Multinationals are taking a chance on markets they hope will provide the returns they desire

Multinationals are taking a chance on markets they hope will provide the returns they desire

An increasing number of breakfast cereal manufacturers are now taking advantage of the potential growth opportunities for this category in emerging markets such as Asia and Eastern Europe.

The much talked about growth of the middle class, an increasing focus on health and food safety and the prospect of higher returns have made the emerging markets an attractive proposition for breakfast cereal manufacturers. Those that have an already established base in these regions and even those that are new to the cereal category are taking a chance on markets they hope will provide the returns they desire to offset weaknesses at home.

The European and US markets are seen as highly mature and offering little growth for breakfast cereal. Markets such as China and India, where there is increasing interest in the category driven by higher awareness of Western habits, provide manufacturers potential avenues for growth.

Data from Mintel forecasts breakfast cereal sales in China - which reached GBP477.7m (US$730.9m) in 2012 - will nearly double by 2016 to GBP907.7m. The country is dominated by local players, with oat firm Seamild (in which US firm JM Smucker owns a minority stake) holding a 12.3% share and Singapore Viz Branz Group an 11.1% stake of the market.

India is less developed, with sales at GBP88.1m last year. However, sales are also forecast to almost double by 2016 to GBP192.7m.

Nevertheless, although China is one of the higher growth markets, traditional Chinese breakfasts do not really have a western style to them - the typical breakfast being a hot rice porridge called congee. However, with dairy consumption on the rise, breakfast cereals with milk could increasingly feature on breakfast tables.

Marcia Mogelonsky, director of insight at Mintel, believes part of the challenge for western multinationals is to educate or introduce the Asian consumer, to the western way of eating breakfast. "In China, breakfast is a completely different meal and cereal is a food they're just learning about," she says. However, the analyst firm's forecast for growth in China indicates it believes breakfast cereal manufacturers can succeed in winning over consumers in the country.

Other Asian markets forecast to see a jump in breakfast cereal sales include South Korea, which had retail sales of GBP165.4m last year. Sales are predicted to reach GBP304.1m by 2016. The two main players in this market are Dongsuh Foods with a 44.7% value share and Kellogg at 39.6%.

Indonesia is one of the smallest, but is seen as a promising and emerging growth market. Its market retail value currently stands at GBP5.8m but is expected to reach GBP7.3m in the next three years.

Torsten Stocker, a partner at Monitor Group in Greater China, says the country is at "a good stage of development" and has been "purging for the best part of 20-30 years". He adds: "It's only in the last ten years that it's had more political stability and the middle class has become much broader. Milk consumption has also expanded and that tends to be an aspect that drives the consumption of breakfast cereal."

Mogelonsky offers the same view and sees Indonesia as a "huge" and "lucrative" market. Here, Nestle holds a 25% value share of the market, followed by FrieslandCampina with an 18% share.

She also points to Vietnam as one to "keep an eye on". Here, Kellogg has the lions share with a 27.9% value stake with Kellogg taking the number two spot with a much smaller share of 9.6%.

"This country is like a stealth country and is moving forward a lot. While holding a smaller market retail value at GBP23.9m, it is expected to more than double to GBP65.7m by 2016."

Breakfast Cereals: Retail market value in GBP

Region Units 2012 2016
China m GBP 477.712 907.7
Japan m GBP 202.4 157.8
South Korea m GBP 165.4 304.1
India m GBP 88.051 192.71
Vietnam m GBP 23.89 65.726
Indonesia m GBP 5.76 7.254

© 2013 Mintel Group Limited. All Rights Reserved. Confidential to Mintel.

Company Retail Market Share by Value (%)

China   Japan   South Korea   Indonesia  
Company 2011 Company 2011 Company 2011 Company 2011
Seamild (Group) Co., Ltd. 14.84 Kellogg Co. 32.6 Dongsuh Foods Co., Ltd. 44.7 Nestlé S.A. 26
Singapore Viz Branz Group 10.23 CALBEE, Inc. 23.2 Kellogg Co. 39.7 Mayora Group 18
Blackcow Food Stock Co., Ltd. 7.09 NISSIN FOODS HOLDINGS CO., LTD 11.4 Dongwon F&B Co., Ltd. 9.7 PT Santos Jaya Abadi 11

© 2013 Mintel Group Limited. All Rights Reserved. Confidential to Mintel. 

