BREAKFAST CEREALS IN CHINA: A MARKET ANALYSIS

SUMMARY

This report covers the market for breakfast cereal products in China. China is changing rapidly and so are its tastes. As a consumer society emerges, so new products are appearing with increasing regularity. Breakfast cereal products are among them.

Executive Summary:

China is changing rapidly and so are its tastes. As a consumer society emerges, so new products are appearing with increasing regularity. Breakfast cereal products are among them.

Rising average annual incomes, greater ownership of fridges and freezers, increased exposure to western and international cuisines and a greater array of goods in the supermarket are all combining to increase the variety of cereal products available in China.

Historically, the overall cereal products sector has been restricted to dried noodles and rice. Flavoured rice, pasta and breakfast cereals have only become common in shops with the coming of western influences during the eighteenth, nineteenth and twentieth centuries.

Foreign manufactured breakfast cereals are now beginning to enter the Chinese marketplace. While the present market is small, there is tremendous demand potential though at present the primary buyers of breakfast cereals in China are hotels that cater to foreign visitors though some supermarkets and hypermarkets are beginning to sell to local consumers.

There is a small local production sector for breakfast cereals though varieties tend to be limited and, for the most part, copies of foreign brands.

The arrival of the fast-food chains, western-style supermarkets, greater awareness of cereal products and the emergence of a generation both willing and able to try new products has meant that the market for cereal products has made great strides in China.

TABLE OF CONTENTS

CHINA CONTACT I

CONTENTS II

INTRODUCTION 1

• Report Coverage 1
• Executive Summary 1
• Other Access Asia Reports of Possible Interest: 2
• Glossary 3
• Free Monthly Online Newsletters 4

