NEW YORK — Mastering distribution strategies will be important for food proceeding companies trying to gain share among Chinese customers, according to a new report from Rabobank.

“The Chinese economic miracle is now part of business folklore, and the conventional wisdom is if you are not already operating in China then you have missed out on a massive economic opportunity,” said Ivan Choi, Rabobank analyst. “However, Rabobank believes that within the processed food sector, there are still opportunities for European and North American brands facing flat growth at home. The key to winning over Chinese consumers is mastering distribution strategies.”

As one example of potential, the confectionery market has achieved an annual growth rate of 10% in some areas of the country, and despite market growth of 150% in the last decade, Rabobank believes there is still high potential for the segment. Chinese consumers currently consume less than 1.2 kg of confectionery per person every year against a global average of 2.1 kg and primarily buy during the festive season rather than throughout the year.

China’s 22 largest cities represent a market of 54 million households. Urban consumers want premium confectionery products from North America and Europe, which benefit from the perception of being higher quality and a safer products. In smaller cities, local brands have a stronger position with the key to success being choosing the right distribution network. Traditional stores are still where the majority of customers in smaller cities shop, and it requires a large network of distributors and middlemen or a large in-house distribution capacity to get products into shops. Nestle and other companies have partnered with local brands that have established distribution networks, but an equity stake is the key to getting the most out of these deals, Rabobank said.

Overall, Rabobank said brands must customize their strategies to the different sub-markets in the country. Provinces vary greatly in taste preferences, spoken languages and cultural practices as well as having different distribution chains. Mr. Choi said foreign confectionery brands should view different provinces as different markets and adjust products accordingly.

“In China, where consumers have limited brand loyalty and distribution channels are fragmented, the main competitive differentiator is making products available to a wider selection of customers,” Mr. Choi said. “While distribution is key to foreign companies success in the confectionery sub-segment, its importance is also evident in the broader processed foods sector. This is partly due to the Chinese retail market being so large and fragmented with the top five retailers holding only a small percentage of the market.”