Mogelonsky suggests cereal manufacturers could, as in Western markets, turn to convenience products as more Asian consumers, especially in urban markets, look for on-the-go products.

"A hot cooked breakfast that consumers were once used to might not fit in with their new urban lifestyle now," she tells just-food. "In India there has been some more convenient packaging in cereals and, in China, a move towards convenience as a drive behind breakfast cereal consumption."

Alternatives to breakfast cereals, like cereal bars and breakfast drinks have been encroaching on the breakfast cereals market over recent years, and in Asia, this change in lifestyle is only serving to fuel the category further.

With on-the-go key for this emerging urban consumer, the pressure is on for both multinationals and domestic players to deliver if they want the returns from these markets.

Some domestic players in China are offering 'breakfast in a cup' that requires hot water or milk. Cereal bars and breakfast drinks have also become another way of consuming breakfast on-the-go. However, Mogelonsky says these emerging convenient options in the Asian markets have their plus and minuses.

"Cereal bars are a bigger step and are not really a breakfast as they are rarely eaten at breakfast time. Consumers might see them as more of a snack. With breakfast drinks ... companies keep playing with them. They've always been present in America but these more sophisticated drinks with fibre, however, are new. They have a texture so you're not just drinking a drink, you feel like you're fuller."

The breakfast drink concept was pioneered by Sanitarium-owned Australian brand Up and Go, and in Australia is an emerging category. Kellogg has taken note and has since begun trialling a Special K Breakfast Shake in the US but has yet to announce any results of the trial or whether it will be introducing it to new markets. The company currently sells brands including Frosted Flakes, Rice Krispies and Special K in China.

In China, Inner Mongolia Yili Industrial Group produces a UHT milk product containing rice grains, offering a drink that contain a solid breakfast ingredient.

Stocker believes there has also been a rise in Asia of fortified cereal yoghurt, particularly from local companies such as China's Mengniu and Japan's Calbee. These are sold as a healthy snack, another growing area of the cereal market.

A growing consumer awareness regarding the importance of healthy eating habits in the emerging markets, and evolving food consumption patterns, means cereal manufacturers are having to look at more organic and speciality food products. Creating a product with added value is seen as a way of capturing consumers and boosting market share in Asia as it is in Western markets.

UK firm The Good Carb Food Co. has made its mark in Asia and has set its sights on further expansion here, where it is acting as a trail blazer for the granola category.

Director Nigel Bryan tells just-food growing acceptance of western diets and an interest in healthy-eating options has allowed it to grow its revenues in this region. The group already sells into Hong Kong, mainland China, Taiwan, Malaysia, Inndonesia and Japan.

"We are the only cereal company that produces really healthy cereal," Bryan says. "We actually test the impact it has on your blood sugar levels and that's what a lot of people in the virgin markets are interested in. Companies like Nestle and Kellogg have got the market share but consumers are fed up of them as they're looking for healthy cereal."

Stocker concurs there is an opportunity for healthier cereals in these markets. He also points to the use of local ingredients, something Quaker picked up on with its launch of two cereal products with Chinese ingredients shortly after its acquisition by PepsiCo in 2000.

"Consumers want something that is quite familiar and habits are much harder to change [in Asia] and that is quite important," he says. 

And so it seems it is China that holds the golden key for most multinationals at the present time. Its forecast figures offers good reading and it appears to be promising the best returns. The other markets, however, are not to be ignored and are certainly ones to watch. As the multinationals will be.

Domestic players will be keen to hold on to their market shares, particularly in China, Mogelonsky suggests, as the major international players step up their innovation.

"The multinationals are going to keep a pretty good hold on their market shares in most markets because while the domestic players might know the market, they don't know the cereal market. The product is really a western invention."

Click here to read the full just-food briefing into the breakfast cereal sector.