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August 16, 2018updated 01 Feb 2022 12:31pm

China breakfast cereal deep-dive part two – how to tap future growth

Demand for breakfast cereal in China is expected to continue to grow amid the urbanisation of the population and continued interest in Western eating habits.

By Wang Fangqing

Breakfast cereal remains a small part of the overall breakfast market in China but it is on the rise – and is expected to continue to grow.

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Hot cereal options have made the greater inroads but demand for cold, ready-to-eat (RTE) products are also seeing double-digit growth and global manufacturers are speeding up product launches to stay competitive.

Cereal Partners Worldwide, the global venture between Nestlé and General Mills, for example, introduced international brand Fitness in a granola format into China in May 2017, initially via its online stores.

Imported from Belgium and targeting urban females, the product, currently priced on promotion at CNY39.90 per package (300g), has been promoted as a tasty, healthy way to start a day.

Nestlé stresses Fitness is a mixture of whole oats, dried cranberry, pumpkin seeds and honey that it suggests enjoyed with yogurt. “Fitness is a premium product that [is] received very well among Chinese females aged between 22 and 35,” Henry He, vice president of Nestlé’s breakfast cereals business unit in Greater China tells just-food.

While sales of Fitness in the past year have not been disclosed, Mr He says Nestlé has seen “double-digit growth” in sales of all its cereals products in the past three years. “As more Chinese young adults are adopting a healthy lifestyle, their demands in breakfasts have changed accordingly. A meal packed with nutrition and natural ingredients such as nuts, dry fruits and oats, is being sought after, and they are willing to pay more for imported products,” Mr He says, adding: “Premium RTE cereals are growing so fast in China.”

Next year, Nestlé will introduce more RTE cereals in China, targeting convenient, out-of-home breakfasts. “We believe China’s breakfast cereals market will thrive in the next five to ten years,” Mr He forecasts.

His confidence is echoed by Ana Henriques, senior director of the nutrition category and commercialisation at PepsiCo’s business in Greater China and who leads the Quaker cereal unit in the region.

According to Euromonitor data, PepsiCo-owned Quaker had the largest share of the country’s breakfast cereal market in 2017, accounting for 18.1% of sales.

Quaker’s presence not just in China but internationally has been built on oatmeal but Henriques outlines how the company has launched a range of RTE products under the brand.

“The cereal sector is growing very well in China as consumers become more and more focused on health and wellness,” Henriques says. “Chinese consumers are quickly adopting RTE cereals like granola, a fast-growing segment.”

Henriques suggests that, compared with Western consumers, who she says often like to buy sizeable packs of breakfast cereals, Chinese consumers favour granola cereal for being “snackable” with rich natural ingredients.

From late 2016 to the end of 2017, Quaker introduced Quaker Granola in three flavours – tropical fruit, almond blueberry and mixed berry (promotional price CNY69.90 for two packs, 429g each). PepsiCo also rolled out Cruesli granola (promotional price CNY59.90 for 500g) imported from the Netherlands also in three flavours – mixed nuts, raspberry and raisin.

The company has also launched an import from the US called Quaker Oatmeal Squares, which the company suggests be enjoyed during at other meals as well as breakfast.

Launched in October 2017, Quaker Oatmeal Squares became one of the top ten best-selling products at Quaker’s online store at the B2C site Tmall within a month of its initial sale, according to the company.

In the hot-cereal segment, both Cereal Partners Worldwide and PepsiCo have sought to develop flavours tailored to the Chinese palate. Cereal Partners Worldwide recently added black sesame and purple yam options to its Nesvita Milk Oatmeal family, while PepsiCo has imported (from Taiwan) a Quaker oatmeal product mixed with Chinese yam and purple rice.

As demand for breakfast cereal in China grows, the pressure will be on to stay ahead of the competition.

Researchers at consultants Kantar Worldpanel believe manufacturers should pay attention to flavour.

“In general, Chinese consumers like to try different flavours rather than buying a big package of one flavour. For granola, they like to see a rich collection of dried fruits in ingredients,” Kantar says.

PepsiCo’s Henriques adds Chinese consumers generally prefer cereal products that are less sweet than those in Western markets. Asian flavours, such as red dates and black sesame, are also well received, she says.

That said, the difference in consumer preferences appears to be less of a concern for Calbee, the Japanese snack maker. Its breakfast granola – Frugra – is now in such high demand the company has had to build new factories in Japan to supply the Chinese market. One in Hokkaido started operations in July 2017, and one in Kyoto will start production this month August (2018).

At Calbee’s Tmall store, Frugra is offered in three flavours – original, chocolate cookie and apple – priced at CNY69 (USD10.11) per package (700g), also on promotion.

“Like in Japan, Chinese consumers, too, prefer the original flavour,” a Calbee spokesperson says, who adds the company does plan to enrich China-bound lines with more local Chinese flavours. He says most Frugra consumers in China are from Shanghai and Guangzhou, two of the wealthiest Chinese cities.

Unlike Nestlé and Quaker, two brands already known in China through long-standing global sales and marketing, Calbee, while well-known in Japan, was not a household name in China until recently. Its profile has shot up because of the e-commerce popularity of Frugra through its initial sales in 2016 via the consumer-to-consumer web platform Taobao. Multinationals have noticed and are eager to generate sales from young Chinese through investing more in e-commerce.

Calbee, by contrast, is now discreetly expanding offline, primarily in convenience stores in fast developing cities.

According to Calbee, Frugra is now sold in stores in cities including Beijing, Shanghai, Wuhan and Qingdao. “We will continue to invest in our sales network, offline and online, to provide convenience for Chinese consumers who want to buy Calbee products,” the spokesman said.

Driven by China’s continuous urbanisation and increasingly health-conscious consumers, manufacturers like Nestlé are upbeat about the growth potential for the country’s breakfast-cereal market.

One current gap in the cold breakfast cereal market that all brands could target, according to Xu Fei, analyst at Shenzhen-based research firm Zhongwei Intelligent, is the sugar-free segment, given most RTE cereals from major companies are currently sweetened. “I would say not only breakfast cereals, but all sugar-free foods are in great demand in China as the country has a huge number of diabetes patients,” Xu says. Even for consumers without diabetes, she continues, “a lot of them prefer the sugar-free option as a way to stay healthy”.

As it stands, the absence of big brands in this more niche part of the China’s breakfast-cereals market is creating big opportunities for local, small-and-medium-sized manufacturers. On Taobao, sugar-free granola cereal is offered by smaller Chinese companies including Gu Lin Guo Le and Xiang Yi Ran, both based in Shandong province.

But, because of food-safety scandals in Chinese’s recent past, which has caused local consumers to usually trust big brands, there is, Xu argues, significant opportunities for multinationals to tap the sugar-free RTE cereal sector.

The Calbee spokesman insists the company is watching the sugar-free food market in China “closely”. In Japan, Calbee already offers a Frugra product with 25% less sugar than standard lines, but it has yet been introduced in China.

Another way in which health could drive the development of the breakfast-cereal market in China is the selling of nutrition-fortified breakfast cereals. Seamild, for instance, is marketing products at middle-aged Chinese women.

Zhongwei’s Xu says nutrition-fortified cereals is a sub-sector with great potential. She also believes brands should consider targeting even smaller niches. “An updated classification should target people with different lifestyles,” Xu says, even advising companies to suggest particular recipes that would aid the health of consumers with particular gene profiles, given commercial gene tests are increasingly popular among young Chinese.

With health a macro trend on the minds of food-company strategists worldwide, it is no surprise industry watchers in China expect it to come into play in the country’s breakfast-cereal market. In that vein, it is also to be expected another global trend could drive the development of the category in China – convenience.

Ben Cavender, principal at China Market Research Group, says some manufacturers are using convenience to encourage consumers to try less traditional products at breakfast. “Breakfast cereal brands have adapted to the challenge of selling cold cereals in China by creating beverages that incorporate cereal products,” Cavender says. “A good example of this would be Quaker Oats creating the Quaker Oats High Fiber Dairy Drink for the China market. We are also seeing cereal bars slowly starting to become more popular in China as consumers look for more healthy snack options.”

Convenience is not just part of the strategic tool-kit of a breakfast-cereal manufacturer. Peter Peverelli, director of Eurasia Consult, a Netherlands-based consultancy focusing on China’s food industry, says purveyors of more local, traditional products are also using convenience to shape their product development.

“Chinese companies are also launching instant versions of traditional breakfast items like congee,” Peverelli says. “You can by a large variety of canned congee that can be consumed cold or heated. These products are also competing with the Western breakfast cereals.

“Breakfast cereals will grow but the multinational brands will need to adapt to some extent to the Chinese culture and habits.”

Related Companies

Free Whitepaper
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What is the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry?

While wanting to protect the country from being overwhelmed by Omicron, China’s adherence to a Zero-COVID policy is resulting in a significant economic downturn. COVID outbreaks in Shanghai, Beijing and many other Chinese cities will impact 2022’s economic growth as consumers and businesses experience rolling lockdowns, leading to a slowdown in domestic and international supply chains. China’s Zero-COVID policy is having a demonstrable impact on consumer-facing industries. Access GlobalData’s new whitepaper, China in 2022: the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry, to examine the current situation in Shanghai and other cities in China, to better understand the worst-affected industry sectors, foodservice in particular, and to explore potential growth opportunities as China recovers. The white paper covers:
  • Which multinational companies have been affected?
  • What is the effect of lockdowns on foodservice?
  • What is the effect of lockdowns on Chinese ports?
  • Spotlight on Shanghai: what is the situation there?
  • How have Chinese consumers reacted?
  • How might the Chinese government react?
  • What are the potential growth opportunities?
by GlobalData
Enter your details here to receive your free Whitepaper.

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