Breakfast Cereals in the Philippines

BREAKFAST CEREALS IN THE PHILIPPINES

Euromonitor International

March 2013

B R E A K F A S T C E R E A L S I N T H E P H I L I P P I N E S P a s s p o r t I

© E u r o m o n i t o r I n t e r n a t i o n a l

LIST OF CONTENTS AND TABLES

Headlines ..................................................................................................................................... 1 Trends .......................................................................................................................................... 1 Competitive Landscape ................................................................................................................ 2 Prospects ..................................................................................................................................... 3 Category Data .............................................................................................................................. 3

Table 1 Sales of Breakfast Cereals by Category: Volume 2007-2012 ...................... 3 Table 2 Sales of Breakfast Cereals by Category: Value 2007-2012 ......................... 4 Table 3 Sales of Breakfast Cereals by Category: % Volume Growth 2007-

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

2012 ............................................................................................................. 5 Table 8 Forecast Sales of Breakfast Cereals by Category: Volume 2012-2017........ 6 Table 9 Forecast Sales of Breakfast Cereals by Category: Value 2012-2017 .......... 6 Table 10 Forecast Sales of Breakfast Cereals by Category: % Volume Growth

2012-2017 .................................................................................................... 6 Table 11 Forecast Sales of Breakfast Cereals by Category: % Value Growth

2012-2017 .................................................................................................... 7

B R E A K F A S T C E R E A L S I N T H E P H I L I P P I N E S P a s s p o r t 1


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



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.



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 2007 2008 2009 2010 2011 2012 Hot Cereals 9,130.0 9,449.6 9,733.0 10,054.2 10,406.1 10,780.7 RTE Cereals 3,171.6 3,349.5 3,451.2 3,573.0 3,706.8 3,850.9 - Children's Breakfast 2,521.9 2,698.4 2,806.4 2,924.2 3,050.0 3,184.2 Cereals - Family Breakfast 649.7 651.0 644.8 648.8 656.9 666.7 Cereals Breakfast Cereals 12,301.6 12,799.0 13,184.2 13,627.3 14,113.0 14,631.6

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



Table 2 Sales of Breakfast Cereals by Category: Value 2007-2012

Ps million 2007 2008 2009 2010 2011 2012 Hot Cereals 1,522.0 1,628.6 1,710.0 1,778.4 1,867.3 1,970.0 RTE Cereals 1,319.6 1,444.1 1,527.1 1,614.9 1,718.0 1,840.6 - Children's Breakfast 1,039.6 1,164.3 1,245.8 1,326.8 1,419.7 1,530.3 Cereals - Family Breakfast 280.1 279.8 281.3 288.1 298.4 310.2 Cereals Breakfast Cereals 2,841.7 3,072.7 3,237.1 3,393.3 3,585.3 3,810.6


Table 3 Sales of Breakfast Cereals by Category: % Volume Growth 2007-2012

% volume growth 2011/12 2007-12 CAGR 2007/12 Total Hot Cereals 3.6 3.4 18.1 RTE Cereals 3.9 4.0 21.4 - Children's Breakfast Cereals 4.4 4.8 26.3 - Family Breakfast Cereals 1.5 0.5 2.6 Breakfast Cereals 3.7 3.5 18.9


Table 4 Sales of Breakfast Cereals by Category: % Value Growth 2007-2012

% current value growth 2011/12 2007-12 CAGR 2007/12 Total Hot Cereals 5.5 5.3 29.4 RTE Cereals 7.1 6.9 39.5 - Children's Breakfast Cereals 7.8 8.0 47.2 - Family Breakfast Cereals 4.0 2.1 10.8 Breakfast Cereals 6.3 6.0 34.1


Table 5 Breakfast Cereals Company Shares 2008-2012

% retail value rsp Company 2008 2009 2010 2011 2012 Quaker Oats Asia Inc 31.3 31.5 31.3 31.4 31.2 Nestlé Philippines Inc 20.2 20.8 21.2 21.6 22.0 Kellogg Co 13.7 12.8 12.5 12.2 11.9 Ideal Macaroni & 9.0 9.1 9.1 9.0 9.0 Spaghetti Inc Liwayway Marketing Corp 6.6 7.3 7.8 8.3 8.8 Golden Oats Corp 8.5 8.2 8.1 7.9 7.7 Kraft Foods Inc 1.0 0.9 0.8 0.7 0.7



Molina Nicoli SpA 0.1 0.1 0.1 0.1 0.1 Weetabix Ltd 0.1 0.0 0.0 0.0 0.0 Pioneer Food Group Ltd - - - - - Nutridel Food Corp - - - - - Others 9.4 9.2 9.1 8.7 8.4 Total 100.0 100.0 100.0 100.0 100.0


