Weetabix China: Challenges to a Bright future

Bright Food’s £1.2bn ($1.9bn) majority stake buyout of 60% in Weetabix, initially announced on May 3 2012, was completed today. Private equity firm Lion Capital and management hold the remaining 40%.

The Chinese state-owned food major has said the buy marks an important step in its attempt to gain traction in the UK and global markets and said it would strive to bring the iconic cereal brand into China and wider Asia.

However, James Roy, senior analyst at China Market Research (CMR), today reiterated that establishing Weetabix in China would be a challenge for the firm.

“Bright Food’s stated strategy of focusing on existing Weetabix cold cereal brands like Alpen and Ready Brek rather than developing new products is interesting but will be a challenge,”​ Roy told BakeryandSnacks.com.

“It will be tough to change the Chinese habit of eating hot morning cereals,”​ he said.

The analyst said that Chinese consumers have “very entrenched views and habits”​ when it comes to the morning meal and tend to preference hot, traditional, rice-based choices.

Localization efforts​

However, today, Weetabix’s CEO, Giles Turrell, made clear that efforts will be pumped into new product development for China.

Speaking on the finalized deal, he said: “We look forward to working with Bright Food to introduce our portfolio of brands to new markets and also to develop and launch additional products which cater for the Chinese market.”​

Zongnan Wang, chairman of Bright Food, said: “Weetabix has a high quality portfolio of brands, best in class production standards and excellent track record of innovation and we are confident that with support from Bright Food,​ Weetabix’s sales in China will outperform the growth of the Chinese cereal market.”​

China and breakfast – the local affair hurdle​

While China’s cereal market is pegged at $198.4m for 2012 growth and volumes are set to depreciate over the next five years, according to Euromonitor International.

Analysts and research firms have also joint forces in outlining that breakfast in China remains a very local affair.

Roy suggested that Bright Food would have to inject efforts not only into product development of the Weetabix brand, but also positioning. “One thing they could do is stress convenience and nutrition, and market cereals as an easy, healthful solution for busy people with little time to cook in the morning.”​

Short-term Chinese network boost​

Clive Black, director and head of research at Shore Capital, said the move brought clear physical expansion opportunities.

“Bright clearly has a distribution capability in China that is very robust and much more than Weetabix could organically hope for. Therefore, assuming that the Chinese pallet for cereal-based breakfasts exists and grows, then this could be, should be, a material source of long-term growth for Weetabix,”​ Black said.

However, Roy acknowledged that Weetabix would undoubtedly see “above-market growth” ​thanks to Bright Food’s distribution network, but that this would not alone define long-term success.