Big Chances for New Entrants to Gain Traction in China’s Cereal Market

The trend of healthy living has driven Chinese consumers to carefully consider their breakfast, especially its nutrition and convenience, which is fueling growth in cereal consumption. Qianzhan Industry Research Institute forecasts that ready-to-eat cereal sales in China will grow from 41,000 tons in 2018 to 56,000 tons in 2022, and from 1.88 billion yuan in 2018 to 2.65 billion yuan in 2022, with a compound annual growth rate of 8% and 9% respectively ^[1].

A recent report, “Road to Hot-Style Food and Drinks in 2020," shows that the category of lotus root powder, cereal, and brewing drinks is expected to experience increased demand. Among these categories, cereals offer great potential. The cereal market is valued at 2.75 billion and has not yet seen any dominant force emerge to control the sector. In recent years, Wangbaobao, OCAK, and other emerging cereal brands have gained market shares due to their rapid penetration in online channels. Wangbaobao even beat established cereal brands such as Quaker and Calbee to claim the title of Tmall top-selling cereal brand during the 2019 11/11 Singles’ Day Shopping Festival. 

Low per capita consumption volume

China's annual per capita consumption of cereal is far lower than that of the United Kingdom and the United States. There is an even large gap between China and Japan, which share similar eating habits. China’s annual per capita consumption of cereal was $0.78 in 2018, well below the $6.30 level of Japan ^[2]. Driven by modernization, urbanization, and internationalization accompanied by China's economic development, the number of cereal consumers, and the age structure of consumers (from the middle and old to the younger) are expanding. People in lower-tier cities are also developing cereal consumption habits due to the improvement of life quality and the penetration of social media.

Relatively low market concentration

The market concentration of the cereal industry in China is relatively low. In 2018, Japan's cereal industry CR3 was 83.1%, while that of China was about 42.3% ^[3]. According to Qianzhan Industry Research Institute, players in China's cereal market can be divided into three tiers based on brand awareness, marketing channels, and production and sales scale. The first tier is represented by enterprises with high brand awareness, such as Quaker, Seamild, and Nestle, and some regional enterprises, including ACES and GOLDROAST, belong to the second tier. Enterprises in the third tier are mostly small in scale and market shares. 

Western-style breakfast becomes increasingly popular

On Chinese social media platforms like Sina Weibo and Little Red Book, sharing photos showing western-style cereal breakfast recipes has become a trend. Behind the rapid rise of breakfast cereals is a change in the eating habits of China's growing middle class, which will reach 700 million by 2020 ^[4]. The rapidly growing middle class tends to buy premium and novel products, and they prefer diversified food choices featuring delicious, healthy, and natural ingredients. In 2016, a popular TV drama, Ode To Joy, boosted both fame and sales of cereal brand Weet-Bix because the leading actress, an elite office lady, was eating this product.

Expanded consumer driving greater product segmentation

With the expansion of the consumer group and scenarios, the cereal category has more segmented products. For example, there are fruit cereals and cereal bars for young people to snack on, and cereal rings with cute shapes to appeal to kids, as well as sugar-free and low-fat cereals for people trying to lose weight or get fit. In recent years, fruit cereal has become the hottest category in the Chinese market. In Taobao, the top five cereal products by sales are all fruit cereals, and in Tmall Global, three spots are occupied by fruit cereals among the top five selling cereal products, and they all belong to one brand-- Japan’ Calbee.

Last month, Quaker introduced two new products: Quaker Fruit Lactobacillus Cereal and Quaker Oats Rye High Fiber Multi-Grain, aiming at female consumers who are fond of visually appealing and tasty food, and for people trying to lose weight who pay more attention to the fat content. Fruit-added and low-fat remain two crucial directions in current cereal innovation.

E-commerce boost sales of imported brands

For imported cereal brands, the development of e-commerce in China has offered them great opportunities. The rate of imported cereals entering China through cross-border e-commerce channels peaked in 2015 ^[5]. At that time, cross-border e-commerce was backed up by a series of favorable policies, which attracted breakfast cereal brands from the United States, Australia, New Zealand, Germany, Sweden, and other countries. Among them, Australian brands such as FreedomFOODS, NUTRIBREX, Metcash, Kellogg's and Quaker from the United States, and Vogel's of New Zealand were all very popular on Tmall Global. Another stellar example is Japanese brand Calbee, which has been a web celebrity cereal product in China for years. Since 2015, it has established itself a strong presence in China’s mainstream e-commerce platforms such as Tmall Global, Jingdong, and Koala and was responsible for driving annual growth of 200% in China’s cereal sector ^[6]. Calbee plans to increase sales of its fruit cereal Furugura in China sevenfold by 2020 ^[7].