According to the Bread & Cake Professional Committee of China National Food Industry Association (CBPA or 中国食品工业协会面包糕饼专业委员会), the domestic bakery market is “gigantic,” registering a total retail value of $71bn, accounting for one tenth of China’s entire food and beverage industry.
However, “from the consumption per capita data, China falls way behind major western nations,” said CBPA.
“The domestic bakery industry is currently at a pivotal point for improvement.”
China's bakery market is highly fragmented, with the top 10 Chinese bakeries - each with an average annual revenue of over RMB 100m RMB ($16m) - making up 10% of the market, while over 1,000 companies - each with an annual revenue worth of RMB 20m ($3m) - spread across the country, said TMT post analysts.
“The category is growing quickly, but lacks a ‘monopoly brand’. The top three baked goods brands - Dali Foods Group (达利食品), Orion (好丽友) and Toly Bread (桃李面包) - only account for 5.1%, 2.2%, and 1.9% of the total category in China respectively, unlike the Japanese bakery market" which is dominated by Yamazaki Baking (山崎面包) with a 36% share.
Further fragmenting the market is the fact that most baked goods consumers reside in first-tier cities in central and eastern parts of China, while several bakeries operate in Northwest and Northeast China.
“First-tier cities are more economically well off and consumers in these regions are more receptive towards the Western diet. Northeastern Chinese, however, have enough flour in their daily diet... making bakery sales in retail relatively lower compared to the rest of the country,” said analysts.
Fertile soil for development
According to TMTpost, increasing consumer demand for convenience and fresh baked goods have made online an ideal platform.
“Shoppers who were born after 1990 are becoming the main growth drivers of the Chinese bakery market. They tend to interact with brands online and associate themselves with the quality of a product," they said.
However, they warned bakery startups to be aware that “popular items may experience [only] fleeting fame” as they could potentially weaken shoppers’ loyalty.
For example, Uncle Tetsu (彻思叔叔) attracted immediate attention when it entered the country in 2013 with its signature Japanese cheesecake. Despite charging RMB 39 ($6.15) for a single piece - much higher than other bakery products in Chinese retail - it still made over one million RMB ($157,690) worth of monthly revenue during its prime time.
In less than a year, Uncle Tetsu built more than 30 direct-operating stores in Shanghai, with another 40 branches across the country.
However, Chinese eaters are now quickly loosing interest in Uncle Tetsu’s single cheesecake item, particularly as it lacks innovation and faces growing competition from cheaper domestic counterparts, such as Grandpa Ruike (瑞可爷爷), said analysts.
The decreasing brand loyalty for Uncle Tetsu also mirrors the expanding online bakery options, with some dedicated e-commerce players, like 21cake and Le Cake (诺心蛋糕), able to keep their unit price low and thus investing in more product innovation.
“The internet will continue to be the soil for many bakeries to come in China… it can provide massive amount of data for companies to study consumer behavior and understand the trends among the bakery industry,” noted analysts.