While more companies are relying on Chinese tastes to produce luxury goods and cars, food companies, such as Nestle, have also followed suit. The Wall Street Journal reports Kellogg has now agreed to a joint venture to expand its snack business in China:
Kellogg Co. K +0.50% has agreed to a joint venture with Wilmar International Ltd.F34.SG +1.57% for the manufacture, sale and distribution of cereal and snacks in China as the U.S. company looks to expand in the fast-growing snack foods market there.
“China’s snack-food market alone is expected to reach an estimated $12 billion by year-end, up 44% from 2008,” Kellogg Chief Executive John Bryant said. “This joint venture positions our China business for growth and fundamentally changes our game in China.”
Kellogg noted that China is expected to become the largest food and beverage market globally within the next five years. It said cereal consumption is currently being driven by rapid growth in milk consumption, along with consumers’ desire for healthy and convenient breakfast foods, while snack foods also represent a very large growth opportunity.
Wilmar, which is based in Singapore, is a leading agribusiness group in Asia. Its wholly owned subsidiary in China, Yihai Kerry Investments Co., will participate in the joint venture.
As a result of the announcement, shares of Wilmar jumped two percent. Reuters adds:
“In the longer term, it’s a positive because it allows them to monetise their extensive distribution network in China. It’s already in place, so it is a matter of moving the goods through the channels,” said Carey Wong, an analyst at OCBC Investment Research.
But Wong noted that the breakfast and snack foods market in China is very competitive and the Chinese may not yet have a tradition of eating cereal, compared with Western countries.
Kellogg said Wilmar will contribute infrastructure, supply-chain scale and its sales and distribution network in China to the 50-50 joint venture. The JV will market Kellogg’s and Pringles branded products, said the maker of Mini-Wheats and Rice Krispies.
Despite the jump in share price, critics say the entrance of Kellogg’s various unhealthy snacks may lead to a growing obesity rate in China. Concerns about the obesity rate in China have already been highlighted due to the rapid influx of fast food chains. From The Los Angeles Times:
The company now makes most of its money in North America, where, coincidentally, an obesity epidemic is spreading among kids and adults. But Kellogg has determined that the real action going forward is in the developing world, where diets are still largely traditional and thus are relatively low in sugar and sodium.
That deal made Kellogg the world’s second-biggest maker of salty snacks after PepsiCo’s Frito-Lay. Kellogg’s other salty snacks include Cheez-It, Keebler’s Club crackers and its new Special K crackers.
According to the Organization for Economic Cooperation and Development, only about 3% of Chinese adults are currently obese, compared with a rate of about 34% in the United States.
Apparently it’s time to welcome our Chinese friends into the club.
