Wang Zongnan, chairman of Bright Food, says he has changed his breakfast diet to a bowl of two Weetabix with milk. The Shanghai-based boss tells the Financial Times that he prefers his cereal served cold because “there isn’t so much time in the morning”.
Perhaps that’s because he’s been busy dealmaking, following news last week that his company – which is China’s second-biggest food producer after COFCO – will buy a majority stake in Weetabix, the British cereal maker, from Lion Capital, the buyout firm.
The acquisition is subject to Chinese government approvals and antitrust review in the UK. But analysts say it is likely to close in the second half of this year.
The proposed deal marks Bright Food’s first foray into breakfast cereals and values Weetabix at about £1.2 billion ($1.9 billion), including debt, say company executives.
In addition to the wheat biscuit brand, Wang will also be able to fill up on Alpen muesli, winter favourite Ready Brek (this one is served hot) and Dr Weetos’ chocolate-flavoured wheat rings every morning.
Chinese companies have bought European and US brands in industries including personal computers (Lenovo acquired the IBM ThinkPad marque) and cars (Geely bought Volvo). They have shown less appetite for foreign food and drink brands, although Bright Food has taken the lead here, buying a 75% stake in Manassen Foods, an Australian importer, and a controlling share of Synlait Milk, a New Zealand dairy producer.
Giles Turrell, Weetabix’s chief executive, says he expects the takeover to spur growth at the UK firm beyond its domestic market. And Wang is also upbeat on the deal. “In the past, Chinese ate only traditional Chinese food – no milk or cereal. But now milk is going to every Chinese family and cereal products are starting to, as well,” he suggested.
“I think there is a place in the market for Weetabix,” says Ben Cavender of China Market Research. “Food safety concerns in China give Bright the opportunity to leverage that brand by saying this is a product with safe ingredients, made to international standards.” Bright may also want to adapt the product to Chinese tastes, Cavendish adds.
Others aren’t so sure. “In the West, Weetabix is a very popular choice for breakfast among the white-collar group. But in China, cereal hasn’t caught on; only the older generation eats it because they prefer a healthier diet. So to introduce Weetabix to China, Bright Food will have to alter its marketing strategy,” retail analyst Li Zhiqi told Beijing News.
Sales of cereal jumped to Rmb1.2 billion ($191 million) in 2011, up 70% from five years earlier, according to market-research firm Euromonitor International. But cereal sellers will need to work hard to entice consumers to look beyond their favoured rice-based porridge and youtiao (fried dough) as breakfast choices.
Currently cereal accounts for a tiny fraction of China’s huge grocery market (shoppers bought $970 billion of grocery items last year). Moreover, the Weetabix brand doesn’t rank among China’s top 10 sellers. Cereal Partners Worldwide, a joint venture between General Mills and Nestlé, is the market leader, with 28.2% of sales in 2010.
The latest takeover is consistent with Bright Food’s strategy of buying up more brands, as well as increasing its sales in international markets. Analysts say that the company’s biggest domestic asset is a strong retail network, but that it has failed to exploit it fully because it doesn’t own enough leading labels. “It’s like a company with a well-developed highway but without enough cars driving on it,” Li concludes.
Bright’s track record in acquiring overseas brands has been mixed: it failed in a bid to buy two other much-loved British staples – Hula Hoops and Jaffa Cakes – from United Biscuits (see WiC93 for more on the company).
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.