Table 6 Breakfast Cereals Brand Shares 2009-2012

% retail value rsp Brand Company 2009 2010 2011 2012 Quaker Quaker Oats Asia Inc 31.5 31.3 31.4 31.2 Australian Harvest Ideal Macaroni & 9.1 9.1 9.0 9.0 Spaghetti Inc Oishi Liwayway Marketing Corp 7.3 7.8 8.3 8.8 Koko Krunch Nestlé Philippines Inc 7.6 7.8 8.0 8.2 Golden Oats Golden Oats Corp 8.2 8.1 7.9 7.7 Honey Stars Nestlé Philippines Inc 6.3 6.5 6.6 6.7 Kellogg's Frosties Kellogg Co 3.2 3.0 3.0 3.0 Nestlé Corn Flakes Nestlé Philippines Inc 2.3 2.3 2.3 2.3 Kellogg's Froot Loops Kellogg Co 1.8 1.7 1.7 1.6 Milo Nestlé Philippines Inc 1.4 1.4 1.5 1.6 Kellogg's Coco Pops Kellogg Co 1.6 1.5 1.5 1.5 Kellogg's Corn Flakes Kellogg Co 1.2 1.1 1.1 1.1 Kellogg's All Bran Kellogg Co 0.7 0.7 0.7 0.6 Kellogg's Raisin Bran Kellogg Co 0.4 0.5 0.5 0.5 Kellogg's Mueslix Kellogg Co 0.3 0.3 0.3 0.3 Nicoli Molina Nicoli SpA 0.1 0.1 0.1 0.1 Post Kraft Foods Inc 0.1 0.1 0.1 0.1 Kellogg's Just Right Kellogg Co 0.1 0.1 0.1 0.1 Alpen Weetabix Ltd 0.0 0.0 0.0 0.0 Kellogg's Cocoa Kellogg Co - - - - Krispies Nutro Nutridel Food Corp - - - - Nature's Source Pioneer Food Group Ltd - - - - Others 16.8 16.5 16.0 15.7 Total 100.0 100.0 100.0 100.0


Table 7 Sales of Breakfast Cereals by Distribution Format: % Analysis 2007-2012

% retail value rsp 2007 2008 2009 2010 2011 2012 Store-Based Retailing 100.0 100.0 100.0 100.0 100.0 100.0 - Grocery Retailers 99.9 99.9 99.9 99.9 99.9 99.0 -- Supermarkets 76.3 75.8 75.8 75.1 74.8 73.9 -- Hypermarkets 6.4 7.3 7.8 8.8 9.4 9.7 -- Discounters - - - - - - -- Small Grocery 14.4 14.0 13.4 12.4 11.9 11.6 Retailers --- Convenience Stores 0.9 0.9 0.9 0.9 0.9 1.0 --- Independent Small 13.0 12.5 12.0 11.0 10.5 10.1



Grocers --- Forecourt Retailers 0.5 0.5 0.5 0.5 0.5 0.5 -- Other Grocery 2.8 2.8 2.9 3.6 3.7 3.8 Retailers - Non-Grocery Retailers 0.1 0.1 0.1 0.1 0.1 1.0 -- Health and Beauty - - - - - - Retailers -- Other Non-Grocery 0.1 0.1 0.1 0.1 0.1 1.0 Retailers Non-Store Retailing - - - - - - - Vending - - - - - - - Homeshopping - - - - - - - Internet Retailing - - - - - - - Direct Selling - - - - - - Total 100.0 100.0 100.0 100.0 100.0 100.0


Table 8 Forecast Sales of Breakfast Cereals by Category: Volume 2012-2017

tonnes 2012 2013 2014 2015 2016 2017 Hot Cereals 10,780.7 11,179.6 11,604.5 12,057.0 12,539.3 13,053.4 RTE Cereals 3,850.9 4,005.1 4,171.2 4,349.5 4,541.7 4,749.2 - Children's Breakfast 3,184.2 3,327.5 3,480.5 3,644.1 3,819.0 4,006.2 Cereals - Family Breakfast 666.7 677.6 690.7 705.4 722.6 743.0 Cereals Breakfast Cereals 14,631.6 15,184.7 15,775.7 16,406.6 17,081.0 17,802.6

Source: 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 2012 2013 2014 2015 2016 2017 Hot Cereals 1,970.0 2,013.4 2,067.7 2,129.8 2,204.3 2,292.5 RTE Cereals 1,840.6 1,902.8 1,972.2 2,049.0 2,134.1 2,228.4 - Children's Breakfast 1,530.3 1,591.5 1,658.4 1,731.3 1,811.0 1,897.9 Cereals - Family Breakfast 310.2 311.3 313.8 317.6 323.1 330.5 Cereals Breakfast Cereals 3,810.6 3,916.1 4,039.9 4,178.7 4,338.4 4,520.9


Table 10 Forecast Sales of Breakfast Cereals by Category: % Volume Growth 2012-2017

% volume growth 2016/17 2012-17 CAGR 2012/17 Total Hot Cereals 4.1 3.9 21.1



RTE Cereals 4.6 4.3 23.3 - Children's Breakfast Cereals 4.9 4.7 25.8 - Family Breakfast Cereals 2.8 2.2 11.4 Breakfast Cereals 4.2 4.0 21.7


Table 11 Forecast Sales of Breakfast Cereals by Category: % Value Growth 2012-2017

% constant value growth 2012-17 CAGR 2012/17 TOTAL Hot Cereals 3.1 16.4 RTE Cereals 3.9 21.1 - Children's Breakfast Cereals 4.4 24.0 - Family Breakfast Cereals 1.3 6.5 Breakfast Cereals 3.5 18.6


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Breakfast Cereals in the Philippines