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Kellogg-Wilmar JV should target China's $13bn snack sector, not cereal: Analysts

By Kacey Culliney , 25-Sep-2012

Kelloggs’ 50:50 joint venture with agribusiness giant Wilmar must target the lucrative snacks sector as Western breakfast cereals remain unpopular in China and local competition is strong, say analysts.

Yesterday the US cereal hulk struck a partnership with Wilmar International to launch a joint venture company, headquartered in Shanghai, to manufacture, sell and distribute cereals and snacks across China. (See HERE )

However, analysts have joined forces in suggesting Kellogg should steer clear of the cereal segment and target the surging snacks sector.

“Snacks hold the most opportunity for Kellogg here,” Lee Linthicum, head of food research at Euromonitor International, told BakeryandSnacks.com.

Euromonitor research pegged China’s sweet and savoury snacks sector at $13bn for 2012 and this is set to increase by $8bn to $21bn in 2017, Linthicum said, representing just over a third of the global market.

“In terms of absolute retail potential value coupled with the sheer size of the market, snacks hold the best prospects for Kellogg,” he said.

James Roy, senior research analyst at China Market Research (CMR), agreed that Kellogg has a “bigger advantage locally” with its snacks brands, particularly its recently acquired Pringles brand.

Opportunities in this segment are far stronger than breakfast cereals; an area with little potential, Roy said.

Consumers continue to preference traditional rice-based breakfast choices and local product development of ready-to-eat products in this segment is strong, he said. “Kellogg is going to find that it has to compete with very strong local competitors like Wahaha that know the breakfast market well and are trusted brands.”

‘Kellogg will need to be very diligent’ 

“If you want to play in China, you have to have a local patron or partner,” Linthicum said.

“The joint venture makes a lot of sense. Obviously Wilmar has knowledge of the local market and bureaucracy – so this partnership should aid advances in these areas,” he said.

Roy agreed: “The joint venture with Wilmar gives Kellogg a large Asian partner that has experience both on the production side and in selling Chinese-style products like instant noodles in China.”

However, Linthicum noted that, in general, trust is core when companies seek partnerships in China.

“There is a risk involved as Chinese companies have differing levels of regulatory development, food safety, ethos and culture…Kellogg will need to be very diligent,” Linthicum said.

“Kellogg will have to make certain that its global image will not be compromised,” he added.

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