China has been a key target for multinational food companies for decades but success has varied by category. Western-style breakfast cereal has not made the advances seen in other parts of the industry but, as Wang Fangqing reports, that is gradually changing.
The Chinese market for breakfast foods has long been dominated by traditional meals. The morning meal occasion in the country remains a stronghold for, in the north, foods like buns and noodles and, in the south, congee and dumplings.
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By GlobalDataDespite recent rapid growth, breakfast cereal remains a small part of the overall breakfast market. According to the consulting firm Mintel, Chinese consumers are expected to spend CNY1.9trn (US$274.74bn) on breakfast products in 2021, up 46% from CNY1.3trn in 2015.
For comparison, data from Euromonitor shows China’s market for breakfast cereals reached CNY68.2bn last year, up 21% from CNY56.36bn in 2015.
Packaged breakfast cereals have been widely available in urban China since the 1990s but the market segment remained stagnant.
“Breakfast cereal has continued to have persistent struggles in gaining traction in China. Partly this is because the idea of cold breakfast cereals is still foreign to most Chinese consumers, and partly because of the rise of meal delivery platforms which have disincentivised consumers preparing food at home,” Ben Cavender, principal at China Market Research Group, says.
Nevertheless, Chinese palates are starting to open to international options like breakfast cereal.
“Having said that, as white-collar consumers adapt to more fast-paced lifestyles and as it becomes less common for three generations to live under one roof, breakfast cereals are starting to become more popular,” Cavender reflects.
According to Euromonitor, which tracks Chinese e-commerce platforms and traditional retailers, PepsiCo-owned Quaker had the largest share of the country’s breakfast cereal market in 2017, accounting for 18.1% of sales.
Chinese oats manufacturer Seamild – in which US business J.M. Smucker owned a stake from 2012 to 2017 – commanded 15.1% of the market. The world’s biggest manufacturer of breakfast cereals, Kellogg, accounted for 4.1% of sales last year, the Euromonitor data shows.
The fact Quaker and Seamild account for a third of the market should not be surprising, given it is oatmeal that has so far made the greatest inroads into China’s traditional breakfast habits.
“I have seen imported breakfast cereals in all larger Chinese supermarkets as well as in smaller outlets geared to a foreign clientele – for example, a coffee shop on a Chinese university campus – and they are also available in all online shops. However, I have so far failed to see it in the homes of Chinese relatives and friends, wherever in China,” Peter Peverelli, director of Eurasia Consult, a Netherlands-based consultancy focusing on China’s food industry, tells just-food.
“The only Western breakfast items that are really making way in China are milk, baked bread and oatmeal. Oatmeal is taking on faster because it is consumed hot, with hot water or milk. Traditional Chinese medicine warns that completely cold meals will lead to various diseases, which is the reason that Chinese have such a problem with the Western habit of eating cold breakfasts. You can see Chinese eating bowls of hot congee prepared by street vendors even on hot summer mornings.”
Market research organisations like Euromonitor and Nielsen do believe demand for hot and cold breakfast cereal will continue to grow, driven in part by younger consumers eyeing Western habits and by the rising interest in the links between diet and health.
“Offering convenience and promoting the idea of well-being, breakfast cereals have gained popularity among Chinese consumers, especially the younger generation who are influenced by the western idea of healthy diet,” Euromonitor says.
As more Chinese consumers are demanding healthy food, Euromonitor foresees China’s breakfast cereals sales rising to CNY80.6bn in 2020, a slight slowing of the market but still up another 18% from 2017.
Statistics from Nielsen echo Euromonitor’s analysis of the trends, pointing to data it says shows 53% of Chinese consumers were swayed by labels proclaiming food as healthy – a common trait of cereals sold in China.
“We noticed that families, the young generation and consumers with overseas experiences are the major buyers of breakfast cereals. They believe cereals are healthier than other breakfast options,” says Minnie Yu, senior director of consumer-packaged goods at Nielsen’s China arm.
Euromonitor says hot and cold breakfast cereals have experienced growth in recent years. Unsurprisingly given the inroads hot cereals have made so far compared to their cold counterparts, the smaller segment of cold, ready-to-eat cereals, such as granola and muesli, saw the strongest growth, up 28% in market size growth from 2015 to 2017, compared with 18% for hot cereals like instant oatmeal.
The market researchers at Euromonitor believe the health and flavour attributes of granola and muesli are drivers behind demand, although oatmeal/porridge suppliers have touted their health credentials and innovated on flavour, too.
“Granola and muesli usually contain [nutrient] rich ingredients and offer a variety of flavours, making them not only compelling for breakfast but also snacks,” Euromonitor says. In 2017, there was a 15% year-on-year increase in granola and muesli sales, the highest among all breakfast cereals varieties, according to Euromonitor.
Nielsen’s Yu says breakfast cereals are well received by consumers in large, developed Chinese cities. According to Nielsen, the comparatively urbanised eastern and southern regions accounted for 63% of total breakfast cereals sales between June 2017 and May 2018.
The Nielsen data suggests, by geography, the majority of sales of cold ready-to-eat cereals are made in cities including Shanghai, Beijing, Chengdu and Shenzhen, with developed cities accounting for 64% of sales between June 2017 and May 2018.
Euromonitor suggests cold, ready-to-eat cereals have added attractiveness for busy consumers due to the relative convenient nature of the products, given hot cereals need to be prepared by brewing or boiling.
However, this kind of convenience is relatively new for adult consumers. China did not have adult-targeted ready-to-eat cereals until 2016, when Japanese company Calbee started to sell Frugra, a fruit-flavoured granola, with sales available on the C2C site Taobao that year. Initial sales encouraged Calbee – in which PepsiCo owns a minority stake – to sell Japan-made Frugra on its store on Alibaba’s Tmall the following year. The trend was closely followed by multinational peers, including PepsiCo, the Nestlé-General Mills venture Cereal Partners Worldwide and Kellogg, which all launched imported granola in China in 2017.
Calbee is reaping rewards from this early entry. At Calbee’s online store on Chinese e-commerce platform Tmall, more than 30,000 packages (800g/package at CNY69) of Frugra was sold in July, dwarfing its rivals.
Because ready-to-eat cereals are growing in popularity among young Chinese, e-commerce platforms contribute the biggest share of that segment, about 70%, of the sales, Nielsen’s Yu says. “Overall, sales of ready-to-eat cereals are growing at a high speed across all sales channels in China, standing out against other FMCG products,” Yu adds.
According to Zhongwei Intelligent, a Shenzhen-based research company, e-commerce sales account for 43.2% of China’s total breakfast cereal sales, with 35.6% made at traditional hyper/supermarkets.
And, thanks to the wide adoption of smartphones and fast improving logistics services in China, e-commerce sales also include m-commerce, with Chinese consumers increasingly ordering from their phone when it comes to shopping.
E-commerce will continue to be a major distribution channel for breakfast cereals as more young Chinese will be the buyer, argues Xu Fei, from local industry consultants Shenzhen Zhongwei Intelligence.
It is no wonder breakfast cereal manufacturers plan to invest more in e-commerce. Nestlé tells just-food its Cereal Partners Worldwide venture will “put more investment in fast-growing e-commerce” within China, while continuing to expand its offline sales network in smaller cities.
Click here for part two of just-food’s deep dive into China’s breakfast cereal market, where we plot out the trends that could drive the market over the next five years.