1 BREAKFAST CEREALS MARKET 5

1.1 Overview 5

1.2 China's Total Food Market 6

1.2.1 Total Food Market: Food and Non-food Sales 6

Table 1.1 TOTAL CURRENT VALUE RETAIL SALES BY FOOD AND NON-FOOD IN CHINA, 1996-2002 6

1.2.2 Total Food Market: Food/Non-food Sales Split 7

Table 1.2 PERCENTAGE BREAKDOWN OF SALES BY FOOD AND NON-FOOD IN CHINA 1996-2002 7

1.2.3 Total Food Market: Urban and Rural Split 7

Table 1.3 TOTAL CURRENT VALUE RETAIL SALES BY FOOD AND NON-FOOD IN CHINA, 1996-2002 7

1.2.4 Total Food Market: Total Value Trends 8

Table 1.4 CURRENT VALUE OF FOOD SALES BY MAJOR PRODUCT CATEGORY IN CHINA, 1996-2002 8

1.2.5 Total Food Market: Urban Value Trends 9

Table 1.5 URBAN FOOD SALES VALUE BY MAJOR PRODUCT CATEGORY IN CHINA, 1996-2002 9

1.2.6 Total Food Market: Rural Value Trends 10

Table 1.6 VALUE OF RURAL FOOD SALES BY MAJOR PRODUCT CATEGORY IN CHINA, 1996-2002 10

1.3 China's Breakfast Cereals Market 11

1.3.1 Breakfast Cereals: Sector Values & Volumes 11

Table 1.7 BREAKFAST CEREAL PRODUCTS RETAIL MARKET VALUE & VOLUME SALES BY SECTOR IN CHINA, 1996-2002 11

1.3.2 Breakfast Cereals: Sector Shares 12

Table 1.8 PERCENTAGE BREAKDOWN OF BREAKFAST CEREAL PRODUCTS VALUE & VOLUME RETAIL SALES BY SECTOR IN CHINA, 1996-2002 12

1.3.3 Breakfast Cereals: Growth Rates 13

Table 1.9 % ANNUAL GROWTH FOR BREAKFAST CEREAL PRODUCTS VALUE & VOLUME RETAIL SALES BY SECTOR IN CHINA, 1996-2002 13

1.3.4 Breakfast Cereals: Food Market Significance 13

Table 1.10 BREAKFAST CEREAL PRODUCTS RETAIL MARKET AS A PROPORTION OF TOTAL FOOD RETAIL SALES IN CHINA, 1996-2002 14

1.4 National Market Shares 15

1.4.1 Market Shares: Breakfast Cereal Sector Shares 15

Table 1.11 LEADING COMPANY SHARES OF RETAIL BREAKFAST CEREAL SALES IN CHINA 2002 15

1.5 Prices 16

1.5.1 Prices: Retail Price Indices 16

Table 1.12 RETAIL PRICE INDICES BY BROAD SECTOR IN CHINA, 1996-2002 17

1.5.2 Prices: Average Unit Values 18

Table 1.13 AVERAGE UNIT RETAIL PRICES ON INSTANT NOODLES & CEREAL PRODUCTS BY SECTOR IN CHINA, 1996-2002 18

Table 1.14 GROWTH OF AVERAGE UNIT RETAIL PRICES ON INSTANT NOODLES & CEREAL PRODUCTS BY SECTOR IN CHINA, 1996-2002 18

1.5.3 Prices: Selected Retail Prices 19

Table 1.15 RETAIL PRICES ON SELECTED BREAKFAST CEREAL PRODUCTS IN CHINA 2003 19

1.6 Outlook 20

1.6.1 Outlook: Forecast Trends 20

1.6.2 Outlook: Values 20

Table 1.16 FORECAST VALUE & VOLUME SALES OF INSTANT NOODLES & CEREAL PRODUCTS BY SECTOR, 2003-2007 20

1.6.3 Outlook: Sector Breakdown 21

Table 1.17 FORECAST PERCENTAGE VALUE & VOLUME BREAKDOWN OF INSTANT NOODLES & CEREAL PRODUCTS BY SECTOR, 2003-2007 21

1.6.4 Outlook: Sector Growth 21

Table 1.18 FORECAST ANNUAL VALUE & VOLUME GROWTH OF INSTANT NOODLES & CEREAL PRODUCTS BY SECTOR, 2003-2007 21

1.7 Current Issues 22

1.7.1 Current Issues: Legislation 22

1.7.2 Current Issues: Food Safety 22

1.7.3 Current Issues: Organic Foods 23

2 MARKETING AND DISTRIBUTION 24

2.1 Marketing 24

2.1.1 Marketing: Trends 24

2.1.2 Marketing: Consumer Profile 26

2.2 Distribution 27

2.2.1 Distribution: Wholesale Distribution 27

2.2.2 Distribution: Retail Sales by Outlet 28

Table 2.1 PERCENTAGE BREAKDOWN OF BREAKFAST CEREAL PRODUCT SALES BY OUTLET TYPE 2002 28

3 SWOT ANALYSIS 29

3.1 Strengths 29

3.2 Weaknesses 30

3.3 Opportunities 31

3.4 Threats 32

4 COMPANY PROFILES 33

4.1 Kellogg Company 33

4.1.1 Kellogg's: Company Details 33

4.1.2 Kellogg's: Company Background 33

Table 4.1 KELLOGGS COMPANY: FINANCIAL RESULTS 2001/2002* 34

4.2 Nestle SA 35

4.2.1 Nestle: Company Details 35

4.2.2 Nestle: China Operations 35

Table 4.2 NESTLE: PRINCIPLE OPERATING COMPANIES IN CHINA 2003 36

4.2.3 Nestle: China Dairy Activities 36

4.2.4 Nestle: Financial Results 36

