The findings highlight the importance to cereal producers of moving into new markets to boost profitability in their operations, while also outlining the significant spending and marketing power needed to meet these goals. The latest report on breakfast cereal producers found that the China and Russia markets - respectively amounting to $71m (€47m) and $263m (€177m) -- currently made up a fraction of the total $23.4bn (€15.7bn) global cereal market. Euromonitor claims that the potential for growth in these two markets alone is considerable. China in particular currently has a very small per capita consumption rate for breakfast cereals, which Euromonitor says leaves considerable room for the growth in the future. Euromonitor used the example of General Mills, which through a joint venture company with Nestle, Cereal Partners Worldwide, has exploited demand in these markets ahead of global market leader Kellogg. Between 2001 to 2005, Cereal Partners Worldwide increased its market share of the Russian breakfast cereal market by 5.1 percentage points to 12.7 per cent, becoming the second largest manufacturer of the products in the country. Since entering the Chinese market in 2004, the group's market share fell by 0.1 percentage points in 2005 to 25.2 per cent, allowing the joint venture to continue holding its position as market leader, Euromonitor said. Cereal Partners Worldwide's strength in the market stems from its uniform marketing policy in the country, with all the group's brands sold under the "Que Cao" name.
By using Nestle's marketing and production presence on all packaging and media advertising, including extensive television advertisements, the company has been able to command a 60 per cent share of the children's cereal market, according to Euromonitor. Many local brands, by comparison, have very limited marketing budgets, forcing them to struggle to compete in the market place, the report added. With Nestle through its various brands having been established in China since 1990, the venture has been able to leverage the company's brand strength to boost awareness of their cereals in the market. Euromonitor added that even with fears over iodine contamination in Nestle's Chinese baby formula in 2005, the company's brand strength appeared relatively unaffected. Nestle has been particularly successful in targeting China's two key retail groups that are split into rural and urban consumers, Euromonitor said. "[The company] targets its latest and most innovative products at the wealthier urban population, which is forecast to become the majority in around 2010, emphasising issues relating to health and wellness," the report claims. "In terms of China's diminishing rural population, who have significant less disposable income than their urban counterparts, it takes a lower-cost approach, adapting existing product lines and highlights such issues as basic nutrition and affordability." However, there remain risks ahead for the cereal group within the future for the Chinese breakfast cereals market.
Though children's cereals, which account for most of the group's portfolio, accounted for 29 per cent of all breakfast cereal sales in China during 2005, brands targeted at the adult market are growing at a much faster rate, Euromonitor added. There was additional concern for Cereal Partners Worldwide's core breakfast brands - Trix, Star and Koko Krunch - that according to Euromonitor are not "particularly healthful".
"[this lack of perceived nutrition benefit] may make the company vulnerable to competitors with stronger health and wellness plays as issues such as childhood obesity come more to the fore in China," Euromonitor added.