in the major international hotels are the key persons who make purchasing decisions. The purchasing department procures various food ingredients based on the list that F&B section provides. Hotels, especially those that employ foreign chefs or offer authentic international cuisines, and other high-end family style restaurants typically use more imported items from importers or wholesalers/distributors.
  • Western and local fast food restaurant chains usually either have their own distribution channels, or they contract with an independent distribution center to purchase, process, and deliver the daily needs to each outlet island-wide. Fast food chains also maintain their own R&D teams or work in close collaboration with one or more contracted catering service(s) to develop and frequently renew menus to meet consumers’ demand.
  • Medium-level family-style chain restaurants maintain a centralized purchasing department and a centralized kitchen as well. The centralized kitchen prepares meals, including bakery products, and delivers the foods to all outlets of the restaurant chain.

Based on MOEA data, the 2016 restaurant/beverage store sub-sector revenue climbed to US$13.3 billion, 3.5% growth over 2015. Gourmet Master (85°C Bakery Café), WowPrime (restaurant chains) and Uni-President Starbucks Coffee Company continue dominating the food service sector. The majority of restaurants in Taiwan are casual dining places. As most of the restaurants in this category are small businesses, they purchase materials mainly from wholesalers and wet markets. Only larger chains/franchises tend to buy products from importers or import directly.

There are over 12,000 breakfast shops in Taiwan. Most of them provide western foods such as hamburgers, sandwiches, milk tea, and coffee. The major franchise chains listed below will import ingredients if they cannot be sourced locally. McDonald's, which opened its first outlet in 1984, remains the most significant fast-food chain in Taiwan with 397 stores. Competition among fast-food restaurants has become more intense since Japan-based MOS Burger expanded its presence in Taiwan.

Coffee consumption has seen rapid growth in recent years, and sales now exceed US$2 billion. Coffee imports, including raw and roasted coffee, has more than doubled in volume since 2005 and now stands at 30,000 metric tons. Most coffee shops also provide sandwiches, salads, cakes, and pastries prepared by catering companies or other food processors. Some domestic and Japanese style coffee shops also offer freshly made sandwiches and hot meals, which are shipped frozen from their food processors for reheating at the outlets.

Many coffee chains import coffee beans directly but purchase other food materials from importers, wholesalers, and distributors. The significant growth of the coffee shop segment in recent years has created a niche market for imported candy/chocolate and cookie products with small and attractive packaging.

Post reports that best prospect products for U.S. exporters in the food service sector include:

  • Beef and beef offal
  • Pork and pork variety meat
  • Poultry
  • Fish and seafood products
  • Dairy products
  • Fresh fruit and vegetables
  • Tree nuts
  • Wine
  • Coffee

Food-Processing Sector:

 
Post reports that Taiwan’s formidable food processing industry offers numerous opportunities for U.S. ingredient exporters. In 2017, the U.S. exports of food preparation ingredients to Taiwan totaled US$190.6 million, with further growth expected in the food retail and food service sectors. In the face of stricter food safety regulations, aging population, and busy consumer lifestyles, Taiwan’s food processing industry is forging ahead by introducing a wide variety of natural, healthy, functional, and ready-to-eat products.

However, the U.S. faces significant price competition from New Zealand, especially in the dairy products. New Zealand’s price advantage results from a free-trade pact signed with Taiwan in 2013. The pact eliminates tariffs over a 12 year implementation period.

Stricter food safety regulations and labor policies have led to an increase in production costs. As a result, food processers have become more conservative in new product development and plant investment. New product development focuses more on streamlining product composition and incorporating healthier ingredients.

To manage food safety risks and restore consumer confidence, Taiwan’s FDA mandates that local food processing manufacturers and additive/ingredient importers provide a comprehensive record of ingredients, including supplier information, purchase quantity, production/expiration dates, and distribution. Some food manufacturers also display QR codes on product packaging so consumers can identify the ingredient sources and product distribution. Trends indicate that more established food manufacturers are inclined to import ingredients on their own, instead of relying on importers, to secure product traceability and regulatory compliance.

According to the Ministry of Economic Affairs, Taiwan’s food processing industry registered US$17.7 billion in production output, accounting for 3.2% of the GDP in 2016. Over 160,000 people are employed in the food processing sector. Though the industry comprises of mostly small and medium-sized enterprises, 22 food manufacturers account for more than 70% of total production. Most large manufacturers have labs to test for pesticide/chemical residues, and R&D teams to develop new products.

Post reports that opportunities exist to expand U.S. food product sales to Taiwan’s food processing and ingredient sector. Taiwan’s food processing and ingredients industry is comprised of the following sectors: beverage, coffee/cocoa, condiments/seasonings, dairy products, fats/oils, flour/ bakery products, fruits/vegetables, meat/poultry products, snack foods, and sugar and confectionery. Taiwan’s continued modernization and increased acceptance of western food make it an extremely attractive market for U.S. exporters. It also serves as an excellent test market for companies interested in exporting food products to China.

Post advises that best prospects for U.S. exporters in this sector include:

  • Cheese
  • Tree Nuts
  • Non-GNO Soybeans
  • Dried Fruit
  • Fluid Milk
  • Roasted malt
  • Pre-mixes and frozen dough
  • Cereal grains
  • Barley
  • Frozen fruit
  • Whey protein concentrate

 

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