Table 4.3 NESTLE: FINANCIAL RESULTS 2001/2002* 37

4.2.5 Nestle: Future Strategy 37

4.3 The Quaker Oats Company 38

4.3.1 Quaker Oats: Company Details 38

4.3.2 Quaker Oats: Company Background 38

5 CONTACTS 40

5.1 Trade Organisations 40

5.1.1 China National Cereals, Oils & Foodstuffs Import & Export Corporation 40

5.1.2 All-China Federation of Industry & Commerce 40

5.2 Government Departments 41

5.2.1 State Economic and Trade Commission - State Light Industry Bureau 41

5.2.2 Ministry of Agriculture 41

6 RELEVANT EXHIBITIONS & TRADE FAIRS 42

6.1 International Packing, Printing, Food Processing & Packaging & Plastic Machinery Fair (Hangzhou) 42

6.2 Tianjin Exhibition on Food Machinery & Packing 42

6.3 Trade Show of Machinery for Print, Packaging, Plastic Products & Food 42

6.4 Food Ingredients & Food Ingredients Asia 42

6.5 Agro-Foodtech 42

6.6 SIAL China 42

6.7 International Fast Food Products Exhibition 43

6.8 Zhengzhou Sugar, Alcoholic Drink & Food Trade Show 43

6.9 Guangzhou Exhibition on Machinery for Food, Packaging, Printing & Plastics 43

6.10 China Northeast International Exhibition on Food, subsidiary Material, Processing Technology & Equipment 43

6.11 International Exhibition For Food & Drink South China 43

6.12 International Exhibition For Hotel & Bakery South China 44

6.13 International Quick Frozen Food Exhibition 44

6.14 Beijing National Food & Food Processing Machine & Packaging Machinery Show 44

6.15 Food China 44

6.16 International Food, Packaging, Print, Plastic Products Exhibition 44

6.17 Zhejiang Food & Drink Summer Sales Show 44

6.18 Dalian International Food Manufacturing & Packaging Machine Exhibition/Dalian International Food, Raw Materials & Food Additives Show 45

6.19 Shanghai International Food Machine & Package Machine Expo 45

6.20 China International Fair For Food, Food Processing & Packaging 45

6.21 Shanghai International Supermarket Expo 45

6.22 Shanghai International Food Expo 45

6.23 Packtech & Foodtech 46

6.24 Liaoning Food Show 46

6.25 Food & Hotel South China 46

6.26 Chengdu International Food, Food Processing & Packaging Show 46

6.27 International Food Show 46

6.28 Interfood Shanghai 46

6.29 International Food Processing & Packaging Machinery Exhibition 47

6.30 China Food Industry Exhibition 47

APPENDIX 1 - CHINA MARKET BACKGROUND 48

A.1 Fast Facts 48

A.2 Regions of China 49

Map A.1 CHINA: PROVINCES AND MUNICIPALITIES 49

A.3 Demographics 51

A.3.1 Demographics: Total Population 51

Table 1.1 TOTAL POPULATION, 1996-2002 51

A.3.2 Demographics: Population by Location 51

Table A.2 POPULATION BY URBAN-RURAL DIVIDE, 1996-2002 52

A.3.3 Demographics: Population Breakdown by Location 52

Table A.3 POPULATION BREAKDOWN BY URBAN-RURAL DIVIDE, 1996-2002 52

A.3.4 Demographics: Population by Province 53

Table A.4 POPULATION BY PROVINCE, 1999-2002 53

A.3.5 Demographics: Population Density by Province 54

Table A.5 POPULATION DENSITY BY PROVINCE, 1999-2002 54

A.3.6 Demographics: Population Concentration 54

Map A.2 POPULATION CONCENTRATIONS BY PROVINCE, 2002 55

A.3.7 Demographics: Population by Gender 55

Table A.6 TOTAL POPULATION BREAKDOWN BY GENDER, 1996-2002 56

A.3.8 Demographics: Population by Age Group 56

Table A.7 POPULATION BY AGE GROUP, 1996-2000 56

Table A.8 POPULATION BY AGE GROUP (PERCENTAGE), 1996-2002 57

A.4 Consumer Attitudes 58

A.4.1 Consumer Attitudes: Overview 58

A.4.2 Consumer Attitudes: Response to Political Change 58

A.4.2 Consumer Attitudes: Response to Economic Change 59

A.4.3 Consumer Attitudes: Changes in Lifestyle 60

• Livelihood 60
• Individual loans 60
• Housing 60
• Possessions 61
• Travel 62
• Entertainment 62
• Health and Fitness 63
• Purchasing Influences 64
• Taboos 65

