Breakfast Cereals in the Philippines

BREAKFAST CEREALS IN THE PHILIPPINES Euromonitor International March 2013

BREAKFAST CEREALS IN THE PHILIPPINES

LIST OF CONTENTS AND TABLES Headlines ..................................................................................................................................... 1 Trends .......................................................................................................................................... 1 Competitive Landscape ................................................................................................................ 2 Prospects ..................................................................................................................................... 3 Category Data .............................................................................................................................. 3 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11

Sales of Breakfast Cereals by Category: Volume 2007-2012 ...................... 3 Sales of Breakfast Cereals by Category: Value 2007-2012 ......................... 4 Sales of Breakfast Cereals by Category: % Volume Growth 20072012 ............................................................................................................. 4 Sales of Breakfast Cereals by Category: % Value Growth 2007-2012 ......... 4 Breakfast Cereals Company Shares 2008-2012 .......................................... 4 Breakfast Cereals Brand Shares 2009-2012 ................................................ 5 Sales of Breakfast Cereals by Distribution Format: % Analysis 20072012 ............................................................................................................. 5 Forecast Sales of Breakfast Cereals by Category: Volume 2012-2017........ 6 Forecast Sales of Breakfast Cereals by Category: Value 2012-2017 .......... 6 Forecast Sales of Breakfast Cereals by Category: % Volume Growth 2012-2017 .................................................................................................... 6 Forecast Sales of Breakfast Cereals by Category: % Value Growth 2012-2017 .................................................................................................... 7

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BREAKFAST CEREALS IN THE PHILIPPINES

BREAKFAST CEREALS IN THE PHILIPPINES HEADLINES  Breakfast cereals volume sales set to increase by 4% in 2012  Convenience key driver of breakfast cereal growth  Children’s breakfast cereals expected to see fastest current value growth of 8% in 2012  Average unit price expected to post a 3% increase in 2012  Quaker Oats Asia leads in breakfast cereals and expected to hold 31% value share in 2012  Constant value sales of breakfast cereals expected to grow at 4% CAGR over the forecast period

TRENDS  With more young adults joining the workforce, due to the expansion of business process outsourcing in the Philippines, demand for convenience plays an essential role in changing consumer habits. More adults continue to consume breakfast cereals in the morning for a quick meal. Consumers have less time to prepare breakfast in the morning because lifestyles are becoming fast paced.  Breakfast cereals is set to post volume growth of 4% in 2012, thanks to growing concern about health and wellness, which induces families – especially the mothers – to choose healthy breakfast foods, increasing children’s population and stable economic growth, which sustains household disposable income and enables them to purchase higher priced breakfast cereals. Growth in 2012 was the highest since the economic recession in 2009, thanks to the improving economy, new product developments and the availability of the smaller pack size and single-serve breakfast cereals which enabled sales penetration even to the lower income group.  Children’s breakfast cereals experienced the fastest value growth in 2012 and is expected to account for 8% of current value sales. Children’s breakfast cereals continues to post strong growth due to the growing demand for convenience. Although these products are targeted towards children, many adults continue to purchase them as a quick breakfast option for themselves. The growing business process outsourcing industry has assisted in driving this growth due to the unusual working hours for those who work in this industry.  The average unit price of breakfast cereals is set to show a 3% increase in 2012, a result of consumers’ preference for smaller package sizes. Smaller package sizes tend to be more expensive when compared in equal volume levels to larger packs. In addition, the higher operational expenses and production costs to manufacture breakfast cereals were also important variables in the unit price increase.  Hot cereals is expected to account for 52% of the breakfast cereals value in 2012. However, growth of hot cereals has consistently been slower compared to RTE (ready-to-eat) cereals due to the development of more affordable children’s breakfast cereals and family breakfast cereals. In addition, hot cereals faces competition from hot cereal beverages such as Nesvita. Hot cereal beverages are a more convenient alternative to hot cereals.  The majority of RTE cereals tend to be fortified with vitamins and are usually marketed as a “complete” breakfast meal that would cover all one’s nutritional needs. Hot cereal products, on

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BREAKFAST CEREALS IN THE PHILIPPINES

the other hand, tend to be marketed as naturally healthy, good for the heart and effective for weight management. Both RTE cereals and hot cereals tend to target the middle income segment in the Philippines.

COMPETITIVE LANDSCAPE  Quaker Oats Asia, the leading brand manufacturer of breakfast cereals, is set to post a 30% value share in 2012. Its flagship brand, Quaker Oats was one of the first breakfast cereal brands to enter the Philippine market. It continues to be patronised by consumers of all ages and is the most well recognised brand name in hot cereals. Quaker Oats has marketed itself aggressively as a product that is nutritious and good for the heart. Quaker Oats Asia also has brands present in RTE cereals.  Fifth ranked Liwayway Marketing is expected to show the fastest value growth in 2012 at nearly 13%. The company’s strategy of using a low price positioning and smaller package sizes to attract customers has proved effective in capturing the more budget-conscious consumer. Its children’s breakfast cereal brands such as Oishi Choco Flakes and Oishi Honey Crimpies have an average selling price of Ps50 per unit, about half the price of brands that belong to international companies such as Kellogg Co and Nestlé Philippines.  There were no significant differences in marketing strategies used by manufacturers in 2012 compared to that of previous years. Children’s breakfast cereal brands owned by Kellogg Co and Nestlé Philippines continued to place free toys inside cereal boxes to encourage children to purchase its products. Manufacturers continued to market hot cereals and family breakfast cereals as nutritious and able to assist with weight loss. Brands that incorporated this strategy include Nestlé Fitness Cereal and Kellogg Special K.  The international brand manufacturers continue to dominate breakfast cereals in the Philippines. The top three companies, all of which are international brand manufacturers, account for 65% of total breakfast cereal retail value sales. The early entry of international brand manufacturers such as Quaker Oats Asia, Nestlé Philippines and Kellogg Co proved to be a significant barrier for new players to enter breakfast cereals. However, local companies have started to gain a more significant foothold in the market through use of low price positioning; this is reflected in the fast growth of Liwaway Marketing in 2012.  There were no product launches that made a significant impact on the Philippine market in 2012. The only notable launch was Quaker Whole Hearts. This was marketed as a balanced and nutritious breakfast cereal for the entire family, but there were no significant campaigns to support this brand in 2012. Distribution was also extremely limited and the brand targeted a niche market of health-conscious individuals, with higher disposable income. Thus Quaker Whole Hearts had a negligible impact on breakfast cereals in 2012.  There were no major advertising campaigns for breakfast cereals in 2012. Nestlé continued supporting its “Nestlé Fitnesse 14 Day Programme” in 2012; this campaign was launched in 2010 to support its Nestlé Fitness Cereal brand. The marketing campaign continued to prove effective with the female market segment in 2012. The programme offers consumers tips on weight loss which include meal planning, exercise programmes and other nutrition tips, at the same time incorporating its brand with the programme.  There were no significant changes to packaging in 2012. The majority of brands continued using folding cartons as primary packaging. Standard brands continued to dominate the market; however, more affordable brands such as Oishi continue to gain a more significant market share. Oishi, unlike its competitors, uses flexible packaging as its primary packaging and provides consumers with a variety of small sizes in order to capture a larger audience in the more budget-conscious segment.

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BREAKFAST CEREALS IN THE PHILIPPINES

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PROSPECTS  Constant value sales of breakfast cereals are expected to grow at a 4% CAGR over the forecast period. This growth rate is more than three times faster compared to the constant value CAGR seen over the review period. The increasing demand for convenience and higher disposable income of the working population is likely to drive this growth. The growing business process outsourcing industry is likely to benefit breakfast cereals even further.  A potential threat to breakfast cereals, specifically hot cereals, is the development of cheaper hot cereal beverage drinks such as Bear Brand Busog Lusog, an Energen cereal drink. These are available in small single-serve sachets and provide consumers with even more convenience than breakfast cereals. Many consumers tend to take this to the office to consume as a quick breakfast as lifestyle trends in the Philippines are becoming faster paced.  Children’s breakfast cereal is expected to see a 4% constant value CAGR over the forecast period. The increasing children population is likely to be the key growth driver. However, many adults tend to also consume breakfast cereals in the morning due to its easy preparation and the convenience it provides.  The average constant value unit price of breakfast cereals is expected to decline at a CAGR of -1% over the forecast period. The increasing competition between international and local brands is likely to keep unit price growth flat. International brands may reduce prices or introduce budget brands in order to gain back share lost to cheaper local brands.  Breakfast cereal brand manufacturers are likely to continue using the same strategies they used over the review period. This will include price promotions, TV and print advertising. All brands are likely to continue to push nutrition and weight loss as the main benefits of breakfast cereals. For children’s cereal, it is likely that manufacturers will continue to provide freebies such as toys, school materials, etc. with purchases of children’s cereal brands.  Quaker Whole Hearts breakfast cereal is likely to have limited growth over the forecast period. Its high price along with its limited distribution channels is likely to keep sales low. This is, however, unlikely to deter competitors from launching other cereal brands that are marketed as healthy. Fortification, weight loss and nutritional completeness are likely to continue to be the main benefits consumers will look for in a cereal brand. New products are likely to be key drivers for growth as this industry becomes more mature.

CATEGORY DATA Table 1

Sales of Breakfast Cereals by Category: Volume 2007-2012

tonnes

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

2007

2008

2009

2010

2011

2012

9,130.0 3,171.6 2,521.9

9,449.6 3,349.5 2,698.4

9,733.0 3,451.2 2,806.4

10,054.2 3,573.0 2,924.2

10,406.1 3,706.8 3,050.0

10,780.7 3,850.9 3,184.2

649.7

651.0

644.8

648.8

656.9

666.7

12,301.6

12,799.0

13,184.2

13,627.3

14,113.0

14,631.6

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

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Table 2

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Sales of Breakfast Cereals by Category: Value 2007-2012

Ps million

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

2007

2008

2009

2010

2011

2012

1,522.0 1,319.6 1,039.6

1,628.6 1,444.1 1,164.3

1,710.0 1,527.1 1,245.8

1,778.4 1,614.9 1,326.8

1,867.3 1,718.0 1,419.7

1,970.0 1,840.6 1,530.3

280.1

279.8

281.3

288.1

298.4

310.2

2,841.7

3,072.7

3,237.1

3,393.3

3,585.3

3,810.6

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 3

Sales of Breakfast Cereals by Category: % Volume Growth 2007-2012

% volume growth 2011/12

2007-12 CAGR

2007/12 Total

3.6 3.9 4.4 1.5 3.7

3.4 4.0 4.8 0.5 3.5

18.1 21.4 26.3 2.6 18.9

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 4

Sales of Breakfast Cereals by Category: % Value Growth 2007-2012

% current value growth 2011/12

2007-12 CAGR

2007/12 Total

5.5 7.1 7.8 4.0 6.3

5.3 6.9 8.0 2.1 6.0

29.4 39.5 47.2 10.8 34.1

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 5

Breakfast Cereals Company Shares 2008-2012

% retail value rsp Company Quaker Oats Asia Inc Nestlé Philippines Inc Kellogg Co Ideal Macaroni & Spaghetti Inc Liwayway Marketing Corp Golden Oats Corp Kraft Foods Inc

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2008

2009

2010

2011

2012

31.3 20.2 13.7 9.0

31.5 20.8 12.8 9.1

31.3 21.2 12.5 9.1

31.4 21.6 12.2 9.0

31.2 22.0 11.9 9.0

6.6 8.5 1.0

7.3 8.2 0.9

7.8 8.1 0.8

8.3 7.9 0.7

8.8 7.7 0.7

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Molina Nicoli SpA Weetabix Ltd Pioneer Food Group Ltd Nutridel Food Corp Others Total Source:

0.1 0.0 9.2 100.0

0.1 0.0 9.1 100.0

0.1 0.0 8.7 100.0

0.1 0.0 8.4 100.0

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 6

Breakfast Cereals Brand Shares 2009-2012

% retail value rsp Brand Quaker Australian Harvest Oishi Koko Krunch Golden Oats Honey Stars Kellogg's Frosties Nestlé Corn Flakes Kellogg's Froot Loops Milo Kellogg's Coco Pops Kellogg's Corn Flakes Kellogg's All Bran Kellogg's Raisin Bran Kellogg's Mueslix Nicoli Post Kellogg's Just Right Alpen Kellogg's Cocoa Krispies Nutro Nature's Source Others Total Source:

0.1 0.1 9.4 100.0

Company

2009

2010

2011

2012

Quaker Oats Asia Inc Ideal Macaroni & Spaghetti Inc Liwayway Marketing Corp Nestlé Philippines Inc Golden Oats Corp Nestlé Philippines Inc Kellogg Co Nestlé Philippines Inc Kellogg Co Nestlé Philippines Inc Kellogg Co Kellogg Co Kellogg Co Kellogg Co Kellogg Co Molina Nicoli SpA Kraft Foods Inc Kellogg Co Weetabix Ltd Kellogg Co

31.5 9.1

31.3 9.1

31.4 9.0

31.2 9.0

7.3 7.6 8.2 6.3 3.2 2.3 1.8 1.4 1.6 1.2 0.7 0.4 0.3 0.1 0.1 0.1 0.0 -

7.8 7.8 8.1 6.5 3.0 2.3 1.7 1.4 1.5 1.1 0.7 0.5 0.3 0.1 0.1 0.1 0.0 -

8.3 8.0 7.9 6.6 3.0 2.3 1.7 1.5 1.5 1.1 0.7 0.5 0.3 0.1 0.1 0.1 0.0 -

8.8 8.2 7.7 6.7 3.0 2.3 1.6 1.6 1.5 1.1 0.6 0.5 0.3 0.1 0.1 0.1 0.0 -

16.8 100.0

16.5 100.0

16.0 100.0

15.7 100.0

Nutridel Food Corp Pioneer Food Group Ltd

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 7

Sales of Breakfast Cereals by Distribution Format: % Analysis 2007-2012

% retail value rsp

Store-Based Retailing - Grocery Retailers -- Supermarkets -- Hypermarkets -- Discounters -- Small Grocery Retailers --- Convenience Stores --- Independent Small

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2007

2008

2009

2010

2011

2012

100.0 99.9 76.3 6.4 14.4

100.0 99.9 75.8 7.3 14.0

100.0 99.9 75.8 7.8 13.4

100.0 99.9 75.1 8.8 12.4

100.0 99.9 74.8 9.4 11.9

100.0 99.0 73.9 9.7 11.6

0.9 13.0

0.9 12.5

0.9 12.0

0.9 11.0

0.9 10.5

1.0 10.1

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Grocers --- Forecourt Retailers -- Other Grocery Retailers - Non-Grocery Retailers -- Health and Beauty Retailers -- Other Non-Grocery Retailers Non-Store Retailing - Vending - Homeshopping - Internet Retailing - Direct Selling Total Source:

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0.5 2.8

0.5 2.8

0.5 2.9

0.5 3.6

0.5 3.7

0.5 3.8

0.1 -

0.1 -

0.1 -

0.1 -

0.1 -

1.0 -

0.1

0.1

0.1

0.1

0.1

1.0

100.0

100.0

100.0

100.0

100.0

100.0

Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 8

Forecast Sales of Breakfast Cereals by Category: Volume 2012-2017

tonnes

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

2012

2013

2014

2015

2016

2017

10,780.7 3,850.9 3,184.2

11,179.6 4,005.1 3,327.5

11,604.5 4,171.2 3,480.5

12,057.0 4,349.5 3,644.1

12,539.3 4,541.7 3,819.0

13,053.4 4,749.2 4,006.2

666.7

677.6

690.7

705.4

722.6

743.0

14,631.6

15,184.7

15,775.7

16,406.6

17,081.0

17,802.6

Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 9

Forecast Sales of Breakfast Cereals by Category: Value 2012-2017

Ps million

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

2012

2013

2014

2015

2016

2017

1,970.0 1,840.6 1,530.3

2,013.4 1,902.8 1,591.5

2,067.7 1,972.2 1,658.4

2,129.8 2,049.0 1,731.3

2,204.3 2,134.1 1,811.0

2,292.5 2,228.4 1,897.9

310.2

311.3

313.8

317.6

323.1

330.5

3,810.6

3,916.1

4,039.9

4,178.7

4,338.4

4,520.9

Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 10

Forecast Sales of Breakfast Cereals by Category: % Volume Growth 20122017

% volume growth

Hot Cereals

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2016/17

2012-17 CAGR

2012/17 Total

4.1

3.9

21.1

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RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

Table 11

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4.6 4.9 2.8 4.2

4.3 4.7 2.2 4.0

23.3 25.8 11.4 21.7

Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Forecast Sales of Breakfast Cereals by Category: % Value Growth 2012-2017

% constant value growth

Hot Cereals RTE Cereals - Children's Breakfast Cereals - Family Breakfast Cereals Breakfast Cereals Source:

2012-17 CAGR

2012/17 TOTAL

3.1 3.9 4.4 1.3 3.5

16.4 21.1 24.0 6.5 18.6

Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

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