Economic growth and increasing demand for convenience in urban areas continue to drive the performance of breakfast cereals in China in 2011.

In addition, consumer interest in the category is being underpinned by strong innovation activity from key market players like Nestlé. Furthermore, the rise of GDP, which is projected to grow by 10% in real terms in 2011, will continue to boost the disposable incomes of middle-class Chinese consumers. The latter are becoming increasingly demanding in terms of quality and health orientation, a trend which is pushing manufacturers to invest further in added-value formats.

The breakfast cereals category is still emerging in China, mainly due to the nature of Chinese consumption habits. The acceptance of breakfast cereals is still relatively low compared to more traditional breakfast options. However, after several years of campaigning from some of the key international companies, informing and educating Chinese consumers about breakfast cereals, with an emphasis on their health benefits, they have become an attractive option to an increasing number of consumers in larger cities. This demographic group has higher disposable income and a more westernised outlook than consumers in other regions of China, and is gradually accepting breakfast cereals.

Children’s breakfast cereals is expected to be the most dynamic category in 2011, posting retail value growth of 12.4% to reach US$51m. Companies such as Nestlé invested considerable amounts in promoting children’s breakfast cereals in 2010. For example, Nestlé STARS, one of Nestlé’s key brands, constantly offers discounts in certain regions of China, especially southern China, thereby noticeably driving sales.

Furthermore, more companies are tending to emphasise the health-related benefits of their products, particularly for children, hence also attracting health-conscious parents.

Hot cereals will continue to be the largest category in breakfast cereals, accounting for 50% of total retail value sales in 2011 and expected to grow by 12%. Thanks to continuous advertising and in-store promotions, hot cereals have been accepted by more consumers. Furthermore, companies such as PepsiCo China and Guangdong Yashili Food Co are continuously developing new hot cereal products by adding ingredients such as walnut powders and Chinese wolfberry, thereby driving overall market growth.

Unit prices are expected to register only a slight increase in 2011 despite the rising costs of raw materials. Fierce competition is the main reason behind stable average unit price. For instance, many players offer discounts or additional volume, such as buy-two-get-one-free, in order to motivate consumers to buy more.

Nestlé retained its lead in breakfast cereals in 2010 with a 28% share of value sales. Firstly, thanks to a good reputation and strong awareness of its brands in China, the company’s products are widely accepted by local consumers. Secondly, with a long-standing presence in the country, Nestlé (China) has built an extensive distribution network and has strong collaborative relationships with major distributors. Moreover, the company uses a number of promotional tools to increase its value sales, including providing free samples in some large-scale retailers and offering free in-store trials.

The company launched a new packaging format in 2008 which combined several small packs of different Nestlé products. This was well received by young working professionals and children who like to try new and different products.

Guilin Sea Mild Biology Technology Development also witnessed positive value growth in 2010, reaching an 11% share to give it a ranking of second in breakfast cereals. The company focuses solely on hot cereals and has led this category in China for several years. Its continuous investment in advertising and new product development has given it a strong competitive advantage.

Product innovations are also key to the company’s steady growth. For instance, nutrients such as calcium and vitamins or ingredients such as walnut powders and Chinese wolfberry have been combined with traditional cereals to particularly target older consumers. These products are popular among their target audience and many Chinese tend to buy these products to give as gifts.

Sales of private label breakfast cereals remain negligible. Consumers are attracted to breakfast cereals for their perceived health benefits. However, private label products tend to be perceived as low in quality due to lack of brand awareness and are thus unpopular. Additionally, leading retailers such as Carrefour and Wal-Mart tend to be less willing to launch their own private label breakfast cereals due to the category’s small size and already fierce competition.

The breakfast cereals category is expected to post growth of 31% in retail volume terms and 38% in constant value terms over the 2011-2016 period. Demand for healthier lifestyles will be a key driver of growth and will also be a key point upon which manufacturers will promote their products.

Children’s breakfast cereals is predicted to record constant value growth of 50% over the 2011-2016 period. With the increasing health concerns of Chinese parents, children’s breakfast cereals have been accepted by more consumers, particularly in first-tier cities in China. Furthermore, children tend to more easily accept new concepts and tastes, thus meaning promising future growth for children’s breakfast cereals.

Breakfast cereals such as Fitness from Nestlé, which have a high fibre and low fat content, are expected to achieve positive growth over the forecast period. These kinds of products are particularly favoured by female consumers and are expected to continue to achieve steady growth over the medium term.