A.5 Consumer Wealth 66

A.5.1 Consumer Wealth: GDP and Cost of Living 66

• Dealing with WTO 66
• Confident Shoppers 67

Table A.9 GDP AND COST OF LIVING INDEX, 1996-2002* 67

A.5.2 Consumer Wealth: Provincial Differences in GDP 68

Table A.10 GDP RANKED BY PROVINCE, 1996-2002* 69

A.5.3 Consumer Wealth: GDP Growth by Province 70

Table A.11 GDP GROWTH RANKED BY PROVINCE, 1996-2002* 70

A.5.4 Consumer Wealth: GDP Per Capita by Province 71

Table A.12 PER CAPITA GDP RANKED BY PROVINCE, 1999-2002 71

A.5.5 Consumer Wealth: Concentration of Wealth by Province 72

Map A.3 VALUE OF GDP PER CAPITA BY PROVINCE, 2002 72

A.5.6 Consumer Wealth: The Major Cities 72

Table A.13 LEADING CITIES KEY ECONOMIC INDICATORS, 2002 73

A.6 Households 74

A.6.1 Households: Overview of Household Conditions 74

A.6.2 Households: Total Households by Size 75

Table A.14 NUMBER OF HOUSEHOLDS BY SIZE, 1996-2002 75

A.6.3 Households: Total households by Urban/Rural Split 75

Table A.15 NUMBER AND SIZE OF HOUSEHOLDS BY LOCATION, 1996-2002 76

A.6.4 Households: Income Earners Per Household 76

Table A.16 AVERAGE NUMBER OF INCOME EARNERS PER HOUSEHOLD, 1996-2002 76

A.7 Employment 77

A.7.1 Employment: Number of Workers by Sector 77

Table A.17 NATIONAL EMPLOYMENT BY SECTOR, 1996-2002 77

A.7.2 Employment: Growth by Sector 78

Table A.18 GROWTH IN EMPLOYMENT BY SECTOR, 1996-2002 78

A.7.3 Employment: Number of Workers by Gender 79

Table A.19 TOTAL NATIONAL WORKFORCE BY GENDER, 1996-2002 79

A.7.3 Employment: Number of Workers by Habitation 79

Table A.20 NATIONAL WORKFORCE BY HABITATION, 1996-2002 80

A.7.4 Employment: Urban Unemployment 80

Table A.21 URBAN UNEMPLOYMENT RATES, 1996-2002 80

A.8 Consumer Income 81

A.8.1 Consumer Income: Average Incomes by Sector 81

Table A.22 AVERAGE INCOMES BY SECTOR, 1996-2002 81

A.8.2 Consumer Income: Growth by Sector 81

Table A.23 GROWTH IN AVERAGE INCOMES BY SECTOR, 1996-2002 82

A.8.3 Consumer Income: Average Incomes by Region 83

Table A.24 AVERAGE INCOMES BY REGION, 1998-2002 83

A.8.4 Consumer Income: Growth by Region 84

Table A.25 GROWTH IN AVERAGE INCOMES BY REGION, 1998-2002 84

A.9 Consumer Market 85

A.9.1 Consumer Market: Spending Trends 85

Table A.26 CONSUMER EXPENDITURE* BY BROAD SECTOR AT CURRENT PRICES, 1996-2002 85

A.9.2 Consumer Market: Per Capita Consumer Expenditure 86

Table A.27 PER CAPITA CONSUMER EXPENDITURE* BY BROAD SECTOR AT CURRENT PRICES, 1996-2002 86

A.9.3 Consumer Market: Retail Sales and Consumer Spending 86

Table A.28 RETAIL SALES AS A PROPORTION OF CONSUMER EXPENDITURE, 1996-2002 86

A.9.4 Consumer Market: Urban Income and Spending Compared 87

Table A.29 URBAN AVERAGE ANNUAL INCOME/EXPENDITURE, 1996-2002 87

A.9.5 Consumer Market: Average Urban Weekly Shopping Basket 88

Chart A.1 AVERAGE WEEKLY URBAN SHOPPING BASKET, 2002 88

A.9.6 Consumer Market: Average Rural Weekly Shopping Basket 89

Chart A.2 AVERAGE WEEKLY RURAL SHOPPING BASKET, 2002 89

A.9.7 Consumer Market: Average Urban & Rural Weekly Shopping Baskets Compared 90

Chart A.3 URBAN & RURAL SHOPPING BASKETS COMPARED, 2002 90

A.10 Exchange Rates 91

A.10.1 Exchange Rates: China 91

Table A.30 AVERAGE ANNUAL EXCHANGE RATES, 1997-2002 91

A.10.2 Exchange Rates: Hong Kong 91

Table A.31 AVERAGE ANNUAL EXCHANGE RATES, 1997-2002 91