Cereals Market in China

Cereals Market in China: a Rising Trend for Western Breakfast

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Cereals Market in China: A Rising Trend for Western Breakfast

The cereals market in China continues to see growth. According to TMR research, Asia-Pacific is – compared to the declining demand in Europe and North America – expected to amount for a market share of around 13% of the overall market by the end of 2019. The increasing popularity of lighter meals and Western breakfast habits are the primary drivers of this emerging trend.

Major players, including Cereal Partners Worldwide, General Mills, Kellogg, and PepsiCo, have all targeted the market in some way. The breakfast cereals market benefited both from the increase of hectic lifestyles and rising health awareness among consumers. An increasing number of young Chinese consumers are opting for healthy and lighter breakfast cereals as a convenient and healthy morning meal, enabling them to save more time when devouring breakfast on busy mornings. Most breakfast cereals contain vitamins and have a high quantity of fiber. Thus, breakfast cereals are increasingly popular alternatives to traditional breakfast choices which are hot and savory, such as rice porridge, noodles, baozi (steamed buns) and other baked goods. Breakfast cereals are predicted to see 6% value CAGR at the current 2016 prices. Multinationals will continue to center their strategy on well-tailored consumer targeting by offering products to meet the different demands of a niche market. For example, to provide the needs of older adults, manufacturers will take their inspiration from traditional Chinese medication by offering products containing Chinese ingredients such as red dates, goji berries, and black sesame. Sugar-free products are also a huge rising trend regarding the focus on consumers’ changing eating habits, focusing more on healthy and nutritious food. Manufacturers will meanwhile emphasize high calcium and vitamin contents for the Chinese children’s breakfast, encouraging parents to opt for functional and healthy products. Breakfast cereal market players are responding to the health and wellness trend and are keen to add innovative and healthier ingredients to gain shares.

Essential to know about the cereals market in China

Breakfast in China

The performance of the breakfast cereal market is forecast to decelerate, with a CAGR of 6.2% for the five-year period between 2012-2017, which is expected to drive the market to a value of $182.8m by the end of 2017. However, the Chinese cereals market grew with enough healthy annual growth rates over the last years and is continuously increasing. In 2015 the revenue of general cereal sales amounted to RMB 2.805 billion ($407 million), whereas in 2022 the market is expected to more than double, reaching RMB 6.2 billion ($855.8 million), according to the Chinese company Zhiyan Consulting (智研咨询). The exploding population – especially China’s middle class– will significantly contribute to the increasing demand.

Compared to the Western world, the current cereal market size is still small in China. Thus, there is great potential for penetration. Fan Dejin (飯的金), working at Daxue Consulting declares, “People around me seldom eat cereal for breakfast. But they may try them for curiosity or to lose weight such as some cereal with dried fruit or nuts in it. But I know that some elderly eat cereals for breakfast.”

Supermarkets and hypermarkets form the leading distribution channel in the Chinese breakfast cereals market, accounting for a 53.1% share of the total market’s value. Some other independent retailers account for 27.5% of the market. However, the fast-emerging e-

commerce which enhances cross-border purchases made the category available to a broader clientele.

The breakfast cereals market consists of the sale of hot cereals and ready-to-eat (RTE) cereals. RTE cereals in milk are enjoying an increasing popularity, especially in first- and second-tier cities, according to Euromonitor. The ready-to-eat cereals segment was the market’s most lucrative in 2012, with total revenues of $80.2m, equivalent to 59.2% of the market’s overall value. The hot cereals segment contributed revenues of $55.3m in 2012, equating to 40.8% of the market’s aggregate value. However, by having a look at the sales on Taobao, speculations may occur, as hot cereals are still dominating the market and much more preferred among the Chinese customers.

The domestic Guilin Sea Mild Biology Technology Development led breakfast cereals with its brand Sea Mild and accounted for a value share of 18 percent in 2016 as well as the year before. Unlike most other international players, Guilin Sea Mild specializes in hot cereals, which require the addition of hot water or milk. The company built the overall leadership mainly through its well-established brands and strong distribution network. Guilin Sea Mild is also positioned as mid-priced and thus benefits from a broad potential customer base. The company mainly targets elderly consumers with products such as Seamild Nutrition Cereal for the Elderly, High Iron Red Dates Cereal, and High Calcium Walnut Cereal. The company gained almost half a percentage point value share in 2014 over the previous year thanks to their reasonable selling price strategy and their strong reputation for quality.

Emerging new categories in the cereal market

Chinese consumers often use western-style breakfast cereal as a gift, particularly in first-tier cities. Kantar Worldpanel discovered that Chinese received up to a quarter of cereal in their homes as a present. The market opportunities arising throughout this fact is notable.

Underlining changing consumer preferences and behavior, Calbee, a Japanese breakfast cereal with dried fruit and nuts, overran the Chinese market in 2015. Although the price is triple that of other oatmeal and Calbee is not officially distributed via the usual channels, such as hypermarkets, the brand drives the market growth of breakfast cereals significantly in China. Kantar reported e-commerce doubled the sales of the brand and in just one year, Calbee gathered a 1.7 percent market share. Additionally, the report states, most of their buyers are new category buyers.

Opportunities and challenges in the Cereals market in China

There are good reasons to bet on China’s breakfast market, with the growth of the middle class embracing the Western lifestyle and its eating habits such as its growing fondness for dairy products, often associated with cereal consumption. According to an opinion survey by Nielsen, 90 percent in China perceive breakfast as the most important meal of the day, 49 percent prefer breakfast that is portable and easy to eat, and about a third explained not having enough healthy options available for breakfast.

Taking some of China’s demand’s share certainly matters to the company Kellogg, which in 2015 entered into a joint venture with Yihai Kerry, a Chinese company focusing on grains trading and milling, a subsidiary of agri-trading conglomerate Wilmar. It is Kellogg’s second effort in the Chinese market, having offloaded Zhenghang, a local snack maker. Among the multinationals, the best-placed would appear to be Nestle, which has a 28% market share,

according to Euromonitor. Nestle has been adept at appealing to different consumer groups, partnering with US-based General Mills, to develop child-focused brands like Cheerios into the Chinese market.

For marketing and distribution, local Chinese brands appear to be unable to compete with big brands such as Nestle which is also targeting the elderly for instance, with its gift boxes of “Nesvita,” the Chinese cereal milk drink expected for the upcoming Chinese New Year gift season. At Jingkelong stores, Nestle has also launched a local craving for protein powders with ‘Swiss’ branded 300g box selling at 349 RMB, a premium on similar-sized local offerings by the Hong Fu Loi brand at 208 RMB.

However, given the differences in the tastes of China and the western world, it might be difficult for manufacturers to meet the consumers’ expectations. Traditional Chinese breakfast is hot and savory compared to western-style breakfast which is light and sweet. Recently the Telegraph announced that Weetabix – UK’s second largest cereal brand – has been put up for sale by its owner Bright Food Group, struggling to crack the Chinese market. Weetabix’s sales in China regarding volume have doubled, according to the company. Several potential buyers are already in the wings. Nestle and General Mills through Cereal Partners Worldwide as well as PepsiCo and Pladis are taking part in the bidding war. Kellog, however, opted out.

Top international players in China’s cereals market

Cereal Partners Worldwide are the leading player in the cereals market in China, generating a 27.9% share of the market’s value. We also have Standard Food Corporation accounting for a further 8.3% of the market, PepsiCo, Inc 5.1%, Kellogg Company 4.5%, and Other 54.1%.

  • Cereal Partners Worldwide

Cereal Partners Worldwide is a joint venture company between General Mills and Nestle. The company manufactures breakfast cereals from uncooked ingredients grown naturally. CPW markets cereals in more than 130 countries. It is headquartered in Lausanne, Switzerland and employs 4,000 people. CPW operates through seven different regions covering Latin America, Europe, the Middle East, Asia, and Oceania & Africa, with a strong presence in emerging markets such as Russia and Brazil. The company markets products under brands such as Cheerios, Fitness, Shreddies, Golden Grahams, Clusters, Golden Nuggets, Shreddies Wheat, Oats & More, Curiously Cinnamon, Cookie Crisp and Nesquik in the children’s market and the family sector. It offers a portfolio of over 50 brands.

  • Standard Food Corporation

Standard Foods Corporation is engaged in the production and distribution of nutritional food, edible oil, dairy products, and beverages. The company’s products include milk powders, oat products, adult nutrition foods, Chinese herbal healthcare products, health beverages, and edible oil. The company markets its product under the brand name Quaker. The company’s operations are carried out in Taiwan, China, and the United States of America. Standard Foods operates its business in China through the name Shanghai Standard Foods Co., Ltd.

  • Kellogg

Kellogg, along with its subsidiaries, is engaged in marketing and manufacturing ready-to-eat cereals and convenience foods, such as Cookies, Crackers, Savory Snacks, Toaster Pastries,

Cereals Bars, Fruit-Flavored Snacks, Frozen Waffles, and Veggie Foods. The company manufactured these products in more than 16 countries and marketed in more than 180 countries in the world. Kellogg operates through seven business sections. Product categories and geographic location are the basis for classification: US morning foods and Kashi, US specialty, US snacks, Latin America and Asia-Pacific, North America and Europe.

  • Pepsico, In

Pepsi is the world’s second largest F&B company, which mainly operates in the snacks and beverages manufacturing space. The company has a presence in over 200 countries globally and has an essential presence in North America. Pepsi operates through four business units: PepsiCo America Beverage (PAB) & America Foods (PAF), Middle East and Africa (AMEA), PepsiCo Europe, and PepsiCo Asia

Supermarkets/hypermarkets form the leading distribution channel in the Chinese breakfast cereals market, accounting for a 53.1% share of the total market’s value. Some other independent retailers account for 27.5% of the market.

A strong potential for the Cereals market in China 

There are good reasons for having a bet on China’s breakfast market, according to a Seamild executive who points the growth of the middle class who embrace the Western lifestyle with its eating habits such as its growing fondness for dairy products, often associated with cereal consumption. Sales are growing at 15% a year.

Taking some of China’s demand’s share certainly matters to the company Kellogg, which has entered into a joint venture with Yihai Kerry, the Chinese company focusing on grains trading and milling subsidiary of agri-trading conglomerate Wilmar. This will be Kellogg’s second effort in the Chinese market, having last year offloaded Zhenghang, a local snack maker. Among the multinationals, the best-placed would appear to be Nestle, which has a 28% market share, according to Euromonitor. Nestle has been adept at appealing to different consumer groups, partnering with US-based General Mills, to develop child-focused brands like Cheerios into the Chinese market.

In marketing and distribution, local Chinese brands appear to be unable to compete with big brands such as Nestle which is also targeting the elderly market for instance, with its gift boxes of “Nesvita,” the Chinese cereal milk drink expected for the upcoming Chinese New Year gift season. At Jingkelong stores, Nestle has also launched a local craving for protein powders with ‘Swiss’ branded 300g box selling at 349 RMB, a premium on similar-sized local offering by the Hong Fu Loi brand at 208 RMB.

Guilin Sea Mild Biology Technology Development led breakfast cereals and accounted for a value share of almost 20% last year, in 2014. Unlike most other leading players, Guilin Sea Mild specializes in hot cereals, with its overall leadership mainly thanks to its well-established brands and strong distribution network. Guilin Sea Mild is also positioned as mid-priced and thus benefits from a broad potential customer base. The company mainly targets elderly consumers with strong products such as Seamild Nutrition Cereal for the Elderly, High Iron Red Dates Cereal, and High Calcium Walnut Cereal. The company gained almost half a percentage point value share in 2014 over the previous year thanks to their reasonable selling price strategy and their strong reputation for quality.

Contact us to have more details about Cereals Market in China, dx@daxueconsulting